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Dare to be different

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  • 21/05/2003
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There is a growing trend towards individual properties but fortunately this diversity has largely been accepted by mortgage lenders

The Three Little Pigs and the Old Lady who lived in a shoe may have taken things to the extreme, but people will always want ‘individual’ properties. As a nation, the British live in a splendidly diverse array of houses, most of which can now be catered for by the mortgage market.

The UK has an eclectic mix of housing and all manner of properties, dating back almost a thousand years to the Norman Conquest, are to be found in our towns and countryside. This lengthy timeframe is the basis of the diversity that we find in our housing market, and differs from countries such as the USA that has seen its entire housing stock built over a much shorter period.

For borrowers, the question is what are mortgage lenders prepared to lend on, and what are the basic fundamentals that will underpin their decisions on some of these properties.

The very basic requirement for any mortgage lender is that a property will have long-term resellable potential, guaranteeing the lender can retrieve its money through repossession and sale should the worst come to the worst. Clearly this is not what any lender would like to see happen, but none are naive enough to shy away from the potential dangers of lending large sums of money, especially when it comes to properties that are out of the ordinary.

Simple amenities

Basic levels of heating, sanitation and cooking facilities have to be in place for most lenders to consider offering a mortgage on a property. But then for most borrowers these things have to be in place before they would consider living in a property anyway.

The problem over these basic facilities arises when people are looking into renovation or converting old properties where no such amenities are in place. However, in surveying these properties for a mortgage valuation, it is not simply what is on the site at the time of purchase that is important, but the proposed plans and changes that are to take place must also be considered.

Before looking at this in more detail, it is perhaps best to look at what will prevent a lender from getting involved at all.

Peter Bruning, chairman of Bradford & Bingley’s surveying subsidiary, Securemove Property Services, gives a few pointers. The type of materials used in the construction of a building are key, and obviously integral to its longevity. Bruning says a basic benchmark test is whether or not a property is deemed to have a life span of at least sixty years. Anything under that is going to be very difficult to persuade lenders to offer a mortgage, according to Bruning.

Building blocks

One problem that has arisen in recent years is from a type of concrete used to build many council properties in the sixties. Using high alumina concrete, the buildings were put up in good faith. However, as many tenants looked to take advantage of the right-to-buy schemes in later years, they found themselves unable to secure finance. Over time the concrete had lost its integrity and so the properties literally began to fall to pieces, rendering them worthless.

A similar problem has also been seen in Cornwall and Devon, with a material called Mundic block. Bruning says the mix used to create the building bricks, can develop air pockets, and so again loose its integrity. If this happens, there is little value left in the property and lenders will understandably tend to steer away from such risks.

Many lenders will also raise concerns over timber frame buildings, or those with pre-formed sections, where entire units, such as bathrooms are dropped into the shell of the construction. One of the problems with these pre-formed sections is that if something goes wrong it can be difficult to replace an individual component, so an entire section has to be changed. However, Bruning says this does not preclude lenders from getting involved, but simply makes them a little wary.

Many of the unusual properties that people live in tend to have been created through renovation or conversion and this is where the self-build mortgages come into play.

Paul Thompson, marketing manager at the Ecology Building Society, says the lender has a wide variety of houses on its portfolio, specialising in self-build and housing with pro-environment features as it does.

He says: ‘Examples of unusual properties and projects include renovation and conversion of such things as mills, pumping stations, lighthouses, station houses and signal-boxes for residential use, which we see as a form of recycling. We also lend on properties constructed out of timber such as log cabins and unusual self-builds such as earth sheltered dwellings and ‘cob built’ houses.’

Double valuations

Clearly many of these properties will be in need of substantial work and the real value will come when the renovations are completed. This is why there are two valuations required before any mortgage can be agreed. Thompson explains: ‘The process [self-build] is essentially no different to that with a standard mortgage, but we recommend that purchasers speak to us early. They will need to have obtained outline planning permission and to submit costs, plans and estimates with their application. We will arrange for a valuation to be completed by a chartered surveyor who will provide a valuation as it stands and one with repairs and improvement works completed to provide a reinstatement value for insurance purposes. We will consider lending up to 90% of the value of the property as it stands and with improvements completed, and will consider stage payments.’

When valuing one-off and unusual buildings, there are no comparable prices to use and surveyors and estate agents have to revert to more basic principles. Bruning says location is unquestionably key, and will underpin the value of a dilapidated property. At worst the plot of land will remain desirable and therefore sellable if the property itself does not prove popular for re-sale.

Self-build for renovation and conversion is an area of the market that lender Norwich & Peterborough (N&P) also specialises in. Stephen Penlington, general manager of residential mortgages at N&P, comments: ‘Each conversion and renovation is very different and we will adapt to suit the circumstances in each situation. We will look at the use of different types of materials, building processes and foundations, as long as they meet UK required standards and as long as the property looks like it will be habitable and re-sellable.’

Like the Ecology Building Society, Penlington says N&P has all manner of buildings on its books from lighthouses to waterworks. Of the self-build mortgages on offer, he says: ”Spec for spec’ the mortgage rates that we offer are the same for self-build as they are for buying on the open market. The only difference is the way we release the money.’

The money is released on a stage by stage basis, to fund each new stage of the renovation work until completion. Penlinton says not only does this help discipline the use of the money, but also means the borrower is only paying interest on the amount of money he needs for each stage, and not for the whole amount required from day one.

Much of the renovation and conversion work that has taken place is driven by dwellers’ desire to live somewhere unusual and usually rural. However, the Brownfield Regeneration movement has also seen many inner cities transformed. This has taken shape in the re-emergence of warehouses, factories and old offices as they are converted into housing stock, and has been seen the length and breadth of the country. Much of the work has taken place in old industrial centres, where waterfront industries used to stand and has breathed new life into decaying areas.

Conversions and renovation work has helped secure the future of many of the old buildings in the both our cities and countryside.

Bruning cites the example set by Tom Wheatcroft, the owner of Donnington Race Course and a well-known Lancashire developer and builder. Owning two windmills himself, Bruning says Wheatcroft has also set up a windmill owners club to enhance public awareness in preservation projects, and help ensure the structures are not simply left to decay now their initial purpose has been served.

Hopefully this interest in such properties will continue, and UK homeowners will carry on looking at using some of the more unusual properties as dwellings to ensure the rich housing stock we have remains for all to enjoy.

key points

Lenders will want to be sure that the materials in the property are not going to affect the resale price.

Mortgage rates on unusual properties are not necessarily higher than on the open market.

The Brownfield Regeneration movement has helped to develop the potential of unusual properties in urban locations.

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