Can I Get a Mortgage on a Prefab House?

A prefabricated house is manufactured in a factory and then moved to the site where it is assembled. Prefab houses are the quickest way to build a home and are often more affordable and sustainable too. They’re typically made with a steel or wood frame, with wooden panels and insulation cladding fixed in place once at the site.

There are also prefabs made from concrete, these are typically older properties. They are often modular in design, with standard components for each part of the house. Prefab houses are manufactured by companies that also deliver and construct the house for thousands of clients each year.

The leaders in contemporary prefab homes are the German companies Huf Haus, Baufritz and WeberHaus. In the UK, the most well-known company is Facit Homes, which uses a digital manufacturing process. In each case, the manufacturers can produce a customised home manufactured and assembled much more speedily than building a house onsite with traditional building materials. According to the Managing Director of Baufritz, construction of the building components takes a week, whereas assembly to a watertight shell takes 2 to 3 days.

Prefab housing tends to be between 10% - 25% less expensive than standard brick-built houses. The cost depends on the design selected and the materials used, alongside other features in the house such as the kitchen and other fittings.

Prefabs are cheaper because of the factory manufacturing process, which minimises the need for additional joiners, electricians and plumbers at the building site. The speed of the build significantly reduces the hours you’ll need to spend on these additional labour inputs.

There are other costs you’ll need to consider alongside the cost of buying the house components. This includes buying the land, applying for various permits and requesting access to services such as water, electricity and waste. You’ll also need to include the cost of building a drive, garage facilities as well as landscaping the grounds to your house.

Some companies have model houses at their headquarters so you can explore the different options. Typically, customised homes from these companies start at £2,000 per square metre.

It’s possible to find a standard residential mortgage to buy a prefab house, but it will be more challenging than getting finance for a conventionally built property as you’ll need to use a specialist lender. This is because mortgage providers view prefab houses as being of non-standard construction and higher risk. Part of the risk associated is based on historical, older concrete prefab houses. Walls constructed in concrete can crumble over the years. If the steel binding rods which are encased in concrete start to corrode, it can cause cracks which threaten the structure. While some concrete houses have lasted over 100 years, others have developed faults after just a few decades. This explains why most lenders tend to be more cautious about lending against prefab homes.

Lenders are also more likely to be cautious about the future value of a prefab house and how easy it will be to resell the house in the event of repossession. Even though prefab properties are likely to be structurally sound, mortgage providers are also concerned about the potentially higher risk of damage and cost of repair.

The non-standard build and structure of prefab houses mean that lenders' criteria for these types of properties vary significantly. During the mortgage application process, the lender may ask more questions about the property than for a standard construction property. They may also require a larger deposit and charge higher rates.

Given this, it makes sense to consider 2 additional factors when you begin your search for a mortgage lender: how easy you’ll find it to sell the property and how much home insurance will cost. As with mortgage providers, insurance companies will view a prefabricated house as a higher risk property and adjust their offering accordingly. You may find that some insurance providers will simply not provide cover on prefabricated building structures.

There are a couple of other tips to bear in mind when initially planning to buy a prefab and build your dream home.

First, consider hiring a local surveyor who has experience with prefabs.  They’ll be able to tell you whether the prefab you have in mind meets the latest building regulations and standards. You can then use their assessment when you approach lenders to flag any issues they may have early on.

Second, if there are prefabs in your area, you may find a lender locally who has some knowledge of this specialist market and will be more amenable. Otherwise you’ll have to approach a broker in order to access specialist lenders and products.

Unless there are a few prefabs in your area, you’re unlikely to find a high street lender willing to take you on. The distinctive nature of prefabricated buildings and their perceived higher risk means that the best way forward is to use a specialist mortgage broker like John Charcol and have an adviser find you a suitable lender.

Finding the right lender can be the difference between success and failure. Some lenders simply won’t consider financing a prefab, whereas others will make their decision based on the surveyor’s report and property valuation. You’ll therefore have to find a mortgage adviser with a whole of market reach to find a lender who is familiar with offering finance on prefab buildings.

As prefabs are not constructed with the same materials as standard residential homes, they are typically worth less. The assumption is that prefabs will lose value over time. However, so long as you maintain the building, it’s common for prefabs to appreciate, just as with standard construction properties. The value of your prefab will depend on the type of building and its location.

The UK Government is in favour of prefabricated housing. A government-backed scheme is currently being developed that should see more prefabs being built in the next few years. The Government also supports modular building methods, which are quicker and more cost-effective than conventional house construction techniques.

If you have any questions about mortgages on prefab houses, get in touch with our independent mortgage experts. At John Charcol, we have access to a huge range of mortgage products and lenders, including mortgages for prefab properties. We can help you find the right mortgage for your circumstances. Contact us today on 0330 433 2927 or submit an online enquiry to find out more.