Newbie financing advice

[epsilonGreedy]

11 hours ago, Thedreamer said:

I think that formula works if you are Pro builder with a view to a profit, but probably a proportion of self-builders aren't too bothered if the value is less than expected at the end.

 

 

True but the OP is contemplating a large mortgage. Surely it is reasonable in this situation to encourage the OP to think such self build project financial fundamentals.

 

My advice to the OP would be to hang on to the current house if travel time to the plot is under 30 milnutes. This advice is not based on tweaking for optimal interest costs, I am instead recommending a course of action that maintains a roof over ones head while undertaking a high risk costly self build venture that might take years to complete.

 

The building trade is already gearing up for Brexit turbulence and so should self builders.

Edited August 7, 2018 by epsilonGreedy

[newhome]

7 minutes ago, epsilonGreedy said:

The OP has a mortgage free home and a nice wadge of cash in the bank and now seems to be planning to dispose of that home to fund a selfbuild with no notion of likely final market value, no idea of build cost and will end up with a large mortgage. I am surprised I am the only contributor to this thread who has said, whoa.

 

All this rose tinted rhetoric about it not mattering if this is "your forever house" is the language of rich boomer generation retirees. If this forum is to survive in the long term it needs to provide useful advice to the next generation of self builders.

 

The OP is exploring it as an idea and people are suggesting a few ideas as to what to do to see whether it is financially viable. It’s clearly their first look at it, nothing is set in stone and there will be a lot of thought going into whether this might be something they want to do. Presumably there will be further posts if they move to the next stage in the decision process and people here can provide more specific advice when plans are known. They are out meeting architects to see how much building a house might cost, not signing on the dotted line. And you’ve read it wrong anyway. The OP is not mortgage free, they even mention their current mortgage in the OP! 

 

I had no mortgage and a wedge of cash in the bank when I started my self build. Would you therefore have told me to run for the hills? On what basis? I have finished my build and still have no mortgage. And I’m sure @PeterW will be delighted to be called a retiree ?. I’m not a retiree either but can still see the benefit of building the house you want (if you can afford to) vs the house someone thinks you should have. But again it comes down to personal choice. Not everyone wants to build a house for the cheapest price they can. It’s a personal decision that only the OP can make. 

 

 

[epsilonGreedy]

17 minutes ago, ProDave said:

BUT when the dust settles, we will be in a much better house, only slightly smaller than the old one (downsizing was the original aim) and we will be a little better financially than we started, but not a lot.

 

 

Yours if an impressive self build story and a yardstick that I use to measure my own self building attempt.

[recoveringbuilder]

I think it all depends also on how long you intend to keep the house, when we built our first house we did it for around £60k, after keeping it for 14 years we sold for £235k, at the time we had looked at buying instead of building and for the £60k we would have bought a much smaller house which would have doubled its value in the 14 years, I know this for certain as the one we’d looked at sold recently for £130k.We then went on to use the profit plus £40k to build another which We kept for 8 years, it certainly didn’t make us as much profited the previous one but that was down to a property beside us which had been used as a general dumping ground by the owner (purposely) as we didn’t get on . We did make maybe 20k . The place we bought was tiny in comparison and took most of our money however it had land which we were able to obtain pp on and we hope to finish this build for the price of the small property and it’s 3 times the size, so if you buy your products carefully it can be done, of course getting the land cheap has helped 

[PeterW]

The point is simple. 

 

Given the the figures quoted, it looks like based on the report (I assume you’re quoting headline and haven’t paid the £750 for the detail) that the median self builder in their report is making 8% equity at the end. That’s an incredibly low buffer and very tight on the current market where pricing on materials is constantly moving. 

 

 The “forever house” scenario is nothing to do with a  boomer generation - there are a number of builders on this forum who are doing just that with young families, who are looking to play the long game on the potential that house prices will rise - even at 2-3% - so it is a long term investment. 

 

My advice - not that of the forum - is to buy wisely on a plot and not be drawn to a “perfect location” and work with the plot. I have seen a number of instances where “perfect plots”  have turned into nightmares where new housing estates have been built in front of “countryside views” that added the premium to the plot price. 

 

In pure accounting terms, your fixed pricing is invariably the plot, the variable pricing is the build. Reducing the fixed price as much as possible gives the most flexibility in financing the overall project and that is key to being able to weather any fluctuations however they are caused. If you have dumped >50% of the budget into the plot then the fluctuation in variable costs is going to be harder to manage. 

