Bungalow bliss is easily gained

Financing a once-off house can be a straightforward process, writesLaura Slattery

New draft planning guidelines published last week by the Minister for the Environment, Mr Cullen, will make it easier for people to build once-off houses in rural areas, especially if they have links to or roots in the area.

Environmentalists fear the prospect of haphazard, unsustainable development and say a "bungalow blitz" will do little except concrete over the countryside and generate huge profits for farmers and other landowners.

But the announcement will seem like welcome news to all those locked out of urban property markets by the sheer escalation of house prices.

For many, the only way to get on the property ladder is to build the first rung themselves.

"In some cases, their parents have a field and they want to give it to them so they can build their own home - it's very much a rural, family thing," says Mr Ronan Mackey, new business executive at NC Mortgage Brokers.

But would-be bungalow builders have no chance of getting a mortgage to finance the actual construction unless they have a site with planning permission, he adds. "That's the first hurdle."

People trying to build their home could spend thousands getting an engineer or architect to draw up plans for a once-off house, only for planning permission to be rejected by the authorities.

Last week, Mr Cullen stressed the need for "good design", saying he did not want to see the countryside covered with house designs plucked out of pattern books.

But he noted that only 10-12 per cent of once-off houses were designed by architects.

Instead, some choose to hire the services of a timber frame company, who will supply stock housing plans that can be purchased online, and an engineer, who will check that the plans comply with local building regulations.

Architects don't come cheap, generally charging 10-15 per cent of the overall price of the project.

However, they will help property builders through the entire process, ensuring that the design of their house meets their specific needs.

According to the Royal Institute of Architects in Ireland (RIAI), an architect's work does not end when the building work is finished - part of the contract sum is retained for up to 12 months and only paid when the architect has ensured that the builder has rectified any defects.

Architects can also be paid a flat hourly rate, depending on the services required, says the RIAI.

Not all lending institutions are terribly keen on self-build, according to Mr Mackey, although Permanent TSB, EBS Building Society, IIB Homeloans and ICS Building Society are four that do chase it.

Lenders will advance 80 per cent of a site value to people with full planning permission in order to buy a site, although some will only give about 75 per cent, says Mr Mackey.

A maximum of 60 per cent will be advanced if the person has only outline planning permission.

Overall, lenders will approve a mortgage of up to 90 per cent of the building costs and the site value.

"If the borrower already owns the site, lenders will fund 100 per cent of the build cost as long as the overall loan-to-value ratio is less than 90 per cent," says Ms Sarah Wellband, associate director at mortgage brokers REA.

About 10 per cent of inquiries received by REA are from people building their own homes, mostly outside the greater Dublin area.

Borrowers draw down the mortgage in usually five stages, which must be certified by the architect or engineer.

After the initial advance for site purchase, more finance will be issued when the foundations are completed, a third payment drawn when the roof is completed and a fourth when the plastering is finished.

The final drawdown occurs when everything is done and dusted, with the snag list fully checked off.

Borrowers will have to choose between hiring a contractor or supervising direct labour themselves.

If they choose the second option, they may need self-build insurance, which will protect them from being sued in the case of injuries on site to building labourers or members of the public.

Hibernian Insurance is the main source of this type of cover, which can easily cost €5,000- €10,000, depending on the scale of the project. Europa Underwriting also sells self-build policies through certain brokers.

Contractors, on the other hand, should have their own insurance cover.

Getting a decent and realistic quote for the building work is important, says Mr Mackey, and people should make sure to add some "fat" into the estimates to avoid cost overruns and over-extending on the mortgage.

If the price of the project goes up as quickly as the four brick walls, it may be necessary to come back to the lender for more money.

"Given that the 'end' value of the house is normally well in excess of the combined site price plus build costs, most lenders are happy to advance top-ups if the costs over-run," says Ms Wellband. "However, most borrowers budget fairly well," she adds.

Other financial steps that need to be considered include arranging life assurance and building insurance from the very start of the project, Mr Mackey notes.

Interest-only or deferred start mortgages may also be attractive options for self-builders who may need to finance furniture expenses, additional professional fees and any other unexpected costs.

Knowing the practicalities of building a house will be worthless if a person is refused planning permission at every attempt, and some groups have criticised the Government's policy of privileging one set of citizens - landowners and their direct descendants - over another set - the "outsiders" - in high demand rural areas.

For those who do manage to win round the local authorities, the amount of time involved in building a home can make the process of trawling through real estate websites, arranging viewings and signing contracts for ready-made houses seem very simple.

But after all the stress and hassle, self-builders will be left with an individually designed asset worth more than it cost to construct.