Forget house-hunting – have you thought about build-ing a home yourself? Building your own home is a growing trend these days, as some 17,000 of us a year do just that and 10 per cent of new housing stock is now self-build. Saving money is one of the main reasons for this because doing it yourself, or getting a builder to do it, can cut costs dramatically.
“A self-build property can typically cost up to 30 per cent less than its market valuation on completion,” confirms Stephen Penlington, Norwich & Peter-borough Building Society’s general manager.
“Self-builders can also make their property unique.-The self-build market has grown in recent years because people are looking for a cheaper way to afford the home they really want.”
Even better, self-builders typically make their homes more environmentally friendly. “The average home can release about six tonnes of carbon dioxide (CO2) – the harmful greenhouse gas – into our atmosphere every year,” adds Penlington. N&P’s ‘carbon-neutral’ mortgage now pledges to plant trees to offset carbon dioxide emissions. And the Co-operative Bank, as an ethical lender, makes payments to Climate Care, which combats global warming, for each year of your mortgage.
Starting out
So how do you go about it? “There are plenty of self-build or renovation mortgages out there,” confirms John Mawdsley, director of The Mortgage Partnership, “but the trick is to make sure it is structured properly from the outset. Do your sums, preferably with a detailed cashflow forecast, very carefully and don’t under-estimate contingencies and delays. Always allow for your own living costs during the period of the build and remember that these will go up with travelling, power and those inevitable extra telephone calls.”
Often, with a self-build mortgage the mortgage funds are released in stages in step with landmark stages reached during the building of the home. The money is released in portions to save borrowers from paying interest from the outset on the whole sum they are going to borrow.
Penlington says: “We will help self-builders to buy the plot in the first place – some lenders won’t.-And, rather than offer just one particular scheme that may not suit everyone’s needs, most of our mortgage product range is available to self-builders.”
Yet self-build and green mortgages are still specialist, adds Mawdsley. “If you want to self-build or to renovate something out of the ordinary, you could be restricting your choice of lender. This means there may be fewer lenders looking for your business, and although they may be specialists who can offer you flexibility, they may also charge more for the privilege.”
“Interest rates tend to be less competitive than on ordinary residential properties,” agrees Elliot Nathan, product development manager at Charcol. “Borrowers could pay 1.5 to 2 per cent more for a specialist mortgage. So for instance the Ecology Building Society offers a residential rate of 6.3 per cent, which is relatively expensive compared to current rates for standard residential mortgages. You have to weigh up whether the ethical considerations are really worthwhile, and whether you can afford it.”
Which lender?
Although, the choice of lenders is growing. Buildstore now offers a range of mortgage products, including fixes, discounted rates, capped, variable and self-certification mortgages. And since stage payments are made in advance, these mortgages help ease cash-flow problems and let you pay for labour and materials.
So how does it work? Buildstore works with lenders including Lloyds TSB Scotland and Skipton BS to offer their standard products but with a crucial difference – money is released upfront rather than in arrears. “People used to sell their homes and live in a caravan while their house was being built,” says John Hay, head of product development at Buildstore, “but all that has now changed.
“We can now offer huge flexibility and up to 95 per cent loan to value,” he adds, “and self-build mortgages are becoming increasingly popular. Applications for our mortgages are up 50 per cent on this time last year. Most people save huge sums by building it themselves, because you not paying the developer’s profit.”
Or go for a green lender like Ecology Building Society, which sees the renovation of derelict buildings as a kind of recycling. Ecology can offer 90 per cent loan-to-value mortgages – which take deposits of 10 per cent or more – and loans of up to £350,000, says Nathan. And the advantages – for you and the environment – can be huge, he says.
“It may be cheaper to build your own home, but you need someone professional putting it together. Solar panelling and insulation can be expensive, though of course you save money on energy costs in the long run.”
And you can maximise your investment and save the planet too, says Mawdsley.
“The biggest savings can be made by making sure your home appeals to as many people as possible. If you have built a green home that also matches other people’s idea of what a good home should be, then if and when you come to sell it you should be able to more than recoup all the hard work and money.”
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