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I blame the Channel 4 programme Grand Designs. Like tens of thousands of others, I have built my own home. It cost more than I planned, took longer than expected and ended with an acrimonious visit to a lawyer. However, like childbirth, the pain was worth it. We have the home of our dreams with space, light and two dishwashers.
Yet I should have heeded the warning signals. In the 18 years that Grand Designs has been on the air, the nation has thrilled to the sight of scores of design-stricken couples impoverishing themselves and jeopardising their mental health in quests to build ideal homes on less than ideal sites.
In the latest series, one couple was forced to borrow from family members when they found their new country home with a view could not be connected to the electricity or water supply without spending an extra £40,000 to dig a long trench in the road. In Hertfordshire, a developer (who should have known better) spent six years fighting the planners and another four years building his Roman villa-inspired home. Costs over the 10 years rose from £600,000 to an estimated £2m.
These tales of woe appear not to be putting people off. Self-builders now account for almost 10 per cent of private new-build homes in the UK. But there are a number of rules of thumb that can help smooth a home’s construction — or prevent an oversight from turning into a catastrophe.
Most self-builds, it must be said, have relatively modest designs. The reason, according to James Blair, of the Self Build Mortgage Shop in Hertfordshire, is that the ambitious telegenic schemes we know and love would never get finance from mortgage lenders. Self-builders need outline or full planning permission to get initial funding. They also need a professional project manager, detailed costings and a builder that has been credit-searched and recommended.
It takes a lot of patience and a large deposit for self-builders to qualify for a mortgage. They also need to build a home that can easily be valued, not a one-off masterpiece made from shipping containers on a steep slope with restricted access. They must also have enough cash to cover delays in the “stage payments” that mortgage lenders release to fund construction and expensive rates of interest during the build.
I knocked down an existing house and started from scratch. There are tax advantages to building a new home instead of extending an existing one. New self-builds qualify for rebates on VAT. Kevin McCloud, the Grand Designs presenter, estimates that the typical cost of building your own home is £1,500-£2,000 per sq m — if you stick to your original design and specification. Changing plans can cost you dear.
In 2011, as part of its Housing Strategy for England, the government announced that it expected to double the number of self-built properties, with 100,000 to be completed by 2021. Legislation in 2016 included several measures to facilitate self and custom build, placing a duty on councils to allocate land.
Under the Housing and Planning Act, local authorities should consider how they can best support self-build. They must give development permission to enough suitable serviced plots of land to meet the demand for self-build and custom housebuilding in their area within the next three years. The level of demand is established by how many people register for the right to build in a year. The first “base period” finished at the end of last month.
Councils vary in their willingness to help self-builders: a report on the sector by Research found local authorities in the Northeast and West Midlands were most helpful to self-builders.
According to AMA Research, the biggest problems for self-builders are the availability of land, getting planning permission and accessing funding. Most self-build properties are high-specification detached homes — and a key growth area is home automation, intelligent houses that made it easier to co-ordinate solar panels with the use of appliances such as dishwashers and washing machines, ensuring that they only came on when the sun shines.
Borrowing to build
Self-builders need more money up front than conventional homebuyers. They usually have to buy their building plots and fund their planning applications before they can get loans.
Mortgages for self-builders tend to be interest-only. They work like an overdraft: the borrower pays interest when money is drawn down at the completion of each stage of the build. Cheap fixed-rate loans tend not to be available during the building process and there can be hefty exit fees imposed on borrowers who change loans when the work is completed. Self-build interest rates are typically more than 5 per cent.
Self-builders should expect to take as long as six months to get their finance in place and have 25 per cent of the cost of the land and building materials upfront. Before they can apply for a mortgage, they also need to have full or outline planning permission. When the building is completed some self-build lenders will automatically offer a lower-rate conventional mortgage.
Lenders are guided by valuers because they do not want to lend on a property that is worth less than the loan. They need market evidence of the resale values of the properties they are about to build. This is especially true of prefabricated buildings and “kit” houses; they will ask for documented evidence of their long-term structural integrity and longevity.
Most self-builders use brokers to find their loans. Mr Blair of the Self Build Mortgage Shop said: “Getting a loan is like pulling teeth now. It takes three to four months to get a decision in principle on the mortgage. It takes a minimum of £5,000 just to get the mortgage with lender’s fees, arrangement fees, valuation fees and planning permission.”
At the outset, he sends potential clients more than 100 questions, including some on their spending and income. He receives new inquiries every day, but often he does not hear from the clients for another 18 months as they search for plots, builders and architects.
Mr Blair finds very few self-builders near to London because land prices are too high. “The land in the south-east is too expensive . . . It is all about affordability just like an ordinary mortgage.”
Some lenders are deterred by the higher costs and risks, and the relatively small volumes of business, according to industry body UK Finance. “Some firms offering self-build mortgages are smaller regional lenders, so some borrowers may find it difficult to research the market. But, as with other forms of mortgage lending, prospective borrowers can use a broker to help them identify potential sources of funding,” it says.
Ray Boulger at mortgage broker John Charcol says self-build interest rates are higher to reflect the greater administration costs. Each stage payment includes the cost of a re-inspection — and there can be as many as seven drawdowns over the course of a project.
“However, the additional cost in terms of fees and interest rate is normally significantly less than the increase in value of the property when completed compared to the cost of the land, building and professional fees,” he says.
