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 | 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 5, 2022 | Advice
Following our previous blog “Help To Buy Scheme To End” there have been further developments. Housing minister Lucy Frazer has confirmed that the practical completion deadline has been extended by one month.
This has come from the construction industry explaining the various delays outside the home builder’s control. This includes supply chain and labour issues and thus a number of reservations would be at risk of missing the government’s Help to Buy deadline.
Therefore, if a property is going to miss the original Practical Completion date of the 31st of December 2022, this has now been extended to the 31st of January 2023. This forbearance is only available to customers who already have an Authority to Proceed (ATP) or Authority to Exchange (ATE) in progress. No cancelled applications will be reinstated, and no new or additional reservations can be submitted. Additionally, the clause of this is developers have to notify Homes England (in writing) by 20th of December 2022.
Home Builders Federation has commented “Homes England will shortly contact all developers with an active reservation, notifying them of the amended first longstop date. As part of the correspondence, developers will receive access to an online form requiring details of each individual reservation that will make use of the additional forbearance period. There will be no extension to the deadline for this correspondence of December 20, 2022.”
However, the final legal completion deadline of 31st of March 31, 2023, still stands, as confirmed by Lucy Frazer.
by David Khan | Nov 30, 2022 | Advice
The Government’s application deadline for Help to Buy: Equity Loan Schemes has now closed (31st October 2022). This now means that by the 31st of March 2023, any first-time buyers must have legally completed their property. Homebuyers are expected to have the keys to their home by 6 pm. Homebuilders must tell homebuyers in advance if they cannot meet these dates. If these are not met, they will not be eligible to use the equity loan.
Originally launched in 2013 for first-time buyers of new-build homes to help them onto the property ladder. First-time buyers based in England who put down a deposit of at least 5% of the cost of the property, could use the scheme to borrow up to 20% of a property’s price. This was from the UK Government and interest-free for the first five years. Helping the buyer stretch their budget as well as access mortgages with cheaper interest rates.
Numbers released by the UK Government revealed over 55,000 households bought their home with the support of the Help to Buy: equity loan in the financial year 2020-21. Since its inception in 2013, more than 355,000 new-build properties have been bought with the help of an equity loan. The Home Builders Federation (HBF) states the scheme has generated about £60 billion in economic activity. The number of homes built in England went up from 110,530 in the year to June 2013 to 183,450. In total, the value of these equity loans has reached over £22 billion, with the value of the properties sold under the scheme going past the £90 billion mark.
However, the UK Government has stated that there are no plans to extend or replace the scheme when it ends.
The Impact Upon Home Builders
Under the terms of the Help to Buy: Equity Loan Funding Administration Agreement, homebuilders are required to reach Practical Completion by 31st of December 2022. This might mean considering the number of working days during December to ensure the deadline is met.
If this date cannot be met, the homebuilder must tell the buyer in advance and return their reservation fee in full. You must also tell your Help to Buy agent and contact the Help to Buy Claims team by email at [email protected].
Furthermore, if the homebuilder has exchanged, they must also unconditionally release the homebuyer from the contract and return their deposit. There is no deadline for exchange, but homebuyers must legally complete it on or before the 31st of March 2023.
Lastly, the removal of advertising is the responsibility of the home builder. Any marketing activities or advertising boards, for instance, need to be stopped and removed. Any costs that are incurred due to this are the responsibility of the home builder.
Is Now The Right Time?
Neil Jefferson, managing director of the HBF, believes that Help to Buy has been one of “the most successful government home ownership interventions in history and handsomely delivered on all its pre-set objectives. For the first time in decades, there is now no government scheme in place to support first-time buyers to purchase new homes at a time when political and economic instability has seen mortgage availability challenged”.
The National Federation of Builders (NFB) also does not believe this is a good time to end the scheme. Rico Wojtulewicz, head of housing and planning policy, says: “We have lobbied the government to keep Help to Buy and reform it in a way to ensure it supports certain criteria, such as higher energy-efficient housing, on smaller plot sizes of houses only, or to help specific people who struggle the most to borrow, such as families needing bigger homes or single people.”
Experts within the industry believe that no scheme will lead to a drop in the number of homes built. In addition to the impact on social housing in terms of wannabe buyers having to spend longer in rented housing to consider. A survey conducted by the Royal Institution of Chartered Surveyors has already started to see this trend of the letting market growing. Struggles with money will increase and many people will be left with the choice of staying at home, “bank of Mum and Dad”, shared housing, or renting if possible. Leading to another struggle for first-time guys getting on the housing ladder. Wojtulewicz explains: “With fewer people being able to access mortgages, the housing crisis will no doubt worsen as people continue to pay more in rent, live with parents longer or in overcrowded homes”. Housing Today believes “the government should not back away from its manifesto pledge of building 300,000 new homes a year by the middle of the decade. We badly need more homes, and a lack of supply is a major factor in creating problems of affordability for both buyers and renters”.
by Peter Wade | Jul 19, 2022 | Latest News, Advice
“It’s a truth universally acknowledged” to borrow a phrase, that Britain’s planning system is broken. Problem is nobody knows how to fix it, so here’s my 10 pence worth.
Increase Planning Fees – there you go – that’s going to be popular! But hear me out.
Britain needs a professional Planning Agency, properly resourced with its own budget independent of Local Authority funding. There is no way the public purse is going to finance that and nor should it – it has to be funded from planning fees. And planning fees will increase as a result BUT and it’s a big BUT, an independent Agency run on professional lines would have professional service standards and the interminable delays would be driven out.
The argument against a Professional Planning Agency is that it would be under central control and lose the link with local politics. But that need not be the case, a substantial amount of planning work is administrative. Reviewing applications for compliance with Strategic Plans and Planning Legislation, reference and negotiation with statutory bodies, reviewing planning pre-commencement conditions, to name but a few. These in theory have service standards, however in practice those standards are impotent. We need to divorce decisioning from administration and at least resource the administration properly so that service standards can be achieved.
And the cost – well it will cost more, the question is whether the efficiency gains are worth the cost – I believe they would be but would welcome stakeholder feedback.
Stuart Parfitt, Managing Director, BLG Development Finance
