A new £100m programme set up between Lloyds Banking Group and the Homes and Communities Agency to help small house builders develop more homes is calling on SME builders with ambitions to grow to get in touch.
The Housing Growth Partnership was set up in July this year when £50m from Lloyds, a significant player in both the domestic mortgage market and commercial lending to house builders, was matched by £50m from the Homes and Communities Agency.
The HGP plans to help finance the development of at least 2,000 new homes in the next two to three years, targeting the local house builders – which have held a declining share of the new-build market – building 10 to 100 homes a year.
But HGP chief executive Andy Hulme has told Construction Manager that he has ambitions to extend or expand the fund, to help deliver as many additional new homes as possible.
Around 100 builders have already expressed interest, mostly with plans to build 30 to 40 homes, but Hulme hopes to encourage more applicants.
"This is a pot of money to support small and mid-sized builders typically building less than 100 homes a year – in the 1980s there were about 10,000 of these builders, but now we think there are only about 2,500."
Andy Hulme, Housing Growth Partnership
Rather than offering loans, a feature of the HCA-run £525m Builders Finance Fund, the HGP will act as co-equity investor in development projects, staking equity alongside the builder. Typical investment levels would be £500,000 to £3m.
The fund will make its return only when the units are sold, taking a pre-agreed proportion of profits – although the HGP says it will always take a proportionately lesser share than the builder.
Hulme said: “This is a pot of money to support small and mid-sized builders typically building less than 100 homes a year – in the 1980s there were about 10,000 of these builders, but now we think there are only about 2,500. But the UK desperately needs about 230,000 new homes a year, and the big builders are unlikely to meet this demand alone.”
“Whilst the debt markets have got better [in terms of SMEs’ access to finance], there is still a gap between lending and the builders own funds. Our equity offering will close this gap, unlcoking sites and accelerating build programmes."
He gave an example of a project where the costs of land and construction were £5m, and the house builder secured a bank loan of £3.5m. “So they need to find a final £1.5m so we could go in together with £750,000 each. We co-invest, the site is built out, and we get repaid when the homes are sold. We’re saying ‘let’s build some homes together’ not ‘let’s take a slice of your company’.”
He added that the builder would take proportionally more of the profits. “We recognise the ‘effort equity’ the builder puts in. And where it’s a higher risk site, we would take a lesser return. We want them to help the builder increase profits that can be invested in growing their business.”
Hulme is aiming to invest the fund as quickly as possible, and hopes to hear from builders that already have outline planning permission.
Earlier this month, a BBC Freedom of Information request indicated that only two projects supported by the HCA’s Builders Finance Fund loans had gone on site.
However, the HCA later clarified in a tweet that “8 contracts worth £11.7m signed, 33 contracts in progress worth £66m, 86 in due diligence worth £250m+”. In total, it said, this represented support for 7,000 homes.
