In the last decade, the UK has seen nine housing ministers, a financial crash that hit the property sector hard and countless promises by government to put more homes on British streets. In among this change, the finance landscape for developers has become beset by obstacles as traditional lenders increasingly close their doors to those seeking funds for projects.
In plans laid out to the public in September, Gavin Barwell MP, the government’s new housing minister, committed to include the provision of rental accommodation in its target to build 200,000 starter homes by the end of the decade. This effort to refocus the government’s pledge was not surprising, considering Theresa May’s comprehensive overhaul of Conservative infrastructural policy.
The housing minister’s speech played to the prime minister’s tune of pragmatism and productivity as he outlined how government priorities are shifting from a measured objective to increase homeownership to the provision of homes through diverse tenure arrangements.
It is welcoming news to hear that this government seeks to balance efforts to increase the number of homeowners with measures to increase affordability for all. By promoting the role of developers in the private rented sector, Barwell has gone some way to demonstrate what is meant by a renewed industrial policy: a focus on supply. This offers a significant opportunity for alternative lenders to drive momentum behind small-scale developers’ efforts to increase housing capacity.
The effects of the housing crisis will only be alleviated if policy initiatives from the Department for Communities and Local Government and Number 10 are matched with action that is co-ordinated with a wide range of industry players. Barwell called for the release of institutional funds to the PRS, touching upon the crucial role of development finance in getting projects off the ground.
If supply is to be increased, developers will require support to access the funds needed to see projects through to completion. Since the financial crash, this has become a real issue for SME developers whose opportunities to access finance from mainstream lenders have sharply decreased.
Banks and building societies once dominated the housebuilding finance market, but their share has shrunk by more than 20 per cent since 2008. Many of these organisations’ appetites for lending has been stymied by the shockwaves still felt by the credit crunch, while, for others, their capital adequacy requirements make development finance a less than attractive prospect.
Non-bank lenders are now plugging that finance gap, with lower operating costs and significantly less burdensome capital requirements. By the end of 2014, alternative lenders and debt finance providers were servicing 14 percent of the development market, proving a clear need in the industry for swift and affordable finance. This trend is only set to grow.
LendInvest, the UK’s leading online mortgage lender, is building technology that makes it easier and faster for creditworthy, professional borrowers to access mortgage finance, and gives more people access to invest in property finance. By extending the availability of finance, we seek to scale out the market to allow a greater number of small-scale developers to access and utilise finance.
As development finance is increasingly provided by non-bank lenders, the government should explore how partnerships with alternative lenders, both locally and mandated by central government, can underline stimulus for housebuilding in a comprehensive industrial strategy.
The housing minister has made the right move in diversifying the housing supply remedy to include a greater number of initiatives. In order to provide the one million homes the Conservatives promised to deliver in their 2015 manifesto, Barwell will need to call on the new generation of development finance businesses to help increase the UK’s housing stock.
Ian Thomas is a co-founder of LendInvest, the online platform for property lending and investing