Being ahead of the game when choosing a structural system is all very well, but non-standard options can still cause complications with finance, warranties, insurance and selling on, says Jaclyn Thorburn
When it comes to the financial aspects of your project, building anything other than a ‘standard’ bricks and mortar home needs some serious consideration, as it can impact on your choice of finance and insurance options.
If your project involves anything that is ‘non-standard’ (a term which covers many aspects) – from the construction material, to your roof or cladding – then you are heading into ‘specialist’ territory when it comes to the availability of financial products, including your self build mortgage, buildings insurance and warranty. And, of course, if you choose to sell your home in the future, your choices now will impact your buyer.
It is obvious that the industry has made huge strides to produce materials and construction methods that are more efficient, more adaptive, and meet more rigorous testing and exceed standards. Unfortunately, most mortgage lenders and insurers will not share your enthusiasm, and so your market for financial products will become much narrower and, in some cases, more expensive.
Choosing an alternative system might make sense for you right now, but you’ll have to live with the implications for years to come. You might well be progressive and understanding of left-field structural systems, but will your lender, and your future buyer’s lender? You’ll face additional mortgage and insurance costs (not to mention probably higher labour costs), but also the fact that your home’s future buyer (or, more pertinently, their solicitor or lender) might be wholly put off by your esoteric choices.
It’s a fine balancing act, and one to carefully consider before jumping in.
The ‘natural’ end of non-standard structures limits lending options
When it comes to borrowing to fund your build, these days you will face relatively few restrictions. There is a growing number of mortgage lenders offering self build mortgages, and many understand that ‘non-standard’ construction is something that comes with the territory. However, the more extreme your deviation from the norm, the narrower your options will be.
Raymond Connor of BuildStore Financial Services – one of the market leaders in this area – believes that lenders have made some progress in adjusting their policies to accept alternative forms of construction, but that closer collaboration between manufacturers and lenders is needed to give borrowers better choice: “There aren’t many construction systems that you would struggle to secure a self build mortgage for now, which is a welcome change, but it has been slow.”
“There is a distinct lack of collaboration between the manufacturers and the wider industry, and the valuers and lenders themselves, so BuildStore are pushing for this to happen in a structured way in order to facilitate a greater acceptance of these alternative forms of construction, and relax some of the criteria that is holding up the industry.”
Most of the major kit and package-build systems will generally be considered by all the self build mortgage lenders, provided everything else is standard. The addition of an alternative cladding material or a flat, green or thatched roof will significantly limit your borrowing options however. If you choose a more natural method (such as cob, straw bale or rammed earth) then your choice of lenders will be very limited.
The Ecology Building Society specialise in this type of project, although there are one or two other lenders who would also consider it. The good news is that with a self build mortgage, you should not expect to pay more or face restrictive borrowing criteria when choosing a non-conventional building method or material — and there are generally no specialist products reserved for only these types of projects.
Therefore, the standard self build mortgage rates and fees will apply, which do vary from lender to lender (and tend, in many cases, to be a percentage point or two higher than regular house mortgages). In fact, some lenders will reward you for building a more sustainable or energy-efficient home — both the Ecology Building Society and the Melton Mowbray Building Society offer discounted rates if your building meets certain environmental and energy-efficiency criteria.
The table below indicates the acceptance or the consideration of the major alternative construction options available, from some of the main self build mortgage lenders.
|Construction Type||Accepted or Considered by Lenders?|
|Timber frame||including Furness BS, Hanley Economic BS, Ecology BS|
|Oak frame||including Newcastle BS, Loughborough BS, Mansfield BS|
|Structural insulated panels(SIPs)||including BM Solutions, Bath BS, Melton Mowbray BS|
|Steel frame||including Newcastle BS, Mansfield BS, BM Solutions|
|Insulated concrete formwork(ICF)||including Chorley BS, Darlington BS, Ipswich BS|
|Natural materialseg. cob, straw bale and wattle & daub||including Melton Mowbray BS, Ecology BS|
|Listed building renovationsand conversions||including Furness BS, Ipswich BS, Holmesdale BS|
|Alternative cladding*(in some cases an outer skin of blockwork is required)||including Newcastle BS, Chorley BS, Ecology BS|
|Flat roof||including Bath BS, Mansfield BS, BM Solutions|
|Green roof||including Chorley BS, Bath BS, Ecology BS|
|Thatched Roof||including Darlington BS, Holmesdale BS, Furness BS|
|*All subject to valuation and assessed on an individual case basis|
Some systems are excluded by some warranty providers
A structural warranty is often overlooked by self builders as an unnecessary expense — relying instead on an architect’s certificate. There are, however, some flaws in this approach. Firstly, an architect’s certificate will typically only last about six years, whereas a structural warranty has a 10-year duration. More crucially, an architect’s certificate merely states that the building meets the minimum standards; it does not cover any structural defects with the property. There is also a reasonable chance that your lender will require a structural warranty.
If you are planning on using an alternative form of construction or material, it is highly recommended to get a full 10-year structural warranty. The most common is NHBC, although there are other providers who offer the same standard of cover, including specialist self build warranties (such as Build-Zone and LABC). This will help when it comes to selling your property, as it will give the buyer’s lender assurance that the property has been built to acceptable standards.
It’s important to check the warranty cover thoroughly so you know what is included, as not all of the providers will offer the same level of cover. Generally, you will not pay more for a warranty if you have a non-standard build, but you may rule out certain providers based on the options you choose — for example, the NHBC solo warranty does not cover green oak.
