While Grand Designs made everyone aware of just how stressful building your own home seems to be, and that having 50p for contingencies isn’t a great idea, it stirred interest in a little known area of the market. Many now have visions of building their dream property themselves, though it remains a niche market with only a handful of lenders willing to finance projects.
Buildstore is arguably the market leader, yet still only has five lenders on its panel. However, Ray Boulger, senior technical manager for John Charcol, views this as a reasonable panel for a small market. “The majority of lenders, as a matter of course, won’t lend money until the property is habitable. With self-build, there are typically seven or eight stage payments and a property is not habitable for a long time, possibly until the final couple of payments, so the starting point is outside the criteria of most lenders.”
Supply and demand
Ashley Clarke, director of Need An Adviser.com, admits it is understandable to have a limited number of lenders in such a specialist market, and does not see this as a hindrance. He says: “If only 1 per cent of the population wants to self-build, then you only need 1 per cent of the lending capacity. It’s supply and demand. If the demand is not there, why go to the trouble to enter the market? The ones that are in there, they have a captive market.”
Most predict a slow, steady growth for self-build. Stewart Cooper, managing director of Buildstore, points out many lenders do not look to self-build as it is more profitable to aim for other niche areas, such as buy-to-let (BTL) or self-cert. “The self-build market traditionally grows at 5 per cent per year, so it’s not a huge amount of growth. In 2005, the market was worth £1.8 billion and 2006 is predicted to be about £2 billion. Self-build is quite technical and there’s a lot of hand-holding involved. The market is picking up, but land cost is increasing.”
Boulger says the continuing growth of the sector suggests there is scope for new lenders to come in, but adds there will be no rush to do so. “It’s more likely to be smaller to medium-sized building societies and specialist lenders that enter. Banks are such a size that self-build is not likely to be seen to generate enough volume to have an impact on overall lending to be worth entering,” he says.
Clarke believes part of the growth will come from the government placing pressure on local authorities to relax planning permission and the release of land, yet adds: “Some authorities are hanging onto the green belt by hook or by crook and it can be difficult to get planning permission, but the government will win in the end.”
An attractive alternative
Mortgages plc is a recent entrant to the self build market, opening up its non-conforming products to self builders. Julian Wells, head of marketing at Mortgages plc, believes those with an imperfect credit history should not be precluded from self-build as rising house prices make it increasingly attractive to consumers over buying or renovation. “The more education people have, the more people will think that self-build is a realistic option. Yet, I don’t think self-build is an option for everyone.”
Cooper firmly believes that self-build has a big part to play in making housing affordable. “Self-build allows people to get on the property ladder. The key thing is obtaining the land, as the cost of building is a fraction of the cost of the land. If you look at a four-bedroom house in Scotland, to buy it is an average of £250,000, while to self-build is around £174,000, which is quite a significant difference from an affordability perspective.”
Major stumbling block
However, the ease of finding land to buy is the major stumbling block for many. Stewart Hunter, head of introduced mortgages for Norwich & Peterborough, comments: “Land is at such a premium, it mitigates against those on a lower income. Yet, there is no VAT on a self-build, which people pick up on as something very positive, as you can build equity rapidly.”
In his assessment of the market, Clarke believes self-build will remain the domain of those already on the property ladder. “A lender is looking for people to have the land already and a sizeable deposit. That very much excludes the younger generation, who haven’t had time to build up capital.”
Regardless of affordability issues or housing shortages, one thing is certain – the self-build market is a complex and difficult area that requires much more time and effort than a typical house purchase. On that, everyone is agreed. For any mortgage lender looking to enter the market, an appreciation of the intricate nature of self-build is needed and many will discount it as a result. However, mortgage intermediaries keen to match borrowers with lenders should not feel that they are in a closed market, with a host of opportunities available in this modest, but growing, sector
