Building your own home: self build funding, VAT refunds and warranties

Building your own home means finding a plot of land, deciding the design of the house, and choosing a contractor to build it¹. It is different from buying a home a developer has already built: the decisions, the risks and much of the paperwork sit with you, from the moment you buy the plot to the day the finished house is handed over. Done with the right cover in place, it can cost less than buying a house already built by a developer².

The money side works differently too. A self build mortgage releases funds in stages as the build progresses rather than as a single amount², and there is a government scheme, Help to Build, that can lend part of the cost³. Because you are the person responsible for the build, the insurance and warranty arrangements are yours to arrange, and official guidance is clear that having the right insurance and warranty cover is important to protect you against some of the risk if things go wrong².

The warranty is the piece most self builders meet for the first time. A structural warranty runs for up to 10 years after completion, and in one provider's self build policy the financial limit is £750,000 for a new home and £350,000 for a conversion⁴. Mortgage lenders usually insist on one before they will lend, and buyers will want to see it if you sell within the cover period⁴. This page explains each piece: the build, the funding, the VAT refund, the warranty, and what happens if something goes wrong.

What self build means: your plot, your design, your contractor

Self build is where you find a plot of land, determine the design of your home, and then select a contractor to build it¹. That definition matters because it separates self build from buying a new build home from a developer, where the house is designed, built and sold as a finished product. In a self build, you are the client: you own the plot, you decide what goes on it, and you carry the consequences of the choices made along the way.

The end result is usually a freehold home. When you buy or create a freehold property, you become the sole owner of both the building and the land it stands on⁶, which is one reason self builders often cite for taking this route: the plot and the house on it are entirely theirs, with no ground rent or developer retaining an interest.

The risks during the build are real and worth naming. The construction sector can be at greater risk of payroll and contracting problems because large projects often have multiple tiers of contractors, subcontractors, labour agencies, payroll providers and self-employed workers⁷. For a self builder, that means the contractor you appoint may not be the only party whose solvency and competence affect your build, and it is part of why official guidance stresses having the right insurance and warranty cover in place before work starts².

Cost is the other common motivation. Building your own home can cost less than buying a house already built by a developer², though the saving depends entirely on the plot, the design and the build contract. What the guidance does not promise is that it is cheaper in every case, only that it can be, and the staged way the money is released (covered next) is designed around a build whose costs arrive over months rather than on one completion day.

Staged payments: how a self build mortgage works

A self build mortgage does not work like an ordinary mortgage. Instead of lending a single amount on completion, the lender releases money to the borrower in stages, not as a single amount, as the build progresses². Each stage is typically tied to a visible point in the build, such as foundations, wall plate, wind and watertight, plastering and completion, with a surveyor or valuer confirming the work has been done before the next release.

This staged structure exists because the lender's security, the house, does not exist at the start. Lending against a plot of land with nothing on it is a different risk from lending against a finished house, so the money tracks the value being created. For the self builder, the practical consequence is cash flow: you need to be able to pay contractors and buy materials between stage payments, and a delay in a stage inspection can delay the money that pays the next bill.

Government help exists for the funding gap. Help to Build is a loan to cover part of the cost of building a home, or paying someone to build a home for you, and the loan is backed by the government³. Under the scheme you have 3 years to build the home⁸, and Homes England pays the equity loan to the mortgage lender once you have shown them your build warranty, which acts as proof that the build is finished⁸. The warranty is therefore not an optional extra under Help to Build: it is the document that triggers the final payment.

Other routes to a high loan-to-value mortgage exist in the wider market, including government-backed schemes aimed at sustaining the availability of mortgages with small deposits, though these apply to the general mortgage market rather than being specific to self build. The general rules of how much deposit you need still shape what any lender will offer, and a self build mortgage is assessed on both the plot and the projected finished value.

Reclaiming VAT: the DIY housebuilders scheme

Most new build homes are zero rated for VAT when a developer builds them, but a self builder pays VAT on the materials as the build goes on. The DIY housebuilders scheme exists to put you back in the position of a VAT-registered builder: you reclaim the VAT on the materials used in the new home⁹.

