What counts as modern methods of construction
The government's MMC definition framework groups modern methods into categories, from full three-dimensional volumetric modules made in a factory, through flat panels and structural components, to on-site process improvements. Many homes already use some off-site elements, such as timber frame panels or roof trusses.
Lenders are most familiar with established panelised systems. Fully volumetric modular schemes raise more questions, because more of the value is created off site, before the lender has security over it.
The payment problem
Traditional development loans release money in arrears, after a monitoring surveyor confirms work on site. With modular, a large share of the cost is paid to the manufacturer before anything arrives on site, often including a deposit at order. If the manufacturer fails, the developer could lose those payments.
Lenders that fund modular schemes look for ways to protect those payments, such as vesting certificates that transfer ownership of modules to the developer as they are made, factory inspections by the monitoring surveyor, advance payment bonds, or escrow. Where these are not available, the developer may need to fund factory payments from equity, with the lender advancing once modules are delivered and installed.
Warranty, accreditation and exit
Buyers' mortgage lenders need to be comfortable with the finished homes. Systems with recognised accreditation, such as the Buildoffsite Property Assurance Scheme, and a structural warranty from a recognised provider, are much easier to finance and to sell. Development lenders will check this before committing, because it directly affects the exit.
Valuers will also consider durability, repairability and any evidence of how the system performs over time.
Arranging MMC development finance
Some development lenders on our panel state that they accept modular or other modern methods of construction, and at least one offers better pricing for modular homes built to a high energy standard. Others may consider established systems case by case, particularly panelised timber or steel frame. We compare lenders on their approach to off-site construction and payment protection, then approach those that fit with a clear case. Instant Quotes gives indicative figures as a starting point, and final terms depend on each lender's valuation, monitoring surveyor and checks.
