The Tipton discusses the lack of funding available for self and custom build mortgages.
House building is high on the Government’s agenda and with the self and custom build market growing by over 6% year on year why is this area still underserviced by mortgage lenders?
The self and custom build sector is estimated to reach 16,500 completions by 2020, however lenders still seem reluctant to embrace this expanding market. To allow this sector to grow funding needs to be more readily available.
To respond to this growing demand what are the challenges lenders face in order to provide increased finance for the self and custom build market?
Systems and processes: Many larger lenders would need to adapt their systems to allow for this type of lending. Perhaps, smaller lenders are better set up to manage these changes as many manually underwrite cases meaning their systems allow much greater flexibility within the decision-making process. There may also be new processes which will need to be introduced to allow for stage payments and additional valuations, which means more administration work for the lender.
Expertise: Do lenders possess the knowledge and specialist underwriting skills to allow them to be able to underwrite these applications appropriately?
Regulation: Lenders have strict regulations they must follow, this includes PRA limits on how much can be lent on self and custom build mortgages, which may limit a lenders ability or appetite to service the increased demand.
Risk: Clearly with self and custom build, lenders will be concerned with the additional risks that comes with lending through the various stages of construction right through until final completion. But these risks can be mitigated, by releasing the funds in stage payments or looking into additional insurance cover, for example Build Out Insurance cover.
Although it is clear there are obstacles for lenders looking to enter the self and custom build market these can be overcome. The starting point should be the appointment of dedicated self and custom build underwriting and processing teams within their mortgage processing centres, who fully understand this form of lending and the different challenges and issues that potential borrowers may face.
With less than 30 lenders currently offering self-build mortgages it is hard to understand why more are not coming to the table. Interestingly, 75% of those lenders with a self-build proposition are regional building societies, lenders with experience of providing specialist types of mortgages.
It will be interesting to see if more lenders follow the lead of the regional building societies, and adapt their own policies and procedures to operate in this market, resulting in more choice for borrowers.
Sources
Mortgage Finance Gazette (August 2017)
www.money.co.uk
This article has been written by The Tipton & Coseley.