The scheme has eligibility rules. It covers people who build a new home for themselves or their relatives to live in as a family home, for residential or holiday purposes, and it also covers people who buy a new building as a shell from a developer and fit it out to completion for the same use⁹. It does not cover properties that cannot be disposed of or used separately because of a condition in the planning permission, or properties intended to be sold, let out or used for any other business purpose⁹. In other words, the scheme is for homes, not for speculative builds or business premises.

The deadline depends on when the build finished. If you completed building work before 5 December 2023, you must apply no more than 3 months after finishing⁴. The same 3 month deadline after completion applies under the scheme's guidance for buildings completed before that date⁹. Because the refund is claimed through HMRC and depends on evidence of what was bought and used in the build, keeping invoices for every material from day one is what makes the claim possible; the reclaim is the one part of a self build where the paperwork discipline pays directly.

Why mortgage lenders usually want a self build warranty

A self build warranty is a 10 year insurance-backed guarantee on the structure of the finished home, and lenders treat it as part of the security for the loan. In the Premier Guarantee self build policy, the terms state that a mortgage lender may require this cover or its equivalent as a condition of the loan, and that a purchaser and lender will usually require the cover if the housing unit is sold within the period of cover¹⁰. The warranty therefore matters twice: once when you borrow, and again when you sell.

The logic is straightforward. A lender lending against a brand new house has no way of knowing whether it was built soundly, and a structural warranty transfers that risk to an insurer who has inspected the work. Lenders are expected to ask for evidence to inform their decisions on lending against homes with potential defects¹¹, and a lender may also have its own individual policies on mortgage applications, meaning some may still ask for additional evidence such as an EWS1 form on flats¹¹. A warranty from an established provider answers the structural question in a form lenders recognise.

The warranty sits alongside, not instead of, buildings insurance. If you own your home you will need buildings insurance, and it is usually a condition of your mortgage¹². When buying an existing home you are expected to have buildings insurance in place from the day you exchange contracts, and most mortgage providers make this a condition of lending¹³; on a new build property the insurance does not need to come into effect until the day of completion¹³. During the build itself, a self builder also needs site insurance, which is a separate policy covering the work in progress, the materials and usually public liability. The new home warranties page explains how these warranties work for buyers of developer-built homes.

What a self build structural warranty covers

Building warranties cover major problems with newly built or converted homes¹⁴. They are split into three main parts, giving cover for the period before the building is completed, for years 0 to 2 after completion, and for years 3 to 10¹⁴.

Before the building is completed, you are covered if the builder is insolvent or commits fraud and does not complete the build; the insurer should refund money, part-refund, or arrange for the building to be finished¹⁴. For a self builder who has appointed a contractor, this is the part of the warranty that answers the question of what happens if the builder goes under halfway through.

In the first two years after completion, the builder must sort out problems, and the insurer usually acts as a mediator through a resolution or conciliation service¹⁴. In the Premier Guarantee self build policy, where a builder is appointed, the builder is responsible for rectifying any defects that would lead to a claim in the first 12 months of the period of insurance¹⁰. After that, in years 3 to 10, you are covered for structural problems where the builder has not complied with technical requirements, described as a breach of technical requirements¹⁴. New builds generally come with a warranty typically lasting 10 years, and it is up to you to report defects within the first two years¹⁵.

The cover is against major damage, not every imperfection. In the Premier Guarantee self build policy, the housing unit is insured for up to 10 years against the risk of major damage, and against a danger to health and safety caused by a defect in chimneys or flues¹⁰. The policy also covers removal, storage and alternative accommodation while the housing unit is uninhabitable, for a period not exceeding 26 weeks¹⁰. Where the insurer carried out building control or building regulations inspections, you may have extra cover for health and safety issues and contaminated land¹⁴.

Cover limits: up to £750,000 for a new home, £350,000 for a conversion

The financial limits in the Premier Guarantee self build policy are set out by type of unit: £750,000 for any one housing unit, and £350,000 for any housing unit that has been converted or refurbished¹⁰. The documents also refer to £1,250,000 for all housing units in one continuous structure, and the two figures sit alongside each other in the policy terms¹⁰.

