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Finance & Budgeting

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What costs can I expect?

Mortgage

You’ll need a self-build mortgage and there are a wide variety of lenders prepared to offer one. Typically, loans of around 80% of the land value and over 90% of the completed property will be available. Get a few quotations and see whose deal is most suitable for your project and your requirements. Keep an eye out for when the payments will be staged - this can be crucial for your cash flow.

Most schemes work in arrears and give you staged payments - after foundations, at roof plate level, after internal walls and plastering, and finally on completion. With this type of scheme, you are only paying interest on the part of the mortgage you have used. There are also schemes which stage pay in advance by considering the land value and advancing against this. With this type of scheme there may be a mortgage premium insurance charge, check what this may be before committing yourself.

There are many websites with information and offers for self-build mortgage finance - these should be treated with care, as many are just intermediary brokers who will be taking commissions on any business referred through them. We recommend you also obtain direct quotations from prime lenders like banks and building societies to ensure you get a good cross section of the market prices and offers to compare.

Other Costs

Remember to allow for the various legal and professional costs that you will incur. These can include:

  1. Stamp Duty Land Tax - Stamp Duty Land Tax replaced Stamp Duty in December 2003 and is a tax on the documents that transfer ownership of a property. When you buy a property, you may have to pay Stamp Duty Land Tax.
  2. Paying Stamp Duty Land Tax - You don't have to pay any Stamp Duty Land Tax on residential property costing £125,000 or less (effective 3 September 2008). Above this amount you pay between one and four per cent of the purchase price.

Paperwork

As the buyer of the property, you are responsible for completing the land transaction return and paying the Stamp Duty Land Tax. However, in practice, your solicitor or licensed conveyancer will usually handle this for you and send it to HMRC on your behalf. You should check that all the information on the form is correct and complete before signing the declaration.

Valuation Fees

Mortgage lenders will conduct a survey and valuation of your land for their own records and, even though they charge you for this you will normally find that this valuation is not passed on to you. You may therefore also wish to have an independent valuation carried out by a professional surveyor for your own use and purposes.

Planning Fees

You should expect to pay fees for drawings and plans prepared by architects or other professionals. You will also have to pay the normal council charges for planning permission and for building regulations approval and inspections. These costs can be obtained on request from the local council.

Mains Services

If you have purchased a plot of land which is not already connected for mains services like electricity, gas and water, you will need to budget for these to be provided. Depending on the distance to the nearest services these charges can be considerable and we recommend you establish these early in your project planning by contacting the electricity, water and gas companies.

Costs for mains services connection can easily run into several thousands of pounds so being aware of them as early as possible is paramount to keeping on top of your costs, especially if funds are limited.

Insurances

It is important to ensure you are adequately insured. Self-build insurance policies are available and can provide cover for:

  1. Public Liability Insurance - This covers legal liability for claims made by any other person or body in respect of death, injury or loss arising from your building operations.
  2. Employer's Liability Insurance - This is a legal requirement if you are employing anyone. This can also be a factor if any sub-contractor working for you has an accident on site where your duty under to provide a safe working site could be called into question.
  3. Contracts Works Insurance - Protects against losses through theft, vandalism, structural damage, fire, flood, storm damage, damage by delivery vehicles, etc. The new building is protected at every stage and materials are covered as soon as ownership of them passes to the self-builder, whether on or off the site.

Stamp Duty Land Tax

Stamp Duty Land Tax (SDLT) is charged on land and property transactions in the UK. The tax is charged at different rates and has different thresholds for different types of property and different values of transaction.

The table below applies for all freehold residential purchases and transfers.

Purchase price of residential property

SDLT %

£0 - £125,000

0%

£125,001 - £250,000

1%

£250,001 - £500,000

3%

£500,001 - £1 million

4%

Over £1 million to £2 million

5%

Over £2 million - from March 2012

7%

Over £2 million (purchased by certain persons including corporate bodies) - from March 2012

15%

If the value is above the payment threshold, SDLT is charged at the appropriate rate on the whole of the amount paid. For example, a house bought for £130,000 is charged at 1 per cent, so £1,300 must be paid in SDLT. A house bought for £350,000 is charged at 3 per cent, so SDLT of £10,500 is payable.

Properties bought in a disadvantaged area

If the property is in an area designated by the government as 'disadvantaged' a higher threshold of £150,000 applies for residential properties. Make sure you check this as you could save thousands of pounds. You can read more about this at: https://www.hmrc.gov.uk/sdlt/intro/rates-thresholds.htm#1

 

Purchase price/lease premium or transfer value

SDLT rate

Up to £150,000

0%

Over £150,000 to £250,000

1%

Over £250,000 to £500,000

3%

Over £500,000 to £1 million

4%

Over £1 million to £2 million

5%

Over £2 million from 22 March 2012

7%

Over £2 million (purchased by certain persons including corporate bodies) from 21 March 2012

15%

Reclaiming the VAT

VAT costs are often a significant factor when deciding whether to undertake a self-build project. The size of the potential reclaim can be really significant and we recommend that you read the appropriate notices on the Customs and Excise website to make sure you understand exactly what can and cannot be claimed and to establish that your project will qualify.

Generally speaking, you should qualify for VAT refunds if you are constructing a 'dwelling' from scratch - there are provisions also for extensions and for re-builds of existing properties if demolished completely or at least down to foundation level.

You cannot recover all of your VAT costs. If you construct a new eligible building you can only claim for the VAT on those ‘building materials’ incorporated in the building. For conversions, you can also claim for the VAT on conversion services supplied to you.

Some items on which you cannot reclaim VAT are:

  1. fitted furniture, other than fitted kitchen furniture, whether bought ready to fit, in kit form, or materials for the construction of fitted furniture
  2. most electrical and gas appliances, for example, washing machines, dryers, refrigerators and freezers, waste disposal units, door-bells, and electrically-operated doors (or door locks) and gates
  3. carpets, underlay and carpet tiles
  4. garden ornaments, sheds and greenhouses
  5. plant, tools and equipment
  6. consumables that are not actually incorporated in the building (e.g. sand paper, white spirit, etc.)
  7. building land

Keeping Records

It is important to keep accurate records as you go along with the project, keep all your invoices together and make a list of every invoice in a book showing the purchase price and the VAT. You will need all this information at the end when it comes to lodging your VAT reclaim and it save a world of pain if this is collated as you go along.

There are various forms you will need to complete as part of your claim submission. You may find it easier to fill these in as your work progresses. Obtain a VAT claim pack when you start your work. The Claim Pack consisting of the following forms is available from HM Revenue & Customs National Advice Service (Tel: 0845 010 9000):

Material Estimates

Getting accurate estimates for building materials is a fundamental part of the planning and budgeting process. You could do this yourself if you’re confident, but it’s often safer to lean of the expertise of a qualified professional Quantity Surveyor to provide this key information for you.

The Quantity Surveyor will identify and collate the costs involved in order to develop an overall budget for the project. A schedule of quantities will be prepared and you can use this to establish what your costs

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