 

 

[jack]

33 minutes ago, epsilonGreedy said:

All this rose tinted rhetoric about it not mattering if this is "your forever house" is the language of rich boomer generation retirees.

 

I don't think anyone said price literally doesn't matter if it's "your forever house". What was said is that your planned length of ownership will have an impact on how careful you need to be with the finances. I don't think that's an unreasonable position as long as it isn't taken to extremes.

 

If you aren't stretched and you expect to be there for 20 years, you genuinely can spend more than if you hope to sell in a few years and trade up (or move for schools, or retire, or whatever).

 

37 minutes ago, epsilonGreedy said:

If this forum is to survive in the long term it needs to provide useful advice to the next generation of self builders.

 

I agree with the sentiment, but I don't agree that a lack of consensus about one complex issue involves us falling short of this general goal.

 

I think your comments about recklessness etc have been useful counterpoints to the other views that have been expressed (and you have to admit there have been a decent variety). Those views, and the associated debate, are the only sort of "useful advice" that the forum can provide on a topic as complex and subjective as this.  

 

Perhaps this topic has reached a natural pause until the original poster has had a chance to digest and come back with any other comments or questions.   

[epsilonGreedy]

13 hours ago, newhome said:

The OP is exploring it as an idea and people are suggesting a few ideas as to what to do to see whether it is financially viable.

 

 

How can the OP explore financial viability with no idea of build costs, it is absolutely essential information.

 

I suspect the OP will be pleasantly surprised how low build costs can be to get to weather tight shell, providing the OP does not fall into the clutches of a big name architect who will up sell them to the limit of their current notional max budget.

 

Let's talk specific numbers:

1. 160 sq meters is a half decent sized house particularly when anything larger equates to a large mortgage.
2. The OP should have a fully serviced plot for £100k
3. The OP should find local builders proficient at timber frame construction.
4. Given lower regional labour costs the OP might be surprised to hear that a weather tight shell of a house that outwardly looks like a finished house is within reach for just £110k.

 

If the OP builds off a catalogue kit plan and maintains a cool head over interior finishing details there is no need to contemplate a £240k mortgage from the outset.

 

Edited August 7, 2018 by epsilonGreedy

[Jenjen]

1 hour ago, epsilonGreedy said:

 

I feel it is reckless to offer encouragement to the OP given the plan outlined so far.

 

The OP has a mortgage free home and a nice wadge of cash in the bank and now seems to be planning to dispose of that home to fund a selfbuild with no notion of likely final market value, no idea of build cost and will end up with a large mortgage. I am surprised I am the only contributor to this thread who has said, whoa.

 

All this rose tinted rhetoric about it not mattering if this is "your forever house" is the language of rich boomer generation retirees. If this forum is to survive in the long term it needs to provide useful advice to the next generation of self builders.

 

To put this in context and perhaps I could have been clearer in the original post but before we do anything we will have as much as humanly possible researched and costed. The financing route is one strand of about 20 things I am currently looking into and researching. I have meetings set up with architects this week to get initial advice and this will hopefully inform some of the questions around size/costings and eventual market value. All of which will be known (to the extent possible) before we do (or don’t) embark on this journey.

[epsilonGreedy]

22 minutes ago, PeterW said:

The point is simple. 

 

Given the the figures quoted, it looks like based on the report (I assume you’re quoting headline and haven’t paid the £750 for the detail) that the median self builder in their report is making 8% equity at the end. That’s an incredibly low buffer and very tight on the current market where pricing on materials is constantly moving. 

 

 

Assuming the figures in the report are reliable we can conclude:

1. The average figure masks many self builder financial casualties regardless of the zero costed labour input.
2. Most self builders fail to match pro builder profit margins due to their inexperience.
3. My earlier assertion about typical plot value ratios is more accurate than yours.

[newhome]

10 minutes ago, epsilonGreedy said:

If the OP builds off a catalogue kit plan and maintains a cool head over interior finishing details there is no need to contemplate a £240k mortgage from the outs

 

A self build mortgage is a drawdown so no one is borrowing that sort of money from the outset. You still need to be able to draw down the final payment to finish the house. So the OP is just asking a straightforward exploratory question. That comes across to me in the first post even though they’ve had to repeat it now for some folk. 

