Budgeting your Self Build

Budgeting is an important part of building a house and unfortunately, keeping an eye on your finances is necessary to ensure your dream home becomes a reality. This post aims to help you with your budget during the self build process.

1. Decide what you want and what you need 

What do you need from your property? Start off by thinking about your 'must haves' and then add a 'wish list' for after. Next, work out your personal finances. Figure out how much money you actually have and how much you can borrow. After you've thought about all this, get to work. If you own your current home, get it valued by three different agents to get the most accurate price of how much it will sell for. Speak to lending institutions, meet with your bank manager, and talk to your accountant too.

Make a realistic evaluation of what your savings could be worth in the future. Sometimes, in the early stages we are too optimistic in regards to how much finance we will have for the project. You must be brutally honest and if anything, be a bit pessimistic, underestimating your income and borrowing power.

2. Is this the path for you?

The next stage would be to see a professional designer. Show them your list of wants and needs and get an estimate on the build costs. A locally based person will know what builders in the area charge per square metre and what the professional costs are. This is a first, rough estimate. This is often a wake-up call for how much your new build will cost you. If costs are much more than you expected and you don't think you can afford what you originally wanted, do you still want to proceed? Backing out takes courage, but it will be too dangerous for your finances and your family to continue with a plan that you know in your heat you will not be able to finance.

3. Getting the Money

If you're deciding to go ahead with the build, your next step it obtaining the finances. There are a range of institutions that are interested in lending for self-builds. Many of these organisations will provide you with up to 75% of the build cost. Some, but not all, will lend towards the land. How much a particular institution will give you depends on your earnings and any other security you can offer, such as a current home. It may be even more difficult to get funding if you are self-employed or building as a sell-on. Before going to your lender, it's a good idea to prepare the following:

• A drawing of the proposed house
• Details of the site
• A timetable of when you’ll need the money
• A copy of planning permission
• An estimate from your architect or surveyor. 

4. Defining Costs

People often spend at least a third of their budget on the site. This is not a bad investment as you can always add to the house later when you have more funds. Land is not likely to fall in value but house styles do change. When building your home, you will have hopes for an economic build done in a fast time frame, to a high quality, but the reality is that you rarely get all three. Buying the site with attendant legal and registration fees is only the first of a number of other costs:

• Additional reports - If anyone thinks the land could be contaminated, analysis of soil samples, a topographical survey, for example.
• Fees - Due to your lender, accountant, designer, structural engineer, project manager, Local Authority Planning and Building Control. You will be charged extra by your builder for any changes made once the build process begins; this is how builders make more profit.
• Fixed costs - Structural warranties, site insurance, personal cover for loss of earnings, the builder, the removal and storage of furniture, cost of new items, driveway and garden, garage, and contingency of at least 10%.
• Infrastructure - The charges here include connection to mains water, electricity, sewerage.
• Borrowing costs - Buying the site and bridging for rent and/or the build until you can move in. 

5. The Role of the Quantity Surveyor

Getting professional help from a third party such as Chartered Quantity Surveyor is an investment that will pay dividends. A QS will act as your financial manager, negotiator, and arbitrator on your behalf. They give advice on infrastructure costs, estimate your budget and ensure you stay within that at the design stage. They take future operating and maintenance costs into account, prepare a cash flow forecast to help with borrowing, make sure tender and quotation requests are prepared for comparison, and negotiate with contractors and suppliers.

During construction a QS will keep the budget on track by monitoring progress and implementing time management, ensure any changes to the specification are costed fairly, produce the right interim payments for contractors, labourers and suppliers, safeguard contingency sums, give regular financial updates, manage remedial plans to minimize the effect on the budget, finalise all accounts with contractors, suppliers, maintain all records and keep invoices and receipts. Leaving these roles to a professional can mean you will have more time and energy to enjoy the self build process.

