Financing a Self-Build - Top Budgeting Tips

Keeping on top of the finances is key to a successful self build. When you’re confronted with hundreds of decisions, all of them with their own cost implications, it can quickly get out of hand.

What if you pay too much for one item and then can’t afford another? What if you let yourself get talked into buying the wrong thing? Funding a self build can feel like a balancing act with so many things to consider. Therefore it’s important not to let yourself lose sight of that all-important build cost.

Luckily, there are a few simple ways to help you stay grounded and avoid the most common financial pitfalls during your build. We’ve put together these handy guides that should make managing your money feel much less overwhelming:

The most successful self build projects are those that have been planned well from the start. This means knowing your budget and understanding your borrowing options.

We recommend that you speak with a qualified mortgage adviser in the early stages of your project, as there can be  lots of things to consider when self building. For example, purchasing  your land, cashflow, build costs, construction type, planning permission, affordability and where you’ll live during the build can all impact on your finance.
 
Think of it this way, if you were buying an existing property, you would need to know how much you could borrow before you started looking. It’s no different when it comes to self-building. Actually, it’s even more important!

Right from when you start to think about self building, it’s crucial to consider just how much money you can afford to spend on the project.

This will be made up from your savings, any equity you have in your current home, and the amount you feel that you can successfully borrow. That’s your total budget and, for most of us, it’s a finite amount.

One of the great advantages of working with a package deal company is that they will have a vested interest in your self build becoming a reality. They don’t just draw pretty pictures of houses and get paid for it.

Their interest is in you being able to buy their complete package. That means they will question you in detail and use their experience. Making sure whatever you set out to build can be built within your budget. They will also be focused on whether your chosen design is physically capable of being built on your plot and  whether it is likely to get planning permission. 

The first, and perhaps the biggest, expenditure will be the plot. In some areas, where house prices are low, this may be around a quarter of the eventual value of the home. In high areas, it may be two thirds or more of the end value.

The answer is that any plot gains its value from the home that could, or should, be built on it. That means that you need to understand values. You need to learn to do what any developer does when they see a plot: assess each element of the project and relate it to the profit or margin that can be made. 

Most self-builders don't set out to make money. Instead they set out to build the home they want for the money they've got. The fact that they can make money in the process is almost incidental. But profit is an important reward for all the hard work that you'll be putting in and it means you're not building in negative equity.

As a starting point we have put together a simple formula (see below), to give you a guide on how to value land, and understand how much a plot of land could be worth. 

Valuaing Land Formula

Plot value = Value of the completed house minus (-) the development costs (design, planning, legal and building costs) minus (-) the desired equity
For example:
End value of the property = £600k minus (-) the development costs of £300k minus (-) desired equity £120k (based on 20% of the end value) = a plot value of £180k.

Read our guide on How to Value a Plot of Land.

Budgeting isn’t a one-off exercise. Starting out, you have a preliminary budget, but once you have an initial design, it’s key to refer back to the budget before you go any further. If everything looks okay, you can move to the planning drawings. If any changes occur after that, you must check them against the budget.

As soon as you've got detailed dimensioned drawings, have a professional who understands construction costs  to prepare a full costing. Once you have these costs,  you can relate them back to your budget. At Potton we have a team of experienced professionals who are with you at each stage of the design process. Helping to keep you on track with your preliminary budget, and the costs involved during the self build process.

Each time there is a change, either one you’ve made by choice or one you’ve had to make due to circumstances; you must refer back to the budget. If an item you have budgeted for is more expensive than originally expected then something else will have to give. Similarly, if something costs less than expected, you might be able to increase the spend on other items. However, don't rush to do that, the savings could come in handy further down the line!

No matter how big or small your build allocation, it’s still a budget that you need to stick to. It’s the main thing protecting you from running out of money before your home is complete. Any experienced self-builder will tell you that when building your home, it’s inevitable that some products or services will cost more than expected. When this happens, you must have a few tricks up your sleeve to balance things out.

Here are a few tips to master that all-important budget effectively.

Before you even think about applying for planning permission or starting the design process, you need to carefully consider what you want to build. Building a home that is larger and/or more complicated than you can really afford is the root cause of many self build disasters.

At the planning stage, think about how you can save square metres without compromising the form and functionality of the design. Also, consider the complexity of the build. Simplifying construction details often improves design aesthetics as well as reducing construction costs.

One useful question to ask yourself is: which rooms will you use the most in your new home? If it’s the kitchen, what’s especially important in there? If it’s cooking, then you know to focus your energy and budget on workspaces and appliances.

