The Hidden Costs of Self-Build

Building your own home can prove an exceptionally good financial investment but the costs run to more than bricks and mortar. Legal fees, additional labour costs and wastage of materials are just some of the things that can trip you up during your self build.

Luckily, Homebuilding & Renovating is here to guide you through the financial minefield with self-build expert David Snell. This article highlights all the extra costs along with estimated figures to help you plan your self build more thoroughly.

Finance Costs and Redemption Penalties

FROM £450 +

It is easy to forget that borrowing to fund a self-build project has its own costs. Finance costs will vary according to personal circum­stan­ces, but most people find they have to pay a lender’s survey/valuation fee on their plot or renovation pro­ject of £3–400, plus fur­th­er fees of £40-50 for each of four or five interim inspections requir­ed before the release of mortgage stage payments. Some special offers, such as fixed rates, may also require an arrangement fee of £3-400. If you are using a broker to arrange your mortgage there will also be a fee for their services.

If you are contemplating a mortgage where the stage payments are made in advance, be aware that there will be an arrangement fee and a mortgage guarantee premium starting at £600. Part of this cost, however, is offset as there will be no interim inspection fees.

If you’re having to change lenders in order to obtain a stage payment mortgage, watch out for any redemption penalty charges that might be imposed by your existing lender.

Finally, don’t forget that from the moment you borrow money, interest is due.

Surveyor and Engineer’s Fees
From £300 +

Overgrown plots, uncertain bound­aries, slop­ing sites – all will require a site survey at a cost of £300–£500 before any really mean­­­­­ing­ful work can be under­taken by your house designer Planning con­sents can be issued with a require­ment that an archeological sur­vey is under­­­taken before either the grant­­ing of detailed con­sent or com­­­mence­ment of work. These sur­­veys cost around £3,000 and if they turn up something important then it can cause con­sid­er­able delays to construction and add to develop­ment costs whilst it is investigated.

Bad ground can mean that you will need a soil investigation and in turn that can mean that an engineer will have to be involved in foundation design, increasing costs by up­wards of £1,000. Certain design fea­tures will also necessitate the input of an engi­neer and calculations, occasioning addi­tion­al costs of around £200.

Legal and Estate Agent’s Fees, Stamp Duty and Land Registry Charges
From £400 +

Buying the average plot and selling the aver­age home can involve the self-builder in legal fees of up to £1,000 for the two transactions depending on just how complicated the title is. In addition, on the purchase of any land or property, Stamp Duty is payable at 1% of the price over £60,000, rising to 3% above £250,001 and 4% above £500,001. There is also a requirement that all land and property transactions are registered with HM Land Registry. The fees for this start at just £40 for purchases below £40,000, up to a max­imum of £800 for tran­­s­actions in excess of £1m. Estate agent’s fees for the sale of a house, assuming sole agency, usu­al­ly amount to 1.5% of the sale price plus VAT.

Extra Labour Costs Caused by Delivery Delays
From £100 +

Time is money in any building project and delays caused by lateness or non-delivery of mate­­rials can incur extra labour costs for waiting time, plus increased finance, rental and hire costs. Most materials are available from build­er’s merchants, but if you wish to take advan­tage of reduced prices for full loads you will probably want to be quoted for direct loads, from manu­fac­turer to site. Bricks and floor beams are usu­al­ly avail­able within a two week period, whilst blocks have a lead in time of about a week. Trusses and other joinery products, such as staircases and windows, can often have a lead in time of three weeks and at certain holiday times this can be extended. Timber frame man­u­fac­turers often have lead in times from order to delivery and erection, of anything from eight to twelve weeks and, unless this is allowed for, it can result in all work on site coming to a grinding – and very expensive – halt.

Planner’s Requirements for Expensive Materials
From £1,000 +

Many of the timber frame manufacturers base their indication of average completion costs, after erection of the frame, on fairly standard – if not cheap – materials. Urban sites in the less desirable or attractive areas can often be developed using these materials. However, many self-builders are building on rural or semi-rural plots where the planners may be very sensitive about which materials are appropriate. Changing from a rendered or Fletton brick external wall finish to a hand made brick can treble the material costs, whilst natural stone could be four times the price. If stone features are required then these can easily add £1,500 to a 140m2 house. Chang­ing from an interlocking con­crete roof tile to either plain clay roof tiles or natural slates would add around £3,500. These materials are also likely to mean higher labour costs. Conversely, many local authorities frown on the use of PVC-u joinery in sensitive planning situations, making a possible saving of around £2,750 if softwood is chosen.

