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These days it’s not as difficult as you might think to design and build your very own home. And there are several mortgage products on the market tailored specifically for people building their own properties, so financing the project needn’t be difficult either. As with most things, it costs less to build a house from scratch than it does to buy one that’s already built – with a much bigger return on investment once it’s completed. And of course the key advantage is that you get it just the way you want it. The first thing to sort out when embarking on a project to build your own property is how you will raise the money required. It may be possible to remortgage your existing home to free up some capital. However, if the property value isn’t much more than the total loan amount secured against it, the amount you could obtain from remortgaging your home may not be sufficient. You could always consider taking out another mortgage – if you think your finances can stretch to repaying two mortgages at once during the building phase. Investigate all the various products on the market. You may be able to find a special self-build mortgage to suit you. If you are able to obtain a second mortgage, it will make your house move much smoother as you won’t have to move out of your existing home while you wait for the new one to b e built. There are even cheaper options if remortgaging or a second mortgage aren’t possible for you, although they may not be ideal. You could sell your existing home and find a place to rent for the duration of the build. If you know anyone who would be able and willing to accommodate you in their home, this is an inexpensive option. Alternatively, you could purchase a cheap caravan and pitch it on your land. Mortgages for self-build properties aren’t much different from ordinary owner-occupier mortgages. The same kinds of repayment methods (interest only or capital and interest) and interest rates (variable, standard and so on) tend to be available for self-build products as they are for owner-occupier products. They key distinctions are that the lender will probably transfer the loan amount in staggered batches rather than as one lump sum, and that the highest loan-to-value ratio that you’re likely to be able to obtain is about 70% rather than 90 to 100%. Do your research and find out how the mortgage lender will release the funds to you. It’s standard to transfer a sum at certain stages of the building process, such as when the foundations have been completed or the roof finished. However, some providers will transfer the money before the required work is finished whereas others won’t pay out until it’s been done and inspected by a surveyor. The way in which the funds are released could seriously affect your cash flow and could leave you without enough money to keep up the work, so it’s important to know this so that you can plan and budget appropriately. Another potential pitfall to beware of is what the mortgage lender is prepared to lend on. Some will only finance the building of the property and won’t cover buying the plot, so you may need to make separate arrangements for this. Bear in mind that land is expensive in Britain, so don’t be surprised if the price of your plot is up to a third of the total project cost. You’ll need to have your project well researched and planned before you approach any mortgage providers to help make a good case. They’ll no doubt want to examine the structural blueprints and local authority permission before making a decision on whether to lend. Many will also stipulate a completion deadline for the build, often about 12 months. You’ll be pleased to hear that building your home also has tax advantages. The building costs will be considered zero-rated in terms of VAT. If you sell the property, you won’t have to pay capital gains tax either. Also, depending on the price of the plot of land you purchased, you may not have to pay stamp duty (which is only levied on land, not on properties). Before you get carried away with plans and dreams, remember that building any property is a major project that requires careful planning and management. Consider whether you are able to take on the challenge, as it can be as time-consuming as a full-time job and just as stressful and demanding. This article is copyright protected and is not for republishing |
