If you're a first-time buyer struggling to get your foot on the property ladder, why not consider building your own home? It might sound like a daunting prospect, but in the current financial climate it's certainly an option worth considering. This is one of the best times to think about self-building as you may be able to purchase land at a price much lower than the asking price was six to 12 months ago and you can negotiate build costs and payment terms. All of which means that if you take the reduced purchase price of the land and reduced build costs into consideration, you ought be able to build a home that you might not have been able to afford to buy.
What's more, being a first-time buyer does not mean that you cannot obtain a mortgage to enable you to build your first home. Some banks and building societies ask that you are over 18 years of age, others state that you must be over 21 years of age. And if you continue to live with your parents while you are building your home, this will give lending institutions added comfort factor as your existing monthly outgoings may not be very high.
A self-build mortgage is usually no different from any other mortgage, with the exception that funding is released in stages throughout the build. A reduced number of banks and building societies offer this facility. One of the most important pieces of advice I can give is do not borrow too much, as although interest rates are low at the moment, it's impossible to predict future rates. When working out how much you need to borrow, it's important to bear in mind your own cash contribution to the project. The level of deposit you require will differ from lender to lender, with most lending institutions requiring you to contribute between 25% to 30% of the land purchase price or valuation (whichever is the lower of the two), as well as a contribution towards build costs.
Before you apply for a self-build mortgage, I would recommend that you have an understanding of the type of construction method you wish to build your home with (timber frame, masonry etc) as some banks and building societies will lend on certain types of construction and others will not.
In terms of how to apply for a mortgage, I am not a believer in people doing this online. I feel it's always better to discuss all your options in advance of making an application, especially if you are a first-time buyer. If you make an error inputting the information online this may result in you being declined a mortgage. Specialist companies who may be able to assist you include www.self-builder.com and www.buildstore.co.uk
It's also important to negotiate your payment terms with your builder and suppliers. Most manufacturers require a percentage of the build cost to be paid on date of order, and you may also be asked to make another payment before the materials are delivered to the site. But is it wise to pay a large percentage of build costs in advance, especially in this current economic climate? For example, what happens if supplier goes into administration? More often than not the lending institution may not lend additional funds as this may take you over your affordability level, putting you in a very difficult situation. There are safety measures you can put in place to alleviate the concerns of your supplier, your lender and yourself. As a first-time buyer and a first-time builder, I would suggest that you work on a fixed-price contract, either with your builder, architect or project manager to ensure you do not go over budget.
Remember that arranging your mortgage is only one part of the jigsaw in getting your self-build project off the ground. The best advice I can give? Engage with professionals who will hold your hand from start to finish of your project. Remember to incorporate a healthy contingency into your build costs and always keep a tight rein on all your costs.
Are you a first-time self-builder? Is the value of your new home much greater than it cost to build it? Would you build again to reach the next step on the housing ladder? Let theselfbuilder.com know about your experiences
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