Showhome Editor, Anna Wood, takes a look into the financing options currently available to SME developers
In the industry and the world today, there are plenty of financing options for the homebuyer; from Shared Ownership, to Help to Buy, to just the simple mortgage route. It seems as though every year, more and more options are becoming available to homebuyers, especially first time homebuyers. The buyer is provided with plenty of financial help in this generation, which makes a lot of sense. House prices are the highest they have ever been in the history of the housing market, and current wages are not reflecting this. The financing options and help that first-time homeowners receive is the best it has ever been, which of course has a great knock-on effect and means that housebuilders and developers are able to sell every home in a new build development. But what type of financing options are out there for the developer, when we already know all the options available for the home owner?
New build developments don’t just pop out of thin air, without substantial planning and paperwork already having gone into it. So how do these developers, especially small and medium sized housebuilders and developers who don’t have as much consistent revenue, afford to develop new plots? Most small and medium sized housebuilders work from development to development, whereas the larger developers often have multiple developments going on at the same time, all at different stages in the process.
The process of housebuilding and financing
Obviously there is a process that needs to be taken in the housebuilding journey that means that a development is fully financed and planned out, for the construction to then be able to take place.
Step one is to identify the land for sale, and what type of land is wanted for the specific development. Small sites make up the minority of housing delivery identified in local plans. SME housebuilders should make use of all resources available to identify suitable small sites, including the local plan and the brownfield register, which is available for anyone to view online. They should also check with local authorities about the likelihood of planning permission for particular sites and understand the scale of developer contributions (Section 106, Community Infrastructure Levy, and others that may be associated with the site) which will be required from a particular site.
Step two is the point in the process where it comes to the developer purchasing the land and getting the planning permission necessary for the development they wish to build. Once a site has been identified, purchasing and obtaining planning permission are the key next steps. Significant delays with planning permission can be a problem for a developer, especially when they are only working on one development at a time. Planning permission problems can be beyond the control of the applicant, but the chances of delays are reduced by high quality applications, that are completed by specialist planning officers. Some lenders will not lend the money needed unless planning has already been permitted – hence the need for house builders to have their ‘own funds’ in place for the beginning steps…
Read the rest of this exclusive feature, and more, in our latest issue here.