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High street lenders establishing MMC lending credentials one project at a time

  • 22/07/2019
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High street lenders establishing MMC lending credentials one project at a time
High street mortgage lenders have been highlighted as potentially falling short when it comes to lending on prefabricated homes, even though such developments could mushroom to meet housing demand in future.


Worthing Council in West Sussex has signed a partnership with modular homes specialist BoKlok to build 162 apartments on its land which are expected to be available by 2021. But lenders are reportedly scrabbling to keep up, according to the Sunday Times.

The two-bedroom flats, measuring 8.5 by 4 metres, will be constructed of timber and 99 per cent completed at factories in Sweden and Estonia. BoKlok is co-owned by flatpack giant Ikea and Skanska, the construction firm, both Swedish.

High street lenders have on the whole opted not to lend against timber construction of the type often used in self- and custom-build projects.

The sector is generally better served by regional building societies.

“The lenders that support the self-build industry are more the regional building societies with Virgin Money also supporting custom-build,” said Tom McSherry, national relationship manager at Buildstore, the specialist broker for mortgages on self-build and custom-build homes.

“When we partner with a developer, council or house-builder, we go out to the lending partners with full details of the scheme. We create the funding for the development.

“We inform the lenders about the suppliers and the material choices. Then we put together a panel of lenders which, up front, have a full understanding of the project.

“The panel valuers can then give the lenders the knowledge of the materials being used,” McSherry said.

“We’d get that support before the site goes live,” he added.


Modern methods on the high street 

However, high street names were keen to emphasise their credentials when it comes to lending against homes using modern methods of construction (MMC). 

Barclays, Lloyds Bank, Royal Bank of Scotland and Santander all said that they would consider lending on prefab houses if they were accredited by the Buildoffsite Property Assurance Scheme (Bopas) and had a suitable warranty.

“Halifax and the wider group very much sees itself as a key player in how the modern methods of construction (MMC) housing sector develops,” said Douglas Cochrane, head of housing development at Lloyds Banking Group.

“It sees the positives that can come from off-site manufacturing methods in the ability to help deliver targeted supply of new homes and in the quality advantages of controlled manufacturing conditions.

“It can currently consider properties that have Bopas approval and carry a warranty plus the usual requirements of valuer approval and marketability that would always apply.

“LBG is fully engaged in the work on this sector to ensure that lenders, insurers and other stakeholders can all have confidence in the new methods, which will enable the market to make informed lending decisions. This work will be crucial to avoid some of the problems of the past where some construction types have proved to carry systemic defects over time.

“By getting the processes right now, it should only help the mortgage market support and add momentum to the modernising of housing development,” Cochrane added.


Marketability is crucial

 A spokesperson for Barclays said: “We are keen to support innovative forms of construction from the perspective of environmental efficiency and the housing shortage.

“Each development is taken on its merits and we consult with our valuation partners on marketability, longevity (minimum life expectancy of 60 years), quality of construction and site management, and target market whether owner occupier or investor

As a rule, we look for Bopas approval, an acceptable new-build warranty and British Board of Agrément (BBA)-certificated fire retardancy for cladding materials.

“We are currently talking with a number of modular housing providers with a view to lending on their developments and are happy to consider new sites and construction methods as they are presented to us.

“In the modular space, we’ve engaged with developers and reached out to Countrywide and E.surv as our valuation suppliers to set up site and factory visits,” Barclays said.

“We want to ensure that the product is understood and that the target market for the location is clear. It could fall down if there was a marketability issue,” the Barclays spokesperson added.

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