Though relatively straight-forward, moving into an existing property in today’s market is by no means cheap. It’s one reason for the growing popularity of self-built homes. Sure, the stress and strain of dealing with everything from faulty septic tanks to sinking foundations may be enough to have you rushing for an estate agent’s office. But the fact that the average completed self-build property can be worth between 25-30% more than the cost of building it might be enough to have you taking a step back outside.
Self-build property: what are the tax advantages?
There are also some attractive tax advantages to building your own home. Stamp duty is only due on the land that you buy, and then only if it costs more than £125,000, while VAT is reclaimable on materials and labour. There’s also the added satisfaction that, in bypassing a developer, you’re instantly wiping out his profit. It’s no surprise that the sector is attracting a growing level of interest – mortgage brokers reckon that between 10% and 12% of all new homes in the UK are now being self-built.
Unsurprisingly, Gordon Brown has noticed the hullabaloo, and was this week reported to be looking again at introducing a “planning-gain supplement” – basically a tax on developers great and small. According to a recent report from property consultancy Knight Frank, this new land levy from the chancellor might be enough to discourage smaller developments by making them unviable.
Self-build property: plots, loans and planning permission
However, the levy, if introduced at all, isn’t due until at least April 2008, which means there is still time to find a plot of land on which to build. Lenders such as Norwich and Peterborough, Nationwide and Leeds Building Society typically lend up to 95% of the cost of building a property, and 95% of the cost of purchasing the plot. And it’s the latter that will probably give you the most headaches, as well as taking the biggest chunk from your wallet in a country already heaving at the sides from overdevelopment. “Ask any self-builder the main hurdle to getting the home of their dreams and they will tell you that finding a suitable piece of land is the problem,” says Jason Orme, editor of Homebuilding & Renovating magazine, in the FT.
To make matters worse, lenders will refuse to finance your new home unless at the very least it has “outline planning permission”, although some will require even more advanced planning permission. As a result, plots of land with even the most basic form of planning permission don’t come cheap. The average plot starts from £120,000 in Surrey against just £45,000 in Durham, says the FT, and should typically account for 30% of your overall budget, says The Sunday Times.
So planning your costs is paramount to successfully building a new home if you’re looking for that 25-30% uplift. And, of course, remember to keep your fingers crossed that the property market doesn’t collapse mid-build.