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Government plans to kickstart the self-build sector to bring it in line with Europe, reports Rachael Adams, but many in the industry say it is losing the plot if it believes lenders will ever see the market as anything other than risky and niche
Self-builds make up one-fifth of Britain’s new homes each year but, compared with Europe, where 50 per cent of homes are self-built, the UK has been lagging behind. This has prompted housing minister Grant Shapps to call for “a self-build revolution”, pledging 100,000 homes by 2015. But with mortgage lenders already operating in difficult conditions, Shapps may find it hard to shake up the market.
Based on the premise that “Building your own home should not be the preserve of a privileged few,” Shapps plans to eliminate the obstacles that stand in the way of self-building, such as restricted access to land and finance. His proposals include a community right to build that reduces planning application requirements for communities and a build now, pay later scheme that will allow housebuilders to pay for land once work has started on the new homes. He will also release state-owned land to housebuilders.
BuildStore Financial Services chief executive Raymond Connor believes the Government’s initiatives will boost the market. “We currently have around 80,000 people registered on our land-finding database PlotSearch, so with the right finance, access to land and improved regulations, I think Shapps’ objectives are achievable,” he says. “The sector held up relatively well during the recession and the Government has recognised the potential of self-build.”
Private Finance UK communications director Melanie Bien is less certain about the Government’s ability to turn round a sector that last year experienced its lowest output since 1923. “The self-build market was hit hard in the downturn and we have seen a drying-up of products,” she says.
“The jury is out on whether or not we will see change. We have had mixed messages from this Government about planning. When it came in, it said there was not going to be any more developing in people’s back gardens and it has backtracked on that.”
First Action Finance head of communications Jonathan Cornell thinks the Government should be doing more to tackle unfocused planning legislation.
He says: “We have these daft planning rules at the moment. The properties going up are very high density 100-house developments, so we need to make it easier for people to build smaller projects. Any moves towards making planning easier will make a difference.”
Securing adequate funding is equally important. Bien believes lenders hold the key to this, saying: “We need mortgage lenders to come up with the products or there will be a funding gap but they seem to think self-build is a bit of a specialist area. They are concentrating more on mainstream residential funding at the moment rather than anything a bit quirky, which is how self-build is seen.
’We have daft planning rules at the moment. The properties going up are very high density and we need to make it easier for people to build smaller projects’
Cornell says: “The trouble is that lots of things are competing for lenders’ funds. The majority of people want bog-standard traditional mortgages and lenders are using their money to satisfy that demand. Anything to do with newbuilds makes them incredibly nervous.”
Cornell believes changing the perception of self-builders as risky will be a challenge for Shapps. “There is the danger that a lender agrees to fund a project up front and 18 months later it has lost value. If the lender has to repossess a self-build and sell it on, they are not going to get as much for it,” he says.
However, Connor feels that self-build lending can be high quality, low risk and low loan to value and Bien says that once lenders are made aware of this they will be more willing to get involved.
“It does not have to be high risk. The self-builds we have dealt with have been very committed. You have to go through an awful lot of hoops to complete the process,” she says.
Shapps says the risk involved with self-builds is significantly lower than with traditional mortgages and that of the 15,000 self-build homes funded over the last decade, less than 50 have been repossessed.
Cornell says this could be because self-build mortgages have historically been underwritten more strictly than traditional loans but he remains uncertain about their propensity to reduce future repossessions.
Bien says: “Repossessions occur because of job losses or relationship breakdowns and I would not have thought that if you have built your home yourself it would make these instances any less likely.”
But Connor says self-building “absolutely” reduces repossession risk and believes some sectors are waking up to this fact. “Building societies have embraced the sector in going back to their roots to fund new homes and it is a good chance for them to diversify their business,” he says.
Shapps highlights self-builds as an opportunity for lenders to diversify their offerings but Bien is sceptical about their response. She says: “There is lots of demand for it and self-builders can be very committed but I am not convinced that lenders see it as enough of an opportunity.”
Cornell believes the attractive interest rates on self-build mortgages - typically around 6 per cent - could entice more lenders into the market. “If lenders realise they can take more money, in normal conditions that should encourage them to enter a market,” he says.
But he adds: “The availability of self-build mortgages is limited because they are not mainstream,” he says. “Once lenders regard them as more vanilla, we will not only see increased product availability but also cheaper insurance premiums. At the moment, the market is so small that insurance providers can charge what they want.”
Connor disagrees, saying: “Self-build insurance is not prohibitively expensive - rates are in line with other specialist premiums. I think the UK will end up on a par with Europe if the Government’s policies are backed by lenders.”
Bien says: “I cannot see UK figures ever being that high, although I do think they will increase.” However, she does not necessarily think the Government will be able to take credit for this increase.
“There has been a growing trend towards self-building anyway and I think it will re-enter the market naturally as lenders come in. What the Government is doing will have very little impact.”
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