TOPPING OUT - GERALD COLE

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Reasons to be cheerful?

Does a housing boom help selfbuilders? 

As I write, within a hundred yards of my house there are at least a dozen ‘for sale’ signs sprouting from front gardens. Almost as many others announce properties ‘sold’ or ‘under offer’. There’s a distinct impression that this entire south London suburb is on the move. 

It’s the most visible sign of a current boom in the housing market. Despite the pandemic, average house prices rose 7.5 per cent in 2020 and this April were around six per cent higher than the same time last year.

The most obvious reason for this buying frenzy is the Chancellor’s stamp duty holiday. In England and Northern Ireland no duty is being levied on the first £500,000 of a property sale until June 30. On July 1, the stamp duty threshold drops to £250,000 until September 30, when it returns to the normal starting rate of £125,000. 

These deadlines don’t just incentivise prospective buyers. Vendors have even greater encouragement since their properties are effectively discounted. In fact, according to newspaper reports, some vendors have been upping their sale price at the last moment and grabbing the stamp duty bonus for themselves. All in all, then, a golden opportunity for downsizers. 

For many urban homeowners the chance of a more spacious, healthier, commuter-light life in a leafy suburb or village can seem irresistible.

Add to that the multiple effects of the pandemic: the opportunity to work from home prompting the desire for extra space, the greater appreciation of gardens, the involuntary savings from missed holidays, restaurant meals and public entertainment. For many urban homeowners the chance of a more spacious, healthier, commuter-light life in a leafy suburb or village can seem irresistible.

So how does this selling and buying frenzy affect would-be selfbuilders?

Well, most are homeowners and many also downsizers. If you’re a mortgage-free vendor or one whose property has accumulated enough value to pay off an existing loan with an appreciable amount left over, this could be an ideal time to realise a self-build dream.

Buyers may be fighting over existing properties but building plots for single homes are unlikely to be under the same pressure. The giant commercial developers who dominate housebuilding have no interest in them. The small- to middle-sized builders who once built two-thirds of all new homes on sites like these were either wiped out by the 2008 recession or have found it impossible to raise finance under the lending restrictions that followed.

That doesn’t necessarily mean the plots are going to be bargains, especially in the most desirable locations, but in relative terms they could well become more affordable, particularly for cash buyers.

Sadly, the stamp duty holiday doesn't extend to building plots, unless the land is already classed as residential. Examples are an existing property you plan to demolish and replace, a plot where approved construction has already begun or one which forms part of the garden of a property used as a dwelling at the time of completion. 

Beware, though, that if you do buy one of these, but still own a residential property, whether a main home, holiday home or buy-to-let, the three per cent surcharge levied on second homes will still apply.

However, the stamp duty on non-residential land is still lower than that due on residential land, ie zero per cent up to £150,000, two per cent from £150,001 to £250,000, and five per cent on £250,001 and above. For a number of commentators, however, the rising market has a more long-term cause: the continuing low interest rates. At the time of writing, mortgages are available from high street banks, such as NatWest, offering two-year fixes on rates from around 1.35 per cent. Three- and five-year fixes are also common. 

Sadly self-build mortgages can’t offer the same benefits - interest rates of between four and six per cent are standard. But they do have two advantages. 

Firstly, the interest you pay is not on the entire loan, simply the accumulating payments of it as each stage of your build is completed and further funds are released. 

Secondly, after completion, you can switch to a standard mortgage - as most selfbuilders do. Unless you’ve been exceptionally unlucky, your completed home will instantly be worth more than the combined costs of both plot and build. A typical increase in value is between 25 and 30 per cent. So you borrow less to acquire a higher value property than you could otherwise afford. It’s also, of course, brand new and built to your chosen design and specifications.

Perhaps the most encouraging news of late is the announcement in April of the government’s Help to Build scheme. Designed to make self build and custom build easier and more affordable, it promises £150m in funding over four years. 

But perhaps the most encouraging news of late is the announcement in April of the government’s Help to Build scheme. Designed to make self build and custom build easier and more affordable, it promises £150m in funding over four years. Full details are yet to come, but it’s suggested it could involve government loans of 20 per cent towards build costs, rather like the existing Help to Buy scheme for first-time buyers purchasing new build homes. 

Also announced was an action plan to develop a ‘major scaling up of self-commissioned homes’ - Boris Johnson’s own words - including a review of the custom and self build sector.

Andrew Baddeley-Chappell, CEO of the National Custom and Self Build Association - many of whose proposals are likely to be incorporated into the new scheme - greeted the announcement as ‘really exciting, really positive’. But he warned that patience will be required. ‘Legislation takes time to make an impact, lead times in housing are long but behind the scenes there is momentum.’  

Wales, meanwhile, launched its own £210m scheme over a year ago. Self Build Wales offers an online plot shop, allowing applicants to apply for self-build or custom-build plots provided by local authorities and housing associations. Each comes with a plot passport containing pre-approved designs and pre-installed services. Successful applicants provide 25 per cent of the plot cost, but the rest and the entire build cost is covered by a loan from the Development Bank of Wales. This has to be repaid on completion, typically by a standard mortgage.

You don’t have to be Welsh to apply, but you do have to live in the completed property.

So, exciting times for selfbuilders with cash and a brighter future for the patient. Just don’t mention inflation or higher taxes to pay for Covid and Brexit.