The limit is not simply the headline figure. The policy states that the financial limit or the sum insured for the housing unit applies, whichever is the lesser¹⁰. The sum insured is the value written into the policy when it starts, so a home whose rebuild cost is below the limit is covered up to that sum insured, not automatically up to £750,000. This is the same principle as buildings insurance generally: you need to insure yourself for the amount it would cost to completely rebuild your home, which is usually less than the sale price¹².

For a conversion, the lower £350,000 limit reflects that the existing structure is not covered, only the converted unit. A self builder converting a barn or refurbishing a property should check what the policy counts as a conversion, because the definition determines which limit applies. The cover period is also fixed: the building warranty will usually cover the cost of structural repairs in the first 10 or 12 years for new build homes¹⁶, and the self build policy runs for up to 10 years¹⁰.

What a self build warranty does not cover

A structural warranty is deliberately narrow. For a claim to be valid in years 3 to 10, all of the following must normally be true: the home has a defect, the builder has breached the technical requirements, and the defect has caused damage¹⁴. You do not have a valid claim if there is a defect without damage, damage without a defect, or if the cost of fixing does not meet the minimum claim value¹⁴. A crack that is unsightly but stable, or damage with no underlying defect, falls outside the cover.

The everyday problems of a house are excluded too. General wear and tear is not included in accidental damage cover on home insurance¹⁷, and the same logic runs through warranties: they cover defects arising from how the home was built, not the cost of living in it. Warranties only tend to cover specific defined problems, so the terms and conditions need checking before you decide what other insurance you need¹⁸. The most common reason a warranty claim fails is that the warranty did not cover the particular problem in the first place, which is why checking what is and is not covered matters more than the brand name on the policy¹⁹.

Two further exclusions in the Premier Guarantee self build policy are worth knowing. If any claim is in any respect fraudulent, or fraudulent means or devices are used, all benefit under the policy is forfeited¹⁰. The policy is also voidable from the start in the event of misrepresentation, misdescription, error, omission or non-disclosure with intention to defraud¹⁰. In plain terms: the cover depends on the information you gave being honest and complete, and a dishonest claim can end the cover entirely, not just the claim.

Site inspections and the rules you must keep during the build

A self build warranty is conditional on the work being inspected as it goes. The insurer's cover for years 3 to 10 rests on the builder having complied with technical requirements¹⁴, and the only way the insurer can stand behind that is by checking the work at the stages it specifies. Miss an inspection, or cover up work before it is seen, and the warranty can be undermined, because the insurer cannot verify how the hidden element was built. The inspection schedule is set when the policy starts, and the site must be accessible at those points.

There are rules about the site and the finished home as well. In the Premier Guarantee self build policy, the policyholder is required to notify the scheme administrator if the housing unit is to be left unoccupied for a period of 60 consecutive days or more¹⁰. This is more generous than standard home insurance, where most insurers have a limit on how long a property can be left empty, typically 30 days, though some allow up to 60²⁰, and if your home is going to be empty for more than 30 consecutive days you will likely need a specialist unoccupied home insurance policy²¹. Landlord insurance can cover a property empty between tenants for up to three months, depending on the insurer²¹.

The professionals you appoint carry duties too. Your surveyor must carry out a survey with reasonable care and cannot use a disclaimer to avoid this responsibility²², and as a general rule the valuer can be liable if faults occur after you buy the property, because the valuer owes a duty of care to the person applying for the mortgage²². These duties sit alongside the warranty rather than replacing it: the warranty covers the structure, the professionals are liable for their own work, and the two routes can both be relevant if a defect is found.

Making a claim: deadlines, excesses and disputes

A claim under a self build warranty starts with the insurer, and the terms set the mechanics. In the Premier Guarantee self build policy, a separate excess applies to each separately identifiable cause of loss or damage, with the excess amount specified in the initial certificate and certificate of insurance¹⁰. If a storm and a defect each cause damage, two excesses can apply. The policy also waives the insurer's rights of subrogation against the architect responsible for the design, when the architect is a member of the Royal Institute of British Architects or the Chartered Institute of Architectural Technologists¹⁰, which in practice means the insurer will not pursue your architect to recover what it pays out.

