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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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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Government pledge more land for Self Builders

SELF build and renovation specialists, BuildStore, has welcomed an announcement by Minister for Housing, Grant Shapps, in which he unveiled new measures to support people wanting to build their own homes, adding that self building “should be an option for all”.

In a speech at the Grand Designs Live Show in London today (3rd May 2011), Mr Shapps said he wanted the UK’s self build rates to catch up with Europe’s and to become a mainstream housing option.

Further to his announcement about the Government’s new ‘Build Now, Pay Later’ scheme last month, Mr Shapps said he wants public and private land to be made available for individual self builders, and community self build schemes. He called on housing associations and local authorities to show more support for the self build sector, and private landowners and investors to release more land to the growing self build community. He said he would soon reveal the first publicly owned sites to be made available to housebuilders with plots exclusively for self-builders.

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Mortgages paid off at record rate

Bank of England figures show homeowners paid off £7bn of mortgage debt in the last quarter of 2010

Homeowners paid off their mortgage debt at the fastest rate since records began in 1970, injecting £7bn of equity in the final quarter of 2010, according to the Bank of England.

This was well up on the net repayment of £6.6bn in the third quarter of 2010, as well as the £6.2bn seen in the first quarter, and represents the largest net injection of equity on record.

It also marks the eleventh successive quarterly net repayment of mortgage debt, meaning homeowners have been investing more in their homes than they have been taking out in loans – paying off a total of £57.4bn since the second quarter of 2008.

In contrast, there was persistent housing equity withdrawal between 1997 and the first quarter of 2008 – including a sizeable £13.8bn in the first quarter of 2007.

The trend for repaying mortgage debt is being fuelled by homeowners using extra money from lower mortgage interest payments to reduce the balance they owe on their houses, while extremely low savings rates make it far more attractive for people to use spare cash to reduce their mortgages.

Tight credit conditions have also made it more difficult for many people to withdraw housing equity.

Howard Archer, chief European and UK economist at IHS Global Insight, said: “The record figures highlight the strong desire and perceived need of many people to improve their personal balance sheets given high debt levels and serious concerns and uncertainties over the economic situation.

“The overall softening in house prices from their late-2007 peak has made housing equity withdrawal less attractive. And of course, house prices have fallen anew overall in recent months, which is likely to further encourage a net injection of housing equity in the near term at least.”

Housing equity withdrawal was used to support consumer spending during the boom years, but Archer said the ongoing net injection of housing equity is adding to the constraints on consumer spending, including high unemployment, negative wage growth and high debt levels.

Source: The Guardian

For more information from Build Zone about Structural Warranties, 10 Year Structural Warranties, contact the Build-Zone team on (0)845 230 9873 or email sales@build-zone.com

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Surprise fall in inflation cuts interest rate pressure

MORTGAGE payments could remain at rock bottom until the beginning of next year, experts have predicted, after a surprise drop in the rate of inflation in March reduced pressure on policymakers to raise interest rates.

New data showing a rise in inflation of just 4 per cent last month came as a shock to economists, who expected that the cost of living – measured by the Consumer Price Index (CPI) – would increase again, as it has done for nine months. The index stood at 4.4 per cent in February.

The falling cost of food and drink was the main driver of the lower CPI, the Office for National Statistics’ figures revealed.

The price paid for products including fruit, bread and cereals, slumped as supermarkets and grocery shops slashed costs amid falling consumer confidence in the wake of looming public sector job cuts and tax changes announced in the Budget.

Lower-than-expected inflation will weaken the prospect of an interest rate rise – which will come as welcome news for Scotland’s home-owners, but a disappointment for those with healthy balances in their savings accounts, who were hoping rates would begin an upturn.

Members of the Bank of England’s Monetary Policy Committee (MPC) have recently come under increasing pressure to raise interest rates – which have remained at 0.5 per cent for 25 months in an effort to kick-start the country’s flagging economy.

Source: News.scotsman.com

For more information from Build Zone about Structural Warranties, 10 Year Structural Warranties, contact the Build-Zone team on (0)845 230 9873 or email sales@build-zone.com

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