The UK has seen a significant increase in property prices and demand following lockdowns, and also a shift in buying patterns as people look for more space and flexible working reduces the need to be in or close to cities. However, the country is woefully short in terms of new home building, and with the government targeting 300,000 new homes per year, a number of things need to be addressed if this is to be a reality.
Without doubt the focus must be on SME housebuilders who since 2008 have been left in the cold, with 90% of new homes being delivered by a handful of large companies. This is not only a sign of an unhealthy sector, but reduces competition, quality of homes, diversity of homes and innovation in a time when modern methods and sustainability must be at the forefront.
One of the main issues SME developers face is funding, with traditional banks reluctant to add risk to their portfolios by supporting build projects in this way. We have seen a number of new products and specialist lenders now come to the market, as well as an increased appetite amongst funds and family offices to offer mezzanine and equity funding. Government is continuing to push for support for SMEs in the sector, and a key method of this is continuing support through the ENABLE build guarantee programme.
Through the ENABLE programme, the British Bank partners with specialist lenders in the sector to encourage lending to smaller housebuilders by reducing the amount of capital required to be held against such lending by the participating bank. The UK government therefore takes on the lender’s risk on a portion of these loans.
The net result is that for an SME housebuilder, they can reduce the capital required for undertaking a new project by increasing the lending available. For example, a typical development finance package may offer up to 65% loan to GDV for a scheme, with the use of the ENABLE guarantee this can be increased to say 80% loan to GDV. This then means less capital outlay, which in turn results in more projects, larger projects, and increased growth, resulting in more homes being delivered, more job creation, and a competitive and a healthy sector.
There is no doubt that more support is needed, particularly in such areas as the planning process, however with funding a key barrier to entry continued government focus and support of SME housebuilders is a driver in the right direction.
Pat McCreesh, Partner, Vantage