To mark Right to Build Day on 30 October, NaCSBA has published a letter calling for an end to unsuitable financial tests that act as a block to people signing their local self build Register. The letter is endorsed by leading bodies from the mortgage sector made up of the Association of Mortgage Intermediaries, the Building Societies Association and UK Finance.
The letter clears sets out what are collectively recognised as unnecessary and bureaucratic requirements needed before someone can join a register. Where these are applied it effectively means that individual councils are prejudicing people’s ambitions to self build, according to which authority they wish to apply to.
While the legislation does allow local authorities to apply tests prior to people signing up, including local connection and financial tests, guidance states that these should only be applied where there is a “strong justification” for doing so.
However, a minority of authorities are requiring unnecessary and unfair financial tests as a precursor to anyone signing their Register, and these deliberately limit people from signing up to start their self build journey.
Some of these inappropriate restrictions include:
- One requirement is for applicants to have a mortgage offer – however a mortgage offer is only available to those who have land with permission to build, and hence do not need to join a Register.
- The alternative option is to have a written confirmation of resources from a qualified financial adviser; however such services would typically come with a fee and be of limited wider value to the applicant.
In addition, some of these policies also refer to the Council of Mortgage Lenders, which ceased to exist in July 2017, with its activities now undertaken by UK Finance.
Andrew Baddeley-Chappell CEO of the National Custom & Self Build Association stated: “A limited but growing number of local authorities are making it too difficult for potential self builders to benefit from the law. This is unfair and wasteful of the resources of individuals and the mortgage sector. We are hugely grateful to the mortgage sector for their support in enabling our sector to deliver more and better homes.”
Kevin McCloud (Presenter, Grand Designs) stated: “At a time when we need more sustainability and affordable homes, it is beyond belief that any council is making it impossible for such homes to be delivered.”
Recommendations for financial tests:
The jointly supported letter states that:
- It is not appropriate to ask for a mortgage offer to join a Register. This can typically only be obtained when access to land with planning permission has been assured. Any person who is in this position has therefore no need to join a Register.
- It is not appropriate to ask for an Approval in Principle. Such a document has a specific place in the house purchase process, and the regulatory environment. The production of an Approval in Principle (AIP) involves time and cost for an applicant, the mortgage adviser and for the mortgage lender. An AIP typically includes a credit assessment of the customer. This process can result in credit footprints that can ultimately reduce access to credit including future mortgage lending. An AIP has a limited life (no more than 6 months) which is much shorter than the time in which the local authority has to act.
- It is not appropriate to ask for other written evidence from a fully qualified financial adviser. An adviser would typically charge a fee for such work, and as noted above any activity this far in advance of any mortgage application is of no wider underlying value to the customer.
NaCSBA has also published a briefing note setting out the context around the Right to Build legislation and registers.
About the Right to Build
What has become known as the Right to Build legislation requires all local authorities to establish a Register of all those who wish to build or commission a home and to then ensure that sufficient plot ‘permissions’ come forward to meet that demand.
The financial solvency test is designed to assess the ability of an applicant to purchase the land and build a self build home. However, the examples above applied by some local authorities effectively make them too hard and / or too expensive for applicants to pass.
READ THE LETTER
Examples of policies with unfair financial tests:
Solihull Metropolitan Borough Council
There will also be an assessment of financial resources. The Council will require relevant evidence of sufficient resources as follows:
- An offer for a self-build mortgage from a verifiable lender (for example, a member of the Council of Mortgage Lenders). Any evidence provided must clearly show that the release of funds for the purchase of land – which is usually the first phase of funding released – covers any proxy land value used by the Council for the purposes of assessing this criterion; or
- Written confirmation and evidence from a qualified financial advisor with active membership of a verifiable and appropriate professional body. This evidence should clearly outline that the applicant has sufficient readily accessible funds/savings/investments/equity to purchase land; or
- Any other information which demonstrates, to the Council’s satisfaction, that the applicant has sufficient resources to purchase land for their own self-build and custom housebuilding. The Council welcomes evidence of Islamic mortgages and no interest mortgages such as Murabaha and Ijarah.
(Source: letter from Solihull Council to everyone already registered on its register)
Epping Forest District Council
The council will require relevant evidence of sufficient resources as follows:
- An offer for a self-build mortgage from a verifiable lender (for example, a member of the Council of Mortgage Lenders). Any evidence provided must clearly show that the release of funds for the purchase of land – which is usually the first phase of funding released – covers any proxy land value used by the council for the purposes of assessing this criterion
- Written confirmation and evidence from a qualified financial advisor with active membership of a verifiable and appropriate professional body. This evidence should clearly outline that the applicant has sufficient readily accessible funds / equity to purchase land
- Any other information which demonstrates, to the council’s satisfaction, that the applicant has sufficient resources to purchase land for their own self-build and custom housebuilding
- Where multiple funding sources are utilised, evidence may be required that funds will be readily accessible for the purchase of land phase of the project
(Source: Epping Council Self Build FAQs)
Runnymede Borough Council
- Financial Solvency Test: – The Council requires evidence from applicants which demonstrates that they have sufficient funds to purchase a plot of land for their self-build project at a value of £259,333.
- Details of savings equivalent or greater to the average price per plot (as defined in this document) that could definitely be used for purchase of land and to fund the construction of a self-build project or;
- In-principle bank loan agreement or an agreement in principal from a mortgage provide
(Source: Self-Build and Custom Housebuilding Register: Advisory Notes)
