Don't just dream it, build it

You'll need commitment and capital to make a house yourself, says Clare Francis
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The Independent Online

Ever dreamt of building your own home? An increasing number of people are turning this dream into reality, with 20,000 "self-build" homes set to be completed in the UK this year, compared with 2,000 in 1978.

The increase is not surprising when you consider that not only does self-build allow you to design your ideal home, but that this home is likely to cost about 30 per cent less to build on average than its market value will be on completion. Added to this, house prices remain high in many parts of the country, making the whole idea of self-build even more attractive to those who see it as the only way they can afford to get on the housing ladder.

However, building your own house can be a long, arduous process and many problems can arise along the way.

While you may have a picture in your head of your perfect home, set in an idyllic location, finding a plot of land in the right place may prove difficult. Estate agents advertise land for sale and it is also worth looking at, which gives details of land available to buy and buildings in need of conversion or renovation.

If you are buying land that has already been built on, be aware that, depending on what type of construction it is, you may not be able to claim back VAT on the cost of building your new home.

Under the self-build VAT scheme, you can claim the tax back for labour costs and building materials if you are building a house for your own occupation on land where there is no existing building. But if your home is a conversion, the original building must have been non-residential – a barn, for example – for the work to qualify as self-build.

It is also important to look at the planning permission status of the land. While you will pay less for a plot without planning permission, you risk having your application rejected if you want to build on it. Most land comes with outline planning permission, but before you can start building you will need to get detailed permission, which will mean providing full details of the property for approval.

Expect the cost of the land to account for about 30 or 40 per cent of the total budget for the project, and consider how much help you're likely to need. If you have to contract out work, get several quotes and make sure you know exactly what the quote covers, so that hidden extras don't cause costs to spiral.

One of the main problems with self-build is that you really need some capital behind you before you start – something that deters many would-be DIY home builders.

It is not difficult to get a mortgage for a self-build property. Some lenders – such as Bradford & Bingley, the Norwich & Peterborough, Stroud & Swindon and Britannia building societies – offer special self-build loans. Many other high-street names, while not having products specifically intended for the purpose, are also prepared to lend on this type of project.

When you take out a self-build mortgage the capital is released in stages, which means you will get some money to buy the land, a further instalment for the foundations of the building, and so on up to completion. Many lenders won't give you the money for one stage until it is finished and they have checked that the work has been carried out satisfactorily – hence the need for initial capital.

However, a number of lenders – including Bradford & Bingley, Britannia, Lloyds TSB and Mortgage Express – will pay for each stage before you start the work. It is worth bearing this in mind when choosing a mortgage.