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Brokers report spike in self-build activity with further growth expected – analysis

  • 06/01/2022
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Brokers report spike in self-build activity with further growth expected – analysis
Self-build mortgage enquiries have increased over the past year due to the pandemic, changes in regulation and new government schemes, and are expected to grow even more, brokers say.


Stu Bryce, head of intermediary sales at self-build specialist BuildLoan, said it typically gets hundreds of enquiries every month and expected levels to increase.

He said there were several reasons for the uptick, pointing to Right to Build legislation which helped to provide a 20 per cent increase in self-build plots each year. He added that there was also a rise in the emergence of multiple plot custom build developments across the country.

Bryce said the pandemic could have also forced people to re-evaluate their homes, encouraging them to move out of the city to create the “perfect space for a living and working home”. The Help to Build equity loan scheme could be an additional factor in generating interest and enquiries, he suggested.

Nick McLean, associate director of LDNfinance, said he had seen a 50 per cent increase in the level of enquiries over the last year, which he attributed to the pandemic making people reassess their housing expectations.

McLean said: “Self-building a house is a way for clients to build their dream home in a location of choice. In some instances, it can also offer clients the opportunity to create high-quality homes at a more cost-effective price. It may also provide developer profit uplift – so a win-win.”

He said clients found self-builds attractive as it gave them more control over a property’s design compared to altering an existing home which could be costly and compromised in some way.

Nick Mendes, mortgage technical manager at John Charcol, said it typically got 10 to 15 self-build leads a month, and these were usually for a development loan to convert a commercial property to a residential dwelling.

He said this was due to changes in permitted development rights last year, which made it easier for commercial properties to be converted to residential properties, and implied this trend would continue.

He added that there were multiple reasons why self-build mortgages would appeal to people, such as better energy efficiency compared to converting existing properties, a more cost-effective option for downsizing in later life, catering for multi-generational homes and lenders being more supportive or flexible with this type of finance.


Opportunity for development lenders to add larger loans

McLean added that he expected the sector to become more popular with customers as well as lenders.

He explained: “There is plenty of space for more development lenders to enter into self-build. But where we feel there is greater opportunity is in the demand for larger loan self-build products where we are currently restricted to a handful of active lenders and private banks.

“In our experience, we have found that these loans can be challenging for lenders due to most of the clients being first-time developers with projects that are often quite tight in terms of profit. This is because their primary focus is more about creating a high specification house the way they want it, rather than profit and return.”


Challenges around self-build mortgages

McLean said there was a “significant challenge” around whether or not there demolition would be needed when it came to self-build properties.

He said: “For instance, if a property is purchased with planning permission for a new dwelling but there is a house on the site that needs to be demolished, then a day-one valuation will not be based on the purchase price, but on the value of the site with planning only. This can have a major impact on the equity requirement.”

Furthermore, he added that if a borrower wanted live at the site during the build, that would have to be factored into affordability calculations which could affect the amount available to borrow.

McLean explained: “It is important to remember that while a self-build mortgage has a development facility, it not like development finance where the interest is rolled-up, but instead based on a borrower’s income and will therefore be subject to typical affordability criteria.”

Bryce said additional barriers for self-build mortgages included making sure borrowers did not run out of money and had the funds to pay for materials and workers on time.

He said BuildLoan leveraged its experience to work around this and confirm project costings beforehand, to ensure there was sufficient cashflow for project requirements.

Bryce added that this along with cost-based lending, advance-stage payment options and exclusive mortgage products specifically catered to self-builders.

Mendes said there could also be issues around location, time frames and reflecting the future market.

He explained: “The idea of a self-build in the countryside with rolling hill views is going to be unrealistic when you consider the planning permission and issues of this nature. Self-builds can be in the city in an old garage or disused council green verge. Finding the right plot that will get permission and allow you to build is naturally key.”

Ensuring borrowers have sufficient time and resources to complete the build is also vital, but the longer a build takes the more variables and costs can increase. He said that typically, self-builds took three years to complete.

Mendes said for this reason, it was important to ensure the build reflected the future market in case the borrower wants to sell.

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