Specialist finance needs to fuel innovation from small developers – Lucy Hodge

by: Lucy Hodge, managing director, Vantage Finance
  • 02/03/2017
  • 0
Specialist finance needs to fuel innovation from small developers – Lucy Hodge
The arrival of the government's long-awaited housing white paper earlier this month has left me hopeful but, if I'm completely honest, slightly lacking in confidence that anything is going to change in the immediate future.

The paper, which had been billed as a government manifesto on how to fix the growing housing crisis faced by Britain, was really more of an assessment of the problems we face. Solutions were rather thin on the ground in practice.

That said, it is definitely progress to see a government engage with our sector to this degree and there were one or two policy proposals that were encouraging.

We carry out regular research among the UK’s specialist lenders and have just published our latest Vantage Point Report. In it, we confirmed what has been said anecdotally for the past 12 months or so – specialist lenders are increasingly offering development finance to property professionals.

In fact, over the next 12 months, 60% of lenders believe development finance will see the most significant growth rate in specialist lending – partly due to specialist lenders diversifying.

With so much change in the air, there is a real opportunity for specialist lenders to develop innovative offerings. We are already seeing this and the focus on development is no surprise. While development is a complex area of the specialist market, it can be a natural progression for lenders used to doing heavy or complex refurbishment deals already.

But there remains a real need for more finance options in this sector – the lack of housing in the UK is well-known and funding for smaller developers remains under pressure.

This is why it was encouraging to see the government raise exactly this point in its white paper. Its own analysis suggests that nearly 60% of all new homes are built by just 10 big builders.

They want to change this by encouraging smaller developers who they hope will use modern methods of construction to speed up how quickly homes are built.

The problem is, we know the larger lenders simply don’t look at smaller developments. But that doesn’t make them unviable. Specialist lenders are already picking up the slack in this area and despite some lenders voicing concern through our research that some less scrupulous lenders will cut underwriting corners, this isn’t something we are seeing.

We have seen some sensible readjustments in the single high-value central London asset space and some development finance lenders taking a more cautious approach post-Brexit and through the various buy-to-let changes.

I think we are seeing a subtle but encouraging growth in sustainability of the sector – now we just need to see some action off the back of the government’s admission that this sector needs more support.

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