Britan’s housing crisis is nothing new; throughout most of the country, demand has far surpassed supply. In practical terms, this looks like a shortage of 2.5 million homes, which means we need 550,000 new homes a year for the next five years to plug the hole.
The UK’s new Housing Minister, Angela Rayner’s mission to ‘get Britain building’ – the leading charge of Labour’s election campaign – therefore feels more pressing than ever.
Indeed, it is no small feat. Achieving these goals will take significant strategic investment and planning from the private and public sector alike.
Breaking down obstacles to housebuilding
Being ‘builders, not blockers’ was another key commitment from Labour, with the party targeting important reforms to the planning system.
Firstly, the process itself is being accelerated, with 300 new planners recruited. Also targeted is the UK’s ‘grey belt’, in other words the parts of the green belt with low quality land. These locations will be unlocked for development to ensure councils can permit new housebuilding projects.
The impact? A projected 1.5 million new homes by 2030, bolstered by the reintroduction of local councils having mandated housebuilding goals.
Policy changes alone will not be enough to hit this lofty goal, however. The private sector, most notably developers, will be instrumental to carrying out the construction – which in of itself may present some teething issues.
Uncertainty to whether homes built will sell may make developers reluctant to break ground on new projects. Indeed, restricted mortgage availability is the one of the most significant obstacles preventing small house builders from delivering new supply.
Building confidence among developers
Assuring developers that greater production of supply will be rewarded with matched demand is therefore a critical step.
The specialist finance can have a powerful impact at this stage by opening up the market. Buyers traditionally underserved by the mainstream lending markets, such as international investors or buyers with complex financial backgrounds, can access loans from specialist lenders. This means a wider selection of prospective homebuyers, increasing the number of people willing to buy any new property that a developer delivers.
Spurred on by this boosted buyer activity, market confidence from developers is likely to follow, laying the foundation for increased homebuilding.
Minimising extension costs and unlocking vital capital
But that’s not the only way in which specialist lenders can help. They can also give developers extra time to finish their projects without pressuring them to sell units at lower prices to meet payment deadlines.
Development exit loans are often used to settle the initial financing taken by developers to fund housing projects. Enabling the repayment of this initial financing without penalties, exit loans grant developers additional time to complete their projects. As a result, developers maximise returns on their original investments, with many lenders allowing gradual repayments of loans as and when individual units are sold.
In other cases, even if a project is progressing on schedule, lenders can provide financing to free up capital from an ongoing project. Particularly effective for accelerating the pace of housebuilding projects, this capital can then be invested in new developments, avoiding delays that might arise from waiting for units to sell.
Keeping housebuilding projects moving
One challenge that developers often face is running out of funds before a project is finished, an issue that has grown with increasing material and labour costs. According to the Federation of Master Builders (FMB), nearly half (42%) of small home builders cite limited access to funding as a major obstacle.
Whether due to economic shifts or supply chain disruptions, delays are common on development projects, often stalling the positive effect that new projects can have in stabilising local housing markets.
In response to this, the government has recognised the need to get unfinished projects over the line and onto the market. The Chancellor, for instance, identified several sites across England that will be revitalised to create 14,000 new homes, an initiative announced soon after Labour took office. In this respect, specialist financing is essential to increasing the housing stock in the UK.
Those projects facing mid-construction stalls can benefit from exit loans to help plug the financing gap between project completion, long-term funding solutions, or unit sales. They can also be used to sidestep extension fees on a developer’s initial loan, thereby preserving profit margins.
Making housebuilding a more appealing venture for developers is an essential step in solving the housing shortage. As developers are crucial to home construction, it is only logical that they need the right support and assurance to keep building – fortunately, the specialist finance sector can provide it.
Merely reforming planning regulations will not suffice – development exit financing is the missing piece of the puzzle, and specialist lenders need to embrace a flexible lending approach if they want to contribute to a fairer housing market.
