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Self-build sector suffering from lack of financing

A report into the future of the self-build sector has found that while access to land and planning permissions have eased, applicants still face “considerable constraints” in securing finance.

The launch of a joint report between Lloyds Banking Group and the University of York has highlighted a number of obstacles the sector must overcome, particularly given the Government’s 2011 housing strategy of aiming to double the amount of self-build housing from 100,000 to 200,000 over the decade.

The report recommends lenders provide additional guidance to potential self-builders about the criteria for funding. It also recommends the Government signals on-going support which will last beyond 2015 and that developers work with prospective purchasers in delivering “packaged solutions” to speed up self-build developments.

Speaking at the launch of the report at the Houses of Parliament in London last week, University of York professor, and one of the authors of the report, Janet Ford said the sector is being constrained by a lack of innovation.

She said: “What we have discovered through talking to self-builders is that the difficulties associated with finance are coming to the top of the agenda. Individual builders are reporting they experience limited choice as well as standardised products and they also believe there is a disproportionate representation of the financial risk.”

The report estimates 50 to 60 per cent of current self-builders do not need mortgage finance to start building as they release equity from the sale of their existing homes. An undisclosed proportion use either bridging or bank loans to supplement the capital.

Specialist broker Buildstore notes the average self-build mortgage is £208,000 and the average LTV is 62 per cent. Despite this, around half of all self-build loans on offer have sub-50 per cent LTVs.

Lending to the self-build sector fell from £2.63bn in 2007 to £790m by 2011 – a drop of almost 70 per cent. The report notes several lenders have retreated from the self-build market since the onset of the financial crisis and, although a number of building societies have re-entered the market in recent years, Lloyds is the only volume lender to remain.

Of the 22 individual self-builders questioned as part of the report, just two were first-time buyers. The self-builders typically required between £90,000 and £750,000 to acquire the sites and, in most instances, the purchase price exceeded £250,000.

Four already had the finance to build, while 14 required a self-build mortgage. Of these 14, five reported that the process had been “unproblematic”. While one of the self-builders, requiring around £500,000, received two offers, none of the other 13 borrowers had more than one offer from lenders.

Housing minister Mark Prisk was broadly positive on the outlook for the sector, particularly in light of the number of lenders entering the market in recent years.

He said: “It is not that long ago when there were between 10 and 12 building societies and lenders in this market. There are presently around 25 lenders now which is encouraging and the Datamonitor evidence suggests this is a lending market with the potential to grow by 140 per cent.

“We have reformed the national policy planning framework and we now have a system which expressly recognises self-build. We are putting in place some important financial incentives such as the £30m fund currently in place and half of which is already committed.”

The fund, designed to provide short-term finance for self-build projects, was launched in May 2012 by Prisk’s predecessor Grant Shapps.

Lloyds Banking Group mortgage director Stephen Noakes said the lender is reviewing its lending criteria in light of the report with the aim of making funding more available.

He said: “This report has prompted us to review our current self-build lending policy and as a result we will be considering mortgage applications from those building kit homes.

“Kit homes can provide a simpler option for those looking to build a home and offer more certainty over the total cost of a project. The speed of the process also means that kit home projects are often more modestly priced compared to other ways of building a home, making it a more accessible option.”


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