Non-Standard Construction and the Challenges of Securing Funding in the UK

In the UK's property market, non-standard construction properties present unique challenges when it comes to securing funding. These properties, often characterised by unconventional building materials, designs, or construction methods, can be perceived as higher risk by lenders and investors. In this blog post, we will explore the concept of non-standard construction, discuss the difficulties associated with obtaining funding for such properties, and highlight potential strategies for overcoming these challenges.

Understanding Non-Standard Construction

Non-standard construction refers to properties that deviate from the traditional brick-and-mortar construction methods commonly found in the UK. These properties often incorporate alternative materials or construction techniques, such as timber frames, steel frames, pre-fabricated panels, or eco-friendly building systems. While non-standard construction offers innovation and sustainability, it can pose challenges when it comes to securing funding.

Difficulties in Funding Non-Standard Construction

1. Perception of Risk: Lenders and investors may perceive non-standard construction properties as higher risk due to unfamiliarity with the materials or construction methods involved. This perception can lead to stricter lending criteria, higher interest rates, or limited funding options.
2. Valuation Challenges: Non-standard construction properties can be more difficult to value accurately compared to traditional properties. The lack of comparable sales data or standardised valuation models can create uncertainty and make it challenging to determine the property's market value.
3. Limited Mortgage Availability: Some mainstream lenders may be hesitant to provide mortgages for non-standard construction properties due to perceived resale difficulties and potential depreciation concerns. This limited availability of mortgage products can hinder potential buyers' ability to secure financing.
4. Insurance Considerations: Non-standard construction properties may face challenges in obtaining suitable insurance coverage. Insurers may have limited experience with such properties, resulting in higher premiums or more restrictive policy terms.

Strategies for Overcoming Funding Challenges

1. Research and Expert Advice: Conduct thorough research on non-standard construction and identify lenders who specialise in financing such properties. Seek advice from mortgage brokers or financial advisors with expertise in non-standard construction to explore suitable funding options.
2. Building Regulations and Certification: Ensure that the property meets all relevant building regulations and certification requirements. Working with architects and construction professionals experienced in non-standard construction can help provide reassurance to lenders and insurers.
3. Portfolio Lenders and Specialist Providers: Consider approaching portfolio lenders or specialist providers who have a broader appetite for non-standard construction properties. These lenders may have a deeper understanding of the associated risks and be more open to providing financing options.
4. Demonstrate Property Value and Market Demand: Provide evidence of the property's value and market demand. This can include showcasing energy efficiency, sustainability features, or potential cost savings associated with non-standard construction. Market research and comparables from similar properties can help support the property's value proposition.
5. Alternative Financing Options: Explore alternative financing options, such as peer-to-peer lending, bridging finance, or crowdfunding platforms. These avenues may offer more flexibility and willingness to fund non-standard construction properties.
6. Check with BOPAS (Build off-site Property Assurance Scheme) to see whether the method you have chosen has already been approved by lenders and the wider value chain. BOPAS is recognised by mortgage lenders as providing the necessary assurance that properties that are innovatively constructed or constructed using modern methods of construction (MMC) will be readily mortgageable for a minimum of 60 years.

Securing funding for non-standard construction properties in the UK can be challenging due to perceived risks and valuation uncertainties. However, with thorough research, expert advice, and a well-presented case, it is possible to overcome these difficulties.

By demonstrating the property's value, compliance with building regulations, and market demand, investors can increase their chances of securing funding for non-standard construction projects. Additionally, seeking out lenders and specialist providers who have experience with non-standard construction can open up financing opportunities.

As the industry continues to recognise the benefits of innovative construction methods, it is hoped that funding options for non-standard construction properties will expand, enabling more investors to participate in this growing segment of the market.

At Merryoaks, our team have significant experience securing funding for diverse developments. Even in complex cases, our professional industry contacts will aid us in solving the problem. Rest assured that there is a solution out there to help you and the situation you are in. We are here to help you find it and work through it.

We are also excited to be currently working with a lender that is keen to support developers who are pursuing a “green agenda” by offering discounted interest rates for those that hit certain criteria. To find out more, speak to our Funding Specialists today.