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  • HPH358: Getting the right mortgage for a house build project – with Tom McSherry

    HPH358: Getting the right mortgage for a house build project – with Tom McSherry

    Tom McSherry from BuildStore explains the importance of cashflow when it comes to building a house and why a big part of selecting the right mortgage product is about planning your project around your budget and making sure you have accurate costings.

    Interview with Tom McSherry

    Tom McSherry is the National Business Development Manager at BuildStore with over 30 years of experience in financial services, 19 of which have been exclusively at BuildStore. With a background in engineering and a passion for construction, he has also successfully managed the development of his own family home, emphasising the importance of professional involvement in the design and construction process.

    Engage early and start with a clear budget

    No matter what your financial circumstances are, you will get the maximum benefit by engaging early with a mortgage provider and planning your house build around your budget. For some, the incubation period may be three or four years, and BuildStore has a specific team that will support early engagers.

    Tom says that setting a clear and realistic budget is essential. Architects, designers and package solution providers should then work within these parameters, reducing the risk of a Grand Designs style ‘disaster’.

    Remember the 3 ‘C’s – construction, cost and cashflow

    While determining how much money you should borrow is a key stage, cashflow is the most important aspect of your finances once the build is underway. This ensures timely payments to contractors and the smooth progression of the build. Of course, all of this hinges on an accurate understanding and modelling of construction costs in the first place!

    If you’re one of our Hub members, check out our training session with Tom.

    Money is drawn down in pre-determined stages

    Part of the planning before construction will include how much money is paid out and when. These are called ‘stage payments’ and at BuildStore there are three options:

    • Valuation based arrears – Payments are made when the value of your plot or property increases.
    • Stage payments in arrears – Money is released on completion of each stage of your build.
    • Advanced stage payments – Money is provided in advance and based on your costings for that stage.

    There are pros and cons to each of these mortgages but ultimately it comes down to your personal circumstances as to which is more appropriate.

    For example, if you were embracing off-site manufacturing for your house build then you may have some significant costs upfront.

    “The advanced stage payment, the accelerator mortgages as its known, delivers the money into the customer’s bank account prior to the beginning of each stage, which allows them to pay for their superstructure in a timely fashion. And it’s a complete mitigator of risk again, you know exactly what you’re getting at each stage.”

    There is a degree of uncertainty with valuation based mortgages

    For this product the stage payments are based upon a valuation in arrears. This means there is no guarantee of how much you will receive at each stage, because it will depend on the independent valuation that is carried out.

    Therefore for projects where the property’s value temporarily decreases after the completion of a stage — such as when a barn is stripped back during a conversion — the valuation-based model may not be the best fit.

    “If I’m adding a large wraparound extension to my home, I can use the same stage payment mortgages, but of course at some point I’ll create openings in the walls to create an extended area, my property that could be worth 300,000 could drop to 150 in value, because it’s no longer even wind and watertight.”

    Secure your mortgage as early as possible

    Every project is different and will require a tailored approach, and so you put yourself in the best position by starting the conversation early.

    Even if you plan to use cash for most of the build, still engage early

    If you have a lump sum to get your project started and think that you can secure a mortgage later, perhaps during construction, then you may be in for a shock. Setting up a mortgage takes time. It may be better to work with your mortgage adviser to form a plan incorporating your own funds.

    For example, you might draw down a small amount early on to get the mortgage live and then use your own funds, safe in the knowledge that you have funds in place to complete the entire build.

    Draw down your money when you need it

    Whilst you could borrow funds for the entire project at the beginning of the process it probably doesn’t make sense as you would be paying interest on the whole amount when you don’t need it all yet. Therefore if you draw down only the amount you need for each stage, you will be minimising these charges.

    “So if I’ve got a build project, it’s going to take me 14 months, I don’t want to take £300,000 on day one and service that debt, I’d rather take £30,000 for my foundations on day one, and make an interest only payment on £30,000.”

    Other ‘safety nets’ can be put in place

    BuildStore not only provides mortgage advice but will keep in touch throughout the project with monthly check-ins. In addition, they offer site insurance during construction and a 10-year structural warranty which goes live upon completion.

    You may also want to explore personal insurance which would cover you against changing circumstances such as redundancy, critical illness and bereavement.

    Self build mortgages are temporary products

    As the name might suggest this is a mortgage that helps you get through the build. Sometimes you may even choose to pay interest only.

