In July 2023 the Consumer Duty came into force, a set of new mortgage industry rules that changed the way mortgage advisers operate. This reinforced the need for mortgage advisers to make sure that they, and the mortgage deal they recommend, produce the right outcomes for their customer.
To help custom and self builders understand the Consumer Duty changes, Chris Martin, Head of Mortgages at leading self-build mortgage broker BuildStore Mortgage Services explains how the rules should ensure you get the right deal to fund your project.
“The new Consumer Duty rules focus on making sure mortgage products and services offer fair value, that customers fully understand how the product works and what features, benefits and risks are included and that the customer gets the right support through the mortgage process,” explains Chris.
“They specifically refer to advisers having to focus on ‘avoiding foreseeable harm’ when helping their customers. This means that mortgage advisers need to look at their customers’ needs and consider what could go wrong and if the product they’re recommending adequately deals with these risks.
“Arranging a mortgage to pay for your self build is more complex than simply getting a better deal for the mortgage on your current home.
“Unless you’re fortunate enough to have another property to raise money on to pay for your build, you’re likely to look for a stage payment self-build mortgage where money is handed over to you by the lender as your build progresses.
“The key question to ask your adviser here is how the lender decides how much they’ll release to you at each stage of your build. Money you spend on your build – particularly in the early stages – is often not reflected in the lender’s assessment of the value of your part-built site.
“If your lender releases money based on an uplift in the value of your project, then you run a real risk of not getting what you need and running out of cash. This could lead to long delays and scrabbling around to find funds from elsewhere.
“At worst your build could come to a standstill and contractors could move to other jobs. If – as is common on custom build sites – you have a contract with the builder where you have to make specific payments at certain times, then you could find you’re in breach of your contract if you can’t get the money you need from your lender.
“This scenario is the most relevant example of a ‘foreseeable harm’ for self or custom build – and can be easily avoided. There are many deals available where the lender agrees a schedule of stage payments as part of the mortgage application and links these to your build costs as they come about – there are no valuations during your project so you know from the start exactly what you’ll get as your project progresses.
“If you only ask your adviser one question, this is the one to go for. If you’re recommended a product which needs a site valuation each time you want more money, you need to ask your adviser to confirm how they’re sure you’ll get the money you need to cover your costs at each stage.
“At BuildStore we’ve seen the arrival of the new rules as a great step forward as we know that getting the wrong mortgage deal can have huge consequences for self-builders. We’ve been helping people fund their homebuilding projects for over 25 years so we’ve seen everything that can go wrong. We offer a package of products and processes to help avoid these problems – what are now being called poor outcomes and foreseeable harms.
“We’ve got access to over sixty guaranteed stage payment, no valuation mortgage deals and we provide a professional check of build costs for every customer to make sure their expected costs are realistic. We’ll also review each customer’s cashflow through their build to make sure they won’t run out of money, based on the cash available, expected build costs and agreed mortgage releases.”
New products exclusive to BuildStore
BuildStore recently carried out a review of the self-build mortgage market and realised that some self-builders – particularly those who are borrowing a lower proportion of their project costs – were more likely to choose their mortgage deal based on interest rate and fees without fully understanding if the product has the right features to make sure their build is successful – and avoid poor outcomes and harms.
To make sure everyone has the opportunity to get their mortgage at a great price and get the features and support they need to complete their build successfully, BuildStore has launched a range of exclusive new deals.
These products offer market-leading rates and fees to those who need to borrow less than 70% of their build costs, with the benefit of guaranteed stage payments, no valuations, a free cost build cost assessment and support from our team right through the build.
For more help and advice visit our help section on the Self Build Portal
