A house for as little as £28,000

"I could have moved back in with my parents so easily, but I felt it was a backward step, so decided to buy my own caravan and see what I could afford to build at a later stage." He discovered Log Home Scotland on the internet and was attracted to the aesthetics of the wooden buildings. When he discovered the environmental credentials and the fact that the houses were significantly cheaper than conventional builds, he decided to go ahead. The houses, which meet all British building regulations, cost from as little as £28,000.

"The price was definitely a factor," says Iain. "If I was to build a stone, two-bedroom house it would cost me around £100,000 and the log home comes in at about a third cheaper. I could have moved to Stornoway and got a flat but that just didn't appeal to me."

Staying in Ness means that young Sean can continue to move easily between Iain's home and that of his former wife. The new house is on a plot which Ian feud off from land close to his parents' home, a process which took seven months. He is now adding the finishing touches and plans to move in before Christmas.

"It has surpassed my expectations, I'm really pleased with it," he says. "It looks fantastic; everybody is commenting on it because it's a bit unusual."

Log Home Scotland is in its second year of business and is one of several companies in the UK which construct prefabricated timber frame homes. Its Estonian parent company has constructed almost 500 log and timber homes across the UK.

"It's only recently that people in the UK have come to realise the quality of these homes. In Scandinavia or in the US, practically everything is timber-framed," says David Revesz, MD of LogHome Scotland. His clients select a building design template which is then customised, constructed in a factory in Estonia, imported to Scotland and the construction project managed by the company. Styles include solid log homes and contemporary, timber-based designs which cost 30% less. Both can be made wind and watertight in under a week. "There is a growing awareness of the environmental issues, but let's not kid ourselves, ultimately it is the price," says Revesz. The next project is a three-bedroom detached house in Elgin which will be supplied and built for £60,000.

Polish company Dan-Wood has had an office in Edinburgh since 2004 and builds complete houses at a factory in Poland before transporting them to the UK in kit form. Polish tradesmen then put them together on site. It takes between two and three months on average to construct and costs less than £90,000, excluding the cost of the land, foundations and a fitted kitchen. A cheaper range called LIMIT offers a detached dwelling for £77,000, again excluding foundations and a fitted kitchen.

One of these is owned by Grant Purves, who moved into his new house near Melrose on Monday with partner Emma Davies, four-year-old son Ewan and nine-week-old Holly. The family had previously been living nearby in a semi-detached house. "We wanted to move to a bigger house," says Grant. "I've always wanted to have the chance to have a house built and having an agreed fixed price meant that you knew the final cost, and could spend your budget on other areas. If you've got the land, then these are a great solution for getting on the housing ladder."

As the prefab homes are relatively new in the UK, some lenders are still to be convinced of their longevity. "Recently I had to sort out some home insurance and I was turned down by one company as they didn't recognise what type of house it was, so they wouldn't insure it, but I went to a broker and got a really competitive price," he says. He is confident about the resale value. "Because it is so eco-friendly, it should be favourable when I come to sell it, especially as these features become increasingly important to buyers," says Purves.

Tony Lunn, business manager for a selling agent for Dan-Wood, believes that as more prefab timber homes appear on the landscape, interest will continue to grow.

"I think the UK has been quite slow to realise the benefits of prefabrication because it is different technology," he says. "People are not sure of the product because it is completely different: a prefabricated, closed insulated panel system. People like to touch and feel the product first."

In 2004, when Dan-Wood started in the UK, Lunn sold only one house; this year he says he has sold more than 20. Now the company is launching a budget range of two-bedroom detached homes for around £70,000. Lunn believes that this budget range will make up a sizeable chunk of future business. "If you look at the way that the market is going at the moment, it's stuttering a little bit. The one area where there will be some momentum will be the affordable, lower-cost end."

The speed and relative cheapness of construction has led to prefabs being cited as a possible solution to the country's chronic affordable housing shortage. While the vast majority of Dan-Wood's customers are individuals, a handful are sold to small-scale developers and when the budget range is launched, Lunn says he expects to be approached by housing associations. "With these affordable houses, there will be an opportunity for housing associations and developers to pick up the ball and run with it," says Lunn.

Recently, the Building Research Establishment held the biggest-ever exhibition of off-site construction at an event in Watford. Industry experts there stated that there was a boom in interest for off-site construction in the UK.

Edinburgh architect Andy Stoane is currently working on the design of a prefab home which will cost from £40,000. Homes will be sold online under the Anabo brand and buyers will be able to choose a selection of features including solar roofing and biomass heating.

With funding from both Edinburgh University's Pre-incubator Scheme and the Edinburgh Technology Fund, construction of an Anabo prototype is due to begin shortly However, several factors currently threaten a boom in prefabricated homes. As part of the construction industry, prefabs are not immune to the economic situation. "If you were coming to us for a log construction 18 months ago it would have been 25% cheaper," says Revesz. "That alone is not to do with the credit crunch but with the gradual erosion of the pound against the euro. Most companies which do this kind of construction come from Europe; relatively few come from America."

While the weakening pound is having an impact on the price of materials imported from Europe, the gloomy economic outlook means many prospective self-builders are holding back. "We are experiencing a downturn in business but people are prevaricating because there is an atmosphere of fear and the unknown, whether it is a cash sale or they have to get money from the bank. Availability of credit is an issue."

These issues are compounded by the fact that the relatively recent arrival of prefab timber frame homes means that their longevity has still to be proven and therefore mortgage lenders are being cautious. "It's slightly more convoluted, but there are companies that will lend on timber frame houses," says Revesz. "High street lenders won't lend on them because they don't know enough about them."

Planning issues are also a consideration, particularly if larger-scale developments are to get off the ground. Ikea's proposed development of 40 prefabricated homes within the Drumchapel New Neighbourhood Development has stalled, with Ikea citing problems regarding the land.

"The need for affordable housing is an issue," agrees Revesz, who says he has already been approached by one island housing association which is looking to build 200 affordable homes, "but the price of the land is still an issue."

Take if further LogHome Scotland, Edinburgh. Call 0131 552 4928 or visit www.loghomescotland.co.uk innovaHouse, Nairn. Call 01667 452555 or visit www.innova-house.co.uk Dan-Wood, Galashiels.

Call 01896 752271 or visit www.dan-wood.co.uk

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