We’ve come a long way, but not far enough
In some respects we’ve come a long way since we published our first report into the conditions facing SME housebuilders in early 2017. We’ve had a Housing White Paper from the government that recognised the essential role played by small housebuilders and property investors. Promising to “fix the broken housing market”, it paved the way for the pledges made later in the year by the Chancellor and the Prime Minister, who in particular promised to dedicate her premiership to the issue.
In many other ways, little progress has been made.
The landscape looks alarmingly familiar a year on for small property businesses developing, refurbishing and investing in homes up and down the country. While housing is now an ever more common topic for debate between politicians, these SMEs are still struggling to secure financial backing for their projects to increase housing supply.
Understanding the problem
More than half of all SMEs still cite access to finance as a major challenge to delivering more homes.
A squeeze on skilled workers and the challenges of the planning system matter little to aspiring home builders who cannot secure the funding to get a project off the ground in the first place. With not one of the top ten housebuilders being founded after 1990, it is clear that there is a growth impediment for small property businesses.
Banks hesitating to lend to SMEs as a response to regulatory pressure, capital requirements and the fallout of the financial crisis continues to limit where SME housebuilders can source finance from.
Alternative finance as a viable route
In many ways it is now the non-bank alternative lenders, like LendInvest, that are investing in the future of the nation’s property entrepreneurs, who in turn invest in new and improved housing stock.
We know that the answer to the housing crisis is by starting small to build more homes, which is why we’ve made it our mission to reinvent property finance for entrepreneurs and small businesses.
As the finance ecosystem evolves, alternative lenders are playing a vital role in maintaining the flow of funds to SMEs in all sectors. The Basel III framework has been responsible for a shift change in the provision of development finance to small housebuilders.
Not dealing with the burden of legacy loan books and regulatory constraint, it is the alternative lending sector that has established a permanent place in the property SME value chain, as well as contributing to the growth of the UK economy. Spreading portfolio risk across a greater number of specialist lenders is an investment in the UK financial industry’s health too.
A collaborative effort
However, to encourage property entrepreneurs to get building, all stakeholders, including government, must exploit the opportunity presented by new business models and technologies to improve the deployment of finance to these small businesses.
Restoring a vibrant SME housebuilding sector is a central ambition of this government, but so too must ministers recognise the scale of opportunity presented by alternative finance to enrich the housing sector by financing the complex, niche or custom developments and regenerations.
The government should channel its finance products through alternative lenders and empower local authorities to back the new generation of builders.
Excerpt from Christian Faes’ forward in ‘Putting Finance First: The alternative route to funding Britain’s SME housebuilders’. This report calls on the UK government to forge better partnerships with the alternative finance industry to widen and accelerate access to finance for Britain’s small and medium-sized property investors and developers.
Click here to read the full report.