Sorting out funding for Self build

[Lornaj]

Hi, looking for some advice. We have just been granted planning for our forever home. We are hoping to start shortly. We want to know what is the best option.

Do we use our savings and start building, then once we run out (which we will) go looking at some sort of loan/mortgage to finish the job? Is there loans/mortgage you can get to finish a house or are these hard to get?
Or do we look into getting a mortgage first and only draw down when we need it?
Thanks for any advice. Just want to do the right thing to ensure the house gets finished!

 

[Monbretia]

I would strongly advise you get mortgage approval first before you start to build if you are going to need a mortgage, this will ensure you have the proper regs/planning docs/architect or engineer sign off etc in place. You only need to draw down the money when you need it although it depends what you are calling a slow build, a lender will have a time span on a mortgage approval but of course you could always just draw down a small bit once you have some done just to secure the mortgage drawdown.

The worst thing to do is start and be half way through and then try and get funding, what happens if all the relevant bits the lender wants sign off on are not done or done the way they want. If you want bank funding then you have to comply with their requirements so better to know this ahead of time.

All that said if you are going to be short a small amount then there is always the possiblilty of CU loan or similar, less paperwork etc but higher rate.

Also you need proper self build insurance, the stuff that covers workmen etc as if you are doing direct labour you are the contractor basically and the buck stops with you. Most of those policies are for around 18 months so make sure it can be extended if needs be, it will cost you at least 1k and probably more but my point is don't believe anyone that tells you they got it from their bank or some random place for a few hundred. That is not 'self build' insurance, that is basic house insurance that covers far less and is mainly put in place to satisfy a lender and is fine if you are building with a main contractor who has the necessary workplace insurances.

 

[mike2017]

Work out your budget, add contingency (usually 10%) and then where your mortgage deposit comes from? Do you own the land, or will you be using cash as the deposit for the mortgage and work out you Loan to Value. You'll need a bank valuation for the proposed property so they can estimate how much its worth. I just started a month ago and was processing a bank mortgage self build application in parallel but still haven't received final loan offer. Had approval in principal only. You can draw down any way you wish but the more drawdowns, the more your solicitor will charge!
Be on the lookout for any scary items that may impact the budget -

1. Is the land good, no made ground or poor soil/drainage conditions, you can get dynamic probing & a geotechnical analysis done - this can impact cost of foundations. This bit me hard.
2. Service connections - public or private. Do you have written offers / costs? These can be small or large.
3. Architect / Tender package / full BCAR or as previously posted Direct Labour? You still need someone to sign off certificate of compliance for the bank at the end
4. Insurance - self build policy, any non standard construction limits your choices, any ground issues severely limits your choices. Mortgage protection insurance, increasing as you draw down. Keep contingency fund in cash handy.
5. Development Contributions, get started before April and you'll have until Dec 2025 to finish and not pay any council charges or water connection charges to the public system but that's a tight timeline. Gov may extend the scheme closer to April but it can save you a LOT of money if you get onboard
6. Portaloo & scaffolding rental, other plant hire, covered by insurance?
7. Site Security - fencing, lighting, waste, project management, first aid, HSA site safety, Safepass, risk register etc

Best of luck with the endeavour!