Flexibility and manual underwriting processes remain pivotal in allowing the building society sector to deliver the types of solutions which meet changing social demographics, increasingly complex income patterns and borrowing trends. These institutions have long been at the forefront of more specialist lending types – such as new build, help to buy and shared ownership – to help first-time buyers gain access to a wider variety of product types. Staying on a residential theme, it appears that another specialist housing trend is here to stay and that’s self-build.
More and more people are choosing to take ownership when it comes to designing their own home. Increased accessibility to finance and a range of creative solutions are encouraging more self-builders to incorporate environmentally friendly concepts or unique construction types in the build. Circumstance is also encouraging self-builders out of the oak framed woodwork. Whether its parents gifting land to their children, people downsizing and building in their back garden, or first-time buyers taking the plunge to create their dream home because of a lack of housing available, circumstance is definitely supporting this growing area.
Building societies, including Hanley Economic, are now lending on a wider range of construction methods and it’s great to see increased competition emerge across this sector, even in some challenging times. For example, the Melton Building Society has recently reduced rates on its self-build mortgages and Dudley Building Society has introduced a range of self-build mortgage products. The common theme in both these particular announcements was the continued expectation of future growth in self-build. And any increase in the number of available options should be welcomed in what remains a relatively small, but competitive product space.
Hints and tips for intermediaries and self-builders
Advisers may not come across clients looking to self-build too often but there are a few factors to bear in mind. The first being that not all banks or building societies provide self-build mortgages, so it’s important for advisers to know which ones do and their criteria requirements.
In terms of the lending itself, initially arriving at the potential lending amount means a different calculation. Most lenders will require more paperwork upfront such as outline planning permission before looking at a mortgage application. Self-builders will also need to have a good idea of the costings for the project, have a warranty provider in mind and building plans available before a formal application can be submitted.
A self-build mortgage is there to help borrowers to stay financially stable throughout the build, and money is therefore released differently – in most circumstances, it will be offered on a staged payment basis – arrears or advanced (dependent on the lender). These staged payments are arranged in accordance with costings, so amounts may differ throughout the build. For example, some borrowers may need a higher amount earlier in the process to dig foundations and footings, so the remaining staged payments will be smaller.
Some lenders allow borrowers to have self-build mortgages on interest-only terms whilst the house is being built. This will keep monthly mortgage payments as low as possible which in turn improves cashflow.
Within any specialist area of the mortgage market, criteria and product ranges will differ from lender to lender – as will attitudes to certain methods of construction and building types. However, there are many building societies, specialist lenders and expert finance providers who are there to support advisers and their clients every step of the way.
Sue Pedley is business development manager at the Hanley Economic Building Society