 

And it’s very easy to quote figures when you’ve only dug the foundations. People who have completed builds with real experiences like @Christine Walker who has 2 builds under her belt and embarking on a third, clearly has a wise head on her shoulders and is in Scotland to boot is where I would look to for advice. 

[epsilonGreedy]

3 minutes ago, newhome said:

A self build mortgage is a drawdown so no one is borrowing that sort of money from the outset. You still need to be able to draw down the final payment to finish the house. So the OP is just asking a straightforward exploratory question. That comes across to me in the first post even though they’ve had to repeat it now for some folk. 

 

 

If you looked at my figures in more depth you would realize that I was providing an example where the OP's final mortgage would be £90k less than assumed.

 

6 minutes ago, newhome said:

And it’s very easy to quote figures when you’ve only dug the foundations. People who have completed builds with real experiences like @Christine Walker who has 2 builds under her belt and embarking on a third, clearly has a wise head on her shoulders and is in Scotland to boot is where I would look to for advice.

 

 

I sometimes feel like I am dispensing advice on the dangers of class-A drugs in the middle of an opium den.

 

This place is very tribal and the hard core of 20 regular posters who account for say 50% of the content plainly do not like diverse opinion or facts. I thought my original post in this thread was mild and understated though clearly I irked the forum's inner core.

 

Going forward I shall refrain from forum posting and just maintain the blog which needs updating because I have progressed beyond dug foundations.

[PeterW]

20 minutes ago, epsilonGreedy said:

 

Most self builders fail to match pro builder profit margins due to their inexperience.

 

Its not about inexperience !!! I know a lot of "pro builders" who make single digit margin just because of the market they are in. I also know some who make good double digit margin too, sometimes by accident..! That is individuals and companies that have been in business for 15-20 years so hardly inexperienced.

 

There are a number of key drivers as to what people want from a house, some self build to end up with no mortgage and do so by doing a lot themselves; some build to a higher spec as they can have what they want such as home automation, custom layouts or high spec builds; and some just do it for the challenge because it is a great feeling to stand there and say "we built that.." In doing so, the self builder is in control of their own budget and how its spent is up to them ultimately.

 

5 minutes ago, epsilonGreedy said:

 

This place is very tribal and the hard core of 20 regular posters who account for say 50% of the content plainly do not like diverse opinion or facts. I thought my original post in this thread was mild and understated though clearly I irked the forum's inner core.

 

There are around 170 active posters on the forum, with around 320 who log on over a month - I know, I produce the stats for the FMG.

 

There is no issue with diverse opinion, or facts, but what you are seeing is a number of members who are asking you to actually follow up your comments with a set of openly available facts and not just make statements that are at odds with the experience of a significant number of members, its reasonable to expect some to ask you to justify and discuss.

 

There is a vast amount of experience in this forum of self builds, renovations, conversions and just about every type of building project - and all that advice is free..!!  The forum members try to help where possible to assist others in their projects, to learn from others mistakes, and find deals or join group purchases to make budgets stretch. It is all there to help members in their projects and help them through what can be a minefield for the inexperienced - and experienced - alike.

 

 

[Jeremy Harris]

I think it's absolutely impossible to give any specifics about the ratio of plot cost to finished home cost, given the absolutely massive disparity in one-off plot costs across the UK and NI.

 

In many areas it's often as cheap to buy a house and demolish it, just to get a plot, as it is to buy a building plot.  That's not untypical around here, where plots under around £120k just don't exist (and at that price they will probably be a tiny infill closely packed between other houses).  Many around here end up paying between £150k and £200k for a pretty average plot - that's just the reality of being in an area that's within the London commuter belt.

 

The flip side is that in some places you can buy a really nice plot for between £50k and £100k, if you don't mind being in a more remote area.

 

Likewise, the "rule of thirds" gets blown out of the water in some areas.  Developers around here work on a margin of between 8% and 10% profit, well over 1/3rd of their cost being the plot.  Other areas I know are different, and developers can still make substantially more, in % terms, per house, but less overall because the sale prices are lower.

 

We looked at several areas when plot hunting, and found very substantial local price differences, often over a relatively short distance.  For example, plots on the Bristol to Gloucester side of the Severn were generally a great deal more expensive than those on the other side of the Severn - it wasn't unusual to see a like-for-like differential of well over 50% between one side of the river and the other.