Wastage of Materials
From £300 +

With extensions, renovations and conver­sions, the natural inclination of the dis­cer­­n­ing self-builder is to use materials that blend into the original. This means that the choice is often to use second hand or re-claimed materials, and these often carry a premium. However, they also have a high wastage factor making it necessary to over order in the first place, as it can be very expensive or impossible to obtain extras in small quantities. Labour costs may also be increased. Bricks might be of uneven shape or consistency, making the job of selection and laying a slower process. Slates and tiles might well need re-drilling or shaping and this too slows down the work, therefore increasing the price.

Certain new materials such as bricks and blocks have to be ordered in full loads, mean­ing that you have to buy more in the first place and that, on tight sites, there might be additional costs in disposing of the excess.

Warranties and Insurances
From £1,500–£2,000

It doesn’t make sense to self-build without adequate insurance and warranties and to do so, despite the initial saving, can be a false economy. If you are using a builder and you are not intending to supply any materials your­self, including high value items such as kitchens and sanitaryware, then there is an argument for relying on their site insurance. Otherwise it makes sense to have your own self-build insurance policy and this can cost between £500 and £1,000 depend­­ing on the size of the overall contract. Although there are now sev­eral competi­tors offer­­­ing structural guar­­an­tee insur­­ance or war­­ranties for self-build­ers, this has not result­ed in any sig­nif­i­cant reduc­­­tion in costs. The aver­­age self-builder can still expect to pay between £600 and £1,000.

Theft and Vandalism on Your Building Site
From £400 +

The cost of replacing any lost or stolen tools or building materials should be covered by your site insurance policy, as will the repair of van­dalised work. Bear in mind, however, that you will have to cover the cost of the excess – the part of any claim which must be paid by the policyholder. The excess varies from insurer to insurer but is typically at least £400. Most small items that are stolen from site – plant or materials – will not be worth claiming for.

Also not covered is any time that is lost in waiting for replacement materials and the loss of momentum on site this could cause. Certain subcontractors might not be able to wait for new materials and may well have to move on to another site. If you can’t get them back later, then it might cost extra to employ other tradesmen to take over the job part way through and complete things. What can’t be quantified is the emotional cost that such an event can prod­uce, so take every precaution to avoid thefts from happening by taking site security seriously.

Additional Work Discovered in Progress
£100s +

With the exception of work below ground level – where you cannot easily predict what you will find – building a new home should not mean too many nasty surprises. Those renov­ating, restoring or con­verting prop­erty cannot, how­ever, be so certain. It is very easy to make wrong assumptions and many are left feeling that they have ‘opened up a can of worms’. Whilst it is relatively easy to assess the condition of the basic super­struc­ture and cost out the necessary works, leaking or blocked drains can cause subsi­dence that may only become apparent when the site is cleared. If under­pinning is required then, whilst this is not rocket science, it is never­the­less a difficult job which can cost around £500/m assuming a depth of one metre. Also, if you are using traditional materi­als, such as lime plasters or renders, then be aware that shortages of skilled practitioners may mean having to pay extra or waiting for long periods.

Connection Fees for Utilities and Services
From £1,800 +

Privatisation and the splitting of responsibilities between producers and providers have caus­ed immense complications for those seek­ing a new supply of services. Whilst there are scales of charges laid down for things like a new water supply, a tempo­rary stand pipe and the right to connections to sewers, electricity and gas suppliers now quote each individual situation separately.

In a suburban plot or in a large village with most main services, a quotation for su­pply of water and the right to connect to a mains sewer can vary in price between £500 and £700 in addition to the cost of any associated work to the public highway. Gas can vary from a few hundred pounds to over £700 and electricity from £500 to £1,200. The cost of a new domestic telephone line is about the only constant with a price of £74.99.

The cost of installing the essential services to a more remote location can be vast and this needs to be researched from the outset.

Extra Building Costs Due to Amended Plans
potentially £1,000s

Additional building work not item­ised in the original contract price is known in the trade as an ‘extra.’ Depending on the number of changes or additions to the original plans that are requested, the cost of extras can total £1,000s on top of a ‘fixed’ contract price. Many self-builders fail to realise the cost implications of changing their mind – often the additional labour cost is not obvious to a layman – and feel that their contractor or subcontractors are trying to rip them off, leading to disputes, delays and further costs.

The best way to control extras is to make certain that absolutely every detail is finalised and described accu­rate­ly within the plans and specification, and then to make absolutely no additions or alterations. This means choosing all of your materials, fixtures and finishes in advance of getting in quotes. In reality, this is rarely practical and even if it were, it is unlikely that changes can be avoided altogether – it is often impossible to turn down ideas that will make for a better home – and so it is a good idea to allow for extras within your budget conting­ency of 10%.

