Borrowing To Build A House? - Read This First !

Any homeowner will be familiar with the process of buying a home and most people have a general understanding of mortgages. Building a new house is a different kettle of piranhas however. It is a difficult and prohibitively expensive process, therefore very few people actually build their own home. Just think to yourself; how many people do you know who bought a house? And how many do you know who built one?

Because it is so rare, most people are unaware of what is involved. While I am just an Architect and would always advise someone to seek expert opinion from a financial advisor or a lawyer, there are several issues I have seen my clients confront.

Maximum Budget:

It has been my experience that, regardless of how wealthy the borrower is, the bank will set the upper limit on how much money may be spent on construction of a new house. they do this using a simple calculation, for example;

Cost of site = £100,000

Likely sale value of finished house = £500,000

Maximum construction budget (sale value - site cost) = £400,000

Understand this isn't the amount of money the bank will lend, it's the overall amount of money they will allow to be spent. In total. Regardless of the personal wealth or assets of the client. 

This ensures that if the bank has to repossess the house during construction, they will make back the money required to finish construction when they sell your home.

So if you want to build a multi million pound home, these are your choices; Either buy a site in a very desirable location and borrow to build or pay for the house entirely in cash without borrowing a penny.

Loan to Value:

Even before the recession, at the height of the property bubble, lenders did not throw money at developers and private clients. 75% loans were the norm then and now. The bank will also not lend money to purchase the site, that must be paid for in cash. Neither will the bank lend money to pay professional fees; lawyers, stamp duty, planning application and Architects Fees must all be paid in cash.

The real nightmare scenario happens if property values fall during construction of the house. The bank will re-examine the loan to value ratio, which will have changed; if the value has dropped, so must the amount of loan. But the builder still needs to be paid and the cost of materials and labour wont fall overnight. This means the client must find the money themselves, in order to finish the house.

CML:

The Council of Mortgage Lenders is the industry body that represents all lenders in the UK. They take a particular interest in one-off or self build houses. The story goes that in the downturn of the early 1990's many lenders repossessed homes that turned out to be vastly different, and inferior, to what they thought had been built with their money. When these lenders came to sell the repossessed homes, they lost a lot of money on them. It seems that back then, a self builder or wealthy client could self certify their mortgage application for a one-off house. With hindsight, this was an invitation to fraud. 

To prevent this from happening again, the CML have introduced the Professional Consultant Certificate, which is designed to give independent oversight of the project. This is done at the borrowers expense, for the banks benefit. 

The certificate can be signed by a Chartered Surveyor or an Architect. The certifier must have the correct Professional Indemnity Insurance and must agree to keep that insurance for a minimum six years into the future. The certificate is intended to act as a guarantee to the lender that the house is the same as on the approved plans, is built in the correct location and constructed to acceptable standards. It is not a replacement for the NHBC or similar schemes. 

The lender will require an insurance backed warranty before handing over any money for the build. In practice this will be done in stages, following an inspection by the certifier.  

I offer CML certification as a service to my clients, I usually charge around 1% the sale value of the home. This is to cover my increased insurance premiums into the future as well as my time in carrying out inspections. 

If you are have spent years watching Grand Designs and dreaming of building your own place, I am sorry for bursting your bubble. On the other hand, if you think you can deal with all of these issues, get in touch.

The Real Lost Generation

Since the start of the Great Recession there has been much discussion about the lack of opportunities for younger Architects, particularly graduates. The architectural media have taken to calling this group the lost generation, because they are leaving the profession to earn a living elsewhere and, once gone, will find it very hard to return.

I have real sympathy with this group, particularly when I get sent CV's that almost beg for a chance to work. It was nothing more than good economic luck that I was able to establish my own career in good times and had no difficulty finding a job. This isn't the first time, nor will it be the last, that Architecture has lost a generation of graduates. This also happened in the early 1990's and is probably a symptom of every economic downturn.