 

Likewise Cornwall has some really daft plot prices, higher even than here in West Wiltshire, and when we were looking around down there we concluded that the cheapest way to buy a plot was to buy a house and demolish it - at a guess we'd have paid nearly double for a plot that was similar to ours.

 

Each of us can argue a point from our own experience and location, but none can really offer a solid formula for the relative price of the plot, the house construction etc as there are just far too many regional variations, without taking into account the many other variables that impact on build cost.

[newhome]

52 minutes ago, epsilonGreedy said:

I sometimes feel like I am dispensing advice on the dangers of class-A drugs in the middle of an opium den.

 

 

No one is suggesting that the OP shouldn't proceed with caution. In fact many posters have said that in their own way and suggested that this forum could be the place to check back when further details are known, but to start off with the fact that the plot price v build price has an unusual ratio when we didn't even know where the plot was at that point is, let's say, an unusual approach. When more costings are available then is the time to question the financials in more detail. After all we don't know what the affordability will be like as none of us are aware of the OP's circumstances, but to imply that simply encouraging someone to explore the idea is 'reckless' is way over the top in my view.

 

2 hours ago, epsilonGreedy said:

I feel it is reckless to offer encouragement to the OP given the plan outlined so far.

 

 

We see many people here who explore their options, receive advice from many on this forum, and then given all the facts and arguments for or against decide to proceed or not. I take the opposite view and will happily try to provide advice on further exploring the idea so that a sensible decision can be made unless the plan was CLEARLY reckless, then I would say so. Now if the OP had bought the plot and had come here with no idea as to what could be built on it and for what money, then that would be reckless, but that's not the case and they are simply exploring options. Let's not kill that idea stone dead before all the facts and figures are known. Only when more detail is understood can better advice be given. 

[epsilonGreedy]

56 minutes ago, PeterW said:

Its not about inexperience !!! I know a lot of "pro builders" who make single digit margin just because of the market they are in. I also know some who make good double digit margin too, sometimes by accident..! That is individuals and companies that have been in business for 15-20 years so hardly inexperienced.

 

 

As an online social experiment, could you try responding to one of my posts without an antagonistic string or !!!!!!!!'s or ???????????'s

 

A little earlier in this thread you cast doubt on the national self build survey figures I quoted because of the low single digit margins. Now you claim it is a perfectly normal commercial margin.

 

1 hour ago, PeterW said:

There is no issue with diverse opinion, or facts, but what you are seeing is a number of members who are asking you to actually follow up your comments with a set of openly available facts and not just make statements that are at odds with the experience of a significant number of members, its reasonable to expect some to ask you to justify and discuss.

 

 

Which is exactly what I did through the link I posted but you then disputed the basic survey numbers.

[epsilonGreedy]

10 minutes ago, newhome said:

Let's not kill that idea stone dead before all the facts and figures are known. Only when more detail is understood can better advice be given.

 

 

I am actually offering encouragement to the OP by suggesting there is no need to get that deep into mortgage debt. I also think that if a newbee self builder plucks a max budget out of the air and then sits down with an architect, then the architect will find a way to spend that budget.

[newhome]

15 minutes ago, epsilonGreedy said:

 

I am actually offering encouragement to the OP by suggesting there is no need to get that deep into mortgage debt. I also think that if a newbee self builder plucks a max budget out of the air and then sits down with an architect, then the architect will find a way to spend that budget.

 

Well I don't disagree with you on the architect point for sure hence I suggested that they look at using a technician instead. Build costs (in general) tend to be cheaper in Scotland than much of the UK so the OP may well bring the cost in below their original figures, especially if they don't need a house of 200 m2 or whatever. 

 

 

Edited August 7, 2018 by newhome

[jack]

Moderator hat on for a moment:

 

This thread is drifting a long way from being productive. Everyone - and I mean everyone - please take a chill pill and stop trying to prove whether you're right or wrong.

 

There's a topic here, so let's try and stick to it for the original poster's sake.

[Mr Punter]

 

4 minutes ago, jack said:

This thread is drifting a long way from being productive. Everyone - and I mean everyone - please take a chill pill and stop trying to prove whether you're right or wrong.

 

 

I put it down to the hot weather.

[jack]

Just now, Mr Punter said:

I put it down to the hot weather.

 

My underfloor cooling is working a charm - maybe that's why I'm so unusually relaxed!  

[Mr Punter]

16 minutes ago, jack said:

 

My underfloor cooling is working a charm - maybe that's why I'm so unusually relaxed!  

