What are the pros and cons of investing in non-standard construction properties in the UK, specifically a 3-bedroom house valued at £150,000?
Quick Answer
Non-standard construction properties can offer lower entry prices for investors but typically face increased challenges with mortgage availability and insurance costs, affecting their overall viability as investment assets.
## Unexpected Advantages of Non-Standard Construction Properties for Investors
* **Lower Entry Price:** Non-standard construction homes, such as a £150,000 three-bedroom house, often sell for 10-20% less than equivalent standard brick-built properties. This lower purchase price can reduce the initial capital outlay required for a deposit, making them accessible to investors with smaller budgets. For example, a 25% deposit on a £150,000 property is £37,500, which is a lower barrier compared to a £180,000 standard property requiring £45,000.
* **Potentially Higher Rental Yields:** Due to the lower purchase price discussed above, the rental yield percentage can be higher if market rents remain competitive with standard properties. If a non-standard £150,000 property rents for £800 per month, the gross yield is 6.4%, which could be more attractive than a standard £180,000 property also renting for £800, returning a 5.3% gross yield. This can offset some of the increased running costs related to financing or maintenance.
* **Less Competition at Purchase:** Many buyers, particularly owner-occupiers, avoid non-standard properties due to common misconceptions or financing difficulties. This reduced buyer pool can mean less competition during the acquisition phase, potentially allowing investors to negotiate better deals and acquire properties that others overlook.
## Significant Challenges of Non-Standard Construction Properties
* **Mortgage Availability and Terms:** Securing a buy-to-let (BTL) mortgage for non-standard construction is considerably more difficult than for standard brick and tile homes. Many lenders are hesitant due to perceived risks relating to structural integrity, longevity, and resale value. The Bank of England base rate at 4.75% already makes lending tighter, and BTL mortgage rates ranging from 5.0-6.5% are often higher for non-standard properties. Some specialist lenders may offer financing, but often with higher arrangement fees or lower loan-to-value (LTV) ratios, meaning a larger deposit is required. A standard BTL stress test of 125% rental coverage at a 5.5% notional rate becomes harder to meet with higher interest rates.
* **Insurance Costs and Coverage:** Insuring a non-standard property is typically more expensive and complex. Insurers view these properties as higher risk due to potential issues with materials, maintenance, and susceptibility to specific defects (e.g., rust in steel-framed homes, 'concrete cancer' in pre-cast concrete properties). Premiums can be 20-50% higher than for standard construction, impacting overall landlord profitability. Standard policies may also exclude certain types of damage or defects common to specific non-standard build types.
* **Maintenance and Repair Costs:** The specific materials and construction methods of non-standard properties often require specialist knowledge and tradespeople for repairs, which can lead to higher maintenance costs. Sourcing replacement components for older systems or specific pre-fabricated panels can be difficult, increasing both time and expense. For example, addressing a widespread defect in a particular type of concrete construction could involve significant structural work, running into tens of thousands of pounds.
* **Resale Value and Marketability:** Non-standard construction properties can experience slower appreciation and may be harder to sell compared to traditional homes. The limited buyer pool, especially due to financing issues for owner-occupiers, can depress resale values and extend marketing periods. This impacts an investor's exit strategy and the potential for capital gains, which are already subject to 18-24% CGT. The perceived risk by future buyers can lead to downward pressure on pricing.
## Steve's Rule of Thumb
If a property's construction type limits its financing or insurance options significantly, it likely limits its future marketability and should be approached with extreme caution, regardless of the initial purchase price.
## What This Means For You
Considering a non-standard construction property for investment requires a deep understanding of its unique risks and potential rewards. Many investors overlook these properties, but with diligent due diligence, they can sometimes present opportunities. If you want to understand how to correctly assess the specific risks for a non-standard property against your investment goals, this is exactly what we discuss and analyse within Property Legacy Education.
Steven's Take
Investing in non-standard construction properties can be a nuanced decision. While the lower entry price can be attractive from a capital perspective, the subsequent challenges with lending and insurance are not minor. I’ve seen investors struggle to re-mortgage or sell these assets, even if they've had good tenants. The perceived value discount often reflects genuine, systemic issues that can erode any initial savings over the long term. Diligence on both structural integrity and future market liquidity is paramount.
What You Can Do Next
Obtain a specialist RICS structural survey: Insist on a comprehensive survey from a qualified RICS surveyor experienced with non-standard construction types. This will identify specific defects common to the construction type and estimate repair costs. Find a surveyor via RICS.org.
Contact specialist mortgage brokers: Engage with brokers who specialise in non-standard properties and challenging lending. They can advise on available lenders, typical LTVs, interest rates, and stress test requirements beforehand. Confirm their FCA regulation on register.fca.org.uk.
Get insurance quotes early: Secure firm insurance quotes from several specialist providers *before* committing to a purchase. Provide all construction details to ensure accurate pricing and coverage, avoiding unexpected post-purchase costs.
Research local demand and rentability: Verify that market rents for this property type in your area are consistent with standard construction, or if a discount is expected due to construction. Check local letting agent data for similar properties.
Understand the specific construction type: Research the exact non-standard construction method (e.g., Wimpey No-Fines, Airey homes) to understand its common defects and long-term prognosis. Resources like Building Research Establishment (BRE) reports can be insightful.
Get Expert Coaching
Ready to take action on buying your first property? Join Steven Potter's Property Freedom Framework for comprehensive, hands-on property investment coaching.