"This shift places greater significance on the delivery of good outcomes and the need to mitigate any foreseeable harm during the advice process."
The implementation of Consumer Duty has reinforced the need for greater transparency, fairness and accountability across the financial services industry. For mortgage brokers, this shift places greater significance on the delivery of good outcomes and the need to mitigate any foreseeable harm during the advice process.
When dealing with clients looking to finance a self-build project, this means brokers must ensure that any planned project is viable from the start; that costs are adequate to see the build through to completion; and that the funds needed to finance the project are available when needed.
For many people, building their own home takes years of planning, saving and organising. No two builds are ever the same and the level of detail, time taken and amount of money that goes into each project can vary hugely, which is why exploring every option available is vital in ensuring the needs of every self-build client are adequately met.
Assessing key product features – much more than just cost
In the current economic climate where higher interest rates and living costs are squeezing affordability, it can be extremely easy to get side tracked by mortgage products that offer lower interest rates on borrowing.
Whilst cost is of course a factor in choosing the product for your client, the cheapest self-build product will often not be the answer. It’s important to consider the level of support and guidance needed to help clients navigate some of the pitfalls.
Many self-build mortgages rely on site valuations during the build to decide how much money the customer can have released at any time - this creates a real risk of foreseeable harm if the valuation doesn’t create enough equity to release the money the customer needs. At Mansfield, our self-build mortgages base stage releases purely on the cost of each stage. This removes the risk of the borrower not being able to access the money they need because of a down-valuation – a real boost to delivering good outcomes.
We are one of a handful of lenders who evolved this concept even further with products that offer an advanced staged payment plan rather than in arrears. These schemes provide the funding required at the beginning of each stage of the build rather than at the end, including for the plot or property purchase.
Similarly, some products enable the client to borrow up to 85% of the plot or property and build costs, which means the build could get underway with a 15% deposit.
As the stage releases from the mortgage are guaranteed and based on costs, rather than the value, this can help to provide greater financial certainty and peace of mind as it enables self-build borrowers to plan and pay their bills on time. It can also prevent the client from receiving less than they expect or need.
Offering self-builders flexibility in the build
Advanced stage payments are particularly important in situations where a self-builder may have chosen an off-site manufactured building system such as timber frame, structured insulated panels, or insulated concrete framework.
In these circumstances, the payment is often required in full and up front, usually before it leaves the factory. A staged payment plan that provides the funds upfront can therefore provide the borrower with the cash they need to meet the supplier’s payment terms.
Having the money at the start of the build can also place the borrower in the enviable position of being a cash buyer, enabling them to take advantage of the best deals and time restricted offers on building materials.
The improved cashflow also means the borrower can stay in their current home while the new home is being built, allowing them to keep their own funds for use later in the project or to put towards a contingency fund.
Taking a more holistic approach to product selection
Given the fact that the overall cost of advanced stage payment mortgages can often be very similar to that of an arrears stage payment mortgage, with the added benefit of money upfront, it should always be a consideration for any broker with a self-build client looking for funding.
In the new Consumer Duty environment, ensuring positive outcomes for self-build clients will require brokers to explore every avenue of risks and benefits.
For those unfamiliar with this type of financing, there are a number of lenders operating in this space exclusively via BuildLoan – the leading self-build specialist distributor. Working with a specialist in this way can be rewarding – offering support to the complexity of the advice and positive outcomes for clients.
