by David Khan | Mar 30, 2023 | Advice
A recent survey conducted by Close Brothers Property Finance, the Home Builders Federation (HBF), and Travis Perkins reveals the full extent of the challenges and problems currently facing SME housebuilders. Revealing the vast majority of Small and Medium Enterprise (SME) housebuilders in the UK are dissatisfied with the Government’s approach to housing. The survey, which is the most comprehensive of its kind, highlights the major obstacles facing SME developers. Including securing and processing planning permission, availability of land, and staffing shortages in Local Authorities. All of which are putting their businesses at risk.
– The survey found that 93% of SME developers believe that securing and processing planning permission is the biggest barrier to growth.
– While 52% of builders are facing an issue with the availability of land.
– Staffing shortages in Local Authorities were identified as the main cause of delays in the process by 76% of respondents.
– Rising material costs were a concern for 99% of the companies, and energy costs were a major issue for 88% of builders.
– More than two-thirds of SME developers are impacted by the “nutrients” issue, which is restricting development in over a quarter of England’s local authority areas.
– The report also revealed that 92% of SMEs are unhappy with the Government’s current approach to housing.
Peter Wade, Chairman of BLG comments “The survey findings fully support what BLG are seeing and hearing from their customers with major delays and frustrations caused by planning. In fact, we have subject to planning projects which were credit approved back in 2021. These planning challenges favour the larger v SME developers and need resolving to grow the home building sector.”
In its third edition, the SME State of Play Report has brought attention to the potential risks for businesses and hindered participation of SMEs. Due to the planning system’s increasing costs and delays. The timing of the report coincides with the industry’s current acute challenges. Including processing delays for planning applications, housing delivery moratoriums in a quarter of local authority and rising costs.
According to the survey, small builders are already anticipating the effects of the Government’s proposed Building Safety Levy. 40% of SME home builders foresee that the levy, which the Government consulted on between December and February, will impede future housing delivery by posing a barrier to all new homes.
Over recent decades, the dwindling number of SME builders are facing increasing challenges to overcome development constraints. 92% of SME builders expressed dissatisfaction with the government’s approach to planning or housing. Urging Ministers to take corrective measures to prevent a decline in supply levels.
Stewart Baseley, HBF executive chairman, commented: “SME builders in particular are struggling to overcome the growing constraints to housing delivery. The planning process is grinding to a halt and regulatory costs are rising, whilst the nutrient issue has put the brakes on sites across a quarter of the country. SME housebuilders are a major employer and have a key role to play if we are to meet our housing needs, but their numbers have plummeted in recent years. If we are to avoid losing even more businesses amidst a drop in supply, government must take action now to create an environment within which SME builders can operate.”
Rowland Thomas, managing director at Close Brothers Property Finance, adds: “The role of SMEs in the housebuilding industry has consistently been underestimated and often ignored when it comes to policy and planning. The reality, however, is that SMEs play a vitally important role in the creation of a healthy housing market and the consistent erosion of confidence in the government’s approach to planning, especially for SMEs and first-time buyers, gives great cause for concern. As we welcome in the sixth housing minister in just 12 months, we must look to the current planning consultation for solutions from Whitehall and we are grateful, alongside our partners, to have been contributing to that with the aim of finally finding a workable resolution.”
Kieran Griffin, managing director at Travis Perkins, stated: “The results of the survey have reinforced what we already knew in terms of the challenges we have faced over the last 12 months. There is not a construction business in the country which hasn’t faced significant challenges in terms of increased costs and supply chain issues. Collectively, as an industry, we have been navigating unchartered territory, with major global events significantly impacting prices and availability of a range of materials. We pride ourselves in forging strong relationships with our SME housebuilding clients, which are built over many years. While these have indeed been tested over this challenging period, these relationships are built on strong foundations, and we have continued to work closely with our clients to find solutions.”
by David Khan | Mar 29, 2023 | Advice
Property development is a complex and capital-intensive process that requires significant financial resources. From land acquisition to construction, marketing, and selling, property development requires a lot of capital to successfully execute. Development finance is a critical component of financing property development projects. In this article, we will discuss how development finance helps finance property development.
What Is Development Finance?
Development finance refers to the financing of projects that promote economic growth and development. The primary focus of development finance is on investments that generate positive social and economic returns over a prolonged period. Development finance is usually provided by banks and development finance lenders such as BLG. Development finance lenders are specialised financial institutions that provide financing to support developers.
Development finance can be used to finance a broad range of projects, including infrastructure development, agriculture, education, healthcare, and property development. In the case of real estate development, development finance is provided to support the financing needs of property developers.
Types Of Funding
Residential development finance and commercial development finance are two types of funding options for property development projects. The main difference between them lies in the type of property being developed.
