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Interview: Douglas Cochrane discusses lending on new builds and a ‘sustainable fix’ for the housing market

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  • 19/06/2017
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Britain has a massive housing shortage which requires a significant uptick in building to be corrected. Owain Thomas speaks to Douglas Cochrane of Lloyds Bank about whether this is possible, how it can be tackled and what lenders can and are doing to support it.

The new build housing market has been a target for political and industry criticism since the turn of the year, with communities secretary Sajid Javid just one high profile voice branding it “broken”.

However, Lloyds Banking Group head of housing development Douglas Cochrane believes this is unfair, although he admits it “needs to function better”.

“I’m not sure its broken, that’s quite an emotive and negative expression to use,” Cochrane tells Mortgage Solutions.

“It’s certainly repairable, but there’s no easy fix and any fix that’s made needs to be sustainable,” he adds.

 

New build lending

Despite all the main parties headlining house building measures within their manifestos, the resulting stalemate in Westminster suggests this might not be a subject that is readily tackled.

A minority Conservative government may well seek to implement its Housing White Paper, which called on the expansion of the SME building industry to lift housing output.

While this is a necessary approach, it also raises questions – chiefly is there the skill and capacity to meet demand, and how do lenders feel about lending on properties built by smaller builders?

Tackling the second point first, Cochrane believes lenders should have no real objection to lending on homes built by SME builders.

“We rely heavily on valuers and warranty providers,” he says.

“Most big builders sub-contract to smaller ones anyway, it’s just SMEs have a smaller geographical base but some will put a lot into their local reputation.

“So there’s probably not a different risk as a lender, it’s just taking time to look at them,” he adds.

 

Meeting targets

Meeting the building targets, however, provides a different challenge and this maybe one that governments are less able to influence than they would like.

“It’s not really in the government power to make builders reach these targets,” Cochrane explains.

“But they can make the environment easier to build houses – that needs to be one of consistent growth instead of peaks and troughs.”

One of the limiting factors in this might be finding small builders who want to expand, he continues: “Smaller builders may be very comfortable with the area they have been building in with tried and trusted products. It can be quite a challenge for a small builder to expand so there’s lots that needs to be done to help them.”

This could be done by larger builders supporting smaller ones in research and development, passing on skills and assisting with growth projects.

 

New technology

One of those support areas may be the use of Modern Methods of Construction (MMCs) for building, which have been touted for several years but only witnessed slow growth so far.

While these buildings do provide consistent design and construction, lenders can be hesitant to support this sector given concerns of quality and longevity. However, it again comes down to relying on valuers and the warranty.

“If the majority of warranty providers are happy, that goes a long way to dealing with concerns,” notes Cochrane.

“We assume that if someone is prepared to put their money to it on a warranty then that goes a long way.”

One way of supporting MMCs could be through a government task force, which is currently in discussion.

It could provide a similar role to the Zero Carbon Hub and would include demystifying technology, testing and helping to grow confidence in building performance.

 

Specialty advice

For brokers looking at the new build market, Cochrane urges them to treat it as a specialism, citing it as similar to the way the buy-to-let market has developed in the last few years.

Where builders may be suggesting customers go to certain brokers to agree mortgages, he suggests this could be down to the need for specialist knowledge.

“It’s usually because they know the customer will be speaking to a specialist in the sector and they will get a particular process,” he says.

“And as a lender it gives us confidence to lend at a certain loan to value (LTV) range because we know the customer has been well advised. There is the opportunity for brokers to move into that space – it’s not a closed shop.”

However, where this directing of customers maybe occurring for other reasons, Cochrane hopes that the FCA market review will uncover these issues and address any concerns raised.

 

More transparent

Overall, he feels the market is in a good place and has potential to grow in the near future.

“There’s some lenders looking at the new build market with interest,” he says.

“Any new or re-entering lenders coming into market for first time will manage their risk exposure but there are specialists available too.

“It’s also a more transparent market now, that’s important, and it’s evolving in the right direction,” he concludes.

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