Self-building your home
Many of us have designs on owning a grand property of our own, but our dreams may never get off the drawing board because we assume the cost of building is beyond our reach.
A decade ago you would have needed a large chunk of cash up front to join the ranks of the homebuilders and renovators on our television screens making their dream home a reality. But innovations from lenders and building companies mean that financing a self-build project today could be no more expensive than buying a house in the normal way.
Getting on the property ladder is hard enough, and today's high prices often mean compromising on the home we buy. So with the prospect of getting a home designed to your personal taste, whether built from environmentally friendly materials or incorporating your own architectural features, and still coming in with a discount of up to 30 per cent off the cost of an off-the-peg home, it is no surprise that interest in self-build homes is rising sharply.
Around 20,000 people each year now take on the role of developer and watch their dream property rise out of a muddy plot of land. Experts say savvy self-builders can save a third of the price of a home if they manage the project well, but how you structure the financing of the process can make the difference between getting a seriously good bargain and struggling to break even.
The first step is to make a clear assessment of your budget. As a rule of thumb the cost of buying the plot of land will make up around 40 per cent of the home's eventual value, with building costs coming in at slightly less than that. It also makes sense to give yourself a margin of around 10 per cent extra to cover cost over-runs.
How much you can spend will be restricted by the amount of money you can borrow. Self-build lenders use the same income multiples as for traditional mortgages, which means you can usually borrow up to four times a couple's joint income or five times the income of a person buying on their own.
A decade ago you needed to put up a deposit of at least 25 per cent of the cost of the plot of land and a substantial proportion of the building costs. But these days some companies will let you borrow 95 per cent of the total cost of buying and building your own home.
Most self-build lenders will make you fund each stage of the building process up front, which means you have to get each of up to seven steps in the construction process assessed by a surveyor before you can access another tranche of cash to allow you to fund the next stage.
Remember that your self-build project may take a year or more to complete, so you will also be paying either a mortgage or rent for your living costs, as well as the self-build mortgage - another reason why it is important to budget properly.
Another cost to bear in mind is a structural warranty. This is effectively an insurance policy against the building falling down in the first 10 years combined with a certificate of sound construction from an architect; it will cost around £1,400.
It is recommended that you also get site insurance to cover your liability to the public and to workmen during the building process. This insurance will also cover your materials when they are on site.
Any increase in the value of the property will be free from capital gains tax provided you live in it. And, unlike when you build an extension to an existing home, you will be able to claim back all the VAT you are charged on the materials you buy and you won't be charged it by your builders.
Advocates of self-build say that once the stress of the building process is over you will in all likelihood be sitting on a healthy profit of anything up to 30 per cent of the value of the property.
Your home may be repossessed if you do not keep up repayments on your mortgage.
Levels and bases of, and reliefs from, taxation are subject to change.
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