First-time developers have role to play in tackling housing shortage
Luke Egan (pictured) is director of bridging and development at Pink Pig Loans
House building is recovering well from the pandemic. The latest figures from the Ministry of Housing, Communities and Local Government show that between January and March this year, building work started on more than 46,000 sites in England alone.
That’s not just up by 7% on the same period last year, but it’s also the strongest start to a year seen since 2007, which is incredibly encouraging.
It’s no secret there’s a significant housing shortage across the UK, and the only way of tackling that in any meaningful way is by ramping up the rate at which we produce new properties.
The government has talked about building 300,000 new homes a year by the mid-2020s, but that won’t simply happen through goodwill – it takes money and effort to give developers a boost so that it’s easier to get their house building projects off the ground.
After all, if we are going to hit those ambitious targets then we need far more developers, of all sizes, active in the market. Looking to the big-name builders can only get us so far.
Making a start
Promisingly, we have seen substantial interest in property development from those who haven’t done it before. While they may have a relative lack of experience, these borrowers have demonstrated an excellent understanding of what’s needed in order to make their projects a success and the classic mistakes to avoid.
This is a great cause for optimism, since fresh blood in the developer world is exactly what’s needed in order to increase the number of homes produced. What’s more, it’s a good indication of the health of the market overall; these would-be developers recognise the demand for new homes, and the revenue opportunities open to them if they do a good job.
There was a time when first-time developers would struggle to raise funds. The perception was that without experience in a development project, whether that was something relatively small like a light refurbishment or a more complicated project that involved building a brand new unit, the risk was simply too high for lenders to take on.
As a result, all too often those projects simply didn’t happen.
That situation has changed now though. There are far more lenders involved in the development finance market, and some have carved out a niche by considering cases from first-time developers.
Let’s be clear, those developers will still face higher costs than borrowers who have been producing new housing units for decades, but the reality is the cost of that financing is still incredibly competitive. What’s more, the perceived level of risk is further reduced when those new developers partner with experienced firms who have been active in the market for some time, and who can help guide the project towards a successful conclusion.
First-time developers rarely come to the market with no property experience at all, though. In our experience, they tend to be existing property investors, who have already got a good feel for the buy-to-let sector and want to branch out. It’s not uncommon for these borrowers to look to build a handful of units, sell some of them in order to repay the finance and then retain one or two of those units to supplement their existing portfolio.
But for advisers who perhaps only deal with one or two development cases a year, finding finance for those landlords turned first-time developers can be easier said than done. There are simply so many lenders in the market, and so much variance in the sorts of terms, conditions and criteria being employed.
That’s why it can make sense to partner with a specialist, safe in the knowledge that the client will be properly looked after and advised to a high standard. Tapping into that expertise not only helps the client, but it means advisers enjoy an additional revenue stream to boot.
What’s more, demonstrating that you can help clients even when their needs are somewhat out of the ordinary boosts the chances of them continuing to come back to you for their regular mortgage needs in future.