Residential development finance is used for funding residential property development projects such as housing estates, apartment blocks, or single-family homes. On the other hand, commercial development finance is used for funding commercial property development projects such as office buildings, retail centres, hotels, or industrial units. The lending criteria and terms for both types of development finance can differ significantly.
These can then be split further into different types of finance such as mezzanine development finance and stretch senior development finance. This article here can explain these further.
How Development Finance Helps Finance Property Development
There are various ways in which development finance can aid developers. The financing can be structured in a way that allows the developer to acquire land without having to pay the full cost upfront. This can help developers conserve their cash flow and improve their ability to fund other activities.
Land Acquisition
One of the significant challenges facing property developers is acquiring land for development. Land acquisition is often one of the most significant expenses in property development. Often developers require significant financial resources to acquire land for development. Development finance can help property developers acquire land by providing financing for land purchases.
Construction
Construction is another significant cost in property development, and developers require significant financial resources to complete construction projects. Development finance can provide developers with financing for the construction of residential and commercial buildings.
Marketing And Selling
Marketing and selling are critical components of property development. These costs are typically funded out of property sales.
Job Creation
Property development is an essential driver of job creation. Development finance can help property developers create jobs by providing financing for construction activities. The financing can be structured to incentivise the developer to hire local workers and use local materials. This can help create jobs in the local community, which can help promote economic growth and development.
Economic Development
Property development is an essential driver of economic development. Development finance can help finance property development projects that can promote economic development.
Development Finance From BLG
Property development is a critical driver of economic growth and development. However, it requires significant financial resources to successfully execute. Development finance is a critical component of financing property development projects. It allows developers to acquire development land, purchase development rights and cover the costs associated with construction and marketing. With the help of a lender, developers can bring their projects to fruition and grow the economy.
BLG is a principal lender specialising in development loans. Providing both residential and commercial development property finance. Ranging from £1 million to £15 million, with competitive terms over 12 to 24 months. Our financial experts take the time to get to know you and your property development project to ensure you get the right loan. Contact BLG today to start your development journey.
by David Khan | Feb 8, 2023 | Latest News
As the economic outlook continues to change, the current housing market and interest rate environment have had a significant impact on property development finance. With house prices falling and interest rates increasing throughout 2021 and for most of 2022. The pace of which being greater than previously seen in the 2008 global financial crisis. When the Bank of England raised interest rates by 0.75 percentage points to 3% on the 3rd of November, it was the biggest single rise in the cost of borrowing since 1989. However, due to soaring inflation, last week the Bank of England raised interest rates once again to 4%, the 10th rise in a row. Therefore, making mortgages more expensive and higher inflation puts further pressure on mortgage holders and businesses struggling to pay off their loans.
Our managing director Stuart Parfitt comments, “2023 is going to be a tough year generally and there are some macro-economic factors that make any forecasting challenging. However, by Easter 2024 I would expect to see the mood to be more positive”.
How SME Enquiries Have Been Affected
Stuart comments on how enquiries have fluctuated from SMEs looking for loans. “The turmoil after the Truss/Kwarteng budget appeared to cause enquiries to stagnate but as markets have normalised the enquiry flow has improved. Planning delays continue to represent the main hurdle to increased house building and development lending activity. Although appraisals are now factoring in higher interest rates and flat or decreasing future house prices, putting downward pressure on land values. Land sellers are beginning to accept this is a new reality.”
Type Of Developments BLG Support
Although the average house prices and rises in interest rates are falling, BLG’s lending profile remains unchanged. With the main focus being on standard housebuilding and unit values from £250,000 up to £750,000. Alongside SME developers that can generally bring equity of around 20%. Parfitt adds, “Houses are slightly preferred over apartments but as long as the location supports flat buyers, we are happy to support a suitable scheme. Most regions are acceptable but with build cost inflation we are starting to see appraisals where construction costs exceed 60% of sales values in more remote or areas of lower economic activity”.
Contact our financial experts today who can talk you through your options. They will take the time to get to know you and your aims.
by David Khan | Jan 17, 2023 | Advice
The S&P Global/CIPS UK Construction Purchasing Managers’ Index has shown a huge decrease in activity within the construction sector. Finding the activity had fallen to an index score of 48.8 in December 2022. This was down from 50.4 in November. To put this in perspective any score below 50 represents a contraction in output. Whilst above 50 represents growth.
This, therefore, marks the end of a three-month period of growth within the sector. December is the first time that housebuilding activity has declined since August. This is the fastest decline since May 2020, during the first covid lockdown.
