Custom build could be key to housing crisis

Nia Williams

April 2, 2015

The report concludes that custom build homes are cheaper to construct, allow for greater consumer involvement, present less risk to mortgage lenders and could introduce a large number of new plots into the new homes market very quickly.

However, for custom build to fulfil its potential, local authorities must make better use of Section 106 planning agreements to ensure custom and self build is given favourable planning permission.

Mortgage lenders can provide finance by making staged payments which can be made in arrears or even in advance using an Accelerator Mortgage Scheme. This means borrowers can get the cash to pay for labour and materials before work begins. The scheme also allows consumers to borrow up to 85% of land and build costs.

Crucially, custom build properties are cheaper to build. Exclusive analysis for MAB shows custom build houses are 15% cheaper to construct on average as builders do not have the additional marketing costs – used by speculative builders to shift stock – and their overheads are greatly reduced.

Builders also need far less working capital as they no longer hold a land bank and are paid in staged payments as they build the property. Reducing builder costs and margins provides instant equity to the homeowner. This in turn substantially reduces risks for lenders, which should increase their willingness to lend.

Andy Frankish, new homes director at Mortgage Advice Bureau, said: “The custom build market has a relatively low profile in the UK but its potential is huge.

“The myth that custom build is only for high-income families needs to be put to rest. The low risk associated with custom build makes it attractive to mortgage lenders, so it is critical that more lenders show their support for this type of housing.

“New build is seen as a niche sector by many lenders and most are wary of high exposure to lending in this area.

“High LTV loans on new build properties are particularly hard to find and come at a premium. This puts first-time buyers – particularly those with limited deposits – at a distinct disadvantage.

“The Help to Buy equity loan scheme has helped to move lending conditions in the right direction, but the scheme has propped up new build lending and construction rather than facilitating a fundamental change in lender attitudes.

“If the scheme were to be removed there is a real concern that first-time buyers will find their options for high LTV mortgages greatly reduced.

“Custom build should be seen as an integral part of a solution to the housing crisis. Working alongside traditional build, custom build gives customers more choice, reduces their costs and improves consumer equity.

“This helps to lower lender risk and gives land owners more options when disposing of land, introducing a high number of new plots to the market in a short space of time.”

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