Sector - Commercial

Quality Assurance a Must for Lenders Considering MMC projects

John Carter is the commercial director for commercial real estate at Aldermore Bank. In this feature, he looks at why quality assurance is key for lenders when they are considering Modern Methods of Construction (MMC) projects.

The trade off between quantity and quality is something consumers have been juggling with for years. To help consumers understand the quality of a product, various assurance schemes exist; the red tractor logo for instance, promotes and regulates food quality in England, Northern Ireland and Wales. Similarly, the Lion Quality Mark is stamped onto eggs by producers who follow the highest standards of food safety. In the commercial property industry and in the modern methods of construction space in particular, fewer assurance schemes exist, making it less straightforward for lenders to assess the quality of a development. The Buildoffsite Property Assurance Scheme (BOPAS) is the leading industry accepted assurance scheme for modern methods of construction (MMC) projects and its stamp of approval is a must for most lenders such as Aldermore when considering investing in MMC developments.

What is MMC?

MMC is a wide-ranging term that covers many different types and techniques of construction. Generally, it involves precision off-site manufacture engineering of either key components (a panelised system) or whole sealed units up to first fittings (wiring and plumbing) in a factory environment; with some methods mirroring that of the automotive industry. These flat pack components or whole units are then transported and positioned on site. This means houses are usually quicker to produce and have a much lower carbon footprint by using less water and cement compared to traditional construction methods.

MMC has an important role in the UK

There is growing recognition that MMC has an important role to play in helping the UK build more houses. The House of Commons’ Housing, Communities and Local Government Select Committee’s report from June 2019 on MMC, for example, noted that the Government’s target of building 300,000 new houses a year by the mid-2020s won’t be met using traditional methods alone; citing issues such as a shortage of skilled workers and availability of traditional materials. “A significant proportion of homes must be built using modern methods of construction (MMC) if we are to meet the target to deliver 300,000 homes annually,” the report stated

The role of BOPA

For lenders, recognising the expanding role of MMC and investing in such projects are two very different concepts. One of the stigmas attached to MMC is that if a project takes less time to build, it must be of a poorer quality, compared with traditional methods. These perceptions around MMC trace their roots back to the quality of prefabricated post-war emergency housing, which were notorious for being built to a substandard. Nowadays such stereotypes are out of date, with 21st century technology delivering better quality, safer, and far more cost-effective homes at the same or, with upscaling, lower cost. Yet to help diminish the MMC stereotype and verify the quality of MMC projects, BOPAS was established.

BOPAS is a risk-based evaluation scheme which demonstrates that a particular method of construction will stand the test of time for at least 60 years, thereby showing that a development meets quality and sustainability considerations. For funders and lenders, BOPAS accreditation provides confidence that an MMC project is fit for purpose and removes the uncertainty of the construction for valuation purposes. This reduces the risk of mortgages for developers being declined and improves the business and technical risks to manufacturers of the construction system.

Although BOPAS is recognised by the majority of mortgage lenders as providing the necessary assurance regarding the system or design, the scheme does not, however, remain responsible for the on-going checks or provide the necessary link between the manufacturer and the construction team.  BOPAS therefore needs to be used in conjunction with a warranty provider such as Building LifePlans (BLP) or the National House Building Council (NHBC) who can provide assurance with regard to the construction and ongoing maintenance of the property.

BOPAS and sustainability

BOPAS accreditation could encourage more lenders and developers to invest and build more MMC projects and thereby become more sustainable. Sustainable developments that meet the needs of the present without compromising the ability of future generations to meet their own needs are challenging in a sector which, by its nature, is a big user of natural resources.

Cross laminated timber (CLT) is one example of a BOPAS accredited MMC technique which could help developers and lenders become more sustainable1.  An alternative to concrete, cross laminated timber is a structural, prefabricated panel used to form environmentally sustainable walls, roofs and floors across a wide range of structures. It is a robust and widely useable building material with excellent soundproofing, airtightness and fire safety properties.  Importantly, CLT is also a good carbon sink and can be constructed offsite. The Dalston Lane building in London Hackney consists of 121 apartments and is one of the tallest residential timber structures in the world. It took just 12 weeks to assemble the building2.

The use of MMC will likely become much more prominent in the future. The current lack of familiarity with MMC techniques is causing some lenders to make risk averse decisions and overlook MMC projects. When making any lending decision, the quality of the build proposal must be paramount. BOPAS provides lenders with that much needed quality guarantee. At Aldermore, we are embracing changes in construction and are committed to working closely with construction firms, housebuilders and property developers to provide funding solutions to deliver the much needed homes this country needs.

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