Self-build made simple!
THIS BLOG IS FOR THE USE OF INTERMEDIARIES ONLY AND IS NOT FOR USE BY, OR TO BE SHOWN TO, THE GENERAL PUBLIC
Despite what some people think, and have asked us(!), self-build does not mean that someone has to physically build a property themselves!
In fact, on balance, we prefer the build to be carried out by professionals!
A self-build project is essentially commissioning the build of a brand new property, which may be on its own single plot, or be alongside two or more plots.
In many cases the end value is far in excess of the combined costs of buying the plot and paying for the labour and materials (including a 20% contingency). As such it is a great way to obtain a higher-valued property than your client could afford through the traditional purchase method.
The property can be specified without constraints associated with buying a pre-built or second hand property. As an example, you can choose your choice of heating or lighting from day one without the upheaval of retro-fitting.
What is a building plot?
The building plot is the piece of land that the property will be built on and it may present itself in a variety of ways, some more expensive than others!
Plots will appear alongside property in the usual listings websites and will often have outline planning permission already approved by the local authority. Outline Planning Permission is a way of finding out whether a planning application is likely to be approved by the local authority and gives consent in principle to the proposed development taking into account things like the property type, size, materials, access etc. Full planning approval is applied for later once actual detailed plans are drawn-up.
Local builders may well also be after these plots which may mean your client losing out if the builders have access to cash, or the fact that builders are also interested may drive the price up.
Buying a plot without planning permission will be cheaper but there is a risk that planning permission will not be granted for any property, let alone the dream one your clients have in mind!
A popular position (certainly amongst the recipients) is where a plot of land is gifted or sold at a low cost by family. This happens where the land donor or vendor has a property with a large garden or plot of land and is able to transfer that land to the budding self-builder. Inheritance tax laws need to be considered when land is gifted or transferred at under-value.
And let’s not forget that a plot may actually be an old barn, ripe for conversion!
Who will design the property?
It is feasible that your clients could design the property yourself but engaging a professional architect, and one that knows the local authority, will ensure the best chance of meeting the clients’ exacting standards, being within budget and gaining full planning approval. They will also know the best and most efficient materials to use.
Who will project manage the build?
Many people do indeed project manage the build but being new to this may be very stressful! it often make more sense, cost allowing, to have the designer handle this. This passes potential stress to someone who does this all day every day, but they will work with the builders to ensure the plans are being kept to, and materials and work are only commissioned and paid for at the correct time, which helps with budgeting and cashflow.
Regardless of who manages it, there will be regular ‘sign-offs’ from the local building inspector. This will ensure that each stage has reached the required regulations and standards.
What materials should be used?
Perhaps we need to blame the three little pigs for this, but brick walls and a slate or tiled roof is still the most common construction type and has stood the test of time. It is also the construction type that will cause the least issues with a mortgage lender, either when looking to secure self-build finance to build the property, or when the completed property is ever sold on the open market.
For many years there have been alternative construction types, such as post-war pre-fabricated concrete properties, or even cob walls and thatched roofs from centuries ago. But as technology improves, other types of construction, known as Modern Methods Of Construction, or MMC for short, are becoming more popular.
What are Modern Methods of Construction (MMC)?
MMC refers to a non-traditional method of building new homes, typically by creating the structural units of the building off-site and then putting them together on-site. MMC benefits from factory conditions and mass production techniques delivering robustness of the construction and energy efficiency.
Modern methods of construction offers a range of benefits when we compare them to more traditional methods. Typically, a construction via MMC is far less time consuming and labour intensive, whilst still allowing you to retain a high level of quality. They also offer a fantastic option due to their sustainability, with factors such as reduced waste, fewer transport loads, factory-controlled quality and design processes ensuring a lower carbon footprint.
MMC homes continue to shake off the preconception of the ‘prefab’ home. However, the idea that obtaining a mortgage for this method of construction can be hard to obtain still lingers, despite this being a common misconception, especially where the construction is accredited by bodies such as the Buildoffsite Property Assurance Scheme (BOPAS). BOPAS assures that the property will be readily saleable and durable for a minimum of sixty years.
What is a building Warranty and who needs one?
A warranty is an insurance policy for newly built properties. It typically last 10 years and covers defects that arise due to faults in the design, work or materials. It protects you, your mortgage lender, and anyone who the property is sold to during those years.
There are many different providers, with NHBC being the most recognised, but not all are accepted by mortgage lenders.
An alternative is to have a Professional Consultant’s Certificate, or PCC issued. As the name suggest this is provided by a professional, usually an architect, who will monitor the build and who will provide a certificate on completion confirming that the building was completed satisfactorily. These usually last six years, so a shorter time than a warranty.
You do not need either of the above but finding a mortgage lender will be problematic without one, and, of course, having the protection may help you sleep better at night!
How does a self-build mortgage work?
In reality, a self-build mortgage is not as complex as some brokers think. Essentially it is just like any other mortgage in that we at esbs will assess affordability based on the final mortgage amount, will carry out a credit search, and will have the property valued (but probably more than once!). The main difference is that there are plans and build costs for us to consider, and the full mortgage amount applied for is rarely released in one go.
We do have to consider the current living arrangements and how that cost will impact affordability, and cash flow! For this reason, living on a caravan on site, or moving in with family or (good!) friends, is a popular option. Some people will choose to remain in their current mortgaged or rented property, choosing convenience over savings!
With a self-build mortgage, the money is released in instalments as the build progresses. As there is often no house to lend against the money is released when certain stages of the build have been reached. Different lenders will have different policies as to when money is released with many sticking to certain key stages.
At esbs we can consider lending up to 75% of the value of the land and up to 75% of the value, as the works progress. We are not rigid about when monies are released and are flexible around your clients’ requirements.
Our valuers will value the property as it is, and advise what it will be worth once the build is completed. We also ask the valuer to re-inspect each time the borrower needs to take the loan over 75% of the LTV we have on file after the least inspection.
We only charge interest on the amount we have lent, and, to help with the cash-flow, the mortgage can be interest only during the build-phase. Also, we have a specific self-build product but when they complete and move in we will switch them to a retention product and back-date the ERC on the new retention product to the start of the original mortgage!
We can consider planning permissions that are subject to a Section 106 or an agricultural tie, and we are also happy to fund a project that has already started. We do, however, stipulate that the property must be detached, and must for personal use and be the applicants’ main residence on completion of the build.
In short, self-builds are not for everyone as they do take time and patience. However by speaking with you as a broker, hopefully you will now understand, if you didn’t already, that the financing of the project should not be too different to financing a house purchase or a remortgage.
And your client will thank you for helping them to land their dream home!
Richard Carson
Business Development and Marketing Manager
To find out more about our award winning self-build mortgages, please contact our Intermediary Business Development team by telephoning 01455 844422 (Option 3) or by visiting this page – https://www.esbs.co.uk/intermediaries/
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
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