Financing Self Build In Parents Garden

[Johnny Jekyll]

I've been awarded planning permission to build a house in my parents garden. My parents will gift the land to my wife and I, and we will build the house and live in it as our principal private residence. Our budget to build is around the £300,000 mark. We are having full building plans drawn up and will use an estimator to help plan the cost of the build.

 

My main question is around financing the build. My wife and I currently live in a flat less than 10 minutes drive away. We own the flat outright mortgage free, valued at approx £200,000. We are debating whether to:
Option 1 = Sell the flat and move in with my parents, effectively providing us with £200,000 cash flow to start the build.
Option 2 = Take out a mortgage on our flat to start the build, and stay in our flat during some of the build.
Once the money runs out, our plan is to take out a self-build mortgage or if we can get habitable, take out a normal mortgage to finish off near the end.

 

Any advice on which option would be much appreciated?

 

Also, I have other thoughts such as, when is the best time to do the gift of land transfer? Before the build starts or during (we want to get the 7 years inheritance tax period ticking if possible)? And are there any implications (e.g. capital gains tax) of overlapping and owning our flat and the land at the same time for a while?

 

Many thanks.

[recoveringbuilder]

I would get the land into your name before starting, it might have been an idea to do this before planning was granted as it would not have been worth as much as just a piece of garden as it now is with planning on it however this said our first plot came from my mother in law and there was no question about capital gains but we did pay a nominal amount for it. Personally I’d get the flat sold, I like to know I have money in the bank to get going, when we built our second house we sold the other one first and lived on site, we didn’t have enough to complete the house but when we got to the stage where we needed more funds we just applied for a normal mortgage and the bank sent out a surveyor to value the work already done and of course it was worth a lot more even in its unfinished state than we were asking for, good luck with your build!

[ultramods]

You certainly have a few options. However if you think you will need funding at a later stage in the build I would arrange the funding before starting, have you never watched grand designs before? It took us months to arrange our self build mortgage, best to start the process ASAP. 

 

Also the mortgage affordability calculations will take into account your outgoings during the build, so renting rather than living with your parents may reduce the amount you can borrow, clearly this will all be dependent on your household income so may not be an issue.

 

Also if you will require external funding they will want to know that the house has been build correctly, which will mean they will insist on a professional such as a surveyor or architect signing off each stage of the build, again make sure you have this done from the beginning even if you start of using your own funds. If you don't you will need to pay considerably more for a structural warranty due to the increased risk.

[epsilonGreedy]

Sell now get money in the bank = fewer middle class clipboard huggers stealing your money.

 

Conversely consider family relation dynamics should your build take an extra year. At some point your parents will revert to treating you like a teenager again which could be as stressful as self building.

 

My advice is build a weather tight house for less than £200k, move in then finish off incrementally without a mortgage.

[Carrerahill]

1 hour ago, epsilonGreedy said:

Sell now get money in the bank = fewer middle class clipboard huggers stealing your money.

 

Conversely consider family relation dynamics should your build take an extra year. At some point your parents will revert to treating you like a teenager again which could be as stressful as self building.

 

My advice is build a weather tight house for less than £200k, move in then finish off incrementally without a mortgage.

 

You have a real chip on your shoulder don't you? You have made very similar comments like this before which I ignored as a one off, perhaps you were in a huff over something but you do have an issue.

 

What I don't understand, is what someones class has to do with their ability to peel cash from your paw. Explain that one to myself and other members of this forum please?

 

Conversely, IF, I were to say, "I don't like working class hammer wielding monkeys stealing my money" in context of trades working on my build, do you think that would be acceptable? They can steal plenty money too!

 

I could make some very controversial remarks here that would sting a bit, but they would be quite true. 

[epsilonGreedy]

22 minutes ago, Carrerahill said:

You have a real chip on your shoulder don't you?

 

 

I call it having my finger on the contemporary pulse of British life.

 

Economic prospects for the under 40's have not looked so dismal for 50 years, polarization of wealth is an undeniable global economic trend and home ownership rates for the young are plummeting.

 

A self builder needs to question every expenditure that does not materially contribute to the build and short term mortgage finance is going to be such an example once fees are taken into account.

