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Dear Delia

Jon and Linda are renting and as they can’t find a suitable property to buy, they would like to build their own home. They have found a plot of land with outline planning permission for a three-bedroom property. The land is on sale for 115,000 and they have been advised that the build will cost approximately 150,000. They have some savings but need finance to help buy the land and fund the build. What are their options?

Delia says: Self-builds are increasingly popular but it is important to stick to the budget. Sally Laker of Mortgage Intelligence and John Hay of BuildStore look at the choices.

Have you got a problem for Delia? Email mortgage.strategy@centaur.co.uk

Intermediary Response

Sally Laker is managing director of Mortgage Intelligence
With more media coverage of the subject, building dream homes is increasingly popular. But the reality can differ from the dream.

Building a home is a challenge and sound professional advice is needed to guide clients through what can be a minefield. Jon and Linda will need to find a qualified architect to help with the design and structural plans, and a project manager will ensure the build remains on budget and schedule. They should get quotes from various building firms before making a decision – the most expensive is not always the best. Once they have chosen their building firm, they should ensure it agrees to meet the build schedule.

Jon and Linda already have outline planning permission which means their local authority has agreed in principle to them building a house on the plot they have chosen. With the help of their architect they will have to submit detailed plans showing all constructional details of the build. These will need to be submitted well in advance of any work starting. When plans are passed the plot will have what is known as detailed planning permission.

Inspectors will visit the build regularly to ensure all works are in line with the plans submitted and once they are satisfied, a certificate of completion will be issued which should be kept with the title deeds.

With the help of a project manager, Jon and Linda must monitor the build closely to ensure it remains on budget. It is also advisable to allow an extra 10% as a contingency fund.

A number of lenders will consider lending for self-build including Halifax, Alliance & Leicester and The Woolwich. But these lenders do not lend for the purchase of land, they release funds for each stage in arrears and will not release any monies until the property is at first floor level.

Norwich and Peterborough and Furness will lend toward the purchase of the land but again release monies for each stage in arrears.

BuildStore specialises in self-build mortgages and can guide clients through all stages. It lends in advance of each stage so Jon and Linda won’t have to fund the build themselves. It will lend up to 95% LTV of the purchase of the land, 95% of construction costs and 95% LTV of the final value of the property. It will also lend against outline planning permission, whereas a lot of lenders will not agree any finance until detailed planning permission is received.

BuildStore has a panel of lenders offering full status or self-cert mortgages with a range of rates including fixed, discount, offset and cashback options.

Provider Response

John Hay is head of product development at BuildStore
Self-build has grown in popularity over the past few years, so Jon and Linda are building at a time when there has never been more help for self-builders. They have jumped the first hurdle by finding land and now they can get their finances organised. Although they have some savings, they need money to buy the land and build the property.

The land only has outline planning permission. They therefore require a self-build mortgage which will first lend on land and second, lend on land which only has outline planning permission.

When it comes to the building of the house, self-build mortgages release money in stages as the build progresses. There are two methods available. Advance stage payments mean money is released at the start of each stage and give the client positive cashflow during the build. Arrears stage payments mean the client funds stages from their own resources. When each stage is finished an interim valuation is carried out. After this a lender will release money.

With advance stage payments, the amount released at each stage is agreed when the mortgage is set up, based on the client’s costings. With arrears stage payments, the money released at each stage depends on the valuations.

Jon and Linda do not have a significant amount of money to use during the build so an advance stage payment mortgage would be most suitable.

Five lenders operate advance stage payment self-build mortgages via BuildLoan – Accord Mortgages, Amber Homeloans, Lloyds TSB Scotland, Skipton and The Mortgage Business. All will lend 95% of the cost or value of land, whichever is the lower. And crucially in the case of Jon and Linda they all lend on land with outline planning permission. During the build they lend up to 95% of the cost of each stage, with money released at the start of the stage. This means Jon and Linda need only provide a deposit of 5% to buy the land – 5,750 – and 5% of the costs of the build at each stage – a further 7,500. All these lenders will allow borrowers to remain in their existing homes during the build but this will not affect Jon and Linda as they are renting. If they are first-time buyers, Accord, Skipton, Lloyds TSB Scotland and TMB are available to them.

The amount the couple can borrow is based on normal mortgage criteria, so depending on the lender 3.25 x to 4 x joint income would be available with both Amber and TMB, lending on a self-cert basis.

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