The UK construction industry has long been characterised by a risk-averse mentality, leading to a slower adoption of innovative construction methods compared to other countries. Modern Methods of Construction (MMC) have the potential to transform the sector, yet finance remains one of the biggest hurdles to widespread adoption, particularly when it comes to pre-fabricated solutions.
Within the defined categories of MMC, the first five categories rely heavily on pre-fabrication. These methods often require substantial upfront payments, sometimes in the region of 80% of the total cost (paid is as far as 12 months in advance!) with the remaining 20% due just before on-site installation. Traditional construction finance models rely on secure lending practices: lenders take a charge over the development and release funds incrementally. A surveyor assesses the completed work at each stage, ensuring that every payment is justified by tangible, on-site progress.
However, pre-fab MMC disrupts this model. Since the majority of the construction work occurs off-site, surveyors have little, if any, on-site progress to measure. Without this critical stage-by-stage verification, the funds released are no longer secured by a measurable asset. Consequently, the risk to lenders increases. Higher risk typically translates into higher interest rates, meaning that developers not only commit funds far earlier than traditional methods require but also incur additional costs over an extended period. This “double hit” (higher interest rates, for a longer interest period) undermines the commercial viability of pre-fab MMC at scale.
Understanding PMV: Pre-Manufactured Value.
Pre-manufactured Value (PMV) refers to the value derived from building components that are produced off-site. In contrast to traditional on-site construction, PMV encapsulates the cost, quality, and efficiency benefits of pre-manufactured elements, often delivered ready for installation. This concept is becoming increasingly significant as the construction industry adopts more MMCs. With PMV, much of the work occurs off-site, which creates challenges in establishing the physical, staged progress that lenders expect. Without a clear on-site asset, funds are less secure, prompting lenders to perceive higher risk.
While PMV brings significant potential benefits in terms of construction efficiency and cost-effectiveness, its current integration into conventional lending frameworks tends to be viewed as a negative due to the increased risk profile. To fully harness PMV’s advantages, the industry will need to evolve its financing models, ensuring that these innovative approaches are supported by secure, adaptable funding mechanisms.
Low Risk MMC.
It is widely recognised that for MMC to achieve widespread adoption, it must align with the tried-and-tested financing models of traditional construction. That’s where Category: 6 MMCs make a significant difference. Category: 6 does not involve pre-manufacturing in the traditional sense but focuses on optimised building products designed to reduce site labour. These are often large-format components such as walling or roofing products that are pre-cut or engineered for ease of assembly. A perfect example of this is ICF blocks that allow for quick construction of reinforced concrete structures, providing insulation in-situ.
ICF is among the very few MMC approaches designed to comply with conventional financing frameworks. By ensuring that each stage of the project is measurable and verifiable, ICF construction reassures lenders, enabling funds to be released in accordance with established practices.
The future of construction lies in methods that are not only innovative but also financially sensible. ICF’s ease of integrating MMC with traditional finance models marks a pivotal step in reducing the risk associated with modern methods of construction. With our low risk MMC approach, we are helping to reshape the financial landscape of construction, ensuring that both lenders and developers can move forward with confidence. This alignment of new technology with established financial practices is critical for driving the industry forward, making ICF a truly low risk MMC solution and a game changer in modern construction finance.
ICF’s Category 6 MMC is low risk because it doesn’t disrupt traditional financing models. Lenders can verify progress through clear, measurable checkpoints, ensuring that funds are securely released. Plus, quicker work completion reduces the overall interest period, further lowering costs and enhancing the project’s financial viability.