Edited October 1, 2018 by epsilonGreedy

[ProDave]

It is surprising where you can muster up funds from, make savings etc.

 

We started out with barely enough funds to get a watertight shell without the sale of our old house, yet somehow, by scrimping and saving, doing a LOT of work myself to save labour costs, and a couple of injections of capital, we are on course to just about complete the new house without the sale of the old one.

 

Your £200K should get you a long way, certainly I would have thought to habitable, if not complete.

[Ferdinand]

11 hours ago, Johnny Jekyll said:

I will use an estimator to help plan the cost of the build.

 

Any advice on which option would be much appreciated?

 

Also, I have other thoughts such as, when is the best time to do the gift of land transfer? Before the build starts or during (we want to get the 7 years inheritance tax period ticking if possible)? And are there any implications (e.g. capital gains tax) of overlapping and owning our flat and the land at the same time for a while?

 

Many thanks.

 

Welcome to the forum, Johnny. Lots of good thoughts above. I assume you are self-managing the build.

 

I take it that is an estimating service rather than an online calculator?

 

Mine are - 

 

1 - On finance, I would be attracted by either avoiding a self-build mortgage all together, or getting it in place relatively soon (though not necessarily drawn down, unless just a small amount to lock it in) bearing in mind where interest rates may going. Also timing and sequencing is critical to cost-effectiveness, especially early on - eg what you put in the planning application affects what you can put in your VAT reclaim later, and if you arrange the site 'water supply' to be a hose from your parents' outside tap then you can probably control when Council Tax starts on the new build.

 

2 - Take your time and pay attention to building your infrastructure for the project, including

 

Physical - eg Secure Storage and Site Office. Where will it be? One option is to build a double garage as storage and site office at your parents' before you start under Permitted Development. That takes it out of your PP but also takes it out of potential VAT reclaim.

 

Financial - Things like Trade Accounts.

 

Support - you need some sort of "sanity space" for you and your partner/family. eg are you happy staying with your family for 4 years if the project takes that long? Could be an argument for keeping the flat for now, or perhaps building an extra reception room on your parents' place first so that there is space there to retire for peace and quiet. 

 

Lots of detaill to sweat ? .

 

Ferdinand

[Johnny Jekyll]

Thanks everyone. If you could share more thoughts on when is the best time to do the gift of land transfer, based on HMRC / capital gains / or any legal points, that would be very useful. Either before the build starts or during the build (we of course want to get the 7 years inheritance tax period ticking if possible)? Basically implications of overlapping and owning our flat and the land at the same time is something I probably need to understand more.

[epsilonGreedy]

17 minutes ago, ProDave said:

Your £200K should get you a long way, certainly I would have thought to habitable, if not complete.

 

 

Looking at the model house budget in the Self Builder's Bible, £10,600 of the budget is allocated for external finishing such as a drive, patio and landscaping. Then there is £4,700 for decorating and £17,000 for the kitchen which amounts to big savings on the total £182k budget for a decent 160m2 detached house.

[newhome]

I think you have a few options but need to have a proper plan. When I built my house I bought the plot and completed the groundworks with savings but needed to sell my existing house (that we had moved out of as it was 400 miles from the plot) before I could pay for the timber frame. The housing market had taken a dive so I ended up remortgaging the house to release the equity to complete the build. As it happens it sold relatively quickly after that but the point was that I didn’t need a mortgage to complete the house once the old one sold. 

 

Do you have any savings to get going on the build without releasing the equity from the house? What sort of size house is it? You could likely build a house of circa 200 m2 for your budget of 300k. 

 

I would certainly get the land transferred to you before you start as it may complicate the VAT reclaim if you don’t own the land. 

 

 

[newhome]

2 minutes ago, Johnny Jekyll said:

 Basically implications of overlapping and owning our flat and the land at the same time is something I probably need to understand more.

 

I can’t see this being an issue TBH. You can’t own 2 houses without there being an implication for CGT but land is not a house, and a house isn’t really a house until you’ve built it. Even then there is a grace period where you can own 2 properties without having sold one. It’s 18 months I believe but do check. 

