Lenders urge collaboration on new building techniques
Published: 17 June 2014 | Author: Bernard Clarke
Lenders support plans to increase the supply of housing in the UK. They are keen to work with builders and other property industry professionals to overcome the challenges and fulfil the potential of new building techniques.
Lenders have no preference for any particular method of property construction, but there is an over-riding requirement that properties being considered for a mortgage must be capable of standing as security for a loan of up to 35 years.
As our historical research report Non-traditional housing in the UK - a brief overview made clear, there are probably more types of construction in this country than in almost any other in the world. Lenders will advance mortgages against properties constructed in all sorts of ways, but they must fulfil the basic criterion of providing security for a loan over an extended period.
It is crucial that a dwelling holds its value in the medium to long term to offer security for a mortgage. In practice, a property must be capable of being re-sold, and maintaining or increasing its value over the term of the mortgage.
Lenders do have concerns with the relatively poor track record of some types of non-traditional construction. Whether they are providing individual mortgages for home-ownership, or finance for newly-built property in the social rented sector, firms have similar concerns.
Lenders need to protect both their existing stock of loans and those they newly advance. Disappointing experiences in the past can affect their willingness to lend on construction types with which they are not familiar, or which appear to exhibit some of the characteristics that have given them problems in the past.
Where properties are constructed by modern or innovative means, including off-site manufacture, lenders have been concerned about the ability of some designs to meet certain standards. In particular, they need methods of construction that provide:
- Durability, with a life span of at least 60 years.
- An acceptable warrant that will cover the building.
- Whole life costs that are comparable to traditional methods of construction (this is particularly relevant to lenders considering finance for providers of social housing).
- Repair costs that are not excessive, and the ability to maintain property through a range of local repair services.
- The ability to support, without difficulty, a range of adaptations and extensions, such as porches or conservatories.
- The ability to take out buildings insurance on standard terms.
- The ability to meet recognised standards of quality.
- Marketability of the property, and the potential for it to have general appeal to prospective buyers.
For homes in the social housing sector, it is also important that the method of construction does not make them harder to let, or reduce the rent they would achieve.
With such a diverse housing stock in the UK, and so many different types of construction, it is sometimes difficult to assess the quality of the building. For properties manufactured off-site, for example, lenders and others, such as warranty providers, need to be confident that the construction will meet required standards.
In the past, accreditation standards have sometimes been established but subsequently not upheld, particularly where there has been no government backing in place. But to support lending on property manufactured off-site, proper accreditation is vital.
We are happy to work with those in the construction sector to try to ensure that any such accreditation meets the requirements of lenders.
Lenders’ decisions on whether to advance mortgage on properties built by modern methods of construction may be shaped by other professionals. Providers of building warranties, as well as valuers and insurers, also need re-assurance when considering properties manufactured off-site.
If fellow professionals have concerns, it may affect the decision to lend. But if those fellow professionals give approval, then there may be no reason why off-site or other modern and innovative methods of construction cannot form a larger part of the provision of newly-built property in the UK.