Modern methods of construction have the potential to make an important contribution to some of the UK’s most pressing housing problems. But they also present challenges for mortgage lenders. It is not that lenders have an intrinsic preference for any particular method of construction. But they do have one over-riding requirement crucial to the assessment of every application they receive: is the property capable of standing as security for a loan for up to 35 years?
In practice, this means that the property must be capable of being re-sold throughout the mortgage period and should maintain or increase its value over the term of the loan. Key requirements for lenders are:
- a durable property, with a life span of at least 60 years;
- costs for running and maintaining the property that are comparable to those associated with traditional building methods;
- that the cost of any repairs will not be excessive, and that they can be completed using local services;
- that the property should be capable of being easily adapted or modified to add features such as porches or conservatories; and
- that insurance for the property is available on normal terms.
The history of construction in the UK means that lenders already offer loans on properties built using a wide
variety of methods and materials. In 2002, our report, Non-traditional housing in the UK – a brief review,
concluded the UK probably has a greater number of different methods of construction than almost any
other country in the world. As technology continues to advance and the pressure to address rising housing
costs intensifies, new methods of different types of construction are being developed and refined.
Conclusion
The UK’s housing stock already encompasses one of the world’s most diverse ranges of
construction methods. The ability to apply new technology and the desire to make housing more affordable
will lead developers to continue to explore the potential for innovative building techniques.
But the key
question for lenders is whether homes built by modern methods can provide good long-term security for
mortgages. The variable quality of buildings constructed by ‘modern’ methods in the past further complicates the picture.
The recently launched written standard LPS 2020 addresses some these concerns and so is helpful for
lenders. The LPS 2020 falls into four stages. The first two stages focus on design and the
method of manufacture. They were completed earlier this year, paving the way for the launch of the written
standard of LPS 2020 in April. The third stage is to arrange an on-site inspection of the property’s
construction process, and the fourth is to register an individual dwelling that complies with LPS 2020. We will
continue to work to develop measures that promote prudent lending on properties built
by modern methods of construction.
But at this stage it only applies to building systems and components. The standard itself is therefore
unlikely to be seen by lenders as either a necessary or sufficient measure of the suitability of a property to
stand as security for a mortgage. But the lending industry has supported the development of LPS 2020, and
will continue to lend on properties built by modern methods where they are able to do so.
