Funding could be the one catch that could jinx the planning reforms

by | Aug 6, 2020

Showing no signs of a lockdown fatigue, the housing market is enjoying a fantastic recovery with reports suggesting a growth of 15% in UK house prices by 2024. The market momentum has been boosted by Boris Johnson’s “build, build, build” speech and other announcements like no tax on homes priced £500,000 or less until March next year. Planning law reforms will prove to be another shot in the arm for the housing market. However, all this early show of confidence could hit a major roadblock if housing developers fail to get access to development finance in a timely fashion.

A recent CBRE report shows how development finance availability in the UK has contracted since the COVID-19 outbreak with fewer lenders considering new opportunities and most focusing on their existing loan books. A potential second wave could further exacerbate this situation and funding may dry up even more. For a developer, this will mean reduced access to capital, likely increased costs due to involvement of different lenders since one lender will not stretch enough when it comes to providing funds required for the development.

Access to development finance is set to get more crucial for housing developers as buyer preferences show drastic changes since the pandemic. The ongoing lockdown has radically changed the way Brits are wanting to live and work. This is especially true for city dwellers who want to venture outside the capital in search of more living space. To keep up with the changing demand, the housing developers are now trying to catch up with the developments “in the regions” and looking for development finance options to provide high-quality, affordable housing for such buyers. Lenders will therefore have to move away from the ‘safety’ provided by the London market, recalibrate their approach and diversify their books.

No doubt the government is backing the sector and putting its weight behind, but it is equally important to not slip at this point and help developers grow when it is most needed. Even government organisations set up to provide funding like Homes England fail to make the flow of funds any easier. At Hilltop, we try to address this funding gap every day and our products reflect that. We have committed nearly £30m in the past nine months to fund experienced SME developers across the country and continue to remain cautiously committed to funding high-quality assets and developers. We go that extra mile compared to the market at large, let alone high-street banks, and we also assist developers on the equity side too, thus providing a comprehensive one-stop solution.

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Updated April 2020 - UK Residential Real Estate Market Review 2020
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