Mortgages  

Custom-built homes offer solution to UK housing crisis: MAB

Custom-built homes offer solution to UK housing crisis: MAB

Custom-built houses could help solve the UK’s property shortage, the Mortgage Advice Bureau has claimed.

In a 15-page report, New Build: Mortgage Finance – the Silent Engine Driving New Build, MAB claimed that custom-building had the potential to introduce a large number of plots into the new homes market very quickly.

The report urged local authorities to make better use of planning rules to ensure that custom-build is given favourable planning permission.

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The report found that custom-built homes were cheaper to construct, allow for greater consumer involvement, present less risk to mortgage lenders and could introduce a large number of new plots into the new homes market very quickly.

However, for custom-build to fulfil its potential, local authorities must make better use of Section 106 planning agreements to ensure custom-built and self-built homes are given favourable planning permission.

Custom home-building involves consumers selecting a plot of land on a site with infrastructure in place. Their new homes can be built to their specifications, with the builder paid in staged payments.

Mortgage lenders provide finance by making staged payments, which can be made in arrears or even in advance using an accelerator mortgage scheme. This means borrowers can get the cash to pay for labour and materials before work begins.

The scheme also allows consumers to borrow up to 85 per cent of land and build costs.

Andy Frankish, new homes director at MAB, said: “Custom-build should be seen as an integral part of a solution to the housing crisis. Working alongside traditional build, custom-build gives customers more choice, reduces their costs and improves consumer equity.”

Comparison of new-build and custom-build costs

Costs

New-build(% of selling price)

Custom-build (% of market value)

Building costs

50%

50%

Builder sales and marketing costs

3%

0%

Builder gross margin

20%

8%

Residual land value

27%

27%

TOTAL COSTS

100%

85%

Builder central overheads

6%

4%

Builder capital employed required

60%

15%

Return on capital employed

23.3%

26.7%

Source: Calcutt Review/Wriglesworth Consultancy

Adviser view:

Paul Dorward, a mortgage adviser with Sheffield-based Pad Financial, said: “Lenders are reluctant to move away from standard construction, so that might prove to be a pitfall.”