 

I know it is off topic, but can cooling the floor cause condensation?

[Mr Punter]

In answer to the OP, if the plot is near your current house then keeping the house and just moving once would be a lot less disruptive and may even be cheaper if you can get the figures to work.  One potential issue is that you may finish the build and are not able to sell the current house quickly / for as much as you wanted.

[Jeremy Harris]

8 minutes ago, Mr Punter said:

 

I know it is off topic, but can cooling the floor cause condensation?

 

 

It hasn't ever done so in our case, and I've had floor cooling set up and working for a couple of years now.  Although the flow into the UFH is typically around 10 to 12 deg C, the floor surface has never yet dropped below 18 deg C, and to get condensation on the floor surface at 18 deg C with an air temperature of 22 deg C would need  a relative humidity of  a bit over 78%. 

 

Currently the house RH is sitting at 44%, so way out of the condensation risk zone.  To get condensation on the floor with a 22 deg C air temperature and 44% RH would mean cooling the floor surface to just over 9 deg C.

 

I have found that the UFH manifold sometimes gets some condensation on it, so have rigged up a plastic drip tray underneath is.  So far I've never seen any water actually drip into this though, so assume that it evaporates away.

[jack]

4 minutes ago, Mr Punter said:

I know it is off topic, but can cooling the floor cause condensation?

 

It can if you run it too cold, yes.

 

I only run 15 deg C water through the circuits, and the floor temp doesn't drop below about (I'm estimating) 18-20 deg C, so no risk of condensation.

 

There isn't even a haze of condensation on the metal UFH manifold, so I think the floor is safe.

[Ferdinand]

On 05/08/2018 at 22:21, Jenjen said:

Hi

Looking for a bit of advice on financing options. Have found a plot of land that’s for sale for £95k with planning permisson (although we would re-design and resubmit)... overall budget for project no more than £450k (including land price). We have £100k cash, around £120k equity in current house so would need to find £230k for the rest.

 

I’m not sure whether it would be best to sell up straight away, bank the equity  then get the usual 5.5% self build mortgage. Using a mixture of self build mortgage and cash for plot purchase.

 

Or.

 

Keep house until toward end of project, get £100k additional borrowings (max we could get based on LtV)  on current mortgage for 2.5% interest (use that to buy plot) and then make arrangements for self build mortgage for remainder. 

 

Not sure if option 1 would help with self build Mortgage as essentially plot would be bought so may be in better position!? 

 

Help! Head is spinning! 

 

 

 

I like the feel of option 2. Sorry - did not have time to read the whole thread except for Zen Jack and his moderately cold feet. But there is an option 3 below. My comments are:

 

1 - This is a high risk time, with Brexit and so on, and unpredictable markets, and in your area taxes recently changed to slant against you should you sell. In my view that means bigger contingency up front and leave some of your final spec items a little less defined, then you can have lollipops if you haven't spent the lollipop money on known or unknown unknowns. I would suggest perhaps a 20% contingency, and be aware of possible compromises that you can make should it be necessary.

 

2 - The one thing to include a lot of in your budget is time, whether elapsed or spent. You sound to be doing your due diligence, which is good. The thing is the old insight that things become an order of magnitude to fix each time you go one stage further into your project. So make your mistakes on paper, by learning enough up front to have a good enough idea of what you want. Then you don't need to keep changing it.

 

3 - On the finances I might try and avoid a self-build mortgage altogether. 5.5% for 3 years on 200k is an extra 15-20k interest over a normal mortgage. I would max out your current one to buy the plot if you are happy, because the trend in interest rates is a slow up, then see if you can get to habitable stage in the new one out of savings to get a normal mortgage on *that*, then work from that. There are tradeoffs there vs what to include in VAT reclaim, costs-benefits of staying renting or selling your current one, cost of the new one, and so on. Run the numbers for you.

 

4 - WRT to the plot, you need to work out the things you don't know about the plot that could impact you later - eg ground conditions, expensive services (if there are still some to get), planning conditions that will be imposed, ologists, and so on. That is about risk management, but it is also about the way you may need to negotiate your deal.

 

Given that you have planning but will want to change it, make sure eg that your seller will not object to the kind of thing you want if they live close by. I assume you have had a chat about your ideas with the Planner.

 

Ferdinand

Edited August 7, 2018 by Ferdinand