Self-build: is it getting easier to build your own home?
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New housing minister Mark Prisk recently reaffirmed the Government's view that custom built homes could help ease the housing shortage. But has it got any easier since 2010 when it was first put on the agenda?
Speaking at a recent conference organised by the Council for Mortgage Lenders, new housing minister Mark Prisk reiterated the Government view that self-built homes could be the innovation the housing market needs.
Approximately 110,000 new homes are being built this year, but demand is for closer to 250,000, highlighting what a big barrier to homeownership supply really is.
Last year 13,800 new homes were self-built in the UK, but the Government wants to double that figure over the next few years.
Mr Prisk, a former chartered surveyor, said homeowners should not consider it a ‘pie in the sky dream’ and called for more financing innovation from lenders to support the Government’s ambition.
But is there any appetite?
In the UK just 10% of new homes are self-builds, while in the US DIY homes make up 45% of the sector. Elsewhere in Europe, France and Germany have an even greater attraction to grand designs with six in ten opting to custom build their homes.
But according to research from the Building Societies Association there is definitely an appetite for it in the UK. A survey conducted in 2011 revealed 53% of people would like to build their own home if they had the opportunity.
And why not? Building your house can be a lot cheaper than buying, so long as you don’t let costs get out of control. Typically self-built homes are worth 25% to 30% more on completion than they cost to build.
Building your own home means you save a load on Stamp Duty as you only pay this tax based on the cost of the land and only if a plot costs more than £125,000. The typical cost of a plot in England is around £100,000 according to research conducted by website Right Property. Plus you can claim VAT back on many goods and materials used in your project within three months of completion.
Yet those surveyed expressed fears about expense (40%), difficulty in getting planning permission (39%) and the availability of land (38%) as the top three barriers to starting a project.
Let’s take a look to see what has changed since the survey and what still needs work.
The plot and planning
The Government has freed up surplus public sector land for group development which is expected to produce 100,000 new homes. Plus it has appointed the Homes and Community Agency to keep the search up for sites that can be used for group self-build projects.
The red tape around planning permission is another serious setback and causes many to give up on self-build projects. But the Right to Build scheme introduced by former housing minister Grant Shapps has taken steps to remove this barrier.
This policy means if enough of a community bands together for a building project be it for a shop or new housing, then their application can by-pass usual planning application processes, effectively fast-tracking a project.
Some work has also been done to target individuals as well. The New Homes Bonus is a grant given to councils that increase the number of homes and are used to incentivise local authorities to push the priority of self-build applications higher.
The Government has also helped with finance for self-builds, though this seems targeted at group projects. A £30 million Custom Build Investment Fund is in the early stages of being handed out to builders, groups and small organisations. A similar fund supports the Right to Build initiative.
According to financial information website Moneyfacts there are 28 lenders that offer self-build mortgages to individuals today. So clearly this is still a very niche market, even though the figure is up from around 20 in 2011.
Building societies tend to be the most prominent in this market, but some limit finance to projects based on the areas they serve.
Self-build mortgages vary in the way they can help to finance your build. They generally pay out in stages – from plot purchase through to completion.
Some offer an arrears stage system, where lenders pay out money once certain construction stages are completed. This can mean you need to have a lot of free capital to cope at each stage.
Others offer an advance stage system where you get some cash before each phase, allowing you to keep to a budget but also taking the pressure off your finances.
As a first-time buyer with limited funds, I much prefer the proposition of an advance stage mortgage, but in my search I failed to find too many on offer.
One of the cheapest self-build mortgages is arrears staged and comes from Progressive Building Society. It’s a three-year fix at 4.25%, offered on a 60% LTV and comes with a fee of £1,095. But this lender will only lend on properties being built within Northern Ireland.
Elsewhere, Norwich & Peterborough has a competitive semi-arrears staged two-year tracker at 4.89% (tracking base rate plus 4.39%) and is offered on an 80% LTV with a fee of £795. The money for the initial purchase of land is advanced, but the six other stages the society splits self-build into are paid in arrears and require a re-inspection by a surveyor – paid for by the borrower - before funds are released.
The only full advance staged self-build mortgages I could find were from BuildStore. A lifetime variable rate tracker is available for 5.89% (tracking the lender’s SVR plus 0.6%) on an 80% LTV. But on top of the premium in the rate, you will have to pay fees of £1,732 as well as the lender’s completion fee of 0.5% of the completed value (minimum £699) and a valuation fee.
Is it getting easier?
It does look like there is some exciting activity in the world of self-build. There is much more information around, initiatives in place and success stories that are encouraging.
But the finance around funding a project feels less accessible and I would be interested to know how many first-time buyers with limited funds have undertaken a project on an arrears staged basis.
Mark Prisk pinpointed the lack of innovative finance for self-build in his speech, putting the onus on lenders to make changes.
If the thought of building a dream home appeals to you there are plenty of places you can find out more:
What do you think?
Could self-build be a mainstream housing option in years to come? What more do you think could be done to make this dream a reality for the many? Let us know in the comment boxes below.
At lovemoney.com, you can research all the best deals yourself using our online mortgage service, or speak directly to a whole-of-market, fee-free lovemoney.com broker. Call 0800 804 8045 or email firstname.lastname@example.org for more help.