05/08/2019
Much is being written about how projects involving Modern Methods of Construction (MMC) differ from those focused on traditional construction and how this can be managed during the procurement and construction process. However, in order for MMC to be taken up widely as a standard approach to construction rather than a curiosity, they must be acceptable to mainstream lenders under standard residential mortgages, as well as social and PRS landlords under their corporate facilities.
Getting lenders comfortable
Lenders are likely to be wary of any innovative system or product, with its uncertain risk profile, particularly post-2008. Lenders want to be sure that the security for their funding has sufficient value, and will retain that value, for the period of the commitment. Lenders want to be sure that MMC properties will generally appreciate, as traditional housing has tended to, and not depreciate, as a new car would be expected to.
As part of this, they will want to know:
* that the property is built to sufficient quality standards and isn’t going to be falling apart in ten years
* that if there are problems with particular properties, they can call on appropriate warranties and guarantees for products and workmanship
* that the design life of the property and its components is sufficient
* that the property can be expected to be maintained in a state to retain its value.
The NHBC Buildmark warranty already covers a limited number of products, and we would expect this list to expand. NHBC cover (or equivalent) is one of the gateways for achieving CML certification and unlocking the mortgage market for a type of MMC property or system. In addition, some MMC products are certified by Buildoffsite Property Assurance Scheme (BoPAS), although this only covers the products themselves, and is not a warranty for their use or the completed property.
Reasons for optimism
In fact, the industrialised nature of MMC systems should make them an attractive prospect to lenders. Factory-based manufacturing processes can be tightly controlled and managed to ensure consistency of quality, particularly if the manufacturer is working within a quality assurance framework such as the British Board of Agreement Product Excellence Programme.
In addition, MHCLG is proposing an ambitious scheme to capture data on all MMC projects, which will be accessible to industry stakeholders, hopefully providing lenders with sufficient data to allow them to carry out a more sophisticated risk analysis than is currently possible.
Realistically, it may still be several years before MMC properties are viewed on a par with traditional methods. However, there is no reason in principle why a more tightly controlled, transparent manufacturing process, combined with less exposure to site risks such as weather, should not be seen as providing equal or improved security for lenders.
The only question now, is whether the pioneer projects have been design, built and maintained with sufficient care to give funders and investors the confidence to commit.
