Calls for government to promote lending to SME housebuilders

Calls for government to promote lending to SME housebuilders
As well as promoting development finance, the government should explore a scheme that guarantees loans to SME builders

The latest research from the Intermediary Mortgage Lenders Association has found that the majority of mortgage lenders and brokers believe that greater government support for lending to SME housebuilders would help fix the UK’s lack of housing supply.

IMLA found that 61% of lenders and 57% of brokers believe that government support for development finance would improve the lack of housing supply.
 
In the run-up to the general election on 8th June 2017, IMLA is urging policymakers to support lending to small and medium-sized housebuilders. Successive governments have failed to address the supply-side issues challenging the UK housing market, despite an array of different initiatives. IMLA was critical of the government’s recent Housing White Paper, which was published in February 2017, on the basis that while it rightly highlighted the lack of housing supply it failed to offer significant substantive solutions. Data from the Department of Communities and Local Government reveals that new house completions were down 1% in the year to December 2016 compared to the previous twelve months.
 
SME housebuilders have said that obtaining finance is one of the principal challenges they face when it comes to delivering new homes. According to a report from the National House Building Council Foundation (NHBC), ‘Small house builders and developers: Current challenges to growth’, the availability of development finance is the biggest concern of 20% of SME builders and developers, and the second biggest concern of a further 18%. According to the report, these concerns relate to the cost of finance, the availability of finance, and unfavourable loan-to-asset ratios. Furthermore, some builders suggest they have a poor relationship with lenders – although this is reported to be improving.  
 
IMLA’s research among lenders found that they view a higher risk of builder default as the biggest challenge when it comes to providing development finance, with 44% of lenders identifying this as a key problem. This is followed by a lack of builder appetite for traditional models of debt due to a preference for mezzanine finance, which 35% of lenders identified as a key issue.


In IMLA’s view, there is a clear need for the government to support the growth of development finance as a means of addressing the housing crisis. Given lenders’ fears of SME-builder default, a government-backed guarantee of loans to SME builders is one policy that should be explored, which will give both lenders greater confidence. Furthermore, the government should also examine giving further support for lending to SME builders through loans via the British Business Bank.
 
Peter Williams, IMLA’s Executive Director, commented: “IMLA’s research reveals that the mortgage industry clearly feels that supporting development finance lending to SME builders and developers would help increase in housing output. Successive governments have struggled to meet housebuilding targets, and the lack of solutions offered by the incumbent government in its Housing White Paper shows there is a need for new ideas. IMLA is therefore calling on policymakers to explore how they can boost development finance lending.
 
There are several ways through which this can be achieved. As well as promoting development finance, the government should explore a scheme that guarantees loans to SME builders. Our research reveals that lenders view the biggest obstacle they face in development finance is a higher risk of builder default. At the same time, builders report that accessing finance is an obstacle to increasing their output. By launching a guarantee scheme, or boosting lending to developers via the British Business Bank, policymakers could increase the flow of development finance and improve output in the sector.”

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Latest Comments

Oliver Conway
Oliver Conway 18 May 2017

Making a neat inventory is a good idea, but if the seller is not willing to provide it, can the buyer demand it?

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Bertrand
Bertrand 17 May 2017

First step to nationalisation of the private rented sector IMHO. Nanny state poking their noses into things yet again. I object, as a decent landlord, sometimes having to deal with some pretty awful tenants,...

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Izzy
Izzy 16 May 2017

This is such a great a post. I love the detail you've gone into. It's a very useful article for helping those who are looking at deciding which sector they would like to go into! When I first started investing...

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paul burnham
paul burnham 30 Apr 2017

Jeremy Corbyn's pledge that a Labour government would build 500,000 new council houses must electrify the general election campaign. Reliance on markets and the profit motive has brought huge housing-related...

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CommercialTrust
CommercialTrust 28 Apr 2017

Sadiq Khan?s announcement of an online database of landlords and letting agents who have been convicted of housing offences, appears on face value to be a variation of the already implemented Database

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warren
warren 26 Apr 2017

You're very welcome Mary! Glad you enjoyed them :)

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Mary Ward
Mary Ward 26 Apr 2017

Thank you for the wonderful ideas. First impressions can make or break a deal. It's sadly that many homeowners drop the kerb to create an off-street parking space.

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Tony Gimple
Tony Gimple 14 Apr 2017

I'm not at all surprised that so many landlords are still confused about what the tax changes really mean and how it will affect them. In particular, the blind rush to incorporation is leaving landlords...

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MH
MH 13 Apr 2017

You are right that the bank holidays are going to be spoiled in looking for the properties. But people who want to sell their property and looking for the better relocation, they can get benefits of this...

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bnellyb
bnellyb 08 Apr 2017

There will be an exodus of private landlords over the next 5 years as tax changes take effect, private landlords provide an important service to the rental market, why do housing associations and councils...

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Fred Cassman
Fred Cassman 07 Apr 2017

"Make it look like you are at home": often people forget this and share on facebook their location!

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jared townsend
jared townsend 05 Apr 2017

It'll be interesting to see how & if the Government's asset sale regarding mortgages helps

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