When you agree a contract with your builder, discuss the basis on which extras will be handled. When you ask a builder or subcontractor to do extra work, agree a price for labour and any materials there and then.

Non Recoverable VAT on Building Materials
£1,000 +

Most VAT paid out on materials for a new dwelling, including conversions, can be recover­ed on completion of the project, with certain notable exceptions. These include VAT on professional fees (unless included as part of a design and build contract); VAT paid out on the hire of plant, scaffold and machinery; VAT on delivery and pallets (returnable or not) and any VAT wrongly charged on labour and mate­rials supplied by builders or subcont­rac­tors that should have been zero-rated. Details of work eligible for VAT relief are available in HM Customs & Excise VAT Notice 719, ‘Refund of VAT for DIY Homebuilders and Converters’, and VAT Notice 752 ‘Land and Property’.

Those renovating or restoring an existing dwelling will not be able to recover the VAT paid out unless it has been empty for the last ten years – in which case it will be treated as a conversion, or if it has been empty for at least the last three years, in which case the rate will drop to 5% providing the work is handled by a VAT registered builder – there is no DIY VAT refund scheme for renovators equivalent to the one for self-build and con­ver­sion. Nor is there a DIY VAT scheme for those under­taking ‘approved alterations’ to listed buildings – which are also eligible for VAT relief, but only via a VAT registered con­trac­tor or subcontractors. Details are given in VAT Notice 752 ‘Land and Property’.

Higher Building Regulations Fees and Inspection Charges
£400 +

In Scotland the fees for the Building Warrant, including the necessary inspection charges, are paid at the time of appli­cation. In England and Wales the fees are paid in two separate parts; on application and then when inspec­tions are required. This often leads to a mis­understanding: the self-builder, believing that they have paid their architect or designer for the fees, then receives an unexpected bill from the local authority.

Charges for Building Regulations appli­cations and inspections vary from authority to authority. The norm is £140 + VAT on application plus £265 + VAT for inspections for houses of up to 300m2 and not more than three storeys. If the house exceeds this size then the fees are assessed on build costs and can rise, subject to the dis­cretion of the Building Inspector, by up to 50%.

Accommodation and Furniture Storage
FROM £200/Month +

If you are living in your old property during the construction of your new home, then whilst you might not have additional living costs you may well have to include interest costs on any additional borrowing. If you have decided to sell up and move into rented accom­modation then be aware that the monthly rent might be more than your normal mortgage costs.

Most properties are let on a shorthold ten­an­cy agree­ment for six months, extendable there­­after on a monthly basis, but sometimes the landlords will require a new fixed term agree­ment.

Those living in mobile homes will be best off but will have to include purchase and setting up costs with­in their cash­flow projec­tions, although much of the purchase cost might well be recov­ered upon resale at the end of the project. If you are in a mobile home or in furnished rented accom­modation, don’t forget to include the costs of storage, which for an aver­age four bedroom house can be around £200 per month.

Unsuspected Ground Conditions and Muckaway
From £1,000 +

Before buying a plot or a renovation oppor­tunity a soil investigation and survey should always be commissioned in order to assess the type of foundation likely to be necessary. However, any conclusions will be based upon trial holes that are either bored or dug at various points on the land, usually outside or beyond the limits of the proposed house. It is therefore possible that when the actual foundations are dug, what is experienced could be profoundly different from what was expected, neces­si­tat­ing a change in the type of foundation. This can vary from having to go a little bit deeper in order to avoid a soft spot such as an old pond, with a cost of little more than a few hundred pounds, right through to pile and ringbeam foundations involving extra costs of between £7,000 and £10,000.

The cost of removing spoil from foundations can also be high, currently in the region of £150 per load. Few contractors or ground­workers will give a fixed price for this work and if adverse ground conditions requiring extra digging arise, this will add to disposal costs. Muckaway is also a significant propor­tion of the cost of building a basement.

Highways Contractors, Sewage Connections and Creating Access
From £5,500+

The costs of a standard driveway, approxi­mately 5.5m wide and extending back 14m from the carriageway with turning and parking space, surfaced in gravel but with a tarmac section at the abutment to the road, is around £4,000. If you require the whole drive­way to be surfaced in either tarmac or block pavers then the costs will rise by around £1,000.

Only Local Authority Approved Contrac­tors are able to carry out works to, on or under the Highway. Whilst some local author­ities will allow ordinary contractors (providing you or they have the necessary public liability insurance cover, typically £2,000,000) to carry out works up to and abutting the Highway e.g. the drop kerb for a new access, others insist that works such as this are carried out by approved licensed contractors. This can have the effect of pushing costs up from around £1,500 to something like £4,500. Connec­tions to sewers within the Highway can cost around £3,500 and, on a busy road, where extra precautions have to be taken and traffic lights provided, the costs can escalate dramatically.

