Let’s start by (mis)quoting Bill Shankly, a Liverpool FC coach even greater than Jürgen Klopp: “Some people believe football is a matter of life and death ... it is much, much more important than that.” Let’s substitute finance for football. If I asked: “What’s your greatest concern right now?” I’ll bet it wouldn’t be the fiddly process of applying for a mortgage from a British bank or building society. Like most of the world, your worry is how we’re going to overcome the mortal, viral threat we all face.
Unlike the crash of 2008, the problem is the spread of a natural virus, not the international transmission of dodgy, man-made mortgages. Central banks can lessen the economic impact of coronavirus, but they can’t slow its spread, immunise individuals or cure those who catch it.
I don’t pretend to know when society might get back to ‘normal’ or what the new normal will look like. It may be nothing like the past. But let’s take housing and look a few months or years ahead. If construction, like other industries, is forced into unseasonal hibernation, the current housing backlog will grow and the need for new starts and completions will intensify.
- DFT Roundtable: How rising costs, coronavirus and a labour shortage could stall property developments in 2020
- Propertymark creates Covid-19 checklist
- Coronavirus 'will inevitably have an impact on the property world'
What can be done to get MMC financed more seamlessly?
Homes England could hold specific events for lenders and valuers and invite modern methods of construction (MMC) providers to discuss the benefits of their systems over traditional methods.
Homes England should be actively encouraging structural warranty to provide the likes of the National House-Building Council (NHBC) with the technical/admin support to understand the different systems, so the seal of approval can be granted faster.
There is a real opportunity for lenders to finance projects that are only viable by using MMC systems, such as infill sites, or tier two sites, therefore, an individual or department within each lender that specialises in MMC should be considered. Some lenders are already undertaking this.
VAS Panel should have access to a group of valuers that specialise in MMC, who can, therefore, provide lenders with the appropriate information to aid finance applications.
Home England's development finance fund should consider preferential rates for developers that are willing to adopt MMC on their scheme over traditional.
The MMC offering
Overcoming years of hidebound obstruction from builders and developers, MMC — like the advanced building system from Green Life Buildings — is recognised and being promoted by the government. What Green Life Buildings and other MMC firms offer is a way of building smarter, cleaner, warmer and quicker. Good for developers, for buyers, for the environment and for lenders, too. Or so you might think.
Here we come up against the law of unintended consequences; the reverse of Adam Smith’s ‘invisible hand’, where selfish acts benefit all. In this case, official recognition of MMC has led some lenders to create a new MMC loan category. Ticking MMC on a mortgage application form can mean a slow, bureaucratic process that delays rather than accelerates new construction. Since MMC is by nature new, how can a building society surveyor assess local demand for MMC houses in setting a value against which to lend? Catch-22.
It may comfort finance professionals to know they’re not to blame for the crisis. But if mortgage lenders want to help get Britain better housed as we recover from the current crisis, here’s one idea.
If mortgage business is slack in the coming months — as seems likely — why not use the time to review the lending process so that MMC is a plus point for borrowers and not an obstacle to getting a mortgage? And if the government is serious about promoting modern, greener building, it should use its powers as a referee to blow the whistle on lenders who accidentally obstruct MMC.
Guru Bill Shankly had it right.
“The trouble with referees is that they know the rules, but they do not know the game.”
Modern construction needs modern financing. If politicians don’t understand the game, it’s time they learned at least to avoid scoring an own goal.