Finding a plot and getting permission
Registering for the Right to Build with a local authority should eventually make it easier to find a plot but many self-builders resort to estate agents. There are few plots with planning permission for sale but agents should have properties on their books that are suitable for demolition and redevelopment. This means that buyers pay a premium compared with building land (as well as the costs of demolition) but they should find it easier to get planning permission. Plotfinder.net, a website, collects information from people selling plots and from estate agents, making it available to subscribers.
In England, about 75 per cent of applications are granted; but if your application is refused, you can amend and resubmit the application, or you can appeal to the planning inspectorate. About 40 per cent of householder applications that are refused are later granted. In most cases, a modified second application will be free.
It is best to discuss any applications with neighbours before submitting them as this can head off objections and delays. If the neighbours do not object and the officers recommend approval, they will usually grant planning permission for a householder application using what are known as delegated powers.
If there are objections, the application may go to a planning meeting, where you or your agent will be given an opportunity to address the planning committee, but this time is limited to a maximum of three minutes. The cost is currently £385 for a full application for a new single dwelling in England. This fee is similar in Scotland, Wales and Northern Ireland.
Since April 2008, all local planning departments have used the same application form, known as 1APP. Most will also give pre-application guidance. Some charge for the service, so it is worth finding out what the cost will be. For one dwelling house it is likely to be about £200 per meeting.
Design and access statements, which justify a proposal’s design concept, have to accompany all planning applications. Most authorities have guidance notes available to help you and some authorities refuse to register applications unless you include these in your submission.
The level of work that can be carried out under permitted development depends on a variety of factors including location (“areas of natural beauty” and “conservation areas” have different rules), and the extent of work already carried out on a property. Other factors include the loss of light, overlooking, design, previous planning decisions and disabled access.
Unpredictable problems can always crop up. After demolishing a small property to build a larger one, a self-builder may find that the sewer needs to be moved and the water company will require a substantial bond of several thousand pounds until the work is completed and inspected. It can take several months to get the cash back.
Get properly insured
It makes sense to have your own self-build insurance policy and this can cost between £500 and £1,000 depending on the size of the overall contract. Self-builders need a structural warranty to cover a 10-year period and a warranty against defects in design, workmanship and materials. Insurance is also needed for public liability, fire, theft and storm damage and for issues like tradesmen not completing the work.
Most self-builders worry about their builder going bust. Those with a National House-Building Council warranty will be luckier than others in that the NHBC will arrange either to hire another builder or pay for the work to be completed. This liability must be no greater than 10 per cent of the house value, or £100,000, whichever is the greater.
It is important for owners not to release stage payments faster than planned to a builder, no matter how much they plead. In my case, my builder went bust as the work was being completed. The company’s liquidator put in a claim for substantially more than expected. I had to hire a solicitor and quantity surveyor. Unpaid contractors arrived at my door asking for payment for different parts of the work. This revealed how much the building company had been overcharging. A bricklayer asked for £4,000 for a garden wall that the builder was demanding £12,000 for.
The final settlement was much cheaper than the money demanded and included contractors being supplied to complete the snagging. This settlement would not have been achieved if the builder had received money for the final stage payment.
If the construction firm you hire is a member of a professional trade association, you can check whether they have an insurance-backed guarantee of the quality of work. The Guild of Master Craftsmen has optional insurance that covers the builder if they go out of business. Developer insurance is also available to ensure a project is completed if a builder becomes bankrupt.
Check your tax position
You must pay stamp duty if you buy a property priced at more than £125,000 or £150,000 for non-residential land and properties.
Those gifted land by family members pay no stamp duty, even if they already own a residential property. And self-builders who pay for land pay no more than the initial stamp duty, however much the property is worth when completed. But there will be a 3 per cent stamp duty surcharge if they own another property. This has to be paid within 30 days of buying the plot and only when they sell their original property within three years can they claim this back. This can lock up £4,750 on a site costing £150,000.
New properties are free of VAT and therefore a self-builder can claim back most of the VAT paid on materials. However, the tax cannot be reclaimed on professional and supervisory services such as surveys, design, planning and tool and plant hire as these are not exempted; nor are household appliances such as cookers and fridges, even if they are built in. The average VAT reclaim for one-off schemes is about £13,200. You cannot claim back the VAT if you plan to use the property for a business purpose, but this does not extend to working from home.
Consider kit houses
Huf Haus is a German company that has built 250 bespoke prefabricated houses in the UK in the past 17 years. Precise budgeting is one of the advantages it claims for self-builders: every panel, nut, bolt, window pane is pre-costed and pre-manufactured and once the homebuilder has signed up they cannot change a single item.
While the company does not help self-builders to find a plot of land or arrange a mortgage, it does have its own planning consultant who works with clients to obtain planning permission. The company works closely with clients at an early stage as this enables them to get permissions in conservation areas and green belts.
Once the parts of the house reach the building site it usually takes a week to 10 days to get the building weathertight with roof tiles in place. Depending on the size of the house, it takes another 12-16 weeks for fit out.
Huf Haus is at the higher end of the market in cost terms, coming in at typically £3,000 per square metre. High specification designs account for much of this, but may help in the planning process because of their green credentials and architectural merit. Homes include renewable heating and cooling systems, smart home technology and ventilation.
The crucial issue for any self-build is to stay on budget. This is only possible if your contractor estimates accurately and sticks to their promises. In the end, I had to hire a quantity surveyor to bring my contractor to heel. Far better to get a tough project manager from the outset who knows what things should cost and whose word is law. Our new home cost more than it was worth on completion, but a few years later, it is worth more than the sum spent.
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