Delivery Charges and Non Returnable Pallet
Costs £100 +

Whilst builder’s merchants normally include deliv­­­ery within their price, any materials order­ed direct from manufacturers or salvage yards will usually incur a delivery charge. Make sure that when you get prices for your budget that the quote includes delivery. If your site is diffi­cult to access, there may be additional deliv­ery charges for staged deliveries on smaller vehicles.

Bulk materials such as bricks, blocks, pav­ers, multiple bags of cement and plaster etc. are usually delivered on wooden pallets. Most builder’s merchants and direct suppliers charge extra for this at the rate of £10 per pallet and then say that this is refundable if the pallets are returned in good con­dition. The problems that then arise con­cern keeping the pallets in good condition – they make excel­lent firewood – and relying on the companies being available or close by to pick them up when required. Some companies agree a refund of £1 less than the original cost of the pallets whilst others make a straight charge of £5 per pallet, non-returnable.

Inappropriate Development
Almost unlimited

Most sites have an optimum carrying capaci­ty. Imagine a street of houses, all roughly the same size and all having the same value. Now assume that a site of roughly the same dimensions as all the others comes up and that someone decides that they are going to build a house half as big again as the rest of the houses in the street. Their costs could be up to 50% higher than those they would have experi­enced had they built a smaller house. Yet in many cases, the value of the completed house might not be substantially greater than its neighbours. The site would have been over developed. On the other hand, if someone builds a property that is not grand enough to come up to the ceiling value that the site can sustain, then the true potential of the site will be lost. The site will have been under devel­oped. In both of these cases the hidden cost of the self-build will be marked by a discrep­ancy between cost and value to the detri­ment of any equity gain.

Scaffolding and Plant Hire
From £1,750-£3,000

An average sized four bedroom house will need scaffolding for between twelve and sixt­een weeks at a cost for hire and erection of around £125 per week. That is worked out on a rate of £12/m for each lift. If your site is on sloping or waterlogged ground then it might be necessary to employ a foot scaffold (scaffold­ing and boarding at or around ground level) and that can add around £10/m2.

If there are delays on site and the hire period needs to be extended then there might well be a weekly penalty of around 10% of the total hire charges. Bad ground or difficult access might also necessitate the hiring of an all terrain fork lift truck in order to get materi­als on site and that can cost around £250 per week. Shifting loads of muck on site can also mean that you need to hire a dumper to work alongside the diggers and this can cost around £99 per week.

You may also need to allow for hire of some sort of storage facility on site and portable WC facilities for the builders.

Additional Architect’s Fees
From £100 +

Make sure that you agree fees with your architect in writing and ask for details of any additional costs such as printing out sets of plans or producing colour elevations. Ensure that you allow for all of the drawings and speficication documents necessary to build the house.

If your architect is inspecting or super­vis­ing the work and an abortive visit or unsatis­factory work requires that they have to make an additional visit to site then you might well be faced with extra costs of between £50 and £150 for their time, plus expenses.

Sometimes drawings are not very clear and if this is the case, and fresh or explana­tory drawings are required, then you might very well have a good argument against extra fees. If however, you have chosen sub­contractors who are unfamiliar with some aspects of your design or are unable to com­pre­hend particular features, then your archi­tect or designer will have good cause to charge extra.

Some architects agree to provide a set number of drawings within their agreed fees. However, you may find you need further copies in order to get quotes from a number of different builders or subcontractors and there might be a charge for additional copies.

Your Own Time and Expenses
£1,000 +

Perhaps the least obvious cost of all is that of your own time and expenses in visiting plots, the site, suppliers, architects and so on. The addi­tional motoring costs of driving to and from the site every day can be considerable, as can the cost of the inevitable telephone calls, particu­larly on mobile phones, to build­ers and suppliers. There is also a notional cost attached to your own time – which could perhaps other­wise be spent doing overtime, freelance work, or a second job. This is especially the case for DIYers putting in countless hours.

GONE OVER BUDGET?

If all of this advice comes too late for you and you have already discovered these hidden costs then it is time to take evasive action to get your budget and project back on the rails.

• Contact your lender, explain the situation and ask for a further loan advance. 
• Talk to your bank about a short term loan explaining that you will remortgage the house when it is completed to repay the loan. 
• Try and arrange more credit with suppliers – first ensuring you can increase your mortgage or take out a loan when the house is finished. 
• Consider staging the build, leaving some non essential work until funds allow.