    So once a completion certificate has been issued it makes sense to switch to a standard residential mortgage, often with a free switch facility. This approach ensures clients transition smoothly to a longer-term mortgage that best suits their needs.

    Make sure your mortgage advisor has access to all lenders

    Tom’s closing advice emphasises the importance of early engagement and accurate budgeting in self-build projects. He advises that clients work with industry specialists who have access to all lenders and product types to avoid issues like running out of funds or delays in receiving stage payments.

    “I’m not going to my GP for surgery, I’m going to go and deal with someone who knows specifically, that’s what they do day in and day out.”

    Find out more

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  • HPH222 : How easy is it to buy land at Graven Hill? – with Karen Curtin

    HPH222 : How easy is it to buy land at Graven Hill? – with Karen Curtin

    With the first phase well under way and residents already moving in, Karen Curtin, Managing Director of Graven Hill Village Development Company, talks through the process of finding and buying a plot at Graven Hill.

     

    Interview with Karen Curtin

    Karen Curtin has been in post as Managing Director on a permanent basis since July 2017. When we spoke with her predecessor, Philip Singleton, the first plots were being prepared for release and he gave an overview of the opportunities available and the vision for the scheme. Since then the site has been taking shape with plenty of landscaping, infrastructure going in and the first homes already completed and occupied.

    The current masterplan is for 1741 units, with 30% being affordable housing. So far they have sold around 100 of their “Golden Brick” self build plots, 50 affordable housing plots and 30 of their custom product.

     

    Inspiration for the Plot Shop came from the Netherlands

    While Graven Hill is a pioneering development in the UK, similar schemes exist elsewhere in the world, most noticeably Almere in the Netherlands. Inspiration for the Plot Shop came from there, with the idea being it could be an information hub providing details about the different products available and offering hints and tips about how to build a home.

    The Graven Hill Plot Shop is currently based in Bicester, a short drive away from the development. With so much building work going on there it has been important to consider the health and safety implications of members of the public visiting, but they plan to move the shop to the site once it is safe to do so.

    Monthly tours to the site are provided so people can get a feel of what it’s about and see the areas that have plots and houses for sale.

    At the Plot Shop a floor map shows all of the residential plots that are for sale, colour-coded to indicate the size and whether they are allocated for Golden Brick or custom projects. The map shows the plot locations (with some locations having different design flexibilities in terms of getting planning compliance within 28 days), notional house types with the number of bedrooms possible, the size of the plot and the maximum gross internal area.

    The sales team are able to tell you what the foundation type is for any given plot and provide a land price, but not advise how much the Golden Brick will actually cost. Until they know what the building design will be they won’t have the structural calculations to know how much it will cost to support the structure. Not knowing the Golden Brick price on reservation can be challenging for buyers, but the team are working on a product where they can offer a combined price for land, Golden Brick and superstructure.

     

    Golden Bricks are sold as serviced pieces of land

    Often an expensive element of building from scratch can be connecting the utilities to the site. At Graven Hill the services are delivered to the edge of the boundary where they can be brought into the property as required. Also included in the purchase of the land is the foundation for the design, the warranty and insurances, with the added benefit of having no VAT to pay.

    In order to streamline the planning process, purchasers are provided with a Plot Passport which lists the freedoms and constraints of the plot design. If the design is compliant, planning permission can be guaranteed within 28 days. Projects which don’t fulfill the Plot Passport criteria are allocated a Delivery Liaison Manager to offer advice and navigate the process through the reserved matters route.

     

    A beautiful village community of like-minded people

    Key to the success of the development is making a community where people want to live. The site has areas of mature woodland which are being retained along with plenty of green open spaces.

    On the village green will be a pub and there will be a school opening in 2020/21. There will be a retail area which might have a supermarket, coffee shop, health provision and smaller offices, and in Phase 2 there will be a million square feet of commercial space made available.

     

    Customers need to be fully educated about how the process works

    Part of the job of the sales team at the Plot Shop is to ensure that customers are fully educated about the process before making the purchase. They usually work with purchasers for around four to eight weeks getting them ready to be able to buy a Golden Brick plot. This will include making sure they are financially qualified and have engaged with suppliers to fully know what they’re doing, how much it’s going to cost, and the timescales in which things take place.

