Ask the Expert: ‘Self Build Finance’, with Mary Riley
It’s easy to rush ahead of yourself when thinking about building your own home; distractions are all too common when people get excited, after all.
Whilst thinking about what construction style you might like, or the bespoke glazing you’ll need to capture an amazing view, you’ve also got to get down to brass tacks and think – ‘Just how do I actually get my Self Build finance in order?’
It’s the most important aspect of the project and, as in business, ‘cashflow is king!’
Personal savings and any equity raised from the sale of your home (if you have chosen to sell) are good starting positions, however, more often than not Self Builders will need to acquire a Self Build mortgage to finance their project.
Taking on the management of your Self Build finance as well as finding land, or running a site, can take its toll on Self Builders. Luckily, there are independent financial advisors out there who can help.
AC Architects work with Mary Riley, an independent advisor who specialises in Self Build finance. Mary is the ‘Ask the Expert’ for Grand Designs magazine and is the ‘go-to’ consultant in the Self Build industry.
With a host of connections across the Stage Release funding
sector, Mary can offer your project dedicated independent advice and recommendations.
Focusing on a personalised service, experts like Mary can project-manage the entire financial side of your Self Build. This allows you to get on with your project, free from the stress of cashflow and budgeting.
We put our questions to Mary, to give you an expert’s perspective on how to finance a Self Build project:
How would you recommend new clients finance a Self Build project? What are the key steps they should take?
Organising Self Build finance for your project is often deemed to be a daunting task! It is important to engage with professionals who understand “stage Release” funding, and the importance of ensuring lenders initial, interim, and final release of funds link in with the client’s own cash contribution and supplier payment terms.
I always suggest, prior to seeking financial advice, that clients have decided where they would like to build their new home, what method of construction they hope to utilise, and what style of property they aim to create. It is also important to consider where they will live during the build period.
A Self Builder must be fully transparent when completing a Mortgage Fact Find, paying particular attention to detail when completing each section. The Fact Find, or Personal Financial Summary, is an important document as it captures significant information, and acts as a foundation to understanding a person’s financial status and borrowing requests.
Lending institutions carry out a forensic analysis of all financial supporting documentation; this is financial documentation covering a 6 month period!
What are the common mistakes made when budgeting or planning Self Build finance, and how can these mistakes be avoided?
Many Self Builders do not carry out sufficient research prior to engaging with build material suppliers and contractors. Self Build finance should be considered carefully, and a healthy contingency of up to 20% of your total project costs ought to be added to a build budget.
Self Builders also incur costs when they change their minds on aspects of the build after the construction stages have commenced.
VAT cannot be reclaimed until after the habitation or completion certificate has been issued by the local authority.
The reclaim has to be submitted within 3 months of this certificate being issued. There are at times exceptions to the rule. Visit the HMRC website for more information.
What insurance and warranties should Self Builders be aware of, and how important are they – also at what point must these be in place?
There are a number of providers, for example: Protek, Self Build Zone. NHBC, PLB, LABC, Architect Supervision.
Always compare like for like; the cheapest premium does not always give the best protection!
It is extremely important to have site insurance and a 10 year structural warranty. Please note that a lending institution will not lend if site insurance and structural warranty cover is not in place.
What resources can Self Builders access for researching their Self Build finance?
Essentially, there are two companies in the UK who specialise in providing “Stage Release” or “Custom Build” funding advice. However, there are other companies who can also give advice.
Initially it is good to search online – or purchase magazines specialising in accessing Self Build finance for projects. These magazines will highlight material suppliers, with features covering specific Self Build “stories”.
Self Builders may also approach lending institutions directly, however, prior to approaching they need to address the fundamental points I have previously raised.
Bear in mind the lowest rate of interest is not always the best lender product; the number of stage releases and at what time the monies are released must be taken into consideration!
Be careful not to be credit searched too often; this may have a detrimental effect on your credit rating!
How long does it take to obtain a Self Build mortgage?
To allow plenty of time, I suggest a 3 month timeline; this also ought to ensure the nominated solicitor has time to return the Report on Title to the lender, with all the necessary searches having been carried out, and the conditions stated on the Mortgage Offer having been addressed.
Please note, with the effect of the 21st of March, Residential Mortgage Offers remain valid for 60 days, a Bridge Facility valid for 28 days and a Re-mortgage valid for 28 days.
Generally, what costs are involved in obtaining a Self Build or “Custom Build” mortgage (i.e. your fee)?
MRCBF charges a service fee of one percent of total borrowing costs; with a minimum fee of £1,000. The first Engagement fee is not payable until the signed Terms of Business has been received, the Fact Find has been evaluated, and a mutual agreement has been reached to progress with your application.
On a case-by-case basis, for borrowing level over £400,000, we may refund a percentage of the procuration fee, or monies received from the lender, out of cleared funds received.
Staged fees will be payable as detailed:-
- £500.00 Initial Engagement fee, (initial discussions may be held with funders to gain their appetite to lend, prior to the first payment of £500.00 being due).
- £500.00 payable in advance when the referral or the decision in principle is submitted to a funder.
- 1% of the total borrowing facility on issue of Formal Offer of funding (less the sum of £1,000 as above)
Your top 5 tips for any new Self Builder?
- Engage with professionals at an early stage; bring together your “professional team” who will work together on your behalf.
- Add a contingency of up to 20% of total project costs to your build budget. Ask for more money than you think you will require. (If you do not require the full mortgage facility, you only pay interest on the funds you drawdown).
- Be totally transparent when completing a Personal Professional Summary (Fact Find). Any additional relevant information you may have, with regard to the funding of a build, should be provided at an early stage.
- Allow plenty of time when applying for a mortgage, Self Build finance should never be rushed!
- Ensure appropriate site insurance and structural warranty cover is in place.