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Utter newbie questions about financing a self-build


dakid

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Hi all,

 

My wife and I have been thinking about self-building for a while now. What we're after, as a house, doesn't really seem to exist, and the opportunity to create exactly what we do want is irresistible. Unfortunately, we know nothing about how to finance this, and while we're looking to potentially start in a couple of years time, rather than now, I'd like to find out as much as I can about this aspect in plenty of time to make the necessary arrangements.

 

  1. I currently have a £280k mortgage on a house that was valued a few months ago at £725k. I earn £90k and am 40 years old. Does this offer enough information to confirm/reject the assumption that I will be able to spend £725k on a new self-build, or will I always be looking at less money available to me than if I were buying a new house, rather than building?
  2. How does one go about building a house, while also living somewhere, without being stuck in a B&B for a period of time? Assuming that, during the build, we live either on-site in some sort of mobile-home or perhaps nearby in rented accommodation, how would we obtain the money to buy the land (which I'm expecting to be around £400k), while still living somewhere? We are very much hoping that there's some possibility of not moving from our current house until we have planning permission and are ready to begin work on the new one, yet we do not have the funds just lying around to purchase the land outright.

 

Thank you in advance for any help you can offer, even if that's to point me at some kind of online resource that answers all my (what must be obvious) questions! :)

 

Many thanks,

 

Martin

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You have a good start as you have a lot of equity in your existing house. The equity from that should buy the land so that's one hurdle.

 

If you can slum it, and the site is big enough, you can live on site in a static caravan. In such a case it's normal to ask for temporary planning permission for the caravan with the main planning application for the house. You will have to pay council tax for that, but usually just band A. You can get some quite large static 'vans or even a twin unit if you want more space.  We are currently doing just that living in the 'van while completing the house.

 

To build a house normally needs a self build mortgage which releases the money in stages. That will restrict your choice somewhat. I don't have any experience of that but others will come along and advise.

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You're right to focus on getting the site first, and securing planning for what you want to build. As RA says, there's loads of stuff here and eBuild on buying sites under a conditional contract that enables you to get your design approved before you complete.

Depending on where you are located, if this is going to cost 400k + fees, that's your equity gone! But you will then have something you can use as security for borrowing. It won't be cheap, but build the costs into your budget. You have age and income on your side!

That just leaves somewhere to live. You could rent, but that's money down the drain. We are very lucky, in that we managed to buy another place while we do the self build. And I'm glad we did or we would have seen 25k+ disappear. I'm also too decrepit to camp out on site, but at your age it could be part of the adventure!

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We're renting, but it's cheap. I would second the advice to do as much of your planning as you can whilst ensconced in your cosy house. We sold, on the expectation that planning couldn't possibly take "that" long. We were quite catastrophically wrong on that point....

 

You also want to be as close to your site as possible, because an artic WILL arrive at 8am when you weren't expecting it til 12 and be unable to access the site. If it takes you 20 mins to get there, it's a real nightmare. 

 

Be aware that if you're in Scotland, many of the "standard" financing options are not available, which has caused us some major difficulties. We are lucky to be able to fund the build itself from our house sale and borrowing from family - we will mortgage the house on completion with a standard mortgage. I do remember that Ecology Building Society did some good-ish deals if you could comply with fairly strict environmental criteria. Prob worth a phonecall. 

 

If you manage to get a traditional self-build mortgage, try and tie your contractor payments into the funds release stages - then you hopefully won't be lumbered with a big bill, angry builder and no cash from the bank at the same time!

 

Good luck - and be prepared for it to be more stressful that you could possibly imagine. Or perhaps that's just our build... 

 

 

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Hi Martin, welcome and best of luck with this - we started where you are some 5 or 6 years ago and moved into our new build in Oct 2016.

 

On purchasing land, we gave up after a while and bought an old / derelict house and demolished. Given this, we decided we had to fund the purchase without a mortgage else it would quickly become a complicated discussion with the mortgage company - "you want to do what? demolish our collateral?" - not something i wanted to do.

 

We were lucky enough to be able to cover the purchase price by increasing mortgage on another property. If you end up here, you could consider selling your house and using the released equity to fund the land purchase. Not ideal as when you get a self-build mortgage, chances are you will still need a lot of money up front, and the lenders tend to pay in arrears of a build stage, though you may be able to use the land + planning permission as collateral and ask the mortgage company to front-load the lending.

 

Then of course is the question of where do you live in the meantime? Be under no illusions on timescales - it took us just under 3 years from land purchase to moving in. Our build was fairly complex (split levels and basement), but our planning went through quickly. So living on site in a caravan takes a lot of committment from you and your family.

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We did something similar. Bought a bungalow in a nice area (literally the worst house on the street), largely surrounded by much more substantial houses.

 

We got an offset mortgage and put money into the offset account to reduce the interest to zero.  We then drew down against the offset account as we demolished and rebuilt.


We probably breached our contract by demolishing without the mortgage company's permission, but hey, they now have a mortgage against a much more valuable property!

 

Our design and planning took well over a year, then it took a few months to get organised and move out into rented, followed by a year from demolition to moving in.

 

I agree that if you rent you should do so as nearby as possible.  Ideally, you want to make an appearance on site every day, and ideally at the start and end of the day. 

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34 minutes ago, jack said:

We did something similar. Bought a bungalow in a nice area (literally the worst house on the street), largely surrounded by much more substantial houses.

 

We got an offset mortgage and put money into the offset account to reduce the interest to zero.  We then drew down against the offset account as we demolished and rebuilt.


We probably breached our contract by demolishing without the mortgage company's permission, but hey, they now have a mortgage against a much more valuable property!

 

Our design and planning took well over a year, then it took a few months to get organised and move out into rented, followed by a year from demolition to moving in.

 

I agree that if you rent you should do so as nearby as possible.  Ideally, you want to make an appearance on site every day, and ideally at the start and end of the day. 

 

We did similar, buying and living in a slightly clapped out 3 bed house on a 1/2 acre plot for almost 4 years before demolishing and rebuilding.

 

We did tell the mge company (have neighbours who could have caused trouble, not worth the risk) so cleared the mge with our build fund and raised new funds with Ecology, who have been a delight to deal with.

 

We did the caravan on site for the build, bit of a pain but our net accomodation costs for 18 months were £1200 so I make that £66 a month :) Invaluable too being on site during the build. 

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13 minutes ago, Bitpipe said:

We did the caravan on site for the build, bit of a pain but our net accomodation costs for 18 months were £1200 so I make that £66 a month :) Invaluable too being on site during the build. 

 

We'd have done the same, but the way the plot is laid out meant there was no obvious place to put a caravan that wouldn't have impeded access.  Agree completely about being onsite - as well as being available to oversee things, I'd have gotten a lot more done had we lived onsite rather than 6-8 mins drive away.

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1 hour ago, recoveringacademic said:

 

Living above the shop is starting to get to me a bit....

 

Equally being over 100 miles away from the site is not ideal!

 

Lots of v. early and late night runs up and down the M5.... hopefully my licence will survive......

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