Finding the perfect home will always require imagination; how much of it, however, depends on the person looking. It might be that a new colour scheme or decor can transform a property into a buyer’s dream home, or perhaps a new kitchen and bathroom. But, for an increasing number of us in the UK this just is not enough. More and more prospective homeowners want to tailor their property from the ground up (and the ground upon which it is built if we are being technical) to build a home that is unique to their tastes and requirements.
Self-build has long been somewhat niche, a realm reserved for the bold and wealthy. And indeed, currently only 8% of all new UK homes are custom or self-built. However, Government incentives such as the right-to-build scheme (an initiative where local councils identify suitable plots and inform those interested, and which had over 45,000 individuals on its register in 2018-19) alongside more easily accessible finance offered by UK lenders, offers a positive outlook that this figure will grow.
Josh Evans, Mortgage Adviser at Northampton-based David Williams IFA Mortgage & Insurance Services, said: “We are certainly seeing more of our customers wanting to take firmer control of their homebuying needs. With an increasing number of more flexible lending arrangements available, the process of securing finance is far less intimidating than traditional self-build mortgages have been in the past.”
There are two types of self-build mortgages available to help fund the various stages of a project:
The arrears method: more suitable for those with large cash savings of their own. Stage payments are given as each stage of the build is completed.
The advance method of self-build mortgage: this type of product assists cash flow and is generally better suited to those who do not have large pots of savings to fund the build as it progresses. Payments are released at the start of each stage of the build. This means money is available at the point of need when labour and materials bills are due.
Of course, financial institutions need to have a level of security; typically allowing borrowing between 75% and 80% of the overall cost of the project, and the purchase price of the build plot itself, to ensure there is a decent buffer in place should a project not reach completion. The cost of both the land purchased and the works required can differ tremendously. A survey of 500 self-builds, commissioned by prominent self-build website Homebuilding and Renovating across 2019-20, identified that half of all plot prices were between £100,000 and £275,000. And, whilst the build cost
ranged from £300 per square metre to a whopping £5,000, over half of the people surveyed spent between £900 and £1,500 per square metre.
Josh said: “It is imperative that a prospective self-builder works out their budget ahead of diving headfirst into securing a plot or getting any professional contractors such as architects involved. We will explore the options available to them after carrying out a thorough fact find around their scenario and needs. Firstly, we will identify the cash that is available to be injected into the development, through savings or the equity in their existing property, for example. Secondly, we assess their borrowing power. A practice which is near synonymous to that of a standard purchase mortgage affordability assessment most homeowners will be familiar with – but with some additional details required.”
Potential lenders will, of course, want to ensure that a borrower’s finances have capacity to fund the monthly payments on the new lending but, in addition, it is important they consider the expenses of where they will live throughout the build, be that renting or living in the home they own already.
“We must be extremely thorough with our calculations, as the lenders certainly are,” said Josh. “These mortgages pose an increased risk in comparison to a standard mortgage and it is typical for the rates to range between 3.5% and 6% per annum.”
There is, though, some flexibility, with the option to lend on an interest-only basis until completion of the project, after which some lenders offer the ability to switch to a standard product.
The option to re-mortgage to a new lender can also be considered. This will be based on the market value of the newly completed home. With the different lenders and products available it allows for an increasing number of people to be catered for, with the guidance of a suitably qualified mortgage broker.
Chris Peck, Director at David Williams IFA Mortgage & Insurance Services, added: “As a firm we pride ourselves on starting off by looking at each client’s individual circumstances. No two clients are the same and there are no one-size-fits-all mortgages. And this is especially true when a client is embarking on a self-build project.
“By having access to the whole of market, not the specific products you might find online or be offered by a lender, we can put together a bespoke package that fits an individual’s needs. We understand that flexibility is important, and expert advice means the client can rest assured that they have the correct products and cover in place whether simply buying a property, re-mortgaging or embarking on a new and exciting project.”
Josh Evans finished by saying: “The opportunity for someone to build their dream home is out there, and the number of opportunities is growing. I believe this next decade will demonstrate how many determined and imaginative homebuyers the UK really has.”
Your home may be repossessed if you do not keep up repayments on your mortgage.
The mortgage advisers at David Williams IFA Mortgage & Insurance Services are based in Northampton but care for the mortgage and insurance needs of clients all over the UK and abroad. Call 01604 250280 or visit the website www.dwmortgageservices.co.uk