There is a another, hidden, lost generation within the Architectural profession however, who's presence is seldom discussed and who's impact isn't fully understood. Unlike recession graduates, this generation is unique; having lived through a huge change of culture in the profession, without actually having participated in that change. Let's call them the Anti-CAD generation.

CAD, short for Computer Aided Design, is the generic name for any software programme that allows drawing to be done on a computer. CAD was introduced in the 1980's and coincided with the digital revolution, moving every paper based activity into the digital realm. This revolution has been so far reaching that most Architecture practices today are indistinguishable from any generic office, full of PC's. The drawing board is practically extinct in the todays profession.

The Anti-CAD generation will have entered the profession sometime before the digital revolution, making it's members at least fifty years old today. The youngest members of this generation would have been in their late-thirties when CAD was adopted as the industry standard. Most were at a stage where they were senior enough not to need to adapt, as there would have been younger Architects and technicians to do the drawings for them. This generation went on to found or take over the running of well known firms. They are today's generation of partners, directors and senior lecturers at universities. They are the leaders of the profession.

In the years before I started my own Architecture Practice, I worked for five different firms. They were all very different from each other but they had one thing in common, not one of my former employers could use CAD and some couldn't use computers at all. Not even email! One director used to compose all his letters in a single word document, each for different jobs or clients, one after the other on one file, creating chaos as he went. This may be my own individual experience but I know it's not unusual.

So how important is the method used to produce a drawing? does it matter whether an Architect is computer literate? Lets make clear that I am not saying every members of the profession over the age of fifty is a techno-phobic Luddite. I know many older Architects who have embraced digital media and who regularly teach me things, they don't qualify for membership of the Anti-CAD Generation. I'm also not trying to make a value judgment between digital drawing and hand drawing, for the record, I enjoy hand drawing. I always sketch out designs before drafting them using CAD (I use Q-CAD Professional as my drafting software) I also believe that it is best to learn to draft using a traditional drawing board first, later transferring the skills to a computer. 

What I am trying to do is to identify an unprecedented situation in my profession, where a clash of culture has emerged because of a lack of shared experience on either side of the generational divide. 

The real importance of the Anti-CAD generation is that they presided over this change of culture, from hand drawing to computer drafting, without participating in that change. For the first time, those who ran the business could not do the business. For centuries, the partners or directors of a firm could, if necessary, use a drawing board as well as their staff. This culture of continuity, where the master had greater skill than the apprentice, was challenged because the apprentice had acquired an entirely new set of skills the master did not have. The opportunities for inter-generational knowledge transfer were reduced as a result.

This lack of shared experience has been corrosive to mutual respect. Younger Architects can be very dismissive of older colleagues who don't interact with the digital world, this is a mistake and a lost opportunity to learn from more experienced professionals. Many older Architects I know need the skills younger members of the profession provide but at the same time appear to resent the situation. One elderly Architect I knew described it as feeling impotent. I cant imagine the chances of promotion being that great if the boss resents your skills to such an extent. 

This is the real Lost Generation, a period from roughly 1990 to 2020, by which time the majority of the Anti-CAD Generation will have retired. I hope the next generation to lead the profession will have far more in common with those younger than them.

Demographics: Who Employs an Architect?

Just out of curiosity, and for want of something interesting to do, I decided to work out the demographic break down of my clients over the last three years. 

0f a total number of 105 projects, I discounted all commercial jobs and only counted repeat clients once. This left me with 80 domestic clients, which I broke into three groups; Single Men, Single Women and Couples – so far, so good.

It gets more complicated when thinking about age, as its not something I ask my clients. Also, how do you describe the age of a couple if there is a significant age gap between the partners? In short I had to guess at an approximation for age.

I realise all this isn’t accurate, but that misses the point.

The main group that has employed my services over the past three years are couples, accounting for almost three quarters of all my domestic clients. Of that group, 38% were in the 30 – 40 age range. These clients typically have young, and growing, families. They are the classic Improve Not Move client. 

And what about the singletons? A much more even spread, with the majority being over 40. 

So, if you ever wondered what kind of clients employ an Architect in Edinburgh, now you know.