6. Saving money

There are a range of things that will save money, from simple common sense to known financial black holes. Self build money-savers include, but are not limited to:

• A level site with easy access to services (water, drainage, electricity, roadway, gas, telephone, cable).
• A building that is a simple square or rectangle, external walls without internal angles (Ls or Ts), few breaks in the roof, concrete roof tiles and simple brickwork.
• Straight stairs and minimum circulation areas, radiators, off the shelf windows, doors, kitchen and bathroom, simple lighting, no conservatory, avoid hardwood floors and expensive finishes.
• Search the Internet for products such as sanitary ware and kitchen items. A good idea would to get quotes from at least three suppliers.

7. Building costs

Detail is key when getting a quote for building costs. The more detail you give, the more accurate the quote will be. Again, it's best to get a few quotes and ask for references from the builders. Take a look at each builder's previous work and decide which suits your vision the best - this decision should not be based on the cost alone. Take communication and trust into account too.

8. Building Methods

There are three ways you could build and cost varies with each one. The three methods are:

• Main contractor - This is the simplest and the one most will choose. The contractor usually expects to make a profit of 15-25% normally. Your chosen contractor will manage the build, buy the materials, and hire any sub-contractors.
• Project manager - There are varying levels of service ranging from appointing contractors, and pricing, through to a turn-key finish requiring a permanent presence on site. Therefore, it is important that both parties are quite clear on the terms of engagement. This is a good idea for easing your workload, and can save you about 10 per cent compared with a main contractor, even allowing for fees of about 10 per cent of the build budget.
• Manage the whole build yourself - There are very few who have the time or finances to do this and generally must be more qualified for this option. It is extremely rewarding but can be stressful, time consuming and potentially risky. In return you can expect to save about 25 per cent on what a main contractor would charge you. Unless you believe that you can cope, option 1 or 2 could be better choices. 

9. Managing Cash Flow

These are the main stages to construction project. Each stage costs around the same which helps planning the cash flow. Most lenders don't give the money until the stage is signed off by a professional.

• Groundworks to include, site preparation, access road, foundations, drainage and main underground service supplies
• Ground floor walls
• Scaffolding the building, first floor walls and forming the roof structure
• Covering the roof, rainwater goods and chimneys
• Internal walls
• Plumbing and wiring, first fix
• Plastering and second fix carpentry
• Second fix electrics/fitting kitchen and cupboards
• Second fix plumbing and finishing/decorating
• Snagging & external works

The quicker you complete your build, the less cash flow problems you will have. In general, the building trade works better the faster accounts are settled, rather than dragging out the financial risk.

10. Contingencies

Arguably for some, a contingency sum is important to think about. It's smart to set 10-15% of the build cost aside from the beginning as you can never anticipate the exact final cost. Many things, but in and out of your control can contribute to a larger spend than predicted and you don't want to be worrying about payment in the middle of your project.

11. Keep Financial Records

Monitor your expenditure and hold onto the records by keeping a daily report of anything important that happens and transactions made. Keep account of all documentation such as invoices and bank statements. There will always be changes to your planned build and to your budget. Before making any changes, be sure you have full, agreed, prices in writing from all parties. Taking precaution is crucial to keeping on top of things. Making small changes here and there without keeping track of them properly is a bad idea and not a habit you want to get into for the duration of the build. 

12. Capital Gains Tax

When selling your current home, or your 'principal residence', you do not have to pay Capital Gains Tax, unless it it obvious that it has been build as a business and/or you have not lived in it for long enough (there is no certain time on this). You could also have to pay it if you develop several self-builds within a short period, as Revenue will see you as a trader. You may also have to pay CGT on a part of your home when selling it if you declared it as an office. 

13. VAT

Sites - VAT depends on whether or not the site is developed and supplied for consideration in the course of business, in the case of sites and one off housing. You will not be charged VAT on land you buy, unless it is a developed or serviced site, i.e., has services added like electricity or fencing. 

Serviced sites can cause attraction because a lot of the infrastructure work has been done already but remember that the added VAT will mean this all comes at a price and you cannot reclaim it.

The House - It's not possible to claim back the 13.5% VAT you have paid when building your own home. Your contractor should employ their own professionals and if he sub-contracts, you may end up paying more, along with accompanying VAT. If you opt for the route of direct labour and act as a project manager, you pay VAT for labour provided by VAT-registered tradesmen, at 13.5%t. Building materials, Budgeting is an important part of building a house and unfortunately, keeping an eye on your finances is necessary to ensure your dream home becomes a reality. This post aims to help you with your budget during the self build process.

