Is Self-Build Affordable?
Lots of us dream of building our own home at some undefined point in the future, convinced that it’s something we can’t yet afford. However, the odds are if you can afford to buy a house - you can probably afford to build one.
When compared to purchasing a new-build, constructing your own home comes with certain tax benefits and means you are not contributing to a developers profit margin.
With some providers prepared to offer specialist self-build mortgages that cover up to 95% of the cost of land and construction, the start of your self-build journey might be closer than you think.
Piqued your interest? Read on.
Finance
Now I won’t claim it was very scientific, but in a poll undertaken by Home Yolk - 100% of respondents said money (or lack of it) was the primary reason they hadn’t pursued self-build. After all, why else wouldn’t you want a bespoke home, customised to your lifestyle?
Older self-build mortgage products tend to be valuation based mortgages, where mortgage payments are released in arrears based on independent valuations at key stages of the project. This can leave self-builders open to cashflow risk if the valuation comes back lower than expected.
However some providers are now prepared to offer specialist self-build mortgages that cover up to 95% of the cost of land (where outline planning permission is in place), as well as guaranteed advanced stage payments of up to 95% of the construction cost.
Mortgages are not the only form of finance available. Development finance or bridging finance may be better suited to your specific project needs. It is worth discussing your options with a specialist mortgage adviser early in your self-build journey to establish which funding route best meets your needs .
Cost
It is impossible to say exactly how much it will cost to construct your own home, due to the sheer number of variables. Some key factors that will impact cost include:
The location and condition of the site
Construction method
The specification of fixtures and finishes
Time available to complete the project
However, in our estimation, it is possible to construct a standard spec home for as little as £1,800 per square meter.
Now let’s do some quick maths for comparison. According to the 2019-2020 English Housing Survey, the average dwelling in England has 95 sqm of useable space. The average property value is currently £268,380 (April 2021). This gives a price of roughly £2,825 per square meter.
Naturally there are additional costs to consider when going down the self-build route. As well as the construction cost, you should allow around 15% extra to cover professional services and other miscellaneous. A further 10% contingency fund is strongly recommended.
Based on these figures, the project cost of an average size house could be in the region of £196,650, with an additional £17,100 contingency fund.
Of course if you do not already have a sunny patch somewhere waiting to be developed, you will also need to purchase land. Size, location, access to services and planning status will all impact on the price of a plot.
I know what you’re thinking: all of this sounds kind of scary and expensive. To discover some of the less well-known cost benefits of self-build, continue reading.
Tax Savings
You can apply for a VAT refund on building materials and building services if you’re constructing a new home for yourself. This equates to a saving of 20% on building materials & services, based on the current rate of VAT.
Some items, such as professional services, equipment hire and furniture, do not qualify for exemption. For full details visit www.gov.uk.
A substantial saving could also be made on Stamp Duty and Land Tax when comparing a self-build to a similar property. You will pay the tax only on the purchase price of the land, rather than the value of the completed home.
This could potentially save you thousands of pounds. With many plots available under the SDLT threshold, you may even pay no SDLT at all.
Planning Gain
The cost of land can vary widely and could be the difference between whether or not self-build is an affordable option for you. Land that already has a residential use class and planning consent in place is likely to be considerably more expensive than other land on the market.
Purchasing land that has no consents in place could save you a substantial sum of money and securing planning permission would likely create equity. However, there is no guarantee you will gain planning permission. It will also rule out a mortgage as a method of financing your purchase.
Before making such an acquisition you should familiarise yourself with national and local planning policy and consider whether development of the site is likely to be viable.
Sweat Equity
Another way to save money on your build is to do it yourself! The equity built by taking on work yourself is known as sweat equity. Granted, this option isn’t for everyone and there may be some jobs you feel more comfortable undertaking than others.
For example fitting flooring, painting and installing tiles are all jobs you could probably try your hand at given the right research, equipment, care and attention. On the other hand installing plumbing or electrics may be best left to a professional. Any work related to gas supply or appliances must be undertaken by a competent Gas Safe registered engineer.
If you plan to build the structure of your house yourself, you should carefully consider construction method, as different systems require varying levels of expert input. There are many timber systems specifically designed for self-assembly.
Choosing to construct your home yourself may impact your ability to obtain finance – another reason to speak to an experienced adviser early in the process.
Getting Started
So how much cash are we actually talking to get started? Well, taking land out of the equation, Home Yolk estimate a minimum of £51,300 would be needed to construct an average sized house, based on the following breakdown:
5% of construction cost: £8,550
Professional services and miscellaneous expenses: £25,650
Contingency fund: £17,100
With mortgages available to cover up to 95% of the cost of land where outline consent is in place, it may be possible to acquire a plot with only an extra £7,500 in the bank.
As we’ve discussed, there are a number of ways you could bring the overall cost of your project down – but some of these may impact your ability to secure finance, meaning you’ll need more cash up front.
While we won’t claim that self-build is cheap, it can be more affordable than many believe and you are likely to get more for your money than purchasing a comparable new-build home. So what do you think, ready to become a self-builder?