Housing Experts Comment
John Glen, the chief economist at CIPS, commented “The construction sector was stuck in the mud in December with the steepest fall in activity since the beginning of the pandemic in May 2020 and a similarly fast drop in pipelines of new work.” He explains that supply chain managers have “reined back spending” on building materials. This is reportedly the steepest fall in buying behaviour for over two and a half years. Glen also added that “Builders were reining back on recruitment unconvinced there will be enough growth in the UK economy in 2023 to justify additional expenditure when margins remained so squeezed. Builders are fast running out of the resilient spirit maintained over the last couple of years as the blocks to success piled up and the winter of discontent, with high inflation, strikes and shortages, continues”.
Lewis Cooper, S&P Global Market Intelligence economist stated that it was a “poor finish” to 2022 for the UK construction sector. “With the outlook turning negative, staffing levels declined for the first time since the start of 2021 in December. The data shows that companies are preparing to face significant challenges in the months ahead,” he stated.
Further Challenges
Although there were falls in activity the average lead times are at the highest since June. Industry experts have stated this is due to product shortages and shipping issues. In addition, construction costs increasing due to energy prices, materials, and fuel costs.
Scape chief executive Mark Robinson comments “The construction industry is braced for a tough year and, while there are positive signs that inflation has peaked, increased material costs will undoubtedly continue to shape the plans of developers and local authorities – that latter of which will be confirming their annual budgets this month,” he said. Maintaining clear, positive dialogue in 2023 will be crucial if projects are to progress uninhibited, and calm and cautious management will likely pay dividends further down the line when purchasing decisions are ready to accelerate again.”
Furthermore, the Bank of England’s interest rates have been rising steeply. These have now hit a 14-year high in December with a rate of 3.5%. According to Halifax, the average house price in the UK fell for the fourth month in a row in December, dropping by 1.5% compared to November. Halifax Mortgages director Kim Kinnaird commented “Some potential home moves have been paused as buyers feel increased pressure on affordability. And industry data continues to suggest many buyers and sellers are taking stock while the market continues to stabilise”. Last month Halifax forecast an 8% house price fall for 2023.
How Development Finance Could Help
Development finance is short-term funding for large-scale property development and construction projects. It can be used to fund the purchase of land as well as building costs. If you are struggling with the current economic climate and need further support to start your development project, BLG is here for you.
We are a leading principal lending specialist in property development finance, we are positioned to help you. Providing residential and commercial finance ranging from £1 million to £15 million we have the ideal skill set to lend and advise. Priding ourselves on fast decisions and flexible terms we can aid you through these turbulent times.
Contact our financial experts today who will take the time to get to know you and your aims.
by David Khan | Dec 8, 2022 | Latest News
It is widely reported that the construction and development sector has one of the largest business footprints. Construction building is accountable for around 40% of all global energy consumption. In addition to 23% of air pollution, 40% of drinking water pollution, and 50% of landfill waste. Cement alone is a high contributor, accounting for around 8% of global carbon emissions. Every construction step has an impact on the environment. From the materials and technology used as well as the construction sites built. As a result, many experts are calling for the construction sector to act and move towards an ESG framework.
What Is ESG?
ESG is a collective term made up of three components: environmental, social, and governance. All of which measure a business’ impact on society, and the environment, and how transparent and accountable they are. In addition to how robust and transparent its governance is – this is in terms of company leadership, executive pay, audits, internal controls, and shareholder rights.
What Does This Mean For The Construction & Development Industry?
Within the construction industry and for SME developers there are key considerations that need to be looked at under an ESG framework:
Many current ESG requirements are outlined within Building Control requirements.
Why Implement ESG Principles?
According to CBI the UK’s premier business organisation, two-thirds of investors consider ESG factors when investing in a company. Thus, they are looking at not only the growth of the business but also the impact on the environment and community. Additionally, PwC reported that over two-thirds of customers would buy from companies that support ESG initiatives with customers more willing to pay more for greener products. Lastly, research conducted by LinkedIn found that 71% of professionals would be willing to take a pay cut in order to work with a company that shares their values. In addition, 39% would leave their current role if their employer were to ask them to do something that was against their morals. Therefore, even for SME developers, companies who adopt an ESG framework can benefit greatly. Including reducing risks, securing investments, lowering costs, and increasing reputation leading to more new customers.
How To Implement ESG For SME Developers
Implementing ESG as an SME builder comprises a three part process:
- Firstly, a business has to measure and understand its current impacts such as carbon emissions. British Business Bank has summarised some steps on how to measure ESG. These include deciding what to measure, gathering the information, and including stakeholders.
- Based on this analysis, a business then has to outline goals and ways in which to improve these. Such as reducing energy use or improving employee well-being.
- The next step is to roll out the ESG program to your company to improve the overall baseline and impacts.
Although every business is unique in the way it operates and is set up, there are some core principles that can be followed. British Business Bank has outlined them here. These include creating a team, investment, measuring, and communication.
One important factor to consider is that ESG is here to stay and many lenders will start having ESG criteria and metrics for their borrowers.
