There are many advantages to a self build or custom build project; potential financial savings being one of the most attractive. A self build project should by its very nature be more affordable to develop than an equivalent house on the market.

However, when considering a self build mortgage and calculating project finances you need to make sure that costs relating to possible planning obligations are carefully considered so that they do not scupper the scheme.

When planning applications are approved for housing, local authorities have the right to apply a planning charge in order to generate ‘planning gain’ which they can use to help deliver community infrastructure in the area. Planning gain is most often used to pay towards affordable housing and local infrastructure such as roads, schools and community facilities.

Unfortunately, planning obligations could reasonably be described as a ‘postcode lottery’ as each council has a different set of policies relating to two possible charges (both of which the self builder should be exempt from, but more on this later):

The extent of such costs differing wildly even within a council area.

‘Planning obligation’ is a catch-all term used to refer to any sort of contribution that in many but not all cases will be financial. The legal mechanisms for securing these obligations relate to Section 106 of the Town and Country Planning Act (1990 as amended) and via a Community Infrastructure Levy (CIL).

To add to the load, in many cases you must also cover your own and the council’s legal fees.

Different Planning Obligations

CIL is often confused with S.106 and self builders believe them to be the same, but this is not the case. The CIL is a separate tariff-based system established by the Planning Act (2008) for England, but nearly a decade later some councils have still not established and adopted a CIL charging schedule.

In instances where councils do not have a CIL structure in place, a S.106 agreement would still be used. However, where a council has an adopted CIL you could be liable for payments as part of the levy and potentially a S.106 contribution to cover site-specific issues such as drainage and/or access.

Affordable Housing Contributions are a type of planning obligation, levied specifically to address local needs for affordable housing. The charges are therefore often much higher in areas where there are low levels of affordable housing.

Community Infrastructure Levy

To explain more clearly the difference between the Community Infrastructure Levy and Section 106, S.106 payments are based on the impacts of a specific development on local infrastructure while CIL is designed to cover the costs of all local infrastructure needs. Such needs might include transport, flood defences, schools, hospitals, health and social care. In order to calculate a CIL tariff, a council will consider the total costs of delivering these services against the total scope of development expected in the area.

Unlike S.106, CIL is calculated on the total floor space of a development, not bed spaces, so the bigger the dwelling the greater the charge. To make matters worse, in general CIL monies are required to be paid before work commences, although some councils will allow payments to be made in instalments.

CIL Exemptions

It is worth noting that in most London Boroughs there is a Mayoral CIL as well as a local CIL charge. From experience, we have seen CIL charges from £5,000 to £150,000 but the light at the end of the tunnel is that there is scope for self-builders to apply for a CIL exemption.

This exemption ‘is applicable to homes built or commissioned by individuals for their own use’. The correct part of an ‘Assumption of Liability’ form should be completed to refer to self-build and a ‘Self-Build Exemption Claim — Part 1’ form must be submitted to certify among other things that the new property will be occupied by the applicant as their principal residence for a period of three years from completion.

A ‘Commencement Notice’ must then be submitted before work begins with ‘Part 2’ of the ‘Exemption Claim Form’ then submitted within six months of completion. This form needs to be supported by specific evidence to prove the self-build use, e.g. title deed, Council Tax details plus other finance-based records as set out in the guidance.

Section 106

Section 106 relates to site specific issues, rather than a generic levy against the expected added strain a development might add. A S.106 agreement would be used to secure contributions for such things as education, sustainable travel, affordable housing, public open space and so on, where the addition of any new dwelling is considered to have an impact on local services or infrastructure.

In most cases a council would base the requirements on the number of bedrooms and so the liability on a four bedroom dwelling would be greater than on a two-bed dwelling. However, the exact nature and level of these costs relate directly to the policies of the council and local needs. For example, whether a local school has available places or not would impact on a requirement for an education contribution.

The process should entail the council setting out its justification for each contribution, with this written into a legal agreement that specifies triggers necessary for payment, for example: ‘Education contribution of £5,000 to be paid to St John’s Primary School prior to occupation of the dwelling.’

Section 106 Exemption

In 2014 it was announced that custom and self builders would be exempt from Section 106 charges.

While there is a clear process for a self build CIL exemption, the same is not true with regard to S.106 contributions. Although S.106 contributions are often lower than those relating to CIL, there are instances where councils require contributions for such things as affordable housing even with the development of a single dwelling.

I have come across significant affordable housing contribution requests, i.e. 20 per cent of the final property value. In such cases, it may be possible to demonstrate to a council that as a consequence of the S.106 charge a scheme is not viable and so some S.106 costs may be reduced or offset.

As was widely reported at the time, to recognise the unique nature of self build and to encourage this sector, in 2014 the government established a mechanism whereby schemes of under 10 units and 1,000m² gross floorspace would be exempt from these payments. This, however, was challenged in the courts by two local authorities, with the government winning out on appeal.

Despite the court victory this mechanism is still not enshrined in planning law and therefore many councils are choosing to disregard it. As such, there are once again variations based on where your development is located. Unfortunately, I believe that it is likely that this situation will rumble on for some time until new legislation is made law or where appeal decisions establish a robust position.

Affordable Housing Contributions

Prior to the recession when the housebuilding industry was booming, affordable housing was often provided for as a planning condition on developments of 15 or more homes. However, in an unstable economic climate, construction is one of the first things to slow, and as a result fewer affordable homes are built (at a time when they are needed most).

Following the recession in 2008, some local authorities chose to implement new planning policies to ensure affordable housing needs were met. This meant imposing affordable housing contribution charges on all new builds, including single unit self builds.

The fees are set independently by each local authority meaning huge variations across the country. Fees of up to £190,000 for a rather modest 150m² property in Hertfordshire were reported back in 2012 — an extortionate fee when you consider that self build is often used as a way onto the property ladder in areas with above average house prices.

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