     

    Timescales are of great importance

    Once a plot has been reserved a purchaser has seven months to get to the position where they can exchange, then four to eight weeks before the foundation is delivered, and a further two years to complete the build.

    The timescales are important to ensure that people aren’t continually living amongst building sites, with plots only being released in phases to ensure projects are moving along at a similar pace.

    “The important thing for me is that I want people to come and live on Graven Hill and know that whilst they are like-minded people building their own houses, wanting to live on a unique community such as Graven Hill, there is a point where you want to be able to sit in your garden, have a glass of wine, look at the hillside and not see cranes and not hear people doing brickwork or landscaping work. So, that importance for me is about bringing that phasing on at the right space and time.”

     

    Experience from Phase 1 will feed into Phase 2 design

    When it comes to delivering Phase 2, careful consideration will be given as to what has sold well and been most popular in Phase 1. So far the plots that have sold best have been the larger plots and also the one and two bedroom plots, with the three bedroom ones being a bit slower to go. Everything learnt from the pioneers, Phase 1A and 1B, will feed into probably delivering an altered masterplan for Phase 2.

     

    Financial advice is available

    Like other developers, all of the finished products are eligible for the Help to Buy scheme. Karen says they are also lobbying the government to consider a Help to Build fund for people wanting to build their own house.

    Graven Hill have been working with BuildStore to make sure there’s a lender panel available there, along with independent financial consultants who can give advice. BuildStore also oversee the financial qualification process. This checks that if you’re a cash buyer you have the money to go forward with the transaction, or if you need to get a mortgage then you have to have a decision in principle, to ensure you have the funds to not only buy the land and the Golden Brick, but also complete the build.

     

    Health and safety on site has been one of the biggest challenges

    On a traditional site, members of the public are kept away until the houses are ready and can be moved into. With houses here working to different schedules and owners being responsible for their own plots, there has had to be a very strong health and safety presence.

    “It’s one of the most important things to me because in order for a site like this to work, everybody’s got to comply. That’s from wearing PPE to driving around the site at the right speed limits, making sure they book their deliveries because what we don’t want is three or four cranes on site at the same time.”

     

    More whistles and bells on the houses!

    Karen explains that with the saved equity from self building and cutting out the developer, rather than focussing on it being 20% cheaper, people often end up using that money to pay for premium finishes as they intend to live there longer than they might have done on a traditionally built site.

     

    Register with Right to Build

    Local authorities are required to research demand and maintain a list of people wanting self build plots in their area, and make plots available. Karen encourages people to register their interest in self build with their local authority to make sure that enough land is being made available to meet demand.

     

    Find out more

    Visit the website of Graven Hill

    Follow Graven Hill on Twitter

    Find out more about the Right to Build register

     

    Transcript

    Download a transcript of the interview with Karen Curtin.

     

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  • HPH120 : What is a self build mortgage? – with Thomas Honour of BuildStore

    HPH120 : What is a self build mortgage? – with Thomas Honour of BuildStore

    Thomas Honour, mortgage adviser at BuildStore, explains the self build mortgage process.

    Tom Honour (2)

     

    Interview with Thomas Honour

    In this interview we’ve returned to the National Self Build and Renovation Centre (NSBRC), this time to chat with Thomas Honour who works as an adviser with BuildStore mortgage services. BuildStore specialise in finance for projects, so self builds, custom builds, renovations etc. They have had a presence at the NSBRC since it opened, with a permanent base there for mortgage advisers who also contribute to the seminars on finance.

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    Consult a mortgage adviser at an early stage

    This will help you to ascertain your borrowing capacity and determine whether your budget for the plot and build is is likely to be realistic.

    Salary is the single most important factor in determining available finance, but other considerations will include things like ongoing credit commitments, childcare costs and any other significant outgoings.

    Each lender is very different but typically they will apply an income multiplier of between 4 and 4.25 times the joint household income, with some treating bonus and overtime payments differently.

     

    There are two different types of self build mortgage product

    The main difference between a self build mortgage and a conventional mortgage is the way in which the funds are released. With a conventional mortgage you receive the funds in a lump sum, which together with your deposit, you use to purchase the property.

    With self build mortgages the money is released typically in four or five stages, over two phases. The first phase is releasing money to purchase the plot and the second phase releases money to finance the build.