 

 

[nod]

1 hour ago, epsilonGreedy said:

 

Looking at the model house budget in the Self Builder's Bible, £10,600 of the budget is allocated for external finishing such as a drive, patio and landscaping. Then there is £4,700 for decorating and £17,000 for the kitchen which amounts to big savings on the total £182k budget for a decent 160m2 detached house.

Throw the self builders bible away 

a lot of the figures quoted are so out of date

Especially labour costs 

Most builders will be happy to give you a quote But will never have read a spons guide 

and will base their day rates at or around £250

So many times on here we read about extortionate quotes 

Very often its unrealistic expectations

Better to allow a bit more and be pleasantly surprised when your quote is under what you thought 

 

A good example is last week's grand designs

When the chap said 28k for a massive amount of glass 

I said to my wife No way it will be double that

I was also miles out with quotes coming in at 80 to a 100k 

[epsilonGreedy]

4 minutes ago, nod said:

Throw the self builders bible away 

a lot of the figures quoted are so out of date

 

 

Disagree 100%

 

This is why the book is up to the 12th edition. So far I have comfortably undershot the self builder's bible model house costings and have been surprised how cheap building is providing one connects with competent sole proprietor trades with the right equipment.

 

Every self builder should be able to mentally run through the 20 biggest costs for their project while falling asleep each night and the SBB is the best entry point for becoming familiar with there the money goes at each stage. 

 

 

[PeterW]

7 minutes ago, epsilonGreedy said:

 

Disagree 100%

 

This is why the book is up to the 12th edition. So far I have comfortably undershot the self builder's bible model house costings and have been surprised how cheap building is providing one connects with competent sole proprietor trades with the right equipment.

 

Every self builder should be able to mentally run through the 20 biggest costs for their project while falling asleep each night and the SBB is the best entry point for becoming familiar with there the money goes at each stage. 

 

 

 

Problem is the book is based on a main contractor build, not a subbies build and it’s also based on rates around the eastern counties. Some of the pricing is well out of whack as @nod says, and some of the “£17k kitchen, £6k per bathroom” stuff is a joke as they are well off spec. 

 

The other issue is that the bible only builds to regs or a little beyond and doesn’t go all out on a fabric first approach even for a traditional build method, which is a shame given it’s the go to starting point for a lot of self builders. 

 

I now prefer Spons as it has a much wider depth of costing and estimating, and you can pick up Kindle copies for £25

[epsilonGreedy]

6 minutes ago, PeterW said:

Problem is the book is based on a main contractor build, not a subbies build and it’s also based on rates around the eastern counties.

 

 

So @nodsays the book under prices jobs and you say my early ££ relative savings are because the book over prices jobs as a main contractor would bill them. This probably explains why the book is so popular and onto its 12th edition.

 

10 minutes ago, PeterW said:

The other issue is that the bible only builds to regs or a little beyond and doesn’t go all out on a fabric first approach even for a traditional build method

 

 

A point the author is happy to confirm as he tries to constrain the typical self builder's compulsion to burn money on grand design frivolities as seen on TV.

[epsilonGreedy]

17 minutes ago, PeterW said:

I now prefer Spons as it has a much wider depth of costing and estimating, and you can pick up Kindle copies for £25

 

 

Think I am ready for Spons now but the self builder's bible targets new entrants who like me could not have listed the stages to building house beyond concrete, walls, roof and pipes.

[PeterW]

5 minutes ago, epsilonGreedy said:

This probably explains why the book is so popular and onto its 12th edition.

 

Its not that popular - the 12th edition is due to Mark keeping it in line with regs and wanting to ensure that the pricing and building regs compliance was as accurate as possible. From memory, he used to self publish and up to about the 9th edition it was plagued with issues around the index amongst other things not being accurate. 

 

 

8 minutes ago, epsilonGreedy said:

A point the author is happy to confirm as he tries to constrain the typical self builder's compulsion to burn money on grand design frivolities as seen on TV

 

Fabric first is not “a typical self builders compulsion” and I think you have a very odd view of typical if you think that spending £3-4K extra on taping and sealing joints to form an airtight membrane to make significant long term savings on running a house is a frivolity. Moving a uValue down from 0.2 to 0.15 isn’t expensive, neither is reducing air leakage to limit heat loss - it’s common sense and has a significant impact on the liveability of the house too. 

