Recent events in the mortgage market have shown again that we often operate on a knife-edge where within a matter of days normality can disappear into a frenzy of uncertainty and panic amongst consumers.
We’ve seen the unintended consequences of a mini-budget which resulted in thousands of mortgage products being withdrawn in a matter of days, with lenders re-pricing at much higher levels than many borrowers have ever seen.
More expensive mortgages and reduced affordability appears likely to create reduced demand for property and therefore caution in valuers’ minds.
Self and custom build is of course at the heart of what we at BuildLoan, so what are the implications (and solutions) for self-builders?
Mortgages to fund an individual self-build secured on the home being built are released in stages as work progresses.
Some self-build mortgage products rely on a valuation of the site to decide how much can be released to the client at that time – usually between 60% and 80% of a valuer’s assessment of the site value.
Even at the best of times, money spent on part of a build won’t necessarily be reflected in the valuer’s calculation of the site value at that time. When there is likely to be increased caution over values, the risk of your client not getting the money they need is increased.
At worst it could leave them unable to progress their build or scrabbling around trying to pull funds together from family, friends or pension funds to rescue their project.
BuildLoan’s products offer an incredible and unique solution to this problem – the funds given to the customer at each stage release are linked directly to the cost of either the upcoming stage of work (known as “advance stage payments”) or the stage of work just completed (“arrears stage payments”).
There is no need for a formal site valuation before funds are handed over to the borrower and the amount of each release can be agreed at application stage and included in the mortgage offer.
This takes away a vast amount of uncertainty, when self-builders already have a lot to think about.
Our advance stage payment products provide an even greater boost to cashflow with money to pay for the next stage of work released before they even start that part of the build.
With more people now looking to build a more efficient home, to reduce the environmental impact and cost of running their home, demand for products to fund a timber frame or offsite manufactured home is increasing.
Our advance stage payment products are ideally suited to pay for this type of build, with up-front payments available to fund the cost of the timber frame or kit.
For most brokers, a request for help to arrange a self-build mortgage is rare and recommending the best product for that client is much more complex than many other products.
It’s vital that within your factfinding, you explore the type of build your client is planning, the amount of cash they have available and how important it is for them to take away any doubt about how much funding they will get from their lender at each stage of the project.
When you’re reviewing possible mortgage products, make sure you fully understand how stage payments are calculated.
If this is worked out by the lender asking their valuer to provide a site value, make sure your client understands the risks and is happy they can cope if they don’t get the funds they are expecting.
Bear in mind they will probably come to you for help if their build comes to a standstill due to lack of funds!
Unless they have significant cash in the bank to cover every eventuality, make sure you look at BuildLoan’s products – they have all been specifically designed to stop things going wrong.
Chris Martin is head of product development and lender relationships at BuildLoan
