Stage payments - Applying in Practice..

Mike2006

Just have a query about financing self-build with the stage payments system.

In practice how does this work out.

In my case, I can get a 92% mortgage so I have to front 8% myself. This 8% in full is part of the 1st stage payment for the site, so in theory all my savings are gone at this stage..

Now, I don't get the next stage payment until the house is at first floor level (or whatever)

How do you finance everything up to this - Siteworks, foundations, subfloor, timberframe deposit, windows deposit etc...

Is it a case of, all companies are used to this and give you credit until you get your stage payments or do you have to make other provisions to pay up front??

Thanks,

Mike.

sydthebeat

Mike2006 wrote: »

Just have a query about financing self-build with the stage payments system.

In practice how does this work out.

In my case, I can get a 92% mortgage so I have to front 8% myself. This 8% in full is part of the 1st stage payment for the site, so in theory all my savings are gone at this stage..

Now, I don't get the next stage payment until the house is at first floor level (or whatever)

How do you finance everything up to this - Siteworks, foundations, subfloor, timberframe deposit, windows deposit etc...

Is it a case of, all companies are used to this and give you credit until you get your stage payments or do you have to make other provisions to pay up front??

Thanks,

Mike.

good question for potential self builders....

the way stage payments work is that the financial institutions will not release the money until at least the value of teh stage payment is installed on site.
Its up to the site engineer / architect to 'sign off' the work, and usually this entails signing off that the value of work done is equilivant to the amount of money drawn down.

so how does this work in practise..??

It is dependant of a certain limit of credit being involved somewhere. For contract builds, the contractors is expected to have either the financial support to carry the work, or an degree of credit from builders suppliers.

For self builders this is somewhat trickier. They are expected to be able to carry the costs until release of the stage payments. This is either by means of the sub-contractor carrying the cost of material and labour, or the client arranging credit with builders suppliers. This was easy to do at boom times but is becoming increasing difficult. Most credit lines has reduced from 90 days to 30 days.

Its important to note that materials need to be fixed on site in order to be certified ie if windows are on site but not installed, they cannot be included in teh value of work done on site.

It is also increasingly difficult for engineers / architects to value the work on site if done as part of a self build project with no QS input. In my experience most mortgage values are split into about 6 parts. The final is usually a small amount, say 10K and the balance is divided into 5 equal parts. This allows for some scope for self builders to 'plan ahead' financially becaus esome stages are not as financially intense as others ie foundation stage could be 1/3 the real value of roof complete, but sometimes the figures for these could be the same.

Mike2006

Syd,

Thanks for the reply.. That is exactly the type of discussion I am trying to encourage on this thread.

I am planning to go down the self-build (direct labour) route, so it is something that I am becoming more 'aware/concerned' about.

Surely it has to effect the level of negotiating discounts that you can achieve if you are looking to get the materials/service on credit for up to 3 months ??

I might try to negotiate with the bank that they give me the full cost of the site in my first stage payment and that I use my 8% to put deposits on large cost items i.e. timberframe, windows and contribute to getting to slab level..

If this would not work, it would probably work out 'cheaper' to get a personal loan for say 30k or whatever to pay out these deposits , than it would be to 'forfeit' a good discount....

Mike.

Mike.

Carlow52

Mike2006: just to be sure I read your posts correctly:

I get the impression that you envisage paying for the site, by way of stage payments

...This 8% in full is part of the 1st stage payment for the site...
...I might try to negotiate with the bank that they give me the full cost of the site in my first stage payment...

Normally, AFAIK, the site must be owned by you 100% before you can have access to build on it and that the stages payments discussion relates only to the financing of the actual build: perhaps the game has changed.

sydthebeat

Mike2006 wrote: »

Syd,

Thanks for the reply.. That is exactly the type of discussion I am trying to encourage on this thread.

I am planning to go down the self-build (direct labour) route, so it is something that I am becoming more 'aware/concerned' about.

Surely it has to effect the level of negotiating discounts that you can achieve if you are looking to get the materials/service on credit for up to 3 months ??

I might try to negotiate with the bank that they give me the full cost of the site in my first stage payment and that I use my 8% to put deposits on large cost items i.e. timberframe, windows and contribute to getting to slab level..

If this would not work, it would probably work out 'cheaper' to get a personal loan for say 30k or whatever to pay out these deposits , than it would be to 'forfeit' a good discount....

Mike.

Mike.

first to carlow52, i have seen cases of a site being purchased from the first draw down, i wouldnt really refer to it as a 'stage payment' though...

Its usually a question on an interim cert "what is the site value?"...

mike,
you need to get all your figures and schedules worked out as soon as possible. this is one of the skills required of a self builder. You need to know when and how much is required as deposits on items, so that they can be allowed for in the stage payment. Be careful with the amount being asked for as deposits!! There are other threads on here about this. Personally i wouldnt give any more that 15-20% as deposits on any thing, although timber frames tends to be different (its usually 1/3, 1/3, 1/3... deposit, on delivery, on completion).

I would also question the theory behind a good discount for a high deposit.. what are they trying to say??... "we havent much money right now so we'll take as much off you right now in case we go under.."/???

Mike2006

Sorry, maybe I didn't explain myself fully. The way it goes is as follows:
(numbers rounded off for clarity)

e.g. Project cost €500k
Site Cost €100k

Mortgage@ 92% = 460k
Me @ 8% = 40k

Site Cost = 100k.

1st Stage Payment (Site Payment) = 60k from bank and 40k from me.

Mike.

sydthebeat

mike....

i think you should be able to wrangle 92% of the site purchase cost out of them at 1st draw down... therefore

site cost = 100K

1st draw down = 92K mortgage + 8K you.....

this allows you 32k base figure for deposits, fees etc..