Financing your self-build project

11th January 2019

 

Borrowing to build

Self-builders require more money up front than conventional homebuyers. This is because they have to buy their building plots and fund their planning applications before they can apply for any loans. Self-build mortgages tend to be interest-only as fixed-rate loans have substantial exit fees for those who change loans when the work is finished. Interest rates for loans are typically over 5 percent and self-builders should expect to take as long as six months to get their finances in place before applying for a loan. It is common to expect to raise around 25% of the cost of the land and building materials upfront and before applying for a mortgage it is pivotal to have full or outline planning permission.

Lenders are guided by valuers because they do not want to lend on a property that is worth less than the loan. They need market evidence of the resale values of the properties they are about to build. This is especially true of prefabricated buildings; they will ask for documented evidence of their long-term structural integrity and longevity.

 

Get properly insured

It’s recommended that you have your own self-build insurance policy for public liability, fire, theft and storm damage as well as for situations which could arise with tradesmen not completing the work. This can usually cost in the region of £500-£1000, depending on the size of the contract.

Many self-builders worry about their builder going bust. It is possible to attain a National House-Building Council warranty, whereby the NHBC will arrange to either hire another builder or pay for the remaining work to be completed.

 

Check your tax position

Stamp Duty must be paid for properties purchased for more than £125,000 or £150,000 for non-residential land and properties.

For those gifted land by family members, no stamp duty is due, even if another residential dwelling is owned. Self-builders who pay for land pay no more than the initial stamp duty, however much the property is worth when completed. This has to be paid within 30 days of buying the plot and only when they sell their original property within three years can they claim this back.

New properties are free of VAT and therefore a self-builder can claim back most of the VAT paid on materials. However, the tax cannot be reclaimed on professional and supervisory services, tool and plant hire and household appliances such as cookers and fridges, even if they are built in. You cannot claim back the VAT if you plan to use the property for a business purpose, but this does not extend to working from home.

Other items in Blogs
Ruth Pearson
23rd June 2022 Changes to National Insurance

In April 2022 we saw Employee’s National Insurance Contributions increase by 1.25% from 12% to 13.25%, as part of the Governments Health and Social Care levy. Employer’s National insurance also increased from 13.8% to 15%. From April 2023, the health and social care levy will be paid separately to National Insurance and become a tax…

James Selby
23rd June 2022 Pensions Contributions: Maximise tax relief

We are seeing more and more cases of individuals missing out on claiming higher rate tax relief on their employee pension contributions especially where they are not in self-assessment and required to file tax returns.   Where employers have enrolled their staff to make employees pension contributions via a ‘relief at source’ scheme, the contributions…

Paul Jefferson
14th June 2022 VAT Penalty Changes

A new penalty regime will come into effect for VAT periods starting on or after 1 January 2023. The changes will impact the charges for missing VAT filing and payment deadlines and will be replacing the current surcharge system. These changes place continued importance on being up to date with your VAT returns, aware of…

Liz Simpson
13th June 2022 NIC: All Change!

HMRC Changes to the National Insurance contributions for 2022-2023 tax year, are you confused? Due to the COVID-19 strain on the NHS, the government announced that they would be increasing the National Insurance contributions by 1.25% as a means to increase spending on health and social care. The Health and Social Care Levy was applied…

Jaimie King
10th June 2022 30-Jun-22: Covid Recovery loan deadline approaching

Time is running out for businesses to apply for Recovery Loans, the follow on Covid-support product from the CBILS.   In order to qualify for the Recovery Loan Scheme (RLS), your business has to have been affected by Covid-19 and you have to apply and have received the funds by 30th June 2022. The RLS…

Stephen Malkin
7th June 2022 Virtual Finance Officer: Outsource your book-keeping to us

Following the increase in use of cloud accounting software’s like Xero, QuickBooks and Sage over the past few years, businesses have never been better positioned to look to outsource their accounting function.  For all businesses, getting the accounting function working efficiently can be challenging, as you will need potentially different people with different skills: someone…