Typical costs for a warranty with full technical audits are around £1,500-1,800, but this is money well-spent – especially if you know that you will be selling the property at a later stage, even after the warranty expires – as this will assist potential future buyers in securing a mortgage. Many banks and building societies are unwilling to provide funds on new or newly converted properties less than 10 years old, unless they are covered by a structural warranty.
Typically, the provision of a structural warranty includes:
- A full design assessment of the project.
- Checking of all the calculations and combinations of different systems, materials and finishes, to ensure the design is acceptable and durable.
- Your warranty provider will ask you for manufacturers’ technical specifications and certifications where these are available. In the case that these are not available, a full technical assessment process is conducted.
- The supply and suitability of your chosen construction method and the quality of the workmanship will be checked extensively throughout the course of construction.
Although the inspectors will not visit your site more frequently than if you were building a ‘traditional’ property, they will be looking at different things and will usually require more detailed information.
Site & Buildings Insurance
Why non-standard elements can lead to higher premiums
As a self builder you will have two types of insurance cover to take care of, the first being site insurance to cover you from the day you take ownership of your plot, right through to completion. Once completed, you can then switch to a buildings insurance policy.
Site insurance itself should not present any real problems, as it is designed for that exact purpose. However, you may find that premiums can be higher the more your build sits outside the ‘normal’ category. These higher premiums are reflective of the additional risk involved with certain methods, but your insurance provider or broker should be able to advise you on how you can mitigate against those risks and help keep the costs down.
Site insurance can cost as little as £400 if you are building on a budget, but on average, self builders are more likely to pay £550-700 for a year. If you have a lot of non-standard elements, premiums can creep up.
Policies are usually available for six, 12 or 18 months, depending on how long your project will last. Most mortgage lenders will insist on having a comprehensive site insurance policy in place before they will release any funds, so the sooner you can arrange it, the better.
- ProAktive (01302 346831)
- BuildStore’s Buildcare (0845 223 4448)
- Self-Build Zone (0845 230 9874)
- Self-Builder.com (0800 018 7660)
Once completed, you can swap the site insurance for buildings (and contents) insurance and this is where your options are going to be more limited, and you will see a premium attached to the cost of your policy. Traditional insurers are all too aware that insuring a property of non-standard construction could lead to higher claims, as the cost of replacing or repairing certain aspects will inevitably be more expensive.
Certain aspects may need ongoing maintenance and there may be more inherent risks; the building materials themselves may be expensive, hard to come by, or more susceptible to fire or water damage; and the number of tradesmen who are capable of maintaining or repairing these properties can be lower — making it a costly business to repair a non-standard constructed property. As a result, many of the mainstream insurers simply don’t offer these types of policies, so you will almost certainly need to arrange cover with a specialist provider. A specialist with relevant expertise will also be able to advise you and offer the most appropriate policy.
The more non-standard elements you have on your property, the narrower your options are going to be and the higher your premium will be, too. How much higher will depend on those elements, warns Kris Lee, underwriting director at Towergate Insurance.
“Softer non-standard elements – such as a flat roof – will have a much wider market, as compared to a Grade II Listed converted timber barn with a thatched roof. You will be paying more than the standard market — it can be anything from 20-50% more for the majority of non-standard risks, but for the properties at the extreme end of the spectrum, you could be looking at considerably more.”
Specialist insurer Self-Build Zone takes a more enabling approach to insuring non-standard construction, and reports an average 10% premium over a traditionally built home.
Will your unusual build techniques impact a future sale?
If you intend to sell down the line then you need to consider the future market for your property and, if you do it right, you should end up with a house that is worth more than it cost to build. However, you also need to consider its market appeal and saleability, which can impact on its value when you do sell.
Whether or not you borrowed funds to finance your project, it’s possible that a future buyer will also need a mortgage, and because their only option will be a whole-of-market product (rather than a specialist self build mortgage) their choices will also be more restricted. Most high street banks and building societies will not rule out lending on a property with non-standard elements, and very rarely will they set higher rates or fees for this type of borrowing.
In most cases, lenders will apply their standard lending criteria and will refer to the surveyors to make a decision regarding the security, value and future re-saleability of the property — both Nationwide and Halifax, for example, will consider non-standard forms of construction, but it may result in limited lending depending on the valuation. Lenders who offer self build mortgages, of course, will already have an understanding of the typical non-standard construction elements, and so could be more accepting of this type of borrowing.
The local market and location is also a consideration, and if a particular form of construction or non-traditional element is deemed unusual or rare for the area then it is more likely to affect the saleability. Of course, if your property is in-keeping with other properties in the local area, then your saleability and value are much more secure.
Having a structural warranty (even if you are selling after 10 years) and any relevant manufacturer’s warranty, structural engineer report, or technical assessment for the non-standard elements of your property, will help a mortgage lender view the home in more favourable terms.
Tips for Self Builders
Building something unique and creating a home that is truly your own is, of course, the major appeal of self build. However, it’s important to be aware that the choices you make about how you build your home could limit your financial options, and potentially cost you more in the long term.
When selecting your construction methods and building products, you should:
- find out what heritage, accreditations and certifications they have;
- make sure you fully understand the implications of incorporating them;
- check with insurance companies, warranty providers and mortgage lenders to find out exactly how they are likely to assess your risk and property value if you decide to take the non-traditional construction route.