More lenders embracing new build

Legal & General held a new build seminar last month attended by a number of house builders and 19 lenders, up from only five just seven months ago. Craig Hall, new build manager at Legal & General Mortgage Club, said this goes to show how much progress has been made recently by lenders increasing their willingness to lend in the new build market.

Legal & General Mortgage Club launched its New Build Club in January 2014 and now has a new build mortgage market share of 27 per cent based on an estimated sector size of £11.2 billion.

Hall said there has been a lack of competition among lenders, limited product innovation as well as a lack of specialist support, such as lenders having a dedicated new build desk or manager. But this is changing. Some examples of market developments are Aldermore, which launched Help to Buy 1 with L&G last month and will consider builder incentives up to 5 per cent.

Leeds Building Society will lend on new build houses and flats and will consider properties subject to section 106 in England and Wales and section 75 in Scotland. This is a legal agreement between local authorities and developers that are linked to planning permissions. For example, when a development has an impact on the local area the developer will be obliged to contribute to the infrastructure, such as roads and schools.

Other innovations from Leeds include simplifying its builder incentives policy, it has a valuation appeals process and a Help to Buy remortgage range. Metro Bank will consider builder incentives up to 2 per cent and will lend up to 85 per cent LTV on new build houses and flats. Virgin Money will also now consider builders incentives up to 5 per cent and NatWest up to 2 per cent.

Santander has introduced a new build desk and offers products with a nine month completion deadline.

Skipton Building Society has increased LTV on new build flats to 85 per cent and through L&G and other select new build firms it will go up to 90 per cent. It also has a new build desk and priority underwriting.

In addition, L&G is working with a number of other lenders on their new build offerings.

House building

John Stewart, director of economic affairs at the Home Builders Federation, explained the constraints on new home demand from the point of view of house builders.

The two biggest barriers to the supply of new homes are planning delays, cited by more than 60 per cent of builders, followed by the supply of labour. This year 49 per cent of builders cited labour as an issue, which has shot up from less than 10 per cent two years ago. Other constraints are the cost of labour and the availability of materials and their cost (see graph).

Stewart said that Help to Buy equity loan has accounted for 35 to 40 per cent of new build sales since it was introduced. It is a positive move that the government has extended the scheme until 2020 and Stewart is very pleased more lenders have become involved in lending to the new build sector.

Help to Buy mortgage guarantee has had no major direct impact on new build.

Builders' panel

A panel session discussed the fact that local authorities are under resourced but they are the gateway to more house building. Nevertheless, the builders on the panel agreed that the planning permission process has improved.

There is room for more custom build and small builders developing smaller sites; and lenders are starting to support that.

Modern methods of construction and innovative forms of construction are a challenge when it comes to lenders’ willingness to finance this. L&G Surveying Services is working with BuildOffSite, to increase lender awareness.

BuildOffSite is an organisation that promotes offsite construction methods across the UK.

Source: Mortgage Finance Gazette