How to Finance your Self Build Home
Did you know that building your own home can be an affordable housing option? Explore our complete guide to financing a self-build home to find out more.
A self-build generally covers either a DIY project, where the self-builder selects their chosen design and does much of the construction work themselves – or projects where the self-builder arranges for an architect and contractor to build the home for them.
Self-builds also include projects delivered by kit home companies, where the self-builder must find the plot, arrange the slab installation and arrange for the kit home company – such as a Huf Haus – to build the property for them.
So how much is it likely to cost?
The cost of a self-build home
Typical price range
The average cost of self-build starts from the lower end of the spectrum at £1,400 per metre square, (quoted on MyBuilder.com), while at the top end, you may be looking at more like £2,500, or even £3,000 per square metre.
Typically, you’re looking at around £1,800 per square metre – but with a bit of skill, fine-tuning and homework, there are a number of ways for self-builders to reduce that figure.
As an example, an average three-bedroom home will be around 120 sqm. Multiply this by £1,800 and you have a build cost of £216,000.
This, of course, is a ballpark figure and it’s always advisable to add a 10% contingency – you can find a free self-build calculator here.
Reducing your costs
The first way to dramatically reduce costs is to lessen the square meterage of the entire home, while another option is to build upward with a two-storey design rather than a bungalow.
This is not always practical though, especially for the elderly and disabled.
The roof is one of the most expensive materials and labour cost items in your budget, so the simpler the roof system, the less expensive it will be.
The most inexpensive roof is a simple, single ridgeline with a shallow pitch.
More complicated roof systems, called hips and valleys with a steeper pitch, are more visually interesting, but they are also a lot more expensive.
It’s also worth exploring whether you can down-grade your kitchen appliances and expensive worktops – almost everything in a kitchen can be upgraded later, including flooring and appliances; the same applies to bathrooms.
Working on a budget
If your budget is particularly tight, you can source lower-cost things like door hardware, taps and light fixtures through the internet.
Remember that items like these can be easily changed at a later date, and when you’re first starting your build, the cost of these ‘small’ items can really add up.
Before you choose a design for your new home, you’ll want to know how much space you’re paying for.
Find out how much of the total area represents actual living space, and how much represents ‘empty’ spaces like garages, attics and staircase voids.
When you get your first draft of the plans for your new home, go over them thoroughly and make sure everything fits together geometrically.
Visualising your space
Get to know how to read house plans and question any empty spaces that you can’t visualise.
You can also save money in the long run by choosing renewable energy products wisely.
Research is critical as this will have an impact on your home design. Prices have come way down and continue to become more cost available.
Energy-efficient heating systems and Energy-Star rated products may cost a little more, but you can save money (and the environment) over time.
The most economical house is the one you can afford to live in for many years to come.
You don’t need to be a construction expert to take on some jobs yourself. Sometimes all you need is a group of friends and family members to get things done.
You could take care of finishing details such as painting and landscaping – tackling the decorating for a modest three-bedroom home could take up to £5,000 off your bill.
Don’t forget to include things like professional fees, architectural costs, agent’s fees, self-build warranty, lenders charges, planning and building regulations fees and structural engineering fees (dependant on the dynamics of the land).
Professional service fees can run into thousands of pounds, so it’s important to factor these costs into your budget to ensure they’re not overlooked.
At the initial stage, be clear what your architect will be providing for you.
Some architectural designers will take you through the entire planning process, provide a design and access statement, and complete both parts of a CIL relief application for you.
Costs for landscaping should also be included at foundation stage, especially if you’ll need to remove considerable amounts of soil from your site in preparation for the foundations.
Think carefully about whether the soil can be incorporated within the site, since earth removal can be expensive.
Alternatively, if you have a large enough plot, soil can be stockpiled and sold.
If you place too little or too much topsoil in rear inaccessible gardens, then you may need to spend additional money dealing with it at a time when access has been restricted.
When you’re watching the pennies, it’s tempting to skip using professional services, but keep in mind that architects can help you avoid costly mistakes.
Some professionals also have access to money-saving resources that you might not find on your own (i.e. energy saving products).
To cut your consultation costs, sketch out your design ideas before your first meeting, which will reduce time and money.
Finally, it’s sensible to allow for a minimum contingency of at least 10%; the national average is between £15k – £20k, with the exception of London.
Financing your self-build home
Specialist mortgage brokers
Self-build homes can be financed through specialist self-build mortgage brokers.
A specialist self-build mortgage broker will have the knowledge and experience to guide you through the self-build process and provide sound advice to the novice or first-time builder.
Self-build finance is currently not offered through high street banks and building societies, so brokers will look at DIY options, pre-fabrication options and sub-contracting.
A self-build mortgage is more expensive than a regular mortgage, and unlike standard mortgages, some self-build lenders require you to have a 25% deposit of the build cost.
Some self-build brokers can tie you into fixed period of payments over 18 -24 months, and after that period you can apply to a high street lender.
Do check that your mortgage product does not include a redemption or exit fee, and don’t be afraid to ask questions to make sure you know exactly what your payments will be.
It’s also worth noting that whilst finance is being offered in stages, you’ll be paying interest on money already borrowed.
Self-employed self-builders will also, in most cases, need to provide 1-2 years’ worth of book-keeping.
Design, build type and materials are important considerations for a self-build mortgage broker; it’s in their best interest to provide the best product to meet individual needs.
They’ll then instruct a valuation on behalf of the lender, and usually there’s a charge for this.
Stages of release
Mortgage lenders will release money in stages throughout construction phases, which tend to be as follows:
- Stage 1 – Purchase of land
- Stage 2 – Preliminary costs and foundations
- Stage 3 – Wall plate level (or timber kit erected, if using a timber frame)
- Stage 4 – Wind and watertight
- Stage 5 – First fix and plastering
- Stage 6 – Second fix to completion.
Mortgage lenders are keen to see the site before any foundations are laid, to check that foundations are satisfactory and have met building control standards.
Even if you’re fortunate enough not to need staged payments from a lender, it’s still advisable to make an application for any eventuality, should you go over your budget.
It may cost you a nominal fee, but will give you peace of mind and keep the project on track.
Gathering supporting evidence
Make sure you have all the supporting evidence needed, such as bank statements; being prepared can save a lot of time and money.
In most cases, specialist self-build mortgage brokers can turn a mortgage offer around in just 10 days.
Before a lender has approved a project, they will want to satisfy your level of income affordability should you need to rent whilst your home is being built.
This will include outgoings, bills and other monetary commitments.
Another option is an arrears-style scheme which is usually based on valuations made during the build.
With this process, once a stage is completed, the lender will arrange for their valuer to inspect the work and authorise the release of a percentage of value at that time, minus whatever mortgage funds you have already received.
Homebuilding and Renovation Magazine featured an in-depth article recently which showed a breakdown of build costs – view it at www.homebuilding.co.uk/the-ultimate-build-cost-guide/