As a nation we have a complex and affectionate relationship with our homes – lavishing attention on design and upkeep, pouring money into renovations and extensions, and paying a premium to find the right type of property in the right area. Home ownership in the UK is more than just a status symbol, it is considered a basic right.

However, it is becoming increasingly difficult for some people to get a foot on the property ladder. House prices have risen dramatically meaning first-time buyers are struggling to afford their first home, and there is a significant shortage of available housing.

The Government knows only too well that we are a nation hungry for property, but starved of enough new homes to meet demand. Housing Minister, Yvette Cooper, recently made public Labour’s pledge to build three million new homes by 2020, with two million of those to be delivered by 2016. While that may sound like a large figure, it is in fact only around 250,000 more than was previously planned and the National Housing Federation says it is not enough. Against this backdrop, there is an increasing trend for self-building. More homeowners are now not prepared to wait around to see what new builds spring up or how far their budget might stretch.

In the late 1980s, land price inflation constrained expansion in the self-build market but since 1991, the market has flourished. There are currently around 20,000 new self-build homes built in the UK every year but demand is actually more than double this figure. The impact of self-builders on the UK landscape shouldn’t be underestimated; they are currently responsible for constructing one in eight new properties. To put this in context, this is more than the biggest commercial house builder contributes to housing stocks. Improved flexibility in the planning stages of self-build and the availability of more land, as well as continually rising property prices and escalating interest rates are fuelling the self-build market in the UK.

It may not account for a large chunk of the overall mortgage market, but self-build is growing at a rapid pace – it is currently estimated to be worth £4bn and is expected to grow to £5.5bn in 2010. So there is plenty of potential for advisers. Standard Life Bank’s own research confirms the growing popularity of self-build. Advisers tell us they are increasingly being asked for advice on self-build housing.

Self-builders are not necessarily driven by traditional reasons for moving. Self-build is widely seen as a way of obtaining a larger or ‘better’ house than they could buy in the mainstream property market. However, the benefits for people building their own home go beyond the issue of wanting an individual property or a particular location. There are significant cost savings to be made along the way. Two-thirds (67%) of advisers that Standard Life spoke to said the market is being buoyed by self-build being an increasingly cost-effective option.

With the average house price in the UK now standing at £181,039, or 9.3x average earnings, many people are being forced to look for alternatives to get on the property ladder. The average cost of a self-build is approximately £450 per square metre. With self-build, stamp duty is only payable on the plot of land, not the value of the home subsequently built on top. If the builder uses the home as their principle place of residence, they can reclaim the 17.5% VAT charged on labour and materials used for the build.

When completed, the average self-build is worth around 30% more than it costs to construct – an instant and rewarding return on investment. More than half of advisers (52%) also point to our love of property programmes, saying that the market is being driven by self-build television shows like Grand Designs and Build a New Life in the Country. This is confirmed by a Joseph Rowntree Foundation report which says mainstream media introduced the general public to the idea of self-build in the 1990s.

Many advisers (42%) feel that a shortage of self-build products from mortgage providers was one of the barriers to self-build. However, financing self-build projects became more straightforward after the mid-1990s as more mortgage lenders saw it as a viable business. A self-build mortgage is one of the most accessible and practical ways to fund a self-build project and, given the unique requirements and complications of building a property from scratch, choosing a flexible and fitting product is essential.

Self-build models

There is no standard model for a self-build mortgage. Most lenders will insist on being privy to the details of the build, from seeing the architect’s plan and planning permission, to overseeing timescales and costs. Advisers would be prudent to get their clients to contact the lender’s self-build experts or underwriters to fully explain the process. There are different funding options available and it is an extremely important role advisers play to steer potential self-builders to the product that will work best for them.

Most self-build mortgages are tailored to the complex nature of a construction project, such as Standard Life Bank’s Freestyle self-build mortgage, which releases funds in stages according to the need of the build – when the foundations are in place, when the building is wind and watertight, and when the property is fully complete. The value of the property and the land increases as the project progresses, allowing more funds to be released as the construction develops.

Nearly half (46%) of advisers say shortage of land was one of the main barriers to more people building their own homes. The 2007 UK Self-build Housing Market Report concurs that the self-build market is growing slowly primarily because of a lack of suitable building plots, rather than subdued demand. The Joseph Rowntree Foundation report cites the problem as not the availability of land, but managing its acquisition and acquiring appropriate planning consent. Self-builders find land in a wide range of ways and in recent years, specialist land finding agencies and plot developers have emerged. The report concludes that greater flexibility in planning practice will help expand the self-build market.

The future of the self-build market still looks positive, particularly when you consider the profile of the typical self-builder. There has been a shift from those on low incomes to ABC1 consumers on a relatively high income who are looking for better design, higher specification and value for money in a new home. These factors, combined with the expectation that house prices will continue to rise, mean self-build will be an increasingly popular choice for many UK home owners.

It is hardly surprising that many people consider self-build to be the ‘saviour’ of the housing market; enabling them to get the home they want for a price they can afford and shape to their own specifications. In European countries, self-build often represents as much as 60% of all new houses built. While the UK is clearly a long way behind, there are enough signs to indicate that the self-build market should experience steady levels of growth.

Self-build represents a growing area of business for advisers who can understand the requirements of a construction project and find the right mortgage to help support the grand vision of every ambitious self-builder. n

Jackie Moran is head of sales at Standard Life Bank