The autumn budget threw up some positive signals for property developers, particularly smaller developers. Specifically, the government’s decision to extend the Help to Buy Scheme until 2023, which may ensure that the handbrake is not applied to house sales during the uncertainty of a post Brexit era.
Since it was launched in 2015, Help to Buy has funded more than 160,000 purchases in the UK. In 2017/2018, it supported 44% of new build transactions. Moving forward the support that the scheme provides may prove indispensable in preventing a sharp decline in property transactions.
Beyond The Help to Buy Scheme, smaller developers will still need as much support as possible if they are to challenge the dominance of the large housebuilders, who are now responsible for 77% of all new homes in England registered with NHBC.
One potential opportunity is the build-to-rent sector. It is attractive to smaller developers because multiple units are more likely to be purchased by investors rather than individuals. Knight Frank predicts that £50bn will be invested into the build-to-rent sector by 2020, with an estimated 6.75 million households living in rented accommodation by the end of the decade, as attitudes amongst Millennials and younger generations become increasingly relaxed about renting rather than buying.
Another very positive development was the creation of Homes England, which came into being at the start of January 2018. Its core objective is to accelerate the rate of house building in the UK, in order to try and meet the government’s published target of 300,000 new homes a year. They intend to do this by releasing more land to developers, and within the next few years, will have invested over £27 billion across a host of regional programmes. Homes England manage the Home Building Fund, which was increased in 2017 to £4.5bn and exists to specifically support the SME developer market.
The British Business Bank has also refined its ENABLE Guarantee programme to include property development. The Guarantee programme encourages banks to increase their lending to SMEs by reducing the amount of capital required to be held against such lending. Under an ENABLE Guarantee, the UK Government takes on a portion of the counterparty’s risk on a portfolio of loans to smaller businesses in return for a fee. Alternative Finance providers such as Invest & Fund will also continue to scale as they provide a pragmatic solution, particularly for SME developers, to the issue of accessing capital to fund projects.
So whilst Brexit may present a dark cloud over the entire UK economy in the early part of the New Year, there are reasons to be cautiously optimistic for the property developer community.