‘Difficult and frustrating’ high street lending turning SME builders to bridging – Hersch
The UK Government has decided that it’s time to “fix our broken housing market” and the latest response to the Housing White Paper consultation illustrates its determination to do so.
In January, the Department for Communities and Local Government became the Ministry of Housing, Communities and Local Government headed up by the Sajid Javid, who has been very positive in setting out its objectives.
The 2017 Budget underlined this by setting a target of 300,000 new homes a year. In the Spring Statement, more initiatives were mentioned.
Among other things, the white paper set out proposals to smaller and medium-size builders as well as attracting investors into developing homes for rent as well as for sale.
On the other hand, tax treatment now actively discourages individual property investors from borrowing in order to buy investment property.
Of course, many have decided to purchase property using corporate vehicles, but this is not always appropriate.
High street frustrations
In an environment where social housing is unlikely to provide for the bulk of housing requirements and where the prices of affordable homes are unlikely to drop significantly, the private sector needs to be encouraged not only to develop new residential property, but also to improve and regenerate the existing stock of homes.
However, some of the housing stock is in poor condition and there is a need to focus on improving the quality of these homes as a short-term fix while development gets underway.
The bridging industry has long been actively funding this type of refurbishment.
Although well-established firms may be able to source funding for construction from traditional sources, many SME housebuilders are finding this difficult, time-consuming and frustrating.
Development funding growth
Many are turning to the alternative funding market for help, with challenger banks and short-term lenders actively supporting smaller building firms.
While the finance provided may cost more than from high street institutions, this can be accounted for as part of the cost of construction.
Once the project is completed, there is the potential for the property to either be sold or refinanced on a long-term basis.
Members of the Association of Short Term Lenders are increasingly providing development funding in addition to their light refurbishment funding products.
In the data survey for Q4 2017, members provided £319.3m of development funding and this is expected to increase in 2018.
The approach by lenders who evaluate each case on its merit provides developers and investors with the assurance that funds will be there when needed, without unnecessary delays.