COMMENT Small and medium-sized housebuilders, defined as those that produce 100 units or less every year, have fallen in number from over 12,000 in the mid-1980s to approximately 2,400 today.
According to the Home Builders Federation, small builders are responsible for just 12% of homes being built in the UK today compared with 40% in the 1980s, with lack of funding for SME property developers cited as one of the key reasons.
Availability and terms of financing for residential development has become extremely difficult for small housebuilding companies over the past decade or so. Lenders have drastically changed their attitudes to the construction sector since the 2008-09 financial crisis and, although small sites are consistently efficient in their delivery of new homes across multiple market areas, these are often the ones that struggle most to unlock funding.
Reversing the decline
How can the UK reverse the decline in the number of small housebuilders? Can alternative lenders help?
The answer is that alternative lenders can and must be part of the solution to the UK’s deep housing crisis that is preventing so many people from getting their foot on the property ladder.
The role of alternative lenders in channeling much-needed finance to the construction sector was evident throughout 2020 when the pandemic meant many traditional lenders were busy trying to administer the Coronavirus Business Interruption Loan Scheme. Since then, the case for alternative finance has become increasingly compelling at a time when banks have continued to tighten their credit criteria and have had to face increased regulations and capital adequacy ratios restricting their lending capabilities.
With a nimble set-up, dynamic lending criteria and sharp use of technology, alternative lenders are able to serve borrowers who have grown accustomed to faster, better and simpler processes.
In a property market where time is money and winning a deal may depend on the lender’s ability to move quickly, speed is one of alternative lenders’ key selling points. Their online process and technology bandwidth can help speed everything up.
We recently funded a £1.7m loan in just six minutes and the money was in the borrower’s account within the next few days.
No box ticking
Their ability to provide higher gearing compared to traditional lenders is another major selling point in the case for alternantive lenders. We currently offer up to 68% loan-to-gross development finance. This is especially important in the property sector, where developers are often asset-rich and cash-poor, looking to borrow as much as possible against their assets.
Furthermore, alternative lenders’ flexible and individual approach to lending means they are often happy to fund quirky, non-off-the-shelf deals that traditional lenders wouldn’t typically fund. In other words, alternative lenders do not go through a box-ticking exercise.
The case for alternative finance has become increasingly compelling, and I strongly believe the time is ripe for the government to bring alternative lenders into the fold to solve housing supply crisis and help achieve its 300,000 unit annual housebuilding targets.
Roxana Mohammadian-Molina, chief strategy officer, Blend Network