 

The Irish market has it right in many ways and is trying to stop crap build quality with a zero carbon build spec. If you read @JSHarris blog you will see that his end price was 10% lower than an architects expectation for a standard build; this is for a house that actually pays all its own bills and had a £20k borehole and extensive groundworks. 

 

HBB has its place and I like it as a “read this to understand” type book, but it comes up short in where it could help with improving building fabric and raising standards. 

 

[Dreadnaught]

17 minutes ago, epsilonGreedy said:

A point the author is happy to confirm as he tries to constrain the typical self builder's compulsion to burn money on grand design frivolities as seen on TV.

 

I have visited the author in his recently finished new house in Cambridge. The house is designed by a top (and very expensive) architect, has a fabric-first approach, and looks splendid. A frivolity he was keen to show off was a 3-metre powered opening glass roof panel.

[daiking]

9 minutes ago, nod said:

Throw the self builders bible away 

a lot of the figures quoted are so out of date

Exspecially laboure costs 

Most builders will be happy to give you a quote But will never have read a spons guide 

and will base there day rates at or around £250

So many times on here we read about extortionate quotes 

Very often its unrealistic exspect actions  

Better to allow a bit more and be pleasantly suprised when your quote is under what you thought 

 

A good example is last weeks grand designs

When the chap said 28k for a massive anount of glass 

I said to my wife No way it will be double that

I was also miles out with quotes coming in at 80 to a 100k 

 

He's building in his parent's garden in Surrey with a £300k build budget. I expect 'quotes' to be padded out to include £400-500+ day rates.

 

It all makes sense when someone comes round to quote for a job and says "Your house is worth X so you'll be spending 10% of that on Y", whether the job demands it or not.

 

It doesn't tell you about that in the HBB or SPONS, does it?

[Declan52]

16 minutes ago, PeterW said:

 

Its not that popular - the 12th edition is due to Mark keeping it in line with regs and wanting to ensure that the pricing and building regs compliance was as accurate as possible. From memory, he used to self publish and up to about the 9th edition it was plagued with issues around the index amongst other things not being accurate. 

 

 

 

Fabric first is not “a typical self builders compulsion” and I think you have a very odd view of typical if you think that spending £3-4K extra on taping and sealing joints to form an airtight membrane to make significant long term savings on running a house is a frivolity. Moving a uValue down from 0.2 to 0.15 isn’t expensive, neither is reducing air leakage to limit heat loss - it’s common sense and has a significant impact on the liveability of the house too. 

 

The Irish market has it right in many ways and is trying to stop crap build quality with a zero carbon build spec. If you read @JSHarris blog you will see that his end price was 10% lower than an architects expectation for a standard build; this is for a house that actually pays all its own bills and had a £20k borehole and extensive groundworks. 

 

HBB has its place and I like it as a “read this to understand” type book, but it comes up short in where it could help with improving building fabric and raising standards. 

 

If the new Irish regs get approved each and every build will have to have near zero energy requirements. This will have major impacts as the use of gas and oil as your heat source will become very difficult to integrate into your build.

[nod]

3 hours ago, Declan52 said:

If the new Irish regs get approved each and every build will have to have near zero energy requirements. This will have major impacts as the use of gas and oil as your heat source will become very difficult to integrate into your build.

 

I think the point I was trying to make and obviously failing is I’ve heard day rates and half day rates quoted as little as £120 per day Even for a sole trader running a van and tools holidays etc is very low and I hear folk paying around £40 per mtr for floor tiling 

I’ve started a job this morning and have laid about 20 mtrs so far at £30 per mtr grouted and covered 

Three of us will easily complete 50 mtrs per day for the duration of this job

As I have pointed out previously there are massive differences between the site operatives and the bottom feeders that most have to make do with on self builds 

 

The small builders are struggling for labour 

I'm in the north of England so not the lowest but certainly not the highest wages 

Redrowand others are guaranteeing bricklayer 220 per day rain or shine 

I’m not taking any more work on till after Easter 

 

We hear so many tales of woe on here so let’s go into it with our eyes open

Make no mistake it’s a bad time to selfbuild 

Building has always been boom or bust 

If things were tight on-site we would have a pool of eager and well qualified tradesmen looking to earn some extra cash

Instead the jobbers have a clear run at all the private work

 

12 editions definitely does not make a best seller 

 

 

[ProDave]

2 hours ago, newhome said:

 

I can’t see this being an issue TBH. You can’t own 2 houses without there being an implication for CGT but land is not a house, and a house isn’t really a house until you’ve built it. Even then there is a grace period where you can own 2 properties without having sold one. It’s 18 months I believe but do check. 

