The Government wants to “get Britain building again” with a pledge to deliver 1.5 million homes across the country in its first five-year term – a level of output not seen since 1977.
With the major housebuilders currently underdelivering on this target, SME housebuilders are essential if the Government is to come anywhere close to delivering its stated policy of 300,000 homes a year.
But these businesses – typically defined as those building fewer than 100 homes per year – face a myriad of challenges and unlike larger national developers, they often lack the financial resilience to absorb prolonged downturns or delays in sales.
Alarmingly, there are now 85 per cent fewer SME housebuilders than there were a generation ago, delivering just 12 per cent of new homes.
Alongside planning delays, affordability issues and a sluggish market, financial constraints are a major issue for a sector which often struggles to access the right financial support.
Trying to establish how to access finance and what the qualifying criteria are can be a real challenge for any SME with ambitions to grow in the housebuilder market. And while some housebuilders do have big investors to whom they can turn, most operate a traditional model and do not have this luxury.
There has been a renewed political impetus to improve financing in the housebuilding sector.
What are the main financial packages announced by the government recently that are available for SME housebuilders?
Home Building Fund
The Home Building Fund is managed by Homes England and offers support including development finance, complex real estate finance, equity and partnerships and lending alliances. It supports projects from five to 100-plus homes, with loans covering up to 80 per cent development costs. It also includes the £100 million SME Accelerator Loan Fund to help with both development and land acquisition. In December 2024, the Government extended the Fund by £700 million, aiming to support the delivery of up to 12,000 new homes by SME developers.
Lending alliances
Homes England also has “lending alliances” with existing lenders including the Greener Homes Alliance, a £150 million fund run in partnership with Octopus Real Estate which encourages the use of modern construction methods and fair labour practices. It offers discounted interest rates of up to 2 per cent for meeting sustainability criteria. Homes are required to be fossil fuel-free with an average SAP (Standard Assessment Procedure) score of 85+. Meanwhile an alliance with Invest & Fund supports development loan applications below the Home Building Fund’s minimum of five units.
£3 billion loan credit guarantee scheme
This has been introduced by the Government in an attempt to reduce lending risk and increase access to finance for SMEs. It includes £2 billion for the ENABLE Build Scheme, supporting over 10,000 homes, including student and elderly housing. The scheme aims to deliver 20,000 new homes in total and works by government guaranteeing a portion of the loan, encouraging banks to provide more credit for construction projects.
The update on these schemes will be keenly watched by us to see if they can work in conjunction with the more traditional approaches to funding and provide much needed support to the SME housebuilding market once more.
Speak with our expert
Nicola Sutton is a partner in the commercial property team at Clarke Willmott. She advises developers, housebuilders and landowners in relation to a broad spectrum of residential development legal issues in the residential housebuilder market.
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