On development: ‘That this is a growing market is unquestionable’ – Liz Syms

The investigation into land banking, kicked off after the Budget, may well result in builders having to either quickly start developing the land they are sitting on or sell it off.

This land is usually held by the larger house builders, and sometimes even other organisations such as supermarkets. It looks like the key focus will be land that has already been granted planning permission but has not been developed.

While the findings of the investigation won’t be revealed until the Spring Statement, it could result in instant measures on those hoarding land.

This could be good news for the smaller developer as it may well result in parcels of land with planning permission being sold off either shortly before or after the statement. It may also result in the government bringing in maximum timescales for a builder to develop the land after receiving planning permission.

Financing development

For the smaller developer this could mean that rapid access to development finance is essential.  This could give them a much-needed edge over the larger housebuilder as smaller developers are also more likely to start on a project immediately and see it through to completion. Often focusing on only one project at a time, not several.

Over 2017 there has been a growing number of lenders offering development finance. Some are set up purely to focus on development, others are bridging lenders or other types of lenders who have seen the opportunity to branch out into development.

Rates vary, but as with all types of specialist lending, rates can become one of the least important factors. Speed, amount of loan, proportion of build cost and flexibility can end up being far more important. Depending on the needs of the developer and how experienced they are, sometimes the experienced lender will also offer the developer other help or guidance, too.

Growing market

For brokers just going into this area it can be quite a departure from what they are used to, of course. Often money is advanced in tranches and the development lender will work from the GDV (gross development value) and the costs of the build to ensure that the project can be completed, and the loan exited.

Some development loans are based on more nebulous things such as the experience of the developer, while as with the mainstream market some lenders will only deal with residential developments, others with commercial or semi-commercial.

That this is a growing market is unquestionable, if it is an area that you are new to but would like to get more involved with, there are networks and master brokers who can help you, either with help and advice, by helping you to package and place a case, or by doing it for you on a referral basis.