Building the dream...
Posted on 13 November 2014 by
Are you the kind of person who watches Grand Designs, or one of the many Sarah Beeney programmes and thinks, I could do that – I could build my own home? With more and more of us inspired by property development shows, building your dream home is now fortunately a little easier, as there are now more lenders in the market who are willing to consider this type of loan. It’s called a Self Build Mortgage and is underwritten in a very different way to a standard mortgage deal. So how do you go about arranging finance to build your dream house?
Well first of all it’s all about planning, and not just obtaining planning permission (although clearly this is a major part of the process). You need to plan where you are going to live whilst the building work takes place – some clients choose onsite, but is that realistic? And if you are living elsewhere you need to factor in the costs of your accommodation, as a lender certainly will. Remember to allow a contingency amount in your loan application. You need to plan for the worst on everything; problems with the builders, the British weather doing its worst or simply running out of money are just three areas where things could go wrong. And talking of money, your budget needs to be 100% watertight, with a large contingency built in. If you plan it properly and assume that everything that could go wrong will go wrong, then you have a good chance of coming out the other end with a new house.
So how does the finance work? Well, a lender will assess the value of the plot that you are buying, and typically they will lend up to 65% loan to value on the purchase. They will then assess your plans, architect’s drawings and builder’s costings, and the valuer will look at similar properties in the area to get an idea of the Gross Development Value (GDV), or the end value. This is very important as the bank has to be happy that the house will be worth the GDV at the end, allowing you to remortgage with a standard lender. Clearly the GDV is very important to you as well – if you are going to spend £100,000 on a plot and £150,000 on building the house, then ending up with a property that is valued at £250,000 is not a great return on your investment, no matter how much you love the house.
Having bought the plot a lender will then forward you a tranche of money to go towards the start of the build – once the first stage is complete, usually clearing the site, foundations in, walls up and roof on, the lender will send their valuer back out again to re-appraise the site, and as long as everything is going well, the bank will forward you the next tranche of money to allow you to carry on. This way the lender keeps control of how much they are providing to you, and you get an updated valuation as your home takes shape.
If you are interested in a self build mortgage please contact John Charcol. We can talk through your plans, and give you an idea of how realistic it is. If we think that your proposal is a non starter then we will tell you, we do not want any of our clients committing to something that will not work for them. If your project looks achievable then we can take it from there. Building your own home is not for everyone, and it is stressful. But if you get it right it’s one of the most rewarding things that you can ever do.
If you’ve got your eye on a plot of land, talk to one of our advisers today about financing a self build.
0344 346 3672
The blog postings on this site solely reflect the personal views of the authors and do not necessarily represent the views, positions, strategies or opinions of John Charcol. All comments are made in good faith, and John Charcol will not accept liability for them.