At 30% cheaper, self-build is on the rise

BUILDING your own home is an increasingly attractive option and, thanks to innovative companies in the market, it is a project that is becoming easier to fund.

One specialist is Livingston-based BuildStore, the UK's leading supplier to the self-build, conversion and renovation market, which has helped more than 10,000 people build their own homes. It says 12 per cent of all new homes and 25 per cent of detached houses across the UK are now self-build. It has a research division, Plotsearch, with a database containing more than 1,100 available building opportunities in Scotland and about 5,000 in the UK.

A shortage of new houses being constructed is one reason for the growing popularity of self-build. Only this week Yvette Cooper, the government's housing and planning minister, said the number of homes had to increase to 200,000 a year from the current level of 165,000 to respond to rising demand and affordability measures.

She warned that the shortage of new housing was making it more difficult for younger people to get onto the property ladder, forcing them to turn to the "bank of mum and dad" to fund their house purchases.

New government figures show 14,000 people a year are releasing equity from their homes to help them buy another property either for themselves or family members, and the average sum withdrawn is 74,000.

This mismatch of supply and demand is among the reasons more people are going down the self-build route, a trend that is expected to continue. Research from Datamonitor, an independent analyst, estimates the market could be on track to grow by more than 17 per cent a year.

BuildStore has used its wealth of data to launch its Self-Build Land Price Index. This shows that a developer's four-bedroom house in Scotland now comes in at 214,871. In contrast, if you were to build the house yourself, the average price of an appropriate plot of land in Scotland is 78,861 and the average cost of a four-bedroom house after reclaim of VAT is 95,560, which makes a total cost of 174,421. The market value of such a house would be in the region of 240,000 - 37.5 per cent more than the costs.

There are obviously regional variations. The cost of a four-bedroom house in Dundee is 190,783, whereas in Edinburgh it is 427,500 and in Glasgow it is 339,272. But they all have a common denominator: you should be able to buy your land and build the house, using skilled tradesmen, for at least 30 per cent less than buying a new home.

To make it easier to fund a self-build project, BuildStore has developed its Accelerator mortgage, where money is released in advance of each stage and the loan can cover up to 95 per cent of land and construction costs or the final value if the home. The land only needs outline planning permission for BuildStore to release the finance.

John Hay, head of financial services product development at BuildStore, said: "As our mortgage package removes the cash flow problems of self-build it has opened up a whole new option for people. As we've guided them through the self-build process, many of them see self-build as a route to becoming mortgage-free. These design-and-build homes are typically bigger and better finished and this ensures they achieve a higher market value. Features such as basements and under-floor heating can make self-build home attractive to potential buyers."

Five lenders now offer the Accelerator mortgage: Skipton Building Society, Lloyds TSB Scotland, Accord (part of Yorkshire Building Society), The Mortgage Business (part of HBOS) and Amber Homeloans. While other lenders will prove a mortgage for self-build direct to the public they will generally only lend in arrears and up to 75 per cent of the cost of the land.

As the self-build market matures more people are on to their second or third project and are using the profits made from each one to fund the next. As yet, not many first-time buyers have tried this approach, but it is proving very popular with self-employed workers.

Another trend is for recently retired people to sell their family home and build a new one, which allows them to release equity in the process.

It is not just rural areas that contain suitable plots for self-build and many people are building in Scottish city centres. Hay said: "A lot of low quality urban housing was built in the 1960s and 1970s and it is now being demolished to free up areas of land. And some people choose to buy a house, knock it down and build from scratch rather than renovate it. Others sell their garden to self-builders."

Those interested in finding out more about self-build can visit the Scottish Self Build and Renovation Visitor Centre in Livingston. A new centre opening in Swindon next year will include a fully built house, more than 200 exhibitors and a renovation zone.

Stephen Brown, senior mortgage consultant at independent advice firm moneyQuest, said: "The advantages of self-build include the need to only pay stamp duty on the initial land cost and not the entire build cost, as this can result in saving thousands of pounds. The larger the project, the greater the saving."