Non Standard Construction – The Next Mortgage Hurdle

non standard construction CO2 footprintNon Standard Construction

We see this question all the time from lenders, ‘is the property of standard construction?’. Which begs the question of what is standard construction and what will standard construction be going forward? Plus, how do I mortgage a property that isn’t of standard construction?

The key point here is that construction of domestic property is changing, has to change, and will change quickly over the next ten years.

It is an interesting question as the standard construction of property has changed and always changes. What is non standard now may well become standard a few years down the line.

This summary from Sam Conveyancing sums standard construction up nicely,

 

Standard construction implies that these kind of properties were built according to modern, accepted building standards, an advantage regarding the ease of being granted a mortgage for one, or buildings insurance and for ease of selling on.

 

For the real simplistic narrative, think bricks and mortar with a tiled roof. This is what most lenders look for. The challenge will be when the fabric and materials buildings are made from begins to change.

Future Homes Standard

The Government Future Homes Standard opens the door not just to more efficient insulation and heating but in changing the fabric of the very property;

 

Homes built under the Future Homes Standard will be future-proofed with low carbon heating and world-leading levels of energy efficiency. By delivering carbon reductions through the fabric and building services in a home rather than relying on wider carbon offsetting…

 

It is no longer about more efficiency and offsetting the carbon footprint but in changing how houses are built. 90% of the carbon footprint of a property are the materials it is made from, see this from Building Green:

Time Value of Carbon_800px

If net zero is to be realised then the way domestic properties are built has to change, and that means how mortgage lenders view non-standard construction has to change too.

Which brings us back to the original point. How does any of this work if lenders don’t recognise non-standard construction properties as an asset they want to lend against?

Lending on Non Standard Construction

Remember that a lender wants a few key things from a property they lend against, it must:

  • Be worth what it is assumed to be
  • Retain its value
  • Be sellable

We need to remember that the issues with cladding are a prime example of not fully appreciating how the sellability of a property can be impacted and how its value can change because of how it was built.

Lenders will be more cautious but we are seeing a change. More lenders are now offering different mortgage rates for A-C EPC properties and new tenancies will need to be in a property with an A-C rating before long. There is a move between Government, the lenders and the buyers to want more efficient and lower carbon footprint properties, notwithstanding the current cost of heating a home.

For now, developers wanting to build non-standard construction then don’t be put off by the thought of financing as there are some good forward thinking lenders out there, there are also some good buy to let lenders that will take these units on. Over time this will increase, however that same passage of time will see building methods modernise, so it is a challenge that is never going away.

A survey by Property Industry Eye showed 74% of home buyers prioritising energy efficiency, 24% said it would be the ‘crucial’ factor that sways them. This means we have a demand, which drives price, which drives value and sellability. The mood and demand exists, and lenders like that.

For developers looking to take advantage, there are development finance options out there, so let me know. The same goes for buy to let, the options are there, just ask and I can help.

By Dave Farmer

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