Treating unusual property as mortgage security


The way we construct our buildings today is the result of a long historical process of trial and error that dates back thousands of years. Before 20and Century, the main building materials were brick, stone and wood and the suitability and strengths of these materials were well understood by the craftsmen who used them, as was the durability of the tiles, slates and metals used to roof our roofs. Traditionally built homes using these materials are universally accepted by major mortgage lenders as suitable security provided they are in good condition and in a salable location.

The 20and The century was, however, a period of experimentation where new forms of construction were promoted, including metal frames, precast concrete panels and plastics. A government agency capable of testing and evaluating new forms of construction seemed like a good idea.

The Building Research Establishment (BRE) originated as a government organization (the Building Research Board) in 1921 as part of an effort to improve the quality of housing in the UK after the First World War. After this war, politicians promised to build homes worthy of heroes, including, for the first time, large-scale municipal housing estates.

The Building Research Board grew and incorporated many other organizations to become the modern BRE and in 1997 it was privatized with ultimate ownership transferred to a charity, the BRE Trust, which works to support research and education in the built environment. The BRE is therefore no longer managed or owned by the government

When surveyors are faced with new or unusual construction, BRE is often the first point of contact for advice as it tests and evaluates construction materials and methods and publishes its findings and conclusions in technical documents. In the event of disagreement as to whether a particular form of construction constitutes appropriate security, the expert is likely to consult the relevant BRE publications.

BRE’s main headquarters and research center are based in Garston, just north of Watford. Guided tours are offered to visitors to see current BRE projects which include, not surprisingly, much work on Modern Methods of Construction (MMC) and home insulation. As an interesting diversion in the park, there is a 1:50 scale model of the German Mohne Reservoir and Dam used by inventor Barnes Wallis to test the famous bouncing bomb used by the Dam Busters during World War II.

All major mortgage lenders publish guidance notes for their surveyors detailing their requirements for mortgage collateral to be acceptable, but the underlying principles are fairly universal. The mortgage security must be easily salable in the event of repossession and must have a life expectancy of at least 30 years after the end of the term of the mortgage. Indeed, a building should last at least 60 years without requiring major reconstruction.

Traditionally built houses and apartments will last much longer than 60 years of course. A well-built home can last for hundreds of years if properly maintained.

The first major problem to arise with what we surveyors call ‘non-standard construction’ came in the 1980s. that had been purchased and were owner-occupied had become unsaleable. In order to meet the criteria of mortgage lenders, these houses, built with precast concrete panels or steel frames, needed to be repaired and modernized.

BRE undertook a thorough investigation identifying over 300 different forms of non-standard construction which had been used in the 1930s and particularly in the post-war period from 1945 to 1960. BRE provided advice on repair strategies appropriate and this resulted in the Housing Defects Act. 1984 which included provisions for structural repairs to be subsidized and approved by suitably qualified structural engineers.

Homes repaired under the 1984 Act with an appropriate certificate in place were then acceptable mortgage security for mortgage lenders and this remains the case today.

Fast forward to 21st Century and BRE evaluate modular construction, MMC and cladding. How to improve the insulation of our homes to meet zero carbon goals will be an ongoing issue.

Apart from the problems of modern construction, surveyors also have to deal with mortgages on very old buildings which can be constructed of cob, cob and wood. We may need to consider mortgage applications on converted retirement homes, windmills, water towers, etc. The expert in these circumstances must often request a specialized report. The basics still apply: will it be easily salable and what is the life expectancy.

Peter Glover is a surveyor and author of Building Surveys and Buying a House or Flat

Previous Belmont Green opens 2022 with £400m securitization
Next Hong Kong lender BC Group launches green mortgage fund