Building innovation leaves lenders behind

15 August 2011

A reader wrote to the magazine a few weeks ago with an interesting but rather alarming case. They were building a home using structural insulated panels, which are a form of timber frame construction that is factory-finished and comes to site with insulation sandwiched between the framing boards.

Despite constructions using structural insulated panels not being uncommon in the UK and certainly well established across the world, their lender was refusing to offer a mortgage on it. Anecdotally, I’ve heard mixed responses from home builders using such non-traditional techniques.

Some encounter similar problems to our reader and get bogged down in issues that reveal the lender doesn’t understand how the home is being built. Others breeze through the process.

The problem is one of historical context clouding the judgement of these construction methods and it’s something that will become more important in the near future. Non-traditional techniques have been used to some degree in home building in the UK for centuries but only began to find wider take-up in the 20th century.

As the country needed to undergo huge house building programmes in the years after the World Wars - 4.5 million homes were built in the 20 years between 1919 and 1939, while the programme in the decade after WWII ended up building around four million - shortages of conventional concrete and brick building materials and the labour to build them resulted in successive governments looking to alternatives to speed up the process. These included pre-cast and in-situ concrete, timber and steel frame, and a host of variances.

The result was unprecedented experimentation in building, with success and failure in largely equal measure.

This quest for fast build times resulted in a bias towards the early models of factory-built housing and a natty husbandry of materials. A wartime purchasing visit to Sweden resulted in boat-loads of prefabricated timber sections being used for homes in England and Scotland.
The steel and aluminium industry that had been so busy between 1939 and 1945 found its now-surplus materials being used for housing rather than armoury.

Perfect for prefabrication, all these materials formed the basis for the factory-finished building boom we see today. Unfortunately, while the majority of the houses built out of these innovative methods still stand the test of time, a small number have suffered and gathered headlines.
Some well known failings of non-traditional methods - which came to a head in a largely discredited 1983 World in Action programme about timber frame houses not being watertight - live long in the memory in lenders’ head offices it appears. This is despite over one million homes - around 4% of the total - having a non-standard construction system.

To be fair, there are issues to address. The assumed life cycle of a home is actually pretty short - most tests ensure structural stability for 60 years. But there remains a lack of historical data to rely on. Because so many are effectively constructed in the factory, there isn’t a lot surveyors can access to inspect.

All this breeds insecurity and, as we all know, lenders dislike nothing more. But what is difficult to accept is that the experts who understand building systems - the likes of building research consultancy BRE and the people who write Building Regulations - appear more than happy to accredit these new systems as acceptable. Put simply, if a system doesn’t satisfy Building Regulations - which are stricter in this country than almost anywhere in the world - then it doesn’t get used.

The majority of warranty suppliers have no problem with most non-traditional techniques either. So why on earth would something that has passed all these tests and been assessed by building experts be deemed unmortgageable? It doesn’t make sense.

There have been some laudable attempts to improve things. In 2006 BRE, in collaboration with the Council for Mortgage Lenders, launched LPS 2020, the Standard for Innovative Systems, Elements and Components for Residential Buildings. It was hailed as a major innovation and the answer to helping the home building industry innovate without the constraints of conservative lenders.

“The main concern for lenders on properties built using innovative construction is that we often don’t know how they will perform over the full potential life of a mortgage and beyond,” David Hylton of Nationwide said at the time. “We need to know that they will retain their value and marketability in a similar way to conventional structures, without abnormal expenditure on maintenance and repair. This is in the interests of owners as well as lenders and LPS 2020 is a significant step forward in providing this reassurance.”

Well, LPS 2020 died a rapid death, only to be replaced by MPS 2020 which carries on the fight. But if the evidence of our readers is anything to go by, it hasn’t made a major impact.

But the world of house building is undergoing more change than at any stage for decades. The drive to have all new homes zero carbon in England and Scotland by 2016 and by this year in Wales means the way we build our homes is going to have to transform. Zero carbon status relies on many factors but the most important is that walls, roofs and floors are well insulated and airtight.

While it is possible to achieve all this using traditional masonry methods, it’s easier and quicker to do so using new construction systems - most obviously structural insulated panels. Other systems can also achieve it, not least a closed panel timber frame system closely related to structural insulated panels and insulated concrete formwork, which are hollow polystyrene blocks that fit together like Lego into which concrete is poured.

We are experiencing a period of massive innovation in the way we build our homes but it’s innovation that appears to be leaving lenders behind.
The industry has two choices. A vast and expensive education programme for those who make these decisions, even right down to the individual surveyors, or a radical simplification of the lending criteria process that relies on the advice of experts rather than received wisdom from head office.

If we are serious about building houses that meet our requirements for energy efficiency the wider industry, which includes but is not limited to lenders, needs to gear up and fast.

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