SME housebuilding to enter new ‘golden age’.



Small housebuilders will deliver 70,000 homes over the coming decade as competition ramps and funding improves.

That’s according to broker Mortgages For Business, which found that mortgage lenders are doing more for smaller developers, as there are currently 52% more development finance lenders than in 2016.

What’s more, in the past five years almost 40 lenders have either started to offer development finance or have come to the market for the first time.

Paul Keddy, head of Mortgages for Business’ specialist development finance desk, said: “The process has already started. In the last five years, the number of lenders offering development finance has increased by more than half.

“Encouragingly the majority of these new lenders are for developers with relatively smaller deposits – companies looking to build six properties on a patch of land, rather than hundreds.

“The increased competition means lenders battle it out to top the tables, meaning developers are being offered increasingly competitive deals. That is set to have a direct effect on the number of new homes built in the next year or two – it will turbo-charge SME housebuilding.”

There’s been talk of larger housebuilders having too big a hold on the UK housing market in the past few years, while they are often accused of slowly drip-feeding new stock into the market to keep house prices high.

In the 1980s small builders were responsible for 40% of the homes being built, compared with just 12% in the UK today.

In the year 1988/89, for example, SME developers started work on building approximately 88,000 dwellings in England. By 2019/20 SME developers started work on building approximately 17,000.

Lack of SME funding has been a big factor behind this decrease.

Keddy added: “Over the last three years, but in the last 15 in particular, it’s been getting harder to access finance.

“Housebuilders looking to borrow between £2m and £5m can struggle the most to unlock funding.

“And you can’t build, build, build if you don’t have the money. On the other hand, small sites are consistently efficient in their delivery of new homes. Developers are crying out for the funding they need and, at last, it’s available.

“Given access to finance, we could be seeing the start of a new golden age for SME housing development – with the sector starting another 70,000 homes in the UK. This is not pie-in-the-sky stuff.

“This is what SME developers have been delivering within the space of my career. We are being conservative with our growth plans and we still expect to triple the number of development finance loans we write across our development finance desk in the next 12 months.”

Non-bank lenders make up a major proportion of SME development lending today, as major banks have become more nervous about operating in the market.

This process was accelerated by the pandemic.

In 2008 the biggest 40 lenders in the space were all bank lenders.

However today’s banks make up approximately 15% of the biggest 40 lenders in the development finance space.

Given that there are fewer recognisable brands, this means choosing the right lender can be tougher – however the strong competition means rates terms are likely to be progressively more favourable in the years ahead.

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