GETTING STARTED

Why Self-Build?

Undertaking a homebuilding or renovating project gives you the opportunity to create a home built to your chosen design and specification in the location of your choice, at a cost that is likely to be considerably less than the market value of the completed project.

Each year around 15,000 new one-off homes are built by private individuals, and a further 3-5,000 are created through the change of use of an existing building, e.g. a barn or school conversion. All of these projects are treated by HM Customs & Excise as new dwellings and, as such, the building work involved is largely free of VAT (see section on VAT and Self-build).

In addition to these �self-builders', there are thousands more who undertake a renovation project: modernising, extending, or remodelling an existing house to create an individual home. There are no official figures for these projects, but estimates suggest that there are around 20-30,000 major renovations every year, with tens of thousands more undertaking smaller extension or remodelling schemes. Work to existing houses is almost always subject to VAT at the standard rate, unless they are listed or have been empty for three or more years (see section on VAT.)

A Home Designed for Your Needs

The external design of a new house or renovation project will be controlled to a greater or lesser degree by local planning policies (see section on Planning Permission) � however, this still leaves considerable scope to create a unique house.

Providing you choose the right plot in the right location, you can build in almost any style you choose, from a cutting edge contemporary style property in glass and steel, to a traditional cottage. (For archive H&R case studies visit www.homebuilding.co.uk.)

Even where planning controls place limitations on the external appearance of a development, the internal layout can be configured in almost any way you choose, constrained only by the statutory Building Regulations and the limits of available materials. You can create a floorplan with any number, size, shape and interrelationship of rooms you desire, arranged to suit the individual living requirements of your household. You can also choose to create inspirational living spaces with features such as double height rooms, galleries and vaulted ceilings.

Freedom of design also extends to the selection of all of the fixtures and fittings throughout the house, so from the outset you can choose the right flooring, doors, windows, staircase, kitchen, bathrooms, showers, fireplaces and lighting. You can incorporate at first fix stage other modern features such as underfloor heating, air conditioning, smart house technology and modern plumbing, as well as choose the specification of the construction itself to create a home that is designed to be, for example, highly energy efficient.

How the Savings Are Made

Very few self-builders or renovators spend more on their new home than it is worth when completed. Self-build and conversion is generally more cost effective than renovation, as it is largely free of VAT. Average savings are 15-25% when comparing the market value of a completed property with total development costs. This saving reflects the effort and risk involved in undertaking the development, and the time and resources invested. Self-builders are effectively buying their property at cost price, i.e. the net cost of land, labour and materials. How much is saved depends on the quality of design (i.e. building the optimum house for the plot), and the efficiency of the build process.

Who Should Project Manage?

Effective project management is the key to delivering the finished house on time and on budget. Project management services are offered by architects, surveyors and professional project managers. Fees for managing the build will typically range from 3-10%. If you choose to use a project manager, their track record is everything, so speak to several of their previous clients.

If you are using an experienced contractor who is on site every day, you may decide that you do not require a project manager, but will oversee the work yourself instead. This works for many.

Other self-builders choose to take on the role of both project manager and contractor themselves, hiring individual tradespeople (see section on Build Routes). Project management is not a task to be taken on lightly, but can result in significant cost savings if carried out efficiently.

Raising the money

Providing you have a regular income and a reasonable credit history, you should have no difficulty in obtaining a loan to build your own home or to undertake a renovation or conversion project.

For details of lenders that offer mortgages for homebuilding projects see the H&R finance table below. For full details of mortgage stage payments, terms and conditions, contact individual lenders direct. In addition to the lenders in the table, there are others, such as Halifax HBoS, who will finance conversions, but will not lend on land.

It is also possible to finance your project using a loan secured against equity in your current home, either in conjunction with, or instead of, a stage payment mortgage secured against the building project. This kind of funding, often charged at a small premium above mortgage rate, is offered primarily by banks. Lending is not usually restricted by the standard income multipliers that apply to mortgages.