Time limits differ across the UK. In Scotland, you have a limit of five years to make a claim, starting from the time you became aware there was a problem²³. The rules in England and Wales differ, and where a claim turns into a dispute about a builder's or professional's work, the general consumer redress position is set by the same framework of rights and remedies²³. The Financial Ombudsman Service, which handles complaints about building warranties¹⁴, applies its own time limits to complaints: a business must give a final response within set periods, and out-of-time complaints can only be investigated if the business agrees¹⁴.

How you handle the repair affects what is paid. Should you decide to go ahead with the repair yourself, you are responsible for the cost until your insurers have agreed to pay, and the insurer may pay a lesser amount if the repairs could have been done cheaper elsewhere²³. On the home insurance side, insurers will generally pay for cleaning up and repairing your property, as well as temporary accommodation if your home has been made uninhabitable²⁴, and the self build policy's own alternative accommodation cover runs for up to 26 weeks¹⁰. The ombudsman sets out how settling home insurance claims should work, including how insurers must handle claims fairly and promptly¹⁷.

Selling your home: when the warranty passes to the buyer

A self build warranty is an asset when you sell, and in most cases it travels with the house. In the Premier Guarantee self build policy, the policy is transferable to future owners of the housing unit, provided those owners contact the scheme administrator¹⁰. There is one condition to watch: there is no transfer if the home is sold by the original policyholder within twelve months of the policy starting¹⁰. A quick sale within the first year can leave the buyer without the warranty, which is why the policy terms tell you to check with your mortgage lender before cancelling, as they may require you to have the cover or its equivalent¹⁰.

The same principle applies in other parts of the market. If you buy a home through a shared ownership resale, any remaining period on the building warranty will transfer to you¹⁶, and if you sell, the repairs allowance will usually transfer to the new owner¹⁶. In Wales, under the Help to Buy Wales scheme, home builders must give you a new home warranty before you complete the purchase²⁵. Under Help to Build, the warranty has a role before you even finish: Homes England pays the equity loan to the mortgage lender when you have shown them your build warranty as proof that the build is finished⁸.

For the sale itself, the ordinary process applies: if the seller accepts your offer, they are responsible for drawing up a legal contract to transfer ownership²⁶. Keep the buildings insurance policy in place until the sale is complete²⁷, and hand over the warranty documents, including the final certificate, with the title deeds, because the buyer's lender will ask for them. The dedicated page on buying a new build home covers what these warranties look like from the buyer's side.

Complaints, the Financial Ombudsman and FSCS protection

If the warranty provider will not pay, or delays, or you believe it has handled a claim badly, the complaint route is the provider first and then the Financial Ombudsman Service. The ombudsman can help with complaints about building warranties, including how the insurer has dealt with a claim¹⁴. It also deals with complaints about settling home insurance claims¹⁷, and it applies the relevant rules to the products it covers, including the Consumer Credit Act 1974 for credit-related complaints¹⁴. Give the firm the chance to respond first, keep copies of everything, and take the complaint to the ombudsman if the firm's final response is not satisfactory.

If the firm itself fails, the Financial Services Compensation Scheme steps in, and the level of protection depends on the type of cover. For insurance, FSCS pays 100% of employers' liability claims and 90% of property claims²⁸. Credit insurance claims are not eligible for FSCS protection²⁹. FSCS also protects mortgage advice³⁰, which matters for a self builder who took advice on the mortgage or the warranty alongside it. If the adviser is still trading, you can complain to the Financial Ombudsman Service²⁸; if they have failed, FSCS is the route.

One further protection is the cooling off period. In the Premier Guarantee self build policy, if you wish to cancel the cover you must do so within 14 days, starting on the day after you receive the policy documents¹⁰. The policy is governed by the law of England and Wales in the absence of any written agreement to the contrary¹⁰. Free, impartial help is available: the ombudsman's own guidance on building warranties and home insurance claims explains the process¹⁴, and Citizens Advice covers problems with buying and selling a home²⁶.