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Self Builds

28th July 2022

By James Jones

Self builds normally are found in two situations. Someone has bought a plot specifically to build on, or have been granted permission to build on land they already own.

If you have a considerable amount of extra space in your back garden, it may be possible that you could utilise it. You could add a second home in your back garden if there is enough space in the form of a self build. If you need extra cash to help you with self builds, bridging finance may be able to help as often people cant afford to take out a mortgage in addition to the one they have on their home. Alternatively a self build mortgage may be available and both of these options should be discussed with your broker 

Advantages of self builds

There are numerous advantages to self builds. Firstly, you can reside in your current property whilst your new self build property is being built. As a result, you can keep an eye on how your build is progressing. Self builds are bespoke, you are involved with all the processes your new self build will go through. Therefore, you can tailor the build to suit your needs. However, if you want to take more of a backseat role, it’s possible to delegate control of the project to an architect.

Plus, there should be extra space in your current property and surroundings to store building supplies for the self build. Also, if building in your garden, the plot of land you are building on is already yours and you don’t have to set aside money for land. Therefore, you can focus all your funding towards the self build. As well as all this, you are still in the same living environment and neighbourhood which means you won’t need to adapt to new surroundings.

The big advantage? Get your numbers right and there could be a big profit to me made. Whats more, it could be tax free if the new build is within the boundaries of your main residence.

Disadvantages of self builds

On the other hand, there are disadvantages involved with self builds. For starters, self builds are risky. If you don’t keep to a strict plan, there is always a chance your build could spiral out of control, which could cost hefty amounts of time and money. It is always wise to have extra money saved up for any unforeseen problems during construction of your self build.

In addition, self builds can be quite stressful. This is especially so for first time builders and the unprepared. Self build projects could potentially take years to finish. So, if your current property gets sold at any point throughout the project, you will have to find somewhere to live in the meantime. Also, self builds are known to put relationships to the test. You will have to make sure you’re both up for the challenge as times could get tough.    

Things to consider for self builds

Unfortunately, you can’t just build a house in your garden space. There are considerations to factor in if you fancy building an additional property within your boundaries.

Legal Restrictions

Also known as covenants, you should always check to see if there are any legal restrictions in place that could prevent you from building. If there are restrictions in place, it’s not the end of the world as they can potentially be removed. But, if you disregard any legal restrictions already in place, you could be handed an injunction or face high costs to pay for the restriction to be removed. Land registry searches are cheap and easy to do via a Government website

Location and planning

Of course any application will need to meet the local planning requirements. In simple terms infill and conversion planning has a good chance of success. Ground up building in green belt is always going to be tough.

The more well thought out your plans are the more likely you will get the green light on your planning. Details such as how your new self build will fit in/blend into its surroundings could have a positive impact on your application. If the design is in keeping with nearby houses you should have an easier time. The main problem arises when you plan to build a house with “modern architecture” in a conservation area. If this is your plan you may need to seek the advice of a professional planning consultant.

Capital Gains Tax (CGT)

Capital gains tax is what you would have to pay when you “dispose of” a commodity that has increased in value. Disposing of a commodity includes:

  • Selling the asset
  • Swapping the asset for something else
  • Giving the asset away as a gift
  • Transferring an asset to someone else
  • Compensation such as an insurance payout for an asset that has been written off or lost

In this instance, if you plan to live in the self build, when you sell your previous property, you should be exempt from paying CGT. Also, if you gain planning permission to build a second property in your garden space, you can sell the plot and not pay CGT. Assuming you do this, the plot of land must be under 0.6 hectare or 1.25 acres. On the other hand, you will have to pay CGT on the self build if you let it out. CGT will have to be paid on any subsequent sale as it is not your primary residence anymore. Spending a few £100 on tax advice could save a massive tax bill later – especially if you plan to rent the property out. You can get a Free initial tax consultation from a leading property tax expert by completing this form

Mortgages for self builds

There are self build mortgage products available for those requiring a loan to fund a self build property. Self build mortgages work slightly differently to standard mortgages. With a self build mortgage, money is granted in stages. When one part of the build is finished, another sum of the loan is granted to commence the next job. This is done to reduce risk as well ensuring that the money is spent on the project and not elsewhere. Self build mortgage interest rates are higher than usual mortgage products. You will usually require a deposit of around 25%. Those looking for self build mortgages are more likely to be accepted if you have:

  • Regular stable income and you can prove you can afford the repayments
  • Good credit score/history
  • Few to no debts
  • Experience in self build or a contracts manager to oversee the build.

Self build bridging

Some people may utilise bridging / development finance for their self build project as they’re a quicker option than a self build mortgage.

Click to watch a video on how development bridging works

The key difference between a mortgage and bridging finance is that bridging is noticeably short-term. Usually bridging terms last around 12 to 18 months. If the loan is secured on a property you live in, regulations on allow a maximum of a 12 month term. So, those looking for bridging finance will need to be able to repay the loan in due course. Also with a bridging or development loan there are no affordability checks as the interest can be included in the loan; thus your cash flow isn’t affected.

Borrowers need to be aware that bridging finance is usually secured against property or land you require the finance for or against other property / land you own. As a result, failure to repay the loan on time could mean repossession, penalties, as well as harm to your credit history and score. Plus, whatever is being secured against the bridging loan will have to be valued by the lender.

Make sure that you have a water-tight exit strategy that details all aspects of your plans. Strong exit strategies are key in ensuring the lender has confidence in distributing funds to a borrower.

Always deal with a broker who understands both bridging and mortgages. Your broker can help find the right product now and sense check your exit and if necessary arrange any exit mortgage required



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    2 out of 3 borrowers get a lower rate than our representative example of a regulated secured loan below:

    Mortgages and Remortgages

    Representative example

    £80,000 over 240 months at an APRC OF 4.3% and a discounted variable annual interest rate for two years of 2.12% at £408.99 per month followed by 36 payments of £475.59 and 180 payments of £509.44. The total charge for credit is £39,873 which includes a £995 broker / processing fee and £125 application fee. Total repayable £119,873.

    Secured / Second Charge Loans

    Representative example

    £63,000 over 228 months at an APRC OF 6.1% and an annual interest rate of 5.39% (Fixed for five years – variable thereafter) would be £463.09 per month, total charge for credit is £42,584.52 which includes a £2,690 broker / processing fee. Total repayable £105,584.52.

    Unsecured Loans

    Representative example

    Annual Interest Rate (fixed) is 49.7% p.a. with a Representative 49.7% APR, based on borrowing £5,000 and repaying this over 36 monthly repayments. Monthly repayment is £243.57 with a total amount repayable of £8,768.52 which includes the total interest repayable of £3,768.52.

    The %APR rate you will be offered is dependent on your personal circumstances.


    THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME

    REPAYING YOUR DEBTS OVER A LONGER PERIOD CAN REDUCE YOUR PAYMENTS BUT COULD INCREASE THE TOTAL INTEREST YOU PAY. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.


    Promise Solutions is a broker offering products which represent the whole of the specialist second mortgage market and is authorised and regulated by the Financial Conduct Authority – Number 681423. If you have been introduced to Promise Money by a third party / affiliate, Promise may pay them a share of any fees or commission it earns. Written terms available on request. Loans are subject to affordability status and available to UK residents aged 18 or over. Promise Money is a trading style of Promise Solutions Ltd.