Minimising risk through a structured approach to self-build lending.

Article by Simon Middleton – June 2011

Self-Build lending is still perceived to be problematic even though it’s one of the largest home building sectors in the UK, ultimately delivering prime market property portfolios.  Issues of planning problems both prior to and during the build project, restrictive covenants, in addition to the usual income and accident related issues and the very nature of the project being undertaken continue to make lenders wary. But that’s not surprising when You consider the rather bespoke requirements of self-build lending are normally shoe horned into the existing home purchase structured product arrangement which relies on the valuation process and doesn’t really provide a thorough risk management approach.

Traditionally self-build customers are released funds based on a series of stage payment mortgages which are valued at stages by the lenders valuation surveyor. Whilst a valuer has good understanding of the construction process and is absolutely key to assessing anticipated final value, they may not have a full understanding of MMC and Ecobuild systems, or how to assess the property for compliance relative to planning permission and building regulations. It is very difficult for a valuation surveyor to provide the stage valuation the Lenders are relying on especially as the stage reached may not be relevant to the actual expenditure made. More importantly it doesn’t control what the self-builder is spending funds on.

A general lack of understanding by the self-builder and the lender of the requirements at this level means that contracts between the self-builder and their contractors or tradesmen are not always used, which increases the risk of the build going over budget and they don’t always utilise Site Insurance or a 10 Year Structural Warranty, all of which can easily be stipulated. For example:- Self–Build Zone have a contract service which caters for the creation of written legal contracts for the whole project and is less than £50.

To provide that increased degree of comfort to lenders then maybe they should be taking a more bespoke approach to lending into the sector as it seems to me that there are already the tools in place with which to adequately risk manage the construction process, it’s just a matter of implementing a standard framework and sorting out the communication between the various tools.

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Grant Shapps calls for more ‘mates mortgages’ to help struggling first time buyers

Housing Minister Grant Shapps will today call on lenders to offer ‘mates mortgages’ so younger first time buyers can club together and take their first step on the property ladder.

With new research published today showing 86 per cent of people want to buy a home, Mr Shapps wants lenders to make it easier for friends who would like to buy a house and can afford the repayments, but are locked out the market by the requirement for a large individual deposit.

For groups of friends without access to the Bank of Mum and Dad, mates mortgages could become a mainstream alternative to years of saving, as well as providing a welcome boost to the housing market.

The Minister wants more lenders to offer straightforward mortgage products such as Britannia’s ‘Share to Buy’, so increasing the number of these schemes that facilitate joint ownership will be the top item for discussion when he meets key housing and mortgage industry figures for a second First Time Buyers Summit.

He will also urge lenders to replicate a new ‘First Time Buyers Pledge’ by Lloyd’s. Under the pledge more advice and assistance will be available to prospective homeowners, including a personal action plan for unsuccessful applicants setting out how they could be successful in the future, and a promise that failed applications will not affect the credit rating of first time buyers.

The summit been arranged by Mr Shapps to review progress since he made a rallying call to the housing industry earlier this year to step their efforts and help more prospective first time buyers fulfil their dream of buying their own home.

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HSBC Bank plc confirms acceptance of the Build-Zone 10 Year Warranty for lending purposes.

The HSBC Risk Management Committee is adding Build-Zone to their list of accepted warranties for new build properties. The leading high street bank has today confirmed their acceptance of the Build-Zone 10 Year Warranty for lending purposes.

The competitive range of structural warranties on offer from  Structural Warranty product provider Build-Zone provide cover for all areas of house building, social housing and commercial development as well as completed and self-build developments.

The Build-Zone Structural Warranty products provide cover against defects in the design, workmanship or materials of building projects.   The wide range of warranty products on offer from Build-Zone will suit most types of development and includes a New Home Warranty which has achieved Designated Warranty Provider status (DWS) in respect of the Warranty link Rule (WLR) by the Department for Communities and Local Government (CLG).  This enables builders and developers to consider the Build-Zone Housing Warranty as an alternative mainstream warranty provider.

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FirstBuy allocations confirmed

Over 100 house builders and housing associations are set to offer extra help for first time buyers as the Homes and Communities Agency confirmed allocations for the Government’s FirstBuy scheme today.

A total of £180m has been allocated to provide nearly 10,500 new homes for sale with the help of an equity loan across England over the next two years. The successful bidders are a mix of housing associations, major housebuilders and smaller local building firms.

FirstBuy was announced in March’s Budget as a new equity loan scheme specifically designed to help first time buyers struggling with the need for a large deposit, while simultaneously supporting economic growth by giving house builders the confidence to progress developments. Under the scheme an equity loan of up to 20% of a home’s value is jointly funded by the HCA and the house builder, meaning the taxpayer’s contribution is matched by the private sector.

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‘Average price of a new home hits 31-month high’

The average price of a new home rose by 3.8% in May to £228,041, the highest level since October 2008, according to new homes website SmartNewHomes.

Strong positive growth was also recorded on a three month and annual basis, up 4% and 3.4% respectively.

Commenting on the data, Steve Lees, Director of SmartNewHomes, said: “The significant rise in the average price of a new home is indicative of growing consumer demand during the peak buying season. There are significant numbers of potential buyers who are looking for new homes and who are keen to buy while they can still find excellent value for money.

“The affordability of homes for first-time buyers remains a problem, though the industry is hopeful that the new ‘FirstBuy’ scheme will boost the new homes market when funding starts to be released this Summer.”

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