Many smaller housebuilders are finding it difficult to obtain funding as banks are reluctant to lend to them, new research from the Federation of Master Builders has found. They argue that this is not only damaging smaller builders but it is also worsening the chronic housing shortage the UK is currently dealing with.
Why are small housebuilders struggling?
Nearly half of all small builders have reported to the Federation of Master Builders that sites which they are working on or interested in had stalled amid a lack of funding available and 54% claimed that lack of finance was one of the biggest constraints on their house building ability. To address the housing shortage, small builders are seen as vital as they are likely to buy plots of land larger developers ignore.
Banks have pulled back lending to housebuilders since the financial crisis in 2008/09 putting in place a stricter lending criteria which requires developers to have a high level of capital. This is difficult for small builders to achieve as they are not likely to have a large land bank and they will also usually have less cash available to them.
Chief executive of the Federation of Master Builders, Brian Berry, commented on the findings; “Banks are doing the bare minimum in trying to help… They tightened up their lending criteria and have adopted a blanket approach where they treat all small and medium-sized housebuilders as high-risk.”
But if you are a small or medium-sized housebuilder, there are lenders who specialise in property development finance to help with the development and building of residential and commercial properties.
Property development finance is popular for property developers, housebuilders and investors who will need access to finance in order to ensure the smooth running of their project. Whether you are building a new property, refurbishing current residential property or converting a building, lenders who work in property development finance work with developers and housebuilders to provide them with the finance they need.
For new build schemes, lenders look at the gross development value (GDV) of the scheme for how much they will let you borrow. The GDV is an estimate of what the development project may be worth on the open market once all development works have been completed and takes into account the value of the land, as well as the value added by the development.
Lenders will then work out a percentage which they will let you borrow based on risk and your history. These property development loans allow small and medium sized companies to access the finance they require to complete projects, build up their portfolio and help to tackle the housing crisis in the UK.
If you are a developer or a construction company looking for finance, such as property development finance, get in touch with us on 0800 084 3923. Our initial advisers and consultants work hard to find the best deal for your business based on its needs and current financial situation.