Until now, self-build has been something of a niche market – for the brave and risk-taking. It’s received national prominence through TV shows such as Kevin McCloud’s Grand Designs, which has been airing on Channel 4 since 1999, but the market has never received mainstream cut-through.
But could that be starting to change? Hanley Economic Building Society has reported a 35% rise in self-build advances over an 18-month period running from the beginning of January 2019 to the end of June 2020.
The extension of Hanley’s self-build and residential product range into Scotland in April 2019 is cited as one of the major driving forces behind this growth.
The Society’s ‘build for second home’ product – aimed at self-builders seeking to construct a second residential home – has proved key to this ongoing success, as has the lender’s ‘part-complete’ self-build product, aimed at borrowing for projects which are already underway. Both of these products were launched in December 2019.
To ensure that intermediary partners and their clients are better-educated and informed on the self-build market during the current economic climate, the Society has also updated its self-build guide to include:
• A full costings calculations sheet
• An application checklist
• Ongoing lending criteria
• Extensive listings of acceptable and unacceptable self-build property types
Sue Pedley, business development manager at Hanley Economic Building Society, commented: “This gradual uplift in self-build business has been generated over a lengthy period, meaning these figures are certainly no flash in the pan.”
“It’s clear that existing homeowners are looking to take greater control over their ever-changing property needs, FTB’s are also less phased by the self-build process and modern methods of construction continue to push homebuilding boundaries. Factors which suggest that the appeal of self-build is only likely to rise.”
She added: “As a lender who is passionate and committed to self-build, we’re proactively engaging with an increasing number of intermediaries to highlight the types of self-build options on offer and break down the processes to demonstrate that this area of lending is not as intimidating as many people think.”
“With that in mind, I urge intermediaries to speak to lenders about the support they can offer which will enable more of their clients to achieve their self-build dreams.”
How many self-build homes are built in the UK each year?
In May 2019, only 8% of new UK homes were custom or self-built, but government incentives have been introduced to try and boost the number of self and custom-built homes from 13,000 to 20,000 in the UK every year.
This includes the Right to Build scheme, launched in 2016, which allows local authorities to look to make plots available to self-builders.
Aspiring self-builders often face difficulties when it comes to securing capital – as building your own home is expensive and not without risk. As a result, mortgages for self-build projects have been difficult to secure, but there are a rising number of lenders who have started to offer mortgage products for this market.
The risk to the lender is quite high, because of the higher number of variables at play, which means borrowers typically need a deposit of at least 20-25% of the property’s total value. Aspiring self-builders must also plan to receive the funding in staged payments, as each phase of the build completes.
Higher rates for self-build mortgages might initially prove a deterrent, but they do enable self-builders to build their ideal home without raising the funds themselves – which, unless a person has very deep pockets, is unlikely to be feasible for most.
Self-builders are also tied into higher rate mortgages only until the build is completed, when it’s possible to remortgage onto a standard mortgage with a lower rate.
Another benefit of self-build homes is that stamp duty is only paid on the land itself if the cost passes £125,000, up to £300,000 for first-time buyers. There is nothing stopping first-time buyers applying for self-build mortgages, too. Plus, of course, the recent announcement from Chancellor Rishi Sunak that there will be a stamp duty holiday for all buyers of homes worth up to £500,000 until the end of March 2021 will also benefit self-builders.
Self-builders also have the added advantage of flexibility over location, potentially saving thousands by choosing to build in parts of the UK where land is significantly cheaper. According to research conducted last year by Insulation Express for National Custom and Self-Build Week, the average price of a plot in Liverpool – sitting at £817,000 – was seven times more expensive than Manchester, where you can purchase land for only £112,000.
The findings also identified the top 10 cheapest cities in the UK for aspiring self-builders, with two Scottish locations (Inverness, £91,062; and Dundee, £95,000) coming out on top, closely followed by Manchester and Salford. Durham, Wolverhampton, Southampton, Plymouth, Lincoln and Newport made up the rest of the top 10, all with land purchase prices of below £196,000.
By contrast, the top 10 most expensive places for self-builders were Liverpool, Oxford, Leeds, Portsmouth, Derby, Peterborough, Cambridge, Cardiff, Birmingham and Edinburgh.
While the UK self-build market is growing, it’s still some way behind the rest of the world. According to the National Custom & Self Build Association (NaCSBA), half of new homes in Canada are self-builds, while in Austria it rises to a huge 80%. Belgium, Italy, Sweden and Norway all have more than 60% of self-built new homes, while considerable numbers also exist in Germany, France and Ireland.
It’s much more of a rarity in the Netherlands, Australia, New Zealand and the UK.
It’s estimated that between 7-10% of homes in the UK are self-built each year. The term self-build is a bit of a misnomer, because while between 11,000 and 13,000 self-build homes are built each year, less than 10% of homeowners are actually physically involved in the process by taking on the building work.
Typically, a self-build is an individual house that has been commissioned by an individual homeowner to perfectly fit their exact requirements and tastes. However, most self-builders do play a key role in the creative process, taking part in the design stage, deciding on the finishing touches and sourcing the relevant tradespeople. This article explains more about the process, the average costs, the potential pratfalls, the building regulations and planning permission requirements, and how to both finance and find a mortgage for a self-build, amongst other things.
A number of UK firms are trying to increase the market share of self-build homes, including Steve Wilkie’s Built & Spaces, which believes it’s not unrealistic to aim ‘for 25% of the UK market by 2030’, but has called on the government to level the playing field with the cards currently stacked against smaller operators, ‘and the planning system still not fit for the 21st century’.
Meanwhile, off-site eco housing developer Project Etopia recently announced the acquisition of self-build specialist Tribus Homes. Last year, the two firms formed a partnership under the ‘E-Tribus’ banner, but Project Etopia has now bought the company, including its manufacturing facility in Devon.
For now, though, the UK lags well behind other countries in terms of self-build, and more direct government support will probably be required to change that.
As an investment opportunity, it’s undeniably risky, but does allow you to tailor a home towards your own needs and create something new from scratch. What’s more, it could have high sell-on value as a unique abode in the future.
This post has originally been featured in Property Investor Today.