Britain is in the middle of a housing crisis, one of the worst we’ve seen since the 1950s. The government’s answer to this is modular homes, with the housing whitepaper outlining a plan to build 100,000 by 2020.
Though more homes need to be built, questions about how lenders and intermediaries will service these new homes have arisen. As it stands, most mainstream lenders are reluctant to lend on modular homes because it is difficult to assess their long-term value.
Lenders need to be assured that properties being considered for a mortgage can stand as security for up to 35 years, but these properties are sometimes not seen as able to meet the same levels of appreciation as traditional buildings.
That is not to say lenders don’t have an appetite to lend, however. As brokers know, the market is still buoyant. In fact, mortgage lending reached its highest January level since the financial crisis as first-time buyers and re-mortgagers took advantage of an extremely competitive market. And, as of March this year, there are nearly 30 lenders offering 95% mortgages with more than 100 schemes available.
In any case, the fact that modern methods of construction and advancements in technology mean today’s pre-fabs are more likely to stand the test of time is still not widely recognised in the mortgage industry. Therefore, to ensure that we service this part of the market properly we need to challenge the preconceptions that surround them.
For brokers, this means getting up to speed with how lenders’ requirements change for modular homes. For example, lenders sometimes offer a reduced loan-to-value (LTV) on these properties meaning borrowers would need to find a larger deposit than originally realised.
Brokers must also be advising their clients on the right type of report to have done on the property.
While home builders will provide a homebuyer’s report with an automated valuation model (AVM), brokers should recommend that clients hedge their bets by getting a separate report done with a surveyor present. Although this comes at a small cost, valuation reports with a surveyor are a lot more reliable for new builds than your typical AVM report, giving buyers a better chance when applying for a mortgage.
While it remains to be seen how valuations of modular homes will hold up, pressure to provide mortgage funding to borrowers means brokers and lenders need to begin thinking about how they will service this section of the market.