Finance and Costs
The planning and control of the finance and cost aspects of your project are of fundamental importance. Construction of your own property will probably be the biggest single financial commitment that you will ever undertake. Budgets need to be carefully worked out, and they should include a contingency reserve for the extras that inevitably arise even on the best planned projects.
There are a wide variety of lenders prepared to offer mortgage funding for self build projects. We suggest you obtain a variety of quotations and see whose deal is most suitable for your project and your requirements. Check carefully about the availability of stage payments, and at what points these can be collected - this can be crucial for your cash flow. You must make certain that you have sufficient funding available to complete the stage requirements. Check what, if any, arrangement fees are charged,
Mortgage offers vary from company to company, with loans of around 80% of the land value, and over 90% of the completed property typically being available. There are stage payment schemes which work in arrears, typically in stages - after foundations, at roof plate level, after internal walls and plastering, and finally on completion. With this type of scheme you are only paying interest on the part of the mortgage you have actually used. There are also schemes which stage pay in advance by taking into account the land value and advancing against this - these can be handy if finding liquid funds to start the building project and move to first stage payment level is going to be a problem otherwise. With this type of scheme there may be a mortgage premium insurance charge, check what this may be before committing yourself.
There are many web sites with information and offers for self build mortgage finance - these should be treated with care, as many are just intermediary brokers who will be taking commissions on any business referred through them. We recommend you also obtain direct quotations from prime lenders like banks and building societies to ensure you get a good cross section of the market prices and offers to compare.
Remember to allow for the various legal and professional costs that you will incur. These can include:
- Stamp Duty Land Tax - Stamp Duty Land Tax replaced Stamp Duty in December 2003 and is a tax on the documents that transfer ownership of a property. When you buy a property you may have to pay Stamp Duty Land Tax.
- Paying Stamp Duty Land Tax - You don't have to pay any Stamp Duty Land Tax on residential property costing £175,000 or less (effective 3 September 2008). Above this amount you pay between one and four per cent of the purchase price.
Please note that the applicable rate of Stamp Duty Land Tax must be applied to the whole of the consideration paid to acquire the land and/or the buildings. For more details about the Stamp Duty Land Tax (SDLT) - click here.
As the buyer of the property, you are responsible for completing the land transaction return and paying the Stamp Duty Land Tax. However, in practice, your solicitor or licensed conveyancer will usually handle this for you and send it to HMRC on your behalf. You should check that all the information on the form is correct and complete before signing the declaration.
Mortgage lenders will conduct a survey and valuation of your land for their own records and, even though they charge you for this you will normally find that this valuation is not passed on to you. You may therefore also wish to have an independent valuation carried out by a professional surveyor for your own use and purposes. Mortgage lenders will normally also charge you for each re-inspection and valuation as the different stage payment points are reached. As there can be quite large variations between different lender's charges, you should seek information about these before deciding whose mortgage offer may be most suitable.
You should expect to pay fees for drawings and plans prepared by architects or other professionals. You will also have to pay the normal council charges for planning permission, and for building regulations approval and inspections. These costs can be obtained on request from the local council.
If you have purchased a plot of land which is not already connected for mains services like electricity, gas and water, you will need to budget for these to be provided. Depending on the distance to the nearest services these charges can be considerable, and we recommend you establish these early in your project planning by contacting the electricity, water and gas companies.
These bodies will have plans of where the nearest infrastructures exist and should be able to provide estimates. You may also wish to obtain some independent estimates to see whether connection costs would be lower if you provide most of the infrastructure work yourself. Costs for mains services connection can easily run into several thousands of pounds, and they can thus be an important element in your budget, especially if funds are limited.
It is important to ensure you are adequately insured. Self build insurance policies are available and can provide cover for:
- Public Liability Insurance - This covers legal liability for claims made by any other person or body in respect of death, injury or loss arising from your building operations.
- Employer's Liability Insurance - This is a legal requirement if you are employing anyone. This can also be a factor if any sub-contractor working for you has an accident on site where your duty under to provide a safe working site could be called into question.
- Contracts Works Insurance - Protects against losses through theft, vandalism, structural damage, fire, flood, storm damage, damage by delivery vehicles, etc. The new building is protected at every stage, and materials are covered as soon as ownership of them passes to the self builder, whether on or off the site.
- Other Insurance - You may also require special additional cover on occasions when any specialist services are being provided on site by third parties.
As insurance costs can easily run to £1000 or more, on a typical project, it is well worth while quantifying these and obtaining quotations in advance.