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Mortgages and Home

John Fitzsimons
05 April 2010 | 3 Comments

The Stamp Duty change has provided a boost to those looking to build their first home rather than just buy it.

I don’t know about you, but Channel 4’s Grand Designs is compulsive viewing in my house. There’s something enthralling about watching the process behind building a dream home, and the highs and lows (and God-awful weather) involved throughout.

Of course there is also the fact that in many cases these people have more money than sense and want something utterly daft and impractical, but self-build is not just an option for the mega-rich. First-time buyers seeking to get on to the housing ladder should also consider building that first property themselves.

Can we build it? Yes we can!

According to Buildstore, the UK’s biggest self-build lender, the Budget’s changes to Stamp Duty aren’t just beneficial to those people buying homes already standing, but self-builders too. It reckons a whopping 90% of the plots on its Plotsearch service, which as the name suggests helps you find a suitable plot for your home, are now exempt from Stamp Duty.

But is it worth it?

Save a fortune and do it yourself

Buying your first house is a big step, but many first-time buyers make these classic mistakes

There a couple of real benefits to building your own home. From a design point of view, you get the exact home that you are after, rather than compromising on a smaller garden than you’d like because there’s a big second bedroom, for example.

But there are also potentially some serious financial benefits to building your own property – as you miss out on the built-in profit that developers are looking for from traditional homes, you could be looking at a saving of anything from 10% to 30%. That then means you can get a smaller mortgage, which will also save you money in the long run.

Watch this video: Three massive first-time buyer mistakes

VAT? What VAT?

Another great financial bonus of building your own home is the tax benefits involved. When the property is finished you can put in a claim for a nice VAT repayment on a lot of what you had to pay for.

OK, you can’t reclaim for furniture, carpets, curtains, white goods, trees and plants, nor for burglar alarms, professional services, equipment hire, transport of materials or the tools used, but that still leaves an awful lot that you are due 17.5% back on!

However, remember that you have to put that claim in within three months of the project finishing.

Where to build?

OK, so you’ve decided it’s worth it financially to build your own home. Now you just have to work out where and what to build.

Related goal

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Find out how to cut the cost of your mortgage by hundreds of pounds a month and become mortgage-free years earlier.

Do this goal

Obviously a good place to start is Buildstore’s PlotSearch. The site lists over 9,000 plots, conversion and renovation opportunities across the country. You’ll also be alerted whenever new plots become available in your area.

Each plot comes with its own detailed plot reports, looking at things like the status, services, sizes, planning details and vendor information.

However, you will have to pay for the service. It sets you back £15 for three months’ access, or £30 for a full year. It would be nice if it was free, but in the grand scheme of things if you are committed to building the perfect home, that fee shouldn’t break the bank.

An alternative is Selfbuildland.co.uk, which is free, though it doesn’t seem to have anything like the choice available from PlotSearch. However, I do like the fact that all plots contain a fair bit of information from the UK Land Directory on the plot itself.

A final site worth a look is Building-plot.org which again is free and offers a decent amount of information on each plot.

Adopt this goal: Cut your mortgage costs and pay off your mortgage early

What to build?

Here’s the tricky one – what is it that you want from the property? Obviously, I can’t tell you the answer to that, but getting professional advice on how to build the perfect home for your own circumstances is a must, in my opinion.

Patience is a virtue

Throughout this whole process it’s crucial to be as patient as possible. It will take a while to find the right plot – don’t jump into it, wait until the right plot for you becomes available.

Planning permission can also take a long while to secure on your planned property, so be prepared for a bit of a wait.

As is insurance...

Another mistake a number of self-builders are susceptible to making is to view insurance as an unnecessary luxury.

Don’t assume that your contractors’ insurance will cover your build – you’ll need your own policy to cover public and employers’ liability as well as the tools, materials and any temporary on-site structures (that’s a port-a-loo to you and me!)

Do your homework

However for me the most important thing for anyone considering self-build is to do your research so that you enter the whole process with your eyes open. Again, Buildstore runs a series of educational workshops and events covering all topics from five-day courses on the entire process, to one day sessions on things like sustainable building systems.