    The traditional self build product provides money in arrears of the stage being completed. This works well for people that have larger deposits or who own the land, as they are putting in their own money upfront with the lender giving the money in arrears on completion.

    Construction types such as insulated concrete formwork (ICF), structurally insulated panels (SIPs) and timber frame however often require a much larger payment to the manufacturer early in the project. BuildStore have designed their “Accelerator” product to mitigate these cash flow difficulties by giving the money in advance of each stage.

     

    Your mortgage broker has a duty of care to ensure your mortgage is affordable to you

    The mortgage broker and lender will work together to ensure that your build costs are reasonable and that they’re going to be plausible for the type of project that you are doing. This aims to prevent the need for anyone to return mid-project requesting more funds, with no guarantee they will be provided, and will likely cause delays.

    On rare occasions people do return requesting additional funds. An additional loan known as a “further advance” or “additional advance” can be applied for to make sure that the build can be completed, subject to underwriting from the lender.

    It’s important that budgets are broken down in detail. Sometimes people may not have considered contingencies and additional expenses such as architect fees, stamp duty on land, site insurance and structural warranties. A mortgage broker would rather decline an application upfront than put them in a position where they have a project they can’t complete because they don’t have enough money.

    It is worth bearing in mind that most lenders will have some sort of caveat that the build must be completed within two years.

    Since the mortgage market review by the regulator a couple of years ago there is a greater burden on the lender to ensure they are lending responsibly. While Thomas believes that this is right and should be the case, some of their affordability criteria does limit the amount that people can borrow which means they may need to put more down as a deposit.

    Buildstore015

     

    There are costs to setting up a self build mortgage

    This will vary from lender to lender but as with standard mortgages there will be costs to get it set up. These may include:

    • An arrangement fee – most lenders will charge this as standard on any type of mortgage
    • Valuation fee – this will value the plot based on its value at the time and what you’re paying for it. They will also give an end value based on what you’re planning to build and what they think it will be worth when completed. There is also a reinstatement value for site insurance purposes.
    • Additional fees – some lenders may charge booking fees which are all quite similar but may be named differently.

    The job of your broker is to ensure you’re aware of all the fees upfront to know what they are, what they cover, what they’re costing you and when they’re due.

     

    A bridging facility may be suitable for people that have assets but a low income

    Thomas uses the example of someone with a house worth £500,000 but a pension income of £10,000, but wanting to borrow more than a typical mortgage would allow them on that income.

    Potentially there can be bridging finance secured against the existing home which would enable them to build their house. Money from the sale of their old home can then pay off the bridging facility.

     

    Not all lenders will lend on all construction types

    Non-standard constructions can be funded, however “non-standard” means different things to different lenders, so your mortgage broker will find a lender that is suitable for your project. Even timber frame, steel frame, SIPs and ICF constructions are considered non-standard by some lenders.

    The reason why some lenders won’t lend on less traditional buildings is largely down to re-saleability. The lender is always thinking about if they had to take possession of the property how easy it would be to sell. For properties that might be an acquired taste they will be worried they may not get their money back.

     

    The larger the deposit, the more favourable the interest rates

    Typically the minimum deposit required will be around 10% of the overall project costs. The project cost is the combined land and build costs.

    For someone that already owns the land outright, the value of the plot can be used as the deposit contribution, i.e. owning a plot with a value of £50,000 will provide £50,000 towards the deposit.

    A larger deposit will give more favourable interest rates and may make more lenders available to you.

    BuildStore

     

    Find out more

    Visit the BuildStore website

    Follow BuildStore on Twitter

     

    Transcript

    Download a transcript of the interview with Thomas Honour.

     

    The Hub update

    We’d like to tell you a little bit about The Hub – what it is and why we’re doing it.

    Support: A self build project can be a long journey so the community side of The Hub is a place to learn from others and be inspired by them.

    Information: We’re already providing lots of information with our podcasts and videos on YouTube, but this is going a step further by trying to refine and organise it, making a step by step and easy to understand guide of what’s involved in a self build.

    Videos: There’s huge potential for learning by video and here at Regen Media it’s what we specialise in.

    As content creators and communicators, we can do much more, not only in The Hub, but also by adding free content and perhaps help other people to achieve more and spread their messages further. If we can save you time and money by making The Hub work, then hopefully you’re paying for a resource that you’re happy with and which is giving us more funds that we can use to create in other areas.

     

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