Partly constructed houses - If you purchase a partially constructed house from a builder, the sale is usually liable to VAT because they are selling it for business purposes. However, if a private individual was self-building a house and could not afford to finish it, and sells it on to you, this is generally not liable to VAT. Where the subject of VAT becomes of interest to self-builders in a jurisdiction that doesn’t allow any reclaims of VAT, is the amount that is payable in the first place. Certain items when installed into a new house qualify for the 13.5% rate of VAT once they have been permanently installed as fixtures. Others, classified as fittings, are subject to VAT at 23%. To qualify, a fitting has to have the ability to be taken from a building without causing substantial damage. These rules also apply when importing materials for building. Here are a few examples of each.

Fixtures - Pay VAT at 13.5 per cent 

• Air conditioning
• Attic insulation
• Built-in kitchen units
• Built-in wardrobes and presses
• Central heating systems
• Double glazing
• Fires escapes
• Fireplaces
• Gates
• Insulation in cavity walls
• Storage heaters/radiators

Fittings- Pay VAT at 23 per cent 

• Blinds & curtains
• Stand-alone electric and gas fires
• Lighting (other than recessed lighting)
• Shelving
• Refrigerators/deep freezers
• Washing machines/dishwashers

Records and receipts

Keep your receipt for everything, even if it has nothing to do with VAT. Hold onto credit notes, bills, invoices, a copy of the planning permission and a copy of the plans of the building. It’s time well spent and if you were to ever get into a dispute with someone your records of what was paid (or billed) will help your side.

Zero and low rate cases

If a property has been unoccupied for at least two years and a builder does the work, then they are eligible to claim 5% for a renovation project. Some building materials installed in the home are eligible for the 5% rate, in particular energy saving items like heat pumps and solar panels. If you are upgrading a bathroom for mobility purposes it will be zero rated. A builder constructing a new house for you will not charge VAT on any of his services and if he supplies goods that are built into the house you should not be charged VAT. Items such as plug-in appliances and freestanding furniture will be charged at the standard rate.

What building materials can I claim for?

You can claim for the materials that are incorporated into the building or site. They have to be fixed and a part of the structure meaning that their removal would damage the site or building. Examples include:

• Drainage, paths, driveways, fencing, boundary walls
• Air conditioning
• Burglar and smoke alarms
• Fitted kitchen cupboards
• Indoor swimming pools
• TV aerials
• Windows and doors
• Wooden floors
• Fireplaces
• Lifts
• Wiring
• Power sockets
• Heating systems
• Light fittings
• Turf, plants and trees (if detailed on your planning documents)
• Fitted wardrobes (if a part of the house rather than a demountable kit)

Examples of what you cannot claim for:

• The site
• The full VAT refund on conversions
• Granny annexes that cannot be used or disposed of separate from the main house
• Detached workshops, playrooms or enclosed swimming pools
• Fitted furniture.
• Garden ornaments, ponds, sheds and greenhouses.
• Carpets and other floor coverings that can be removed.
• Most electrical appliances.
• Consumables (sandpaper, paint brushes).
• Any professional services
• Extensions

When to claim 

Claim when all work of your home has been completed, so it often makes sense to work on the outside and the inside simultaneously. Get a claim pack from the Revenue or print off the forms from the website. It can sometimes be hard to know exactly when your build is complete, but you'll usually know once everything is done according to the original planning documents. You may also get a Council Tax assessment or a letter from Building Control. From this completion date you have three months to make your claim, in which you must provide:

• The Claim Form
• A description of the building goods and their quantities
• Other goods/materials and services claimed for
• Your claim calculations
• The VAT invoices and other documents that support your claim
• Evidence that the work has been completed
• A copy of the Planning Permission
• A copy of the plans

Your refund payment should come through around 30 days after you lodge your claim, provided the Revenue doesn’t need more information on anything.

By following this guide, you should have less financial worries and you can enjoy seeing your dream home being built much more. Happy building!