The number of small and medium-sized housebuilders (firms that produce 100 units or less every year) has fallen from more than 12,000 in the mid-1980s to around 2,400 today.
According to a 2017 Home Builders Federation report, small builders are responsible for just 12% of homes being built in the UK today, compared with 40% in the 1980s, with lack of funding for SME property developers one of the key reasons. Availability and terms of financing for residential development have become extremely difficult for small housebuilding companies over the past decade or so.
Lenders have drastically changed their attitudes to the construction sector since the 2008-09 financial crisis and, while small sites are consistently efficient in their delivery of new homes across multiple market areas, small housebuilders often struggle the most to unlock funding.
How can the UK reverse this decline in the number of small housebuilders? Alternative lenders can and must be part of the solution to the UK housing crisis.
The core role of alternative lenders in channelling much-needed finance to the construction sector was evidenced throughout 2020 when the pandemic meant many traditional lenders were busy trying to administer the Coronavirus Business Interruption Loan Scheme (CBILS).
Agility and other advantages
Since then, the case for alternative finance has become increasingly compelling, at a time when banks have continued to tighten their credit criteria and had to face increased regulations and capital adequacy ratios restricting their lending capabilities.
With their nimble set-ups, dynamic lending criteria and use of technology, alternative lenders can serve borrowers who have grown accustomed to faster, better and simpler processes.
In a market like property where time is money and winning a deal may depend on the lender’s ability to move quickly, speed is one of alternative lenders’ key selling points. Online processes help speed everything up. For example, at Blend Network we recently funded a £1.7m loan in just six minutes and the money was in the borrower’s account within a few days.
The ability to provide higher gearing than traditional lenders is another major selling point for alternative lenders. We offer up to 68% loan-to-gross development finance. This is important in the property sector, where developers are often asset-rich and cash-poor and look to borrow as much as possible against their assets.
Alternative lenders’ flexible and individual approach to lending also means they are often happy to fund quirky, not-off-the-shelf deals that traditional lenders wouldn’t typically fund. In other words, alternative lenders do not go through a box-ticking exercise.
The case for alternative finance has become compelling. The time is ripe for the government to bring alternative lenders into the fold to solve the housing supply crisis and achieve its 300,000-unit annual housebuilding targets.
Yann Murciano is chief executive of Blend Network