Remember, sticking to your budget for your project is vital, or you could end up deeply in debt, unable to finish the build. Luckily, lovemoney.com’s brand new, free online banking tool can help you with your budgeting. It enables you to categorise all your transactions from different bank accounts and credit cards so you know exactly what you're spending your money on throughout the month, using a single log-in. Find out more

More: House prices grinding to a halt | Pay just 1.99% on your mortgage!

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Comments

Ken1961
05 April 2010
Some very good advice here, but be careful about the governments definition on what constitutes a first time buyer. Alistair Darling's idea differs some what from others, so you must make sure that you qualify. Self build is a great way to go, and at some stage this will be the way for me for our next home. Having dealt with many self builders as customers over the last 9 years, I've discovered that yes, Architects are important, however they tend to get hooked up on appearance rather than functionality of a building so it's also a good idea to get other professionals involved. No end of self builders have been disappointed to find that the “combi-boiler” drawn by the architect in the corner of the kitchen is not going to work for their large home and that they require space for all sorts of equipment from large hot water cylinders to cold water boosting pumps. That said the more time and information you give your architect the more likely they are to interpret your requirements correctly. Other allies are suppliers such as Builders & Plumbers merchants, they can provide “quantity quotes”, that's where you hand them your house plans and they will estimate how much of each material you will require. These do cost , but they tend to be of a lower cost than going to professionals directly and this cost is generally refunded when you agree to buy the materials from the merchants. They also know products, what works to meet the current building regulations such as the Code for Sustainable Homes (CSH), SAP and SUD's, these are mandatory with in building regulations, get these wrong and this will cost. Talking of cost SAP & SUD's reports are mandatory, but your Builders merchants may be able to commission a lower cost for you on these reports so it's worth asking. As Some local planning offices are applying “The Merton rule” which in effect means that as a condition of granting planning permission that your home must have a specified percentage of renewable energy beyond that of the current CSH. It is important to get this right so that you qualify for FIT or RHI tariffs to get a return on your investment, good merchants are at the forefront of giving advice on these subjects, which is why it's a good idea to leave the house plans with them to design your heating system, either underfloor, MVHR, radiator systems or a combination to suit your home. The service they can offer go's way beyond that of the DIY sheds. A good supply chain partner, will save you both time and money, they will look after you from concept to completion, open an trade account and get real trade discounts and free delivery. Probably the most important person in your life as a self-builder is your Building Control Officer, keep them on side, informed and ask for advice if you are unsure. Self build is not the easy route but it is a very worth while one.
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matchmade
05 April 2010
Many first-time self-builders completely underestimate the cost of building a new home, especially when you factor in taxes like Section 106 contributions and the interest on any loan you've taken out while you're waiting to secure planning permission. It is also extraordinarily difficult to obtain a mortgage for self-build unless you have significant amounts of capital, so I'd have thought it pretty unlikely that a first-time buyer would be able to start off with a self-build. Everyone is convinced that housebuilders and developers make huge profits, but in my experience it is very hard to scrape even a 15% profit margin, which is a lot less than most lines of business. However self-builders have the advantage that they probably plan to live in the house at the end, and they don't have to pay any capital gains or corporation tax when they sell. If you do plan to serial self-build, you need to live in the property for at least a year, or find someone else to rent it from you, otherwise there's a danger the Revenue will treat you as a speculative trader and tax accordingly.
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richmoll
05 April 2010
This article is quite vague and possibly misleading. Take the VAT aspect. The rules are complex and you can only definitely claim the VAT back on a new build project. Claiming on a renovation is only possible if the property has been unoccupied for a number of years. In any case, you can only claim the VAT back once the project is completed so in the short term you have to fund the VAT and that must be allowed for. The quote of 7-10% for architects fees may be low, it could be 12% plus VAT for a full service. Saving the builders profit is possible but large house builders can work more efficiently than a private individual on their first project and can buy materials cheaper. Plumbers working on new houses will earn a lot less than you will have to pay the plumber or electrician (and you have to have them if their is gas involved. One big saving however is that you don't have to finish the job all at once. It is perfectly possibe for instance to live in the house before say the ensuite is fitted. In our case we added 120 square metres to an old small cottage and did without the main new lounge for 5 years.
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