Funding SME builders is key in solving the housing shortage

With housebuilding a key feature in the general election, Hampshire Trust Bank’s Robert Grigg, managing director (Property Finance), looks at how increased finance options for small developers will help increase their growth and ability to build new properties.

As we are all aware, the UK is experiencing a chronic housing shortage. While housing is high on the political agenda and some action is being taken to increase the number of new builds, it is clear that more needs to be done and small to medium-sized enterprise (SME) housebuilders and developers have a crucial role to play in filling the gap.

Despite this, decades of market concentration has reduced the choice available to this important sector, resulting in SME housebuilders and developers continuing to face a number of barriers in accessing the finance and capital required for growth.

Research from the NHBC Foundation, released in October 2014, indicates that there has been a significant decline in the number of small firms active in housebuilding in recent years, with numbers halving between 2007 and 2013. Of the 500 small housebuilders and developers the NHBC contacted as part of its report Small builders face serious barriers to growth, 22 per cent said that securing suitable finance for projects was a major challenge.

Enter the specialist challenger bank, a refreshing alternative equipped to offer an approach and enthusiasm to lending that provides SMEs with the access to the finance they need to support their business, drive growth and realise their ambitions. Crucially, the emergence and success of new entrants to the finance market is also helping foster competition and improve choice for SME builders and developers.

Specialist challenger banks will not typically offer a current account but instead will focus on specialised lending products in sectors such as property, asset and commercial finance, designed to meet the precise needs of customers and underpinned by responsive customer service from expert staff.

SME housebuilders need to work in partnership with a bank that’s willing to take the time to understand the risks and rewards of a particular site, understands the property finance market and speaks the same language as its customers. It is important to work with an experienced team, for instance, a team that offers skills that extend beyond funding solutions to site acquisitions,marketing and surveying.

Smaller housebuilding companies work to tight timeframes, they need to move quickly as waiting around for a lending decision means they risk losing out on a development opportunity. Finance providers need to be flexible to ensure customers do not miss out on the right opportunities.

The Home Builders Federation (HBF) states in its report The Economic Footprint of UK Housebuilding, released in March 2015, that about 140,000 new homes were built in the UK last year, a shortfall of about 100,000 on the numbers required. In order to achieve this increase, all sectors of the industry, from the smallest to the largest housebuilders, will have to increase the scale of activity.

Enabling smaller housebuilding companies to grow has a host of benefits. According to the HBF report, ‘an industry characterised by a more diverse range of housebuilders is considered by many commentators to be crucial in order to increase the range of products on offer to homebuyers, help to insulate the market from external shocks and boost overall industry capacity’.

To help resolve the housing shortage problem we must work hard to ensure that SME housebuilders and developers have increased access to financing, when they need it. Challenger banks have an increasingly important role to play in funding this sector and, as any experienced lender to this sector already knows, SME developers are involved with some of the most interesting and innovative housing projects. In order to fill the housing gap, the industry needs all hands on deck.

See this feature in the June issue of Housebuilder & Developer here
To see the other features in this issue, visit the Magazine Archive