Property projects don’t always go to plan.
A renovation can become a rebuild. Costs can change. Unforeseen structural issues can emerge once work begins.
That’s why, when advising on renovation, self-build and rebuild projects, brokers should consider not only whether a mortgage is suitable today, but whether it will continue to support the client if circumstances change.
This is where Consumer Duty and specialist project finance often intersect.
The Case
The clients purchased a property with plans to carry out a substantial renovation. Their mortgage adviser arranged a mortgage directly with a building society to fund the purchase and planned works.
The mortgage was approved, funds were released and work commenced on site.
However, once investigations began, the project team discovered the existing structure was unsuitable for the planned works. Instead of a renovation, the property would need to be demolished and replaced with a new-build home.
The clients secured revised planning permission, but a new challenge soon emerged.
When the Funding No Longer Fits the Project
The original mortgage relied on valuation-based stage payments.
As additional value is created during a project, further funds can be released. However, demolishing the existing property created no additional value against which further funding could be advanced.
The project had fundamentally changed, yet the funding solution remained designed for a renovation rather than a rebuild.
The clients found themselves paying interest on an existing mortgage while lacking the funds needed to continue the project.
Finding a More Suitable Outcome
Recognising that the clients’ circumstances had changed significantly, the adviser sought specialist support and was introduced to BuildLoan.
BuildLoan arranged an exclusive mortgage with a lender from its panel using its guaranteed cost-based stage payment approach. Unlike traditional valuation-based stage payments, funding is based on the cost of the works rather than the value created during construction.
This enabled the clients to:
- Repay their existing lender
- Access a higher initial release against the cleared site value
- Benefit from guaranteed stage payments throughout the project
- Receive funds in advance of each stage of construction
As a result, the clients secured funding that better reflected their revised plans, allowing construction work to continue with certainty over future cashflow.
Good Consumer Outcomes Start Before Problems Arise
While the original mortgage was suitable based on the information available at the time, this case highlights the importance of considering how a funding solution will perform if project circumstances change.
Structural issues and changing project plans are foreseeable risks on renovation projects. Had the clients been funded through BuildLoan from the outset, they may have avoided the disruption, uncertainty, refinancing costs and delays that arose when the renovation became a rebuild.
Because BuildLoan’s guaranteed cost-based stage payment mortgages are designed to support projects through changing circumstances, they can help provide greater certainty when projects don’t go exactly to plan.
For brokers, this demonstrates the value of looking beyond the initial transaction and considering which funding solution is most likely to deliver good customer outcomes throughout the life of the project.