What is Buildstore and how long has it been operating?
Buildstore is a specialist company set up four years ago to bring all aspects of self-building together ‘ the finance, the design, the building materials and the plots. Its first self-build mortgage, Accelerator, was launched in September 1998, and there are now five members on its direct panel, including Britannia Building Society, Lloyds TSB, Skipton Building Society and The Mortgage Business. As this side grew a lot of brokers were contacting Buildstore and handing over business to us but not getting a procuration fee. So Buildloan was set up for intermediaries in January 2002.
How is the proposition different to what was previously available?
Before Buildstore there were lots of fragmented suppliers, but there was no single point of reference. Self-builders need professional help, they need finance, and legal work, they need to buy materials and find the land, but at that time there was no central point from which they could do that. Buildstore started as a product broking and plot searching service, but discovered the existing products were not user friendly insofar as the money was always paid out at the whim of the lender.
The biggest problem was that none of the mortgages provided a positive cash flow for people, so they were always getting stuck with either having to get expensive bridging loans, or not getting the loan at all. People were being put off because the finance was too difficult. Obviously there are security issues behind giving people money for properties that are not yet built.
So a scheme was devised whereby the funds would be given in advance of that particular build stage. This made borrowers cash buyers of labour and material, which brings down the costs quite dramatically. An indemnity policy had to be specifically created to cover that because what you had was additional exposure without the comfort factor of having a complete house. It is one of the few indemnities where the client gets a real benefit; while they pay for it they are actually getting a positive cash flow.
Buildstore takes a fairly holistic view, and takes clients through the various planning stages. It has its own trade accounts, so they get the benefit of buying through a co-operative. It is unusual insofar as it can negotiate good rates because there are people like builders’ merchants who work in the office. There is also the Buildnet service, which makes architects, designers, builders and so on available to borrowers.
Why is there so little competition in this market?
It costs quite a lot to set up something like this. Buildstore raised money for its proposition from institutional lenders and trade investors, but as this is a fairly narrow market at the moment there are probably people who have looked at it and decided that with 20,000 new self-build units a year there is not room for two competing firms.
However, it is a growing market and I would not be surprised if there was competition in the future, but at the same time intermediaries are now beginning to service the local market themselves, through us, so I am comfortable with our position. However, competition is creeping into the direct to consumer market as a number of brokers are now beginning to target it themselves.
Is there a typical type of self-builder?
It largely depends on the area. Self-builders range from the tradesman or artisan who is exercising their own skills, to the city executive who has managed to acquire the back of someone’s garden or a plot and will put up a £400,000-500,000 house.
It depends on the location as well. For example, people in East Anglia will self-build because they can. In Scotland they do it because they can get a four-bedroom house for the price of a three, and then you also meet people who have decided they want a particular type of design. A lot of self-builders are product managers or IT consultants who are usually self-employed. The average loan size is £116,000 ‘ so higher than average, which lets them do pretty much as they please.
Are there many restrictions with self-build mortgages?
While there is a housing shortage in the general market it is artificially created by the planning issues on larger scale developments. The only thing that restricts self-build are the planning authorities, so things like getting planning permission for a huge house in a given area, or using a certain type of slate are the only real planning issues that come up. And there is certainly not a shortage of plots in the self-build market.
Our plot listings are growing all the time and show around 7,000 available plots in the country. It used to be that people chose to build in quite remote areas, but there are lots of different areas that are now becoming more popular with demographic changes. There have been loans to people who are doing conversions on brownfield sites as well as loans for greenfield farm building.
The mortgage does not depend on the type of construction either. Lenders rarely prescribe any type of construction, if it has got approval from the British Board of AgrÃ©ment then it is fine.
Ben Marquand is deputy editor