How to finance a self build: Beginner's guide

The most important thing to consider for your self build project is how you are going to finance it. Without money to fund labour, materials and other costs, nothing can happen! The biggest cost is likely to be the plot of the land, sometimes accounting for 60%. Building materials might cost around 20% and 25% might go towards labour costs.

You might also consider setting aside a contingency sum for unforeseen circumstances, such as accidental damage during the build. It’s common for self builders to borrow 75-85% of the project price.

It's vital to plan ahead to avoid any surprise costs along the way.

Factors

There are a few things which will impact the cost of a build:

Location - land and labour costs depending what region you live in, and the plot you build on
Size - the bigger your build, the more expensive it will be
Plan, shape and layout - the most cost effective and simplest is square, the more complex it is, the higher the cost
Storeys - multiple storeys make better use of your land, and reduces foundation and roof costs
Specification - premium products cost more, you can cut costs without cutting on quality
Involvement - depending on how much work you physically do yourself, you can reduce labour cost

Mortgage Funding

There are a wide variety of lenders prepared to offer mortgage funding and finance for self build projects. It is wise to obtain a range of quotes and see which one is most suitable for your project and your requirements. You need to ensure that you have sufficient funding available to complete the stage requirements. Check what, if any, arrangement fees are charged.

Within mortgage offers there are stage payment schemes that work in arrears, typically in stages: after foundations, at roof plate level, after internal walls and plastering, and finally on completion. With this type of scheme, you are only paying interest on the part of the mortgage you have actually used. There are also schemes that stage pay in advance by taking into account the land value and advancing against this - these can be handy if finding liquid funds to start the building project and the move to first stage payment level is going to be a problem otherwise. With this type of scheme there may be a mortgage premium insurance charge, so check what this may be before committing yourself.

It is a good idea to obtain direct quotations from prime lenders like banks and building societies to ensure you get a good cross section of the market prices and offers to compare.

Types of fees

Paperwork

As the buyer of the property, you are responsible for completing the land transaction return and paying the Stamp Duty Land Tax.

However, in practice, your solicitor or licensed conveyancer will usually handle this for you and send it to HMRC on your behalf.

Valuation fees

Mortgage lenders will conduct a survey and valuation of your land for their own records and, even though they charge you for this you will normally find that this valuation is not passed on to you.

You may therefore also wish to have an independent valuation carried out by a professional surveyor for your own use and purposes.

Planning fees

You should expect to pay fees for drawings and plans prepared by architects or other professionals.

You will also have to pay the normal council charges for planning permission, and for building regulations approval and inspections.

Mains services

If your plot of land is not already connected for mains services like electricity, gas and water, you will need to budget for these to be provided.

Depending on the distance to the nearest services these charges can be considerable, and are best established early in your project planning by contacting the electricity, water and gas companies.

Insurance

It is important to ensure you are adequately insured. Self build insurance policies are available and can provide cover for:

Public Liability Insurance - This covers legal liability for claims made by any other person or body in respect of death, injury or loss arising from your building operations.
Employer's Liability Insurance - This is a legal requirement if you are employing anyone. This can also be a factor if any sub-contractor working for you has an accident on site where your duty to provide a safe working site could be called into question.
Contracts Works Insurance - Protects against losses through theft, vandalism, structural damage, fire, flood, storm damage, damage by delivery vehicles, etc.
Other insurance - You may also require special additional cover on occasions when any specialist services are being provided on-site by third parties.

This page is for informational purposes only, and does not constitute financial advice.