Brokers and lenders are calling on the government to provide more support for small and medium sized housebuilders as a means of boosting the supply of new homes.
Six out of 10 (61 per cent) of mortgage lenders and 57 per cent of brokers believe greater government support for SME builders would help address the supply shortage, according to the Intermediary Mortgage Lenders Association (Imla).
Difficulty obtaining finance is one of the main obstacles faced by SME lenders, with 20 per cent saying it was their biggest concern in a report by the National House Building Council Foundation, entitled Small house builders and developers: Current challenges to growth.
The cost of finance, the availability of finance, and unfavourable loan-to-asset ratios were some of the main issues highlighted by SMEs.
Imla’s research among lenders found that they view a higher risk of builder default as the biggest challenge when it comes to providing development finance, with 44 per cent of lenders identifying this as a key problem.
Meanwhile, 35 per cent of lenders said a key issue was a lack of builder appetite for traditional models of debt due to a preference for mezzanine finance.
Official estimates suggest the UK needs to build between 225,000 and 275,000 new homes every year to keep pace with demand – a far greater number than the average of 160,000 homes per year that have been built since the 1970s.
Imla, which was highly critical of the government’s recent Housing White Paper, is urging policymakers to support the growth of development finance as a means of addressing the housing crisis.
The organisation has proposed a government-backed guarantee of loans to SME builders, as well as further support for lending to SME builders through loans via the British Business Bank.
Peter Williams, executive director of Imla, said: “Imla’s research reveals that the mortgage industry clearly feels that supporting development finance lending to SME builders and developers would help increase housing output.
“Successive governments have struggled to meet housebuilding targets, and the lack of solutions offered by the incumbent government in its Housing White Paper shows there is a need for new ideas.
"Imla is therefore calling on policymakers to explore how they can boost development finance lending.”
But Liz Syms, chief executive at Greater London-based Connect Mortgages, said government schemes are not necessarily needed as they tend to distort the market.
She said: “Over the past year there have been a large number of new lenders coming into the development finance space who obviously recognise the need of smaller house builders and individual developers.
"A number of bridging lenders and other specialist lenders are starting to lend to developers providing alternative funding, so SME builders already have a growing number of options.
"At one end of the scale you have the high street banks who lend on the more cautious schemes with development finance rates as low as 3.5 per cent; at the other end we have got a raft of smaller, innovative lenders who are more pro risk but understand how to price for that risk so their rates will be 6 to 8 per cent plus.
“While it is important to keep exploring other options, there is a lot of finance out there already for builders who know where to look. The key is using a broker or a packager who really understands the development finance market and the whole range of options that are available.”
simon.allin@ft.com
