L&G’s investment is a much needed boost for the stock of housing in the UK but a question mark hangs over how many lenders will be willing to offer mortgages on homes built using non-traditional methods.
Mortgage brokers are all too aware of the difficulties placing cases when the valuation comes back with the ‘non-standard’ label. Historically, unusual construction methods, born out of the necessities of the time, have not been well received by all banks and building societies.
This week, our panel of experts consider whether the construction methods of homes built off-site will be welcomed by lenders eager to offer mortgages, or if they will be put off by any perceived risks in the durability of the materials and methods involved.
Richard Sexton, business development director of e.surv chartered surveyors, considers lenders’ attitudes to novel construction methods.
Steve Goodall, managing director of Legal & General Surveying Services, talks about the high standards of modern but non-traditional building techniques which are becoming more popular.
Mike Jones, managing director, intermediaries, Lloyds Banking Group, talks about the bank’s support for custom and self-build properties and the assurance schemes available to guarantee quality.
The news that L&G is investing significantly in the capability to build off-site new-build property is certainly positive. Outside of vague statements from central government regarding the desire to increase new-build production, this is perhaps the first concrete (pun intended) news from the private sector of its own commitment.
It’s also a fascinating insight into the way that construction technology has moved on. Make no mistake, this is not an equivalent to the state sponsored post-war prefab scheme to rebuild housing stock, much of which is still standing by the way, albeit constructed using much more basic construction methods.
The initiative will use novel materials and cutting edge modular construction methods to mass produce property that will likely allow entrants into the market that otherwise may not be able to get onto the ladder.
However, this innovation could also present a challenge. The last 50 years have thrown up their fair share of novel construction methods that had problems and which lenders took a hit on as a result.
Understandably, and with one eye on their responsibility to potential purchasers, lenders could be reluctant to offer mortgages unless comfortable with the new construction methods. There is a chicken and egg aspect to this. Properties are only mortgageable if lenders will lend – lenders will only lend if they think their customer will be able to remortgage.
Work will need to be done to get lenders and their valuer advisers to a point of comfort, but the prize, assuming this new stock really is built sustainably, is one worth making the effort for.
The issue of mortgageability on certain construction types came to the fore after the Right to Buy boom of the 1980s when problems with certain concrete frame and panel properties led to them being designated defective and repair schemes were established.
Many lenders saw these properties as too big a risk or would only lend subject to a satisfactory repair scheme and an appropriate valuation. However, repaired designated defective properties have stood the test of time and still have a ready and steady demand in some locations.
More recently there has been a huge growth in the construction of modern timber frame, structural insulated panels (SIPs) or steel framed properties, sometimes clad in brick or stone. Their design and construction meet modern requirements, being accurately engineered and factory made, often guaranteed, and thus ensuring strength and quality.
Often it is difficult to determine the construction of a modern framed and clad property and the question arises as to whether the average purchaser is bothered about a construction type that is labelled non-traditional by a valuer but appears to be traditional and complies with modern regulations and has an appropriate life span.
Programmes like ‘Grand Designs’ have spurred an increase in attractive and desirable one-off builds using non-traditional methods. From a lending perspective, if these modern non-traditional properties have adequate building warranties and an appropriate design life then there is no reason why they should not be considered as suitable security for a loan.
As a final point, if the nation is to meet its new-build targets, traditional ways of thinking about build technologies will have to evolve.
It has long been acknowledged that the supply of new houses in the UK continues to be a challenge. However, the supply of good quality new homes is a multi-layered issue and as such there is no one single solution. What is required is a sustained programme of measures and a long-term commitment to a wide variety of different types of developments.
Custom and self build is one area that will benefit from innovation, and one we have a history of providing support for. In January last year Lloyds Banking Group became the first lender to take part in the Custom and Self Build (CSB) Scheme and we already lend on off-site construction schemes where components and methodology have been robustly tested.
Therefore we are keen to support developments such as this, in principle. With off-site construction, the main consideration tends to be around longevity of components and the overall system. Surveyors will usually be reassured if there’s a BOPAS (Build Offsite Property Assurance Scheme) certificate confirming the components and construction method meet acceptable longevity standards.