If your perfect property doesn’t exist, why not build it yourself? The self-build approach can be cost-efficient and potentially cheaper than buying a new property. Research suggests the average self-builder spends around £270,000 on completing their project, with the cost of the plot averaging out at £190,0001.
But at the outset, it can be easy to underestimate the various costs. Navigating the self-build mortgage market is also much easier with expert advice.
Building your own home might sound like an unrealistic dream. About 20 years ago, it was a lot more complex. But these days, it’s easier to self-build than you might expect and there are so many companies that can help you with it. There’s a misconception it’s difficult to get finance, but there are at least 20 lenders out there that will lend on self-build projects.
The attractions of self-building
Perhaps the most obvious attraction to this option is the level of choice and control it offers, with the opportunity to follow your own vision and not be constrained by what’s currently on the market. The chances are, if you’ve lived in several homes and are looking at your next move, you’ll likely have particular preferences and requirements.
There’s always something that’s not right. Maybe the houses you’re looking at aren’t in the right location. Or they’re in the wrong style. You may want to work from a clean sheet – where you can choose the area and build the property to their own specification.
There’s also growing demand for eco-friendly self-builds if you’re wanting to ensure your home is as energy-efficient as possible. There is also a potential cost advantage here, with a growing number of lenders offering green mortgages that have lower interest charges on more energy-efficient properties.
In some areas, it’s becoming easier to secure planning permission, too, with local authorities increasingly flexible and accommodating when it comes to converting vacant ex-commercial space.
How involved do you want to be?
While some people want to take on a self-build project as their own and manage the process from start to finish, others would prefer to remain relatively hands-off. It’s up to you how involved you want to be.
A financial advisor can make introductions for you to take some of the stress of the project off you – either from the building process or financing it. Advice on the latter will ensure that you are getting the best lending rates and most importantly, help to prevent you from running out of money before the end of the process.
Step one is to look at your mortgage options before you start looking at land, getting a builder and putting plans in place. It’s important to understand all the variables and the total cost involved in a self-build project so that you know if you can afford it and the type of lending you’ll need in place.
Seeking a self-build mortgage
High-street banks generally avoid lending on self-builds, so the best bet is usually one of several building societies, with the likes of Skipton, Leeds, Ecology and Furness among the specialists in the area.
There are crucial mortgage differences to be aware of, too. While traditional mortgages provide the finance in one go, self-build loans are usually released in tranches, releasing the money as you move through the build. It’s important to note that every lender is different in how they do it; while some will typically start providing funding for the land, not all of them will. It’s best to look at a range of providers and the way that they release the money so that you can find the best option for you.
The reason the funding is delivered in this way is largely to protect the lenders and reduce the risk of funds running out during construction. But it’s an arrangement that can become complex for borrowers when phases are delayed or costs begin to rise.
The application process is largely similar to that for standard mortgages, however. Lenders will want to see the planning permission – but aside from that, the focus is mainly on affordability and income.
Making the dream your reality
So, it’s far from an impossible dream provided you get good advice. Talk to a mortgage advisor and see what help you can get. You might be surprised at what you can do, and it’s often a very logical step. Why look at second best or compromise when you’ve got your own vision and you know what you want?
*Your home may be repossessed if you do not keep up repayments on your mortgage.
1 Homebuilding & Renovating, Self & Custom Build Market Report, 2020
Written by Paul Johnson, Head of Mortgages at St. James’s Place Wealth Management.