REVIEW
MARKET
Why self-build could be the new build for aspiring homeowners Rob Oliver Director of distribution, Dudley Building Society
A
s the average age of a firsttime buyer continues to rise, we may soon, if not already, be seeing a shift in how borrowers think about their first home, potentially paving the way for more buyers to self-build. In the past, borrowers tended to climb the property ladder slowly, typically starting with a smaller home in their 20s and gradually progressing towards their dream or ‘forever’ home by their late 40s or 50s. However, as the age of FTBs increases, we may see some bypassing these initial steps and moving directly into their ‘forever’ home, opting for self-build projects in their quest to get it right the first time. A self-build property may also be more appealing than a traditional build for borrowers looking for eco-friendly homes. Custom and self-build homes are greener than typical mainstream new builds, with reduced energy consumption ranging from eight per cent to 42 per cent and CO2 emissions that are seven per cent to 43 per cent lower, according to the National Custom and Self Build Association. Given some of the challenges around retrofitting older properties with features such as heat pumps, working from a blank canvas can be better for those aiming to go green. There has been a huge push in recent years for borrowers to buy new-build properties, and while this is a great way to get on the property ladder, many borrowers still harbour a desire to construct their own home. However, they may feel this is financially out of www.mortgageintroducer.com
reach or, due to their circumstances, such as being self-employed, an expat or an older borrower, not feasible. This needn’t be the case, as there are lenders, such as Dudley Building Society, who can offer up to 80 per cent LTV and the same flexible approach for self-build borrowers as we do for more traditional purchases. NOT JUST FOR THE WEALTHY
There can be a misconception that self-builds are only for the wealthy. While there is an element of truth to this, building a property from scratch needn’t be any more expensive than buying a new home and may even work out cheaper, depending on location, design, materials used and size of the property. Research from Checkatrade shows that the average cost of building a three-bedroom house can range from as little as £126,000 to £300,000, with costs increasing to up to £600,000 for a five-bedroom house. Of course, as the project evolves, even the best-laid plans can see costs move upwards. WORK WITH A FLEXIBLE LENDER
While the prospect of building a home can be appealing, this can be overshadowed by the overwhelming prospect of obtaining a mortgage. Financing a self-build differs from a standard mortgage. One of the biggest differences is that the mortgage funds can be released in stages, or tranches, as the build progresses. This staggered approach benefits not just the lender but the borrower, as they only incur interest on the money owed. Releasing the funds in this way can ensure the project remains on track and within budget. Another misconception is that lenders aren’t as flexible when it comes to helping these borrowers, which again doesn’t apply to all lenders. We recently assisted a broker whose
clients sought a £1.4 million remortgage, initially on an interest-only basis for a £2.5 million self-build project. The borrowers required an initial release of £400,000 against the current value (£575,000) of the land they already owned – and we were able to work with the broker to offer a flexible and bespoke solution. Both applicants were employed in professional roles, receiving salaries and bonuses, and continued to reside in their former home (which was mortgaged) during the build. Usually, this additional mortgage would be included as a monthly expense, but the applicants showed evidence of savings to cover 12 months of these payments, so this was disregarded in the affordability assessment. The property featured a steel portal frame with timber and was framed with over 75 per cent steel cladding to elevations, with the roof also clad in steel profile sheeting. By taking a flexible and in-depth look at the build and the borrowers’ finances, we were able to lend against the property.While over half of self-build projects use modern methods of construction, it’s worth noting that not all lenders are willing to lend on such properties. While lenders work with brokers on all mortgages, a self-build mortgage is where brokers can really deepen the lender-broker relationship as all become involved in the project. The UK currently has one of the lowest rates of self-build homes in the world, and this needs to change. Just as the market focuses on new builds, nurturing the self-build market is equally important, if not more so – holding huge potential for borrowers and brokers. M I References www.nacsba.org.uk/news/local-impact; www.checkatrade.com/blog/cost-guides/ cost-build-house
SUMMER 2024 MORTGAGE INTRODUCER
7