Once you know what’s most important to you (rather than what’s most important to your builder, designer or friends), you can concentrate on these areas  and the self build process will feel a lot more manageable.

Every self builder brings value to their build. Never having built before doesn’t mean you can’t personally add value to your home. Think about what transferable skills you have and how you can use them to save money.

For example, if you have time and good organisational and decision making skills,  consider project managing the build yourself, rather than paying for a professional Project Manager to do so for you. Not having construction experience isn’t necessarily a problem, as good tradespeople are always happy to share their insights.

Additional expense is often the result of poor decision making. Always try to be one step ahead of the game: work out what you want and come up with the answers to the questions your contractors are likely to ask before work begins. The key is to always be prepared and ready to make decisions when needed. 

Changing your mind isn’t a problem when it’s in good time. However, once work has started , changing your mind can be expensive. This is particularly true when it involves altering work that’s already been done. The trick is to be certain of what you want and to stick to it.

Understanding the “natural” build sequence and following it will help keep your budget on track. Some people will tell you that building quickly will save you money. While that might be partly true, speed should never come at the expense of the sequence and flow of operations needed to build efficiently — and safely.

Always make sure you understand what work must be completed before the next stage can start. Plan ahead to make sure materials and trades are available, to keep the build continuously moving forward.

There’s a skill in buying materials and appointing contractors. Overlooking it can have significant consequences to your budget.

The obvious steps are getting multiple quotes and checking references. Before you get that far, you need to focus on the quality of your initial enquiry or brief.

Be clear about what you want (and what you don’t want) and try to second guess the assumptions that suppliers and subcontractors will make when putting together their quotations.

Assumptions are usually expensive allowances for unknowns - if you can address these, the quotation should be lower as a result.

Focus on the interfaces between trades and think about what one trade will leave for another to follow, and if everything has been included for the next trade to continue. Having to resolve these omissions on site will usually be at an additional cost, so read and understand quotations carefully to make sure you know what’s included and what’s not.

Yourself Sourcing materials yourself can mean significant savings, as long as you buy the right things at the right price. Although contractors will want to offer competitive quotations, they are unlikely to invest hours finding unique items you want at the best price. Instead, they will most likely use their usual merchant. If you are prepared to do the leg work and find where those special products can be sourced at the best prices, it can pay off.

Contractors offer good prices to people who are organised and allow them to do their work quickly and effectively. If your contractor can arrive onsite and easily complete their work while earning the profit they expect, they may not be looking  to make extra money from additional work or variations.
Make sure you and your site are always sufficiently organised for everyone to do their work well. It will be good for your budget and means you will enjoy better relationships with your contractors. They are far more likely to want to work on your site rather than someone else’s if you provide everything they need, when they need it.

Waste material (what’s left over at the end) is terribly expensive. Not only is there an initial cost  to buy it,, but you will also have to spend money on storing it, moving it and getting rid of it.
Always keep a close eye on the quantity  of materials being ordered and thoroughly check how much you need to do the job. Depending on the material involved, “make-up” loads may be available to you to enable you to shore up the final quantities needed to complete the job, so always take advantage of that. 

Never have a skip conveniently sat in the corner of the site waiting to be filled. If you do, you will probably find trades “tidying” up by throwing unwanted but perfectly good materials into the skip. Ask the contractors to remove their own waste or allocate an area for waste and surplus materials to be stored. They can then be sorted before they go into the skip. You never know, you might find a few things that can be reused or sold on eBay!

While not everyone’s cup of tea, having a trailer with a decent load carrying capacity is absolutely essential when self building and can save you far more than it will ever cost. You’ll be able to collect materials  and less likely to be stuck waiting for a delivery that could delay progress on site.

There will be extras! This could be anything from a few more power points, fitted wardrobes to expensive tiling. If your budget can stand them, there's nothing wrong with the project evolving. But don't get caught out with a huge bill at the end of the project which you can't afford to pay. Never allow any extras to be included without a price in writing which has your agreement, prior to the work being carried out.

Self build projects often have cost overruns. Sometimes these are due to unknown factors: weather might extent the timeline and bad ground can always crop up, despite extensive surveys.  They can also be intentional, such as you deciding to opt for more expensive kitchen units or bathroom suites.

This is why it’s crucial to have a contingency fund. This should be around 10% of the budget for most projects and 20% for those  which are more risky, have  known site problems or where you're planning a basement.

The good news, is that very few self build projects end in financial disaster as long as the budget is kept in mind. Those that do overrun on cost are usually saved by the margin or profit that is built into every properly conceived project.