There are not enough lenders currently operating in the self-build sector to meet the expected growth in demand, a leading industry figure has warned.
Speaking at the 2017 BSA Annual Conference, Colin Fyfe, chief executive of Darlington Building Society, said that with the self-build sector set to substantially increase in the next three years, more lenders will need to offer loans in order to meet the rise in demand.
“The self-build sector is not just a key market for Darlington. In fact, if it is only a key market for the existing lenders we are not going to get the growth we need in this sector by 2020,” said Fyfe.
“There are not enough lenders actively participating to cope with the demand. Will a high street organisation decide it is for them? At the moment, possibly not.”
The most recent AMA research forecasts predict a steady rise in the self-build market of around 7-10% per annum by 2020.
“We as a building society sector really have an opportunity to make this one of our markets,” Fyfe said.
Modern Methods of Construction
Last November, the Building Societies Association called for a new wave of offsite construction to be used by the UK housing industry to help solve the chronic shortage of housing.
Its report, Laying the Foundations for Modern Methods of Construction, suggested utilising offsite construction methods could provide high quality affordable homes at a faster rate than is currently possible.
However, financing the building of homes using Modern Methods of Construction (MMC) can be a challenge, as many lenders are risk averse and concerned about their quality. This stems from a number of highly publicised failures during the 1950s, 60s and 70s.
Ian Fergusson, managing partner at J & E Shepherd, called for MMC to be standardised across the industry so that there is greater understanding of what lenders will provide funds on and what borrowers can build.
“If a borrower asks a lender if they lend on MMC, the lender can’t readily answer that, because what does it actually mean?
“The opportunities are there in this sector but to meet the government targets it does need funding.
“What we mean by MMC needs to be standardised as does the method of underwriting.”
Offsite construction – also known as Modern Methods of Construction – involves manufacturing and pre-assembling large sections of a building ‘offsite’ in a factory.
There are numerous types of offsite construction, ranging from permanent modular buildings through to bathroom pods.
Commonly associated with the prefab boom of the 1940s, the quality of offsite construction has improved by leaps and bounds since then. Homes are architecturally interesting, structurally solid and energy efficient.
Fyfe said that MMC was “too good an opportunity” for both the housing sector and lenders to ignore.
“MMC is another area where we as lenders can play a very active part and be at the forefront of.
“But how do we value it? How do we look on it as a lending proposition? Will the manufacturers get up to scale?
“I would encourage other lenders to get behind us and ask the BSA to move forward in making sure the developers, the valuers, the people who write the warranties and the manufacturers get round the table. If we don’t we are going to be in turmoil on MMC.”
Paul Broadhead, head of mortgage policy at the Building Societies Association, said: “I think that with MMC, sometimes the terminology used is a problem. Prefab gets bandied about in the press – but what does that conjure up in people’s minds?
“If you ask people if they would rather their car was built in a rainy field or in a factory, I think I know what the answer would be.
“We need to get over the current mindset by winning over the hearts and minds of the public.”
