Getting a Mortgage For a Prefab House

Prefab (short for prefabricated) houses were originally introduced in 1944 by Winston Churchill as a cheap fix to the post-war housing crisis. Whilst many older PRC (precast reinforced concrete) houses were condemned as defective in the ‘80s, modern-day prefab homes paint a very different picture.

As a quick-to-build and often architecturally stunning housing option, the demand for modern prefab houses is on the rise. In this article, we’ll explain how to secure the finance necessary to buy one and the role brokers play in helping you achieve your unique home ownership dreams.

Can you get a mortgage on a prefab house?

You can absolutely get a mortgage for a prefab house; however, it may be more difficult than it is for a typical brick-and-mortar property. Depending on the age and style of the prefab you’re planning to buy, there are two major reasons why it can be more difficult.

• Many PRC homes have lasted far beyond their 10-year expected shelf-life. However, walls made from concrete are liable to crumble and crack eventually, so lenders are likely to be much more cautious about lending on this type of home, particularly those that appear on the list of defective designs in the Housing Defects Act.
  Obtaining insurance for this type of property can also be difficult, and building insurance is an essential element of many mortgage approval processes.
• Newer prefab homes are typically constructed with more modern, durable materials; however, they are still considered non-standard construction properties, meaning that certain lenders won’t consider them. This is because non-standard construction properties are more difficult to maintain and insure and could potentially have less resale appeal.

What is the eligibility criteria?

As outlined above, lenders exercise more caution with prefab mortgages due to the increased risk involved. To balance that risk, you’ll often need to meet specific criteria in addition to the standard affordability and creditworthiness.

This will usually be:

• Providing a larger deposit: The percentage of deposit required will vary between lenders and depending on the property itself. However, a large deposit ranging from 25% to 50% is possible.
• Certification and guarantees: The vast majority of lenders will need a PRC home to have been repaired under an approved scheme and have a certificate to prove this.

How to make a prefab house more mortgageable

The good news is that, depending on the type of property you plan to buy, you can take steps to improve your chances of mortgage acceptance on a prefab home.

If you’re buying an existing prefab house that’s a little older:

1. Obtain a RICS (Royal Institute of Chartered Surveyors) home buyers survey and building survey before approaching the lender, and this will give you a clear picture of the quality of the property, whether it’s a model that’s included on the list under the Housing Defects Act and prevent potential disappointment later in the process.
2. Look at a copy of ‘Non-traditional housing in the UK – a brief review’ as mortgage lenders use this as a guide to inform them about non-traditional construction.
3. Obtain a PRC Completion Certificate. This confirms that the property has been reinforced to a safety standard that a structural engineer approves. Lenders are typically much happier to lend on a property where this improvement has been carried out.

If you’re buying an existing modern prefab or having one built:

Modern prefab houses, whilst still considered non-standard construction, are far more likely to have been completed in adherence to the latest building regulations and with modern methods of construction (MMC).

This means that lenders should have fewer concerns about structural safety and, to some degree, resale potential. That said, there are certain steps you can take to improve your chances of securing a mortgage.

These include:

1. Employ a surveyor with experience in prefab homes, as their advice can often minimise lender concerns.
2. Buy in an area where prefab homes are more prevalent. Lenders that focus on these geographical locations will likely be more comfortable lending in these circumstances.
3. Look for ecological benefits. There is an increasing drive for UK homes to be eco-friendly, and there is a range of green mortgages specifically available for properties that tick certain boxes in terms of energy efficiency. Prefab homes are generally more energy efficient due to their construction, so meeting the eco-home criteria will be easier.
   If you’re planning to build your own prefab home, you have even more opportunities to include eco elements at the design stage. This can make it easier to obtain a self-build mortgage.
4. Get BOPAS certification. Buildoffsite Property Assurance Scheme (BOPAS) is a joint initiative between the Royal Institution of Chartered Surveyors, Lloyd’s Register and Building LifePlans Ltd, in consultation with the Council of Mortgage Lenders and the Building Societies Association. It provides lenders with a guarantee of durability and saleability for a minimum of sixty years.
   The scheme is expected to make it easier to secure mortgages on prefabricated homes in the future, as it gathers more industry support.

