Finance

September 2011

Background

In general, funding self build projects has become much easier over the last fifteen years or so. Financial institutions have tailored their products to help with self build especially around making stage payments as the building progresses. This includes buying the land in the first place.

However, of course the present little glitch in the capitalist economic system is severely restricting the actual availability of self build mortgages which seems to vary almost from day to day. There are differing accounts of the success rate people are having in obtaining mortgages, including the way finance is being made available to the emerging cohousing movement. It is interesting to note that the fully mutual funding bodies have generally fared better than the others during the recession. Hence the call made by many people for massive remutualisation of building societies. The building society which has done most over the years to further the green self build movement is of course the Ecology Building Society which is growing steadily.

Down payments

The deposit for a selfbuild mortgage tends to be higher than with a normal one. A mainstream mortgage may be up around the 90% mark or maybe 95% whereas with selfbuild it may be more like 70% or 75%, based on the final value of the house. This may not be quite as bad as it seems because as a self builder you will probably make some savings by doing some of the work or management yourself so you will in effect not need to spend as much money on the building process. A complicating factor is establishing the final value of the house before it is built. The higher the value, the more mortgage you get and this value is normally established by a surveyor.

Government initiatives

The minister for Housing, Grant Shapps has been supportive of self build and the government has plans to make more plots of land available on a ‘build now, pay later’ basis. Depending on how things pan out this could be a major stimulation for self build as there would be less of a financial burden during the period of building to completion. One of the long standing problems has been with building sites which are too big for a single self builder. When they come up for sale it needs a purchaser who can buy the site and then split it down into single plots and sell them on. Although both local authorities and private companies have fulfilled that role occasionally in the past there is little of it going on at present.

Stage payments

The process of stage payments means that once your mortgage is approved you can draw down finance, usually in four stages. It is normal for the lender to insist that each stage is checked by a registered surveyor before the money is released and it is your responsibility to pay the surveyor. Buildstore have pioneered the Accelerator mortgage which makes finance available before each stage of the work rather than on its completion.

Most lenders will want to see drawings of your proposed house and evidence that you have obtained planning permissionthe legal basis for being allowed to do some form of development such as building a house. (not to be confused with Building RegulationsThese are the legal regulations which govern how a house is constructed. (not to be confused with Planning Permission which is about whether you are allowed to build the house at all or what it might look like) see Building Regulations) which is all about whether the building is properly constructed). see more on Planning Permission .

VAT refund

With most types of domestic self build you can claim back the VAT on building materials at the end of the job. However there are several exceptions (such as a granny flat) and it pays to read the HM Revenue and Customs guidance notes on this.

Warranties and Insurances

Self build warranties are a form of insurance which cover the building, usually for the first ten years of its life after completion. There is a good article explaining how they work on the Homebuilding & Renovating site.