Please read this if you are thinking about self-building. There are so many pitfalls and risks that you really need to be aware of what could happen. Keep your eyes wide open and don’t let smooth sales talk and breezy optimism mask what could cause your costs (and stress levels) to spiral.
I know this is very different from the usual content of this blog but I feel so strongly that it’s important to warn people about these dangers, so I’m willing to share my personal experience and I hope you can learn from this, if you find yourself in a similar situation.
I live in Elgin, Scotland, and I applied for a self-build mortgage, making exploratory phone calls to find out how this all worked from December 2015 onwards. It soon became clear that there was very little competition in this market and I would be forced to deal with Buildstore to access the finance necessary for my self-build.
Due to the fact I’ve remortgaged my current home and have some savings, I did not need any upfront capital to purchase the land or pay for architect/planning fees, but I thought it was important to secure a measure of certainty regarding funding the full project. Working with my budget I required a self-build mortgage of £220K (of a total £420K), which was all explained to Buildstore.
Of course, I paid my £600 brokerage fee to Buildstore (plus various other valuation and application fees to Newcastle Building Society totalling an additional c. £1500) and I was swiftly accepted (significantly quicker than I was led to believe). The focus of my complaint is that I was never once properly informed, until at least £1000 of fees were paid, that I needed to start drawing down the self-build mortgage from – at the latest – THREE MONTHS after the mortgage offer was made. Moreover, another reason that I was “rushed” into applying for the self-build mortgage with NBS was that the advisor told me that the deals were all due to be refreshed at the end of February – he claimed that the interest rates and terms could/would all worsen, advising that I apply before the deadline to lock in the 4.99% “Accelerator” product.
Admittedly, at this stage, mid-to-late March, I was fairly confident (as a complete novice in these matters and going on the upbeat sales pitch of our architect) that we would be actually building by this point, so the money would be required shortly thereafter the 23rd June date for releasing the first £80K from the mortgage (80% of the land value and non-negotiable).
However, by mid-October 2016, with winter fast approaching, the project is now out to tender with various builders and I am paying £332.67 EVERY MONTH in interest (thus far totalling £1,330.68). After the Bank of England reduced their base rate to 0.25%, I contacted NBS to ask if they could reduce their rate by a corresponding amount – to be told the sum was fixed, which admittedly was in the contract but (to my mind) demonstrated contempt for their customers.
It should also be noted that – as a condition for my self-build mortgage – NBS demanded that I take out site insurance for what is STILL merely a plot of land, costing £1132. All that has happened on site have been a few hours of exploratory test digs to work out how best to put in foundations. Afterwards, the hole was filled right back-up.
Between January and March 2017, the ground works were finally completed, costing about £46K (considerably more expensive than the £30K that we were advised by the person who sold the plot). We were still able to cover this with our original funds, not using a penny of the money that we continued to pay such extravagant amounts of interest on. Even the first payment to the builder for the actual construction of the house, £70K paid in June 2017, a year after the Building Society lent the £80K, we could still have met with our own monies (thanks to a very generous gift from my father-in-law).
If we’d been properly advised, I would have sought Buildstore’s services over one year after I actually did. Given my experience, they seem far too eager to lure in customers, without any appreciation of the risks and then take no responsibility if things do not go as anticipated.
So, to summarise my complaint against Buildstore:
– poor advice resulting in self-build mortgage application made much earlier than necessary and costing me serious amounts of interest paid to a company that has no concern for the plight of their customer.
– terms of self-build mortgage, specifically the THREE MONTH window from application accepted to funds transferred and interest accruing, not properly explained and warned about.
What of Newcastle Building Society?
– typically, residential mortgages are very flexible but – for some reason – their self-build mortgages (I’m not sure if this applies to other providers?) seem designed to milk as much cash from their customers as possible, making building projects much more difficult than they should be.
– why am I paying for self-build site insurance when nothing is happening on my plot? I simply cannot fathom the logic of this charge and I’m outraged that there is not a more tailored approach to individual customer’s unique circumstances.
It’s also disappointing that I’ve pursued this complaint with the Financial Ombudsman (FO), the fact at least two companies are involved in the financing means they can duck any blame. They also claim to know little about actual house build – why should they be expected to foresee the problems, is their defence to the FO? Well, they are lending the money, making these projects possible and I think they should take some of the risk (or at least properly advise against the potential pitfalls).
To sum up… please, ask the awkward, difficult questions before starting a building project. Don’t accept anything less than a proper quotation in writing as actual evidence of what your plans will cost. Be careful – it’s a jungle out there!
NB – 25th September 2017: my complaint was rejected by the FO on their strict criteria for regulating companies. This week I discovered that the 4.99% two-year interest rate switches to 5.99% SVR on 31st January, adding yet more money to the scam that is Newcastle Building Society. Even though the loan wasn’t even drawn down till the end of June 2015, the timing on the product recommended by Buildstore started to tick down before the actual application was submitted at the end of February. The build is very unlikely to be finished before the interest rate hike and the interest paid to NBS is now nearly £5,000. Ridiculous!
Update – 11th June 2018: on the plus side, we have moved into a lovely new home as of 1st March 2018. However, due to delays in gathering all the documentation and a pernickety local planning officer, the completion certificate was not issued till the end of May. There were further hoops to jump through with Buildstore and Newcastle Building Society before they could even begin discussing a move to a proper residential repayment mortgage (ideally, 1.85% fixed, two-years, £495 fee, 60% LTV).
However, an appointment is apparently not available with a mortgage advisor till 18th June, not the call today that was promised when I phoned on Friday 8th. That week’s delay will cost me approximately £159. Total interest paid to NBS has now exceeded £13,000. That big jump is due to the £120,000 drawdown of funds in November to pay for the final stages of build after reaching the wind and water tight milestone. We have just about been able to stay afloat financially but it’s become a real struggle and there is no money to sort out the garden of our home, or anything other than the essentials.
Please be so careful when making such huge financial decisions. Check every detail. In the case of self-build mortgages because there is so little competition and they are a niche product, there is no incentive for banks to treat you well. They will just milk you as a cash cow, turning your dreams into nightmares.