 

 

Basically the rules are if it has been your primary residence, then the period it was your primary residence is exempt from CGT and so is the last 18 months of ownership regardless of it's use in that time.

 

After that there is a possibility it may be liable for some CGT but don't forget you have your personal CGT allowance to use up (twice if jointly owned) before you actually pay anything, so very unlikely indeed that you would actually have to pay any CGT.

 

If you then let a property that was formerly your primary residence, you then get letting relief as well, which is a more complicated "lower of 3" sum, but gives a further allowable gain before CGT is payable.

[Carrerahill]

6 hours ago, epsilonGreedy said:

 

I call it having my finger on the contemporary pulse of British life.

 

Economic prospects for the under 40's have not looked so dismal for 50 years, polarization of wealth is an undeniable global economic trend and home ownership rates for the young are plummeting.

 

A self builder needs to question every expenditure that does not materially contribute to the build and short term mortgage finance is going to be such an example once fees are taken into account.

You have not answered my question - but don't bother. Your evasiveness says it all.

 

You didn't need to explain the principle behind the basis of your original comment; it's the manner in which you deliver your comments time and time again - you have an issue, you know you do hence the deflection and you don't like that you were called out on it.

 

Across your posts it is clear you don't like that many people on this forum can afford things you cannot - you are obviously doing your best in this self-build world, but due to the nature of this type of endeavour it takes a fair bit of money, even if just secured finance, to build a home that most people could only dream of.

[Jeremy Harris]

5 hours ago, PeterW said:

Fabric first is not “a typical self builders compulsion” and I think you have a very odd view of typical if you think that spending £3-4K extra on taping and sealing joints to form an airtight membrane to make significant long term savings on running a house is a frivolity. Moving a uValue down from 0.2 to 0.15 isn’t expensive, neither is reducing air leakage to limit heat loss - it’s common sense and has a significant impact on the liveability of the house too.

 

 

I can't really understand why anyone wouldn't want to self-build to a better thermal and airtightness standard than building regs.  The cost differential of doing so is down in the noise compared with the other costs involved; a different type of worktop in our kitchen would have covered the cost difference between a passive standard build and a just-meets-crappy-building-regs standard build.

 

5 hours ago, PeterW said:

The Irish market has it right in many ways and is trying to stop crap build quality with a zero carbon build spec. If you read @JSHarris blog you will see that his end price was 10% lower than an architects expectation for a standard build; this is for a house that actually pays all its own bills and had a £20k borehole and extensive groundworks.

 

Our build ended up exceeding the PHI requirements by a fair bit, but as you say, didn't attract a premium on the price of the structure.  We did go for a reasonably good standard of internal fit out, with oiled solid oak stairs, skirting, architraves etc, oiled oak veneered doors, around £7k on stone worktops in the kitchen (which also has solid oak doors and drawer fronts, as does the fitted furniture in the utility room, WC and both bathrooms).  We also opted for a lot of travertine stone flooring, plus an MVHR that has an integral air-to-air heat pump, so we have comfort air cooling in summer.

 

The details are all in our blog, but the build cost came to around £1,380/m².  The passive slab foundations and insulated and airtight house frame came to around £56k, IIRC, for 130m² of internal floor area.  The triple glazed aluclad timber windows and doors (Average Uw of 0.7 W/m².K) were around £8.5k. 

 

I did a fair bit of work myself, like fitting the ventilation system, doing the plumbing, helping with the electrical installation, installing the heating/cooling and DHW systems, plus fitting the kitchen, bathrooms, WC, and utility rooms and doing all the internal joinery, so saved a fair bit on labour cost.  What we saved from my labour allowed us to have a higher standard of internal fit out, though.  We could have fitted out the interior for around 1/3rd to 1/2 the cost had we opted for a lower, but perfectly serviceable, specification.