Do it yourself

Self-building is a route to property ownership that doesn’t involve estate agents, vendors or gazumping rivals, though you don’t literally have to dig the foundations and lay the bricks yourself.

You might consider self-building because building your own home means you’ll be able to have a larger property than you could otherwise afford, or because you want to have some input into the design and style of your home. Or there might simply be no properties available in your desired location.

It’s not a miracle cure, but self-building may mean achieving the home you want, where you want, for less money – though you need to be aware of the downside. “You need to make a commitment to the project to keep it on track and keep costs under control,” advises John Hay, head of financial services marketing at BuildStore, the self-build specialist. “The key to that is identifying all costs upfront, preferably with professional help, and building in a contingency fee of around 10 per cent. This might be needed if you discover your foundations need to be deeper than you thought, for example.”

Land ahoy!

The first step is to find a suitable plot. There are a few land search services, of which Plotfinder and Plotsearch, BuildStore’s service, are the two biggest.

Plotsearch lists over 6,000 individual plots for sale throughout the UK, including some from private sellers, utility companies and local authorities that aren’t listed elsewhere. It offers various subscription options, starting from around £40 for 12 months for a single county.

You can add extra counties to this for an extra £10 each per 12 months. So if you’re mainly interested in Greater London but feel you might need to extend your search into Hertfordshire, for example, it would cost around £50 for a year’s worth of information.

There’s no point in finding the ideal spot only to discover that development is banned, so you need to know whether you can actually build on it, and the good news is that you don’t have to own land to apply for planning permission – you can simply apply. But this is not something to do unless you already have a binding agreement with the landowner to buy the land if your application succeeds, because the planning permission rests with the land, not the applicant.

Many plots are sold with outline planning permission (OPP) already secured, but this is only a conditional planning approval and has a three-year time limit during which detailed planning permission (DPP) must be applied for. Actual site works have to begin within two years of DPP being granted.

Most land is sold by auction or private tender. If you buy at auction, you are legally bound to any purchase you commit to once the hammer descends, and you will generally have to pay 10 per cent of the purchase price there and then. This can be tricky to finance because not all lenders cover the cost of land purchase in their self-build loans (see page 30).

Buying by tender involves submitting a written bid for the plot to the vendor or the vendor’s agent. The obvious disadvantage here is that you have no idea whether you are offering way over – or under – the odds. And, unlike with auction sales, there is no obligation on the vendor to sell the plot at all, even if offered at a price far higher than expected.

Money, money, money

Most lenders that offer self-build mortgages will advance about 75 per cent of the land-buying cost; the rest you will have to find yourself. After the land has been bought, the lender will release the rest of the mortgage funds – again, typically around 75 per cent of the building costs – in several stages: land purchase, foundations, wall plate level or timber frame erection, wind and watertight, first fix and plastering, and second fix to completion. Money is advanced at either the start or completion of each stage; if the mortgage takes the latter approach, you may hit cashflow problems.

BuildStore’s Accelerator mortgage lends money at the start of each stage, and also finances up to 95 per cent of land purchase price and building costs, making it a popular choice among self-builders, 25 per cent of whom use it, according to Hay.

”It means there’s no need to find those steep upfront costs for land purchase and foundations,” he points out. Staged payment in advance also means there’s no need for further costly valuations; payout is a percentage of the build cost – which is why getting your costings right is so important.

But perhaps Accelerator’s biggest attraction is that it is designed to run alongside your existing mortgage while your self-build project completes – so you don’t need to sell your home upfront. This means avoiding the inconvenience of having to live in a tent or mobile home. All you have to raise is the extra 5 per cent of land purchase and building costs not covered by the mortgage.

Obviously you will have two sets of mortgage repayments, but as the self-build loan is released in stages, repayments will be low to begin with and gradually increase as the amount of mortgage advanced goes up. “Many people opt for an interest-only mortgage at this stage, as it’s cheaper, and then remortgage to a capital and interest loan once the build is complete,” explains Hay. “They often switch their existing mortgage to an interest-only loan for the duration of the self-build, too.”

Several lenders offer mortgages through Accelerator, including Accord, Amber Home Loans, Skipton Building Society, Lloyds TSB and Intelligent Finance, and there are fixed, discount, tracker and flexible options available, with two-year fixed rates from 5.99 per cent for a 75 per cent loan.