The LGA has concluded that despite the ‘key role’ that developers will inevitably play in helping to solve Britain’s housing crisis, they ‘cannot meet’ the building targets set by the government on their own and this has led many experts to urge that improved access to finance for SME developers should be prioritised (among other measures) in order to meet any shortfall. This view has been bolstered by the Chancellors decision to commit a further £60 million to the Housing Growth Partnership (designed to provide financial support for companies struggling to obtain development funds) as part of the spring statement. But is this policy enough to unlock wider investment? And, if so, where from?
Lending restrictions put in place by mainstream banks in the wake of the financial crisis have effectively halved the number of SMEs delivering 100 or less houses per year in the intervening decade, with 20,000 homes built by SMEs in the UK last year as compared to an average annual figure of around 50,000 (or one sixth of current government targets) at the turn of the millennium. The estate agent Savills has identified SMEs as a key component to unlocking smaller regional development areas traditionally passed over by larger builders and as crucial to fulfilling targeted quotas at this local level, yet finance issues continue to persist with many banks reluctant to fund the high capital requirements typically associated with smaller construction.
However, new modes of co-investment and other finance schemes spearheaded by innovative fintech companies, challenger banks and specialist lenders look set to revolutionise the SME lending landscape over the coming months, with a multitude of deals already concluded. Indeed, in what appears to be a ‘tip of the iceberg’ scenario, we have already seen the specialist United Trust Bank secure an ENABLE guarantee via the British Business Bank in order to support SME building of over £500 million worth of new housing; the creation of Amicus Commercial Mortgages (an offshoot of the specialist financial services group) to target SME builders (amongst others) and a new drive by fintech firm Growth Capital Ventures to raise co-investment finances for SMEs - all in the last six months.
This is indicative of the direction in which the lending industry needs to go if it is to share the burden in helping to mitigate the UK’s housing shortage and those companies taking a pioneering lead are to be roundly applauded. Whether their example helps to provide a template for future lending practices by mainstream providers remains to be seen, but there is no doubt that it provides a much-needed step in the right direction and a rallying cry for hope. Vive le difference!