How a specialist broker can help with a prefab mortgage

A broker with knowledge and experience in the area of securing finance for both new and existing prefab homes will make the entire process less painful. As well as being able to help you achieve the steps mentioned above, not to mention potentially suggesting more, they will also know which lenders to recommend for any given situation.

Depending on the type of home you’re planning to buy (or build), they’ll be able to match you with a lender with suitable criteria. Regardless of the age or quality of a prefab home, it will always be classed as non-standard construction, so this will already narrow down the pool of lenders available to you.

Each lender within that pool will have specific criteria, meaning that some will accept properties that others would not. The lenders we work with offer a bespoke service, so the advice and lender recommendations they provide will be based on your circumstances. Contact us to find out more and speak to the right broker for your needs.

What type of mortgage would be best?

There are a couple of mortgage types suitable for prefab homes, but which one is the most suitable depends on whether you’re buying or building one and which criteria you’re able to meet.

Residential

Plenty of lenders in the non-standard construction niche are willing to provide standard residential mortgages for prefab homes, so long as both the borrower and the home meet certain criteria, which we’ll examine in more detail later in the article.

Green Mortgages

If you’re buying a fairly recently built prefab and are able to meet the criteria for a green mortgage, this could be a good option, as often the rates are more competitive.

Self-build mortgage

Whilst the construction required on some of these buildings is minimal, you’ll still require a self-build mortgage if this is your route. Fewer lenders are available in this niche than those offering standard residential mortgages; however, with the right advice, plenty is available.

There are also specific green mortgages in the self-build market, so it’s worth considering those eco-friendly building materials and construction methods.

Bridging finance

If you’re building your own home, a bridging loan could be an alternative to a self-build mortgage. Although lending on prefab housing purchases is still quite a niche in this industry, definite steps have been taken to offer more flexibility when lending on modular constructions. A (BOPAS) guarantee may also add credence to your application with bridging lenders.

Read our guide to bridging finance to find out more.

How much can you borrow?

The amount you can borrow will depend on your affordability, which each lender will calculate differently. However, the affordability calculator below should provide some guidance on what you may be able to borrow based on your household income.

Which lenders can you use?

The lenders available to you will be limited and depend on the type of prefab home you’re buying. Particularly for PRC homes that have not been structurally reinforced, the maximum loan-to-value ratio (LTV) is typically 50%, meaning you will need a very large deposit.

If you’re buying a more modern prefab building or a PRC property with the proper structural enhancements, more lenders will be available to you. For example, NatWest and Halifax are both willing to consider prefab homes on a case-by-case basis, assuming the walls have been completely rebuilt in traditional materials and PRC Homes Limited have issued a guarantee that the property, or all houses in the structural block, where applicable, have been improved to this standard.

In fact, most lenders in the market are happy to lend when there is a certificate of guarantee for the PRC available. However, the length of the guarantee requirement can vary from one lender to the next. Typically, this ranges from 30 to 60 years; however, some lenders do not dictate a minimum.

Of course, there will also be some differences in lenders depending on whether you’re buying an existing home or opting for a self-build mortgage. Ipswich Building Society will consider prefab self-builds if MMC are used.

Both self-build homes generally and buildings of non-standard construction typically attract higher rates of interest, given that lenders are taking on more risk in lending, so expect higher than the market average interest rates whether you’re building or buying a prefab home.

You may be able to minimise the impact of such rates if you qualify for a green mortgage; however, an experienced broker will ensure that you attain the best rates for your circumstances.

Speak to a broker about a prefab mortgage

There is a substantial increase in interest in modular homes in the UK, given that this offers a relatively cheap and simple path to unique home ownership; however, securing the right finance can be complex.

We work with a wide range of experienced brokers across the country, including those with experience in securing mortgages for prefab homes. Whether you’re looking to buy a repaired PRC home or modern modular property or to build your own prefab housing, use our broker matching service to find an expert with the right experience to help you.

Simply call 0330 818 7026 or make an enquiry, and we’ll make sure you start off on the right path.