As it is more expensive than mortgage finance, loan funding is best suited to those who do not want or need a mortgage once they have sold their current home, or those who want to raise funds in addition to a second mortgage to help fund the project without having to sell their current home. Such a facility usually carries an arrangement fee, typically 1-1.5% of the advance.

How Much Can You Borrow?

The maximum amount you can borrow on a conventional mortgage is usually calculated using income multipliers to assess afford-ability. These are typically 2.5 x joint income, 3 x a higher income plus 1 x a second income or, for sole earners, 3�4 x income. Existing commitments, e.g. mortgage payments on your current home, may be taken into account when assessing affordability. Some lenders may consider offering a stage payment mortgage alongside an existing home loan, allowing you to remain in your current home during construction.

As part of your application, some proof of income will be required, typically in the form of three months' payslips and your latest P60. Self-employed applicants will usually have to provide two years' audited accounts or approach lenders, such as Skipton BS and Barclays, who will consider offering funding on a self-certified basis.

Borrowing to Buy Land

Advances on land or existing buildings for renovation/conversion are available up to a maximum of 95% of valuation or purchase price, whichever is the lower. In most cases some form of planning consent must be in place for the development of a plot or conversion opportunity before a lender will release funds.

Borrowing for Construction

Funding for construction is usually released in arrears on completion of key stages in the building work, after it has been signed off by either the lender's valuer or a supervising professional. The stages and the percentage of the total advance released will vary according to the number of storeys being built and the type of construction employed. Exact stage payment details should always be discussed and agreed with your lender. You need to make certain you have sufficient funds to cover the initial project costs and to fund work in between the release of stage payments. Cashflow for this purpose may come from savings, short-term borrowing, or a self-build mortgage that offers advance stage payments.

Raising a Deposit

Capital of at least 10-15% of the total project cost is usually needed to get a homebuilding project going. Although it is possible to get a self-build mortgage without selling your current home, most people choose to sell up in order to release capital. If you choose this route, do not forget to budget for somewhere to live and for storage � bear in mind that rental can be at least as expensive as a mortgage. The most common option for temporary accommodation is rental, although many people stay with family or in a mobile home on site.

Borrowing Costs

Fees vary from lender to lender. Lenders may charge a mortgage application fee, typically £2�300. There will also be a valuation fee payable that will vary according to the value of your plot, typically £160�400. There may also be a separate fee for specialist products such as a fixed rate or capped rate mortgage.

Further fees are usually payable for the re-inspection of building work prior to the release of each stage payment. This charge is typically £30�50 for each of four or more stage payments � check with your lender for further details. This role can also be undertaken by a supervising professional, such as a chartered surveyor, architect or approved warranty inspector (e.g. NHBC or Zurich), in which case there will not be an additional fee.

Interest will be charged at the agreed interest rate � usually the lender's current variable rate � from the moment funds are released, but only on the amount that has been borrowed/drawn down to date. Interest payments therefore start low and increase towards completion.

How to Estimate your Build Costs

Construction costs for a new home vary, depending on the quality of the specification, the size, the number of storeys and your own level of involvement, either in managing the build or in undertaking some of the building work. You can gain a quick estimate of the likely cost per square metre (£/m2) for your project by using the H&R Average Build Cost Guide. The Guide is based on figures researched by the Building Cost Information Service of The Royal Institution of Chartered Surveyors (RICS) for the purpose of estimating rebuilding costs. The Guide to Rebuilding Costs is available priced £45 from RICS (0207 222 7000). The H&R figures are adjusted to remove professional fees and demolition costs which are not always applicable to homebuilding projects. To get an estimate of the likely cost of your project, follow the three steps detailed below or alternatively use the calculator online at www.homebuilding.co.uk.

The average build cost figures provided are based on houses built using standard brick and block or timber frame construction methods. They are not applicable to: unusual ground conditions requiring specialist foundations; steeply sloping sites; special design features, e.g. oak frame, large areas of glazing; houses of very high quality specification; renovation or conversion projects.