Although they occupy a small share of the mortgage market, and are sometimes treated by lenders as difficult, unknown territory, conventional ‘selfbuild’ mortgages are in many ways intrinsically low risk. Firstly, because there are no profit margins or marketing costs to pay the cost of buying land and building tends to be considerably less than the final market value of the property. Secondly, self-providers tend to be highly motivated and committed to the project. Thirdly, becuase mortgage funds are released in lumps as each stage of the project is complete. If the project falls through at any time, the lender can take possession of the property. Most high street lenders offer a maximum of around 75-80%, but Buildstore report an average loan to value of just 62%.1
lenders do not. There is potential for future growth of special lending vehicles financed by funds looking for steady, long-term returns on investment, such as pension funds. 2b Partner with housebuilders By working with established, experienced housebuilders, self-provider groups can offer assurances to lenders. This in turn is a lower risk strategy for housebuilders who by working under contract for a client effectively eliminate market risk because they have guaranteed pre-sales. The contract does need, nonetheless, to retain the clients’ control over the design of the project. 2c Set up enabling intermediaries A major problem for lenders is the difficulty in understanding new self-provision models. We need to set up national intermediaries to “bring together all the self-organised sectors to represent themselves to the lending market as simply as possible... so in a sense the banks don’t have to worry too much about what lies behind that. The intermediary deals with it.”2 Such an intermediary would create a single point of contact for bond schemes and pension funds as well as Local Authorities, combining a thorough understanding of the needs of both self-providers and lenders. Buildstore has begun to play a similar role in the private sector, acting as broker between banks and borrowers to offer specialised ‘accelerator’ mortgages, which draw down funds in advance of each stage, meaning self-providers can have positive cashflow throughout the project.
However, there are relatively few banks and building societies which specialise in self-build mortgages. In order to scale-up finance for the self-provided housing sector, and lower the capital threshold so those on lower incomes can self-provide, we need to find ways to offer greater security on loans which have higher loan to value ratios. There are a number of strategies that might achieve this. 2a Co-operate / spread the risk By forming co-operatives, the risk is carried collectively between a number of people. This has the benefit of aggregating risk across a number of people (so it is less vulnerable to one person being made redundant, for example). A small number of ecological banks and building societies such as Triodos and the Ecology Building Society already cater for this market, even if many high street
Such intermediaries, be they national or regional,
1. Buildstore Self-build moving centre stage (Buildstore, 2009)
2. Stephen Hill interviewed by the authors.
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