Mortgage completion vs Builder contract timing

[aims]

Hi All,

 

Wondering if there have been anyone else in my position and how they handled trying to time signing a contract with a builder and completing on mortgage. Here is my current situation:

1. Received mortgage offer - Have a few condition before completion & have 6 months to make the first drawdown. The main condition is the usual site insurances
2. Builder - Will soon begin contract discussion with a builder and naturally will have to provide a deposit to get the project started
3. Site insurance - I can obtain the self build site insurance but they say the work must being within 3 months of obtaining the insurance

 

Question I have is did anyone sign a contract with a builder even though their mortgage wasn't completed yet? I ask because I am in a chicken/egg situation i.e. I don't want to sign the contract with the builder until I have secured funds (I do technically have enough cash reserve for a deposit) however I can't get insurances to complete my mortgage until I know a start date with my builder. 

 

My personal thoughts are (rightly or wrongly), I go ahead with builder contract, organise a start date and site insurance and can then "complete" my mortgage. 

 

Any thoughts/experiences?

[PeterW]

8 minutes ago, aims said:

naturally will have to provide a deposit to get the project started

 
Why..??? Never pay up front for anything ..!

 

Site insurance is cheap - just get it in place and take the hit on a month or two. You should already have the site insured anyway. 

[Temp]

+1 Its not normal to pay a deposit to the builder. They work in arrears and you retain 5% of each stage payment until snagging has been done at the end. 

[aims]

Interesting, I did generally understand to avoid deposits but assumed for larger projects i.e. a self build, it was reasonable for a small % ask due to initial set up costs be a lot higher. In fact this is what I received from my Architect (who has been great so far) in response:

 

"Always an initial deposit is done when signing the contract for the contractor to secure the site, scaffolding, piling structural calculations, portable toilet, materials to be delivered, labour, etc. That also confirms that the client wants to go ahead with this particular contractor. 

Usually, we agree on an initial payment deposit as a percentage of the total amount and we discount the same percentage to the interim valuations, so with the final payment "

 

It does seem to be a hot topic online which valid arguments on both sides

[Conor]

we paid 3% of project total at the end of the first week of works. We then paid in four main stages plus a 5% retention.

 

 

[TonyT]

If your architect is managing the payments  and you are happy crack on.

just make sure you have a defects period and a good amount to cover getting someone else back in to do it.

 

sometimes architects and main contractors can have relationships and all you  are is  the cheque book, they move on to work on the next job, maintaining their relationship you are forgotten about so make sure all the decisions are based on your interests and not what’s easy for the main contractor

[PeterW]

I think your architect is a little out of touch ..

 

Prelims - so site setup including toilets (£20/wk) Cabin, site security / heras fence are added into the overall costs and paid accordingly. Same with materials, any decent builder is on 30 or 45 days with their merchants - you should see at least some of the benefits of that. 
 

As @Conor says, 3% at end of first week would be a preferable solution and also ensure your contract has payment terms agreed - invoices due 14 days after presentation and agreement is my normal stance, gives chance for any queries to be raised but that should be agreed up front. Any main contractor presenting an invoice on a Friday for payment “immediately” when they have a contract with you would be a red flag.  

[aims]

Thanks all, definitely food for thought. I will have a more detailed chat with the architect to iron this out. 

 

I realised the conversation went slightly down a different path but wanted to confirm if anyone did sign a contract with a builder even though their mortgage wasn't completed yet?

[Temp]

Our builder never asked for or expected anything in advance.

 

At one point half way through he asked if I could help with his cash flow and I agreed to order and pay for the windows direct as the window company wanted a deposit. 

[TonyT]

Could that have been a ploy in case they didn’t fit and then he didn’t order them?

[aims]

Sorry, just wanted to steer the conversation back to the topic. Ignoring the deposit topic, I imagine someone must have been in a similar position to me?

 

I have a self build mortgage offer which has insurance conditions (i.e. must have "All Risk", which is not the usual "SelfBuild" Insurance you get from Protek/BuildZone). This insurance is normally the Contractor's (or joint name) which implies I would need to have a contract signed with a Contractor before my mortgage can be completed. Is this generally what most people in a similar position did?

 

[PeterW]

Self Build insurance is all risks insurance - who’s told you it isn’t ..??

 

You only need a joint liability all risks policy if your contractor doesn’t carry £1-2m in all risks insurance themselves. I would be wary of a contractor who didn’t carry that as standard (£5m is the norm these days)

I would check what is actually needed as I’ve never heard of a self build mortgage provider not accepting a self build insurance policy ..!!