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Greater support for SME housebuilders needed, says IMLA

As the general election nears, the Intermediary Mortgage Lenders Association (IMLA) is urging government policymakers to support lending to SME housebuilders and developers.

According to the latest research from IMLA, the majority of mortgage lenders and brokers believe that greater government support for development finance would increase levels of housing supply, thus helping to solve the country’s housing crisis.

IMLA has already voiced concerns about the government’s Housing White Paper, as released in February, saying it failed to outline concrete solutions as to how to address the country’s housing shortage, despite acknowledging that there is a problem.

New house completions fell by 1% in the year to December 2016, according to data from the Department of Communities and Local Government, and SME housebuilders have cited securing finance as one of the main obstacles to delivering to new homes.

According to a report from the National House Building Council Foundation, some 20% of SME builders and developers say that the availability of development finance is their biggest concern, while 18% said it is their second biggest concern.  The report found that the cost of finance, the availability of finance and unfavourable loan-to-asset ratios were the issues that kept SME builders awake at night.

Lenders, for their part, find the higher risk of builder default the biggest challenge when providing development finance, with 44% identifying this as a key problem, according to IMLA’s research.  A lack of builder appetite for traditional models of debt was identified by 35% of lenders as another key issue, saying that developers had a preference for mezzanine finance.

IMLA suggests a government-backed guarantee of loans to SME builders as one policy that may provide solutions, given lenders’ concerns around SME-builder default, as well as boosting the availability of loans via the British Business Bank, to provide further lending support to SME builders.

Executive Director for IMLA, Peter Williams, said:

 “IMLA’s research reveals that the mortgage industry clearly feels that supporting development finance lending to SME builders and developers would help increase in housing output. Successive governments have struggled to meet housebuilding targets, and the lack of solutions offered by the incumbent government in its Housing White Paper shows there is a need for new ideas. IMLA is, therefore calling on policymakers to explore how they can boost development finance lending.
“There are several ways through which this can be achieved. As well as promoting development finance, the government should explore a scheme that guarantees loans to SME builders. Our research reveals that lenders view the biggest obstacle they face in development finance is a higher risk of builder default. At the same time, builders report that accessing finance is an obstacle to increasing their output.

By launching a guarantee scheme, or boosting lending to developers via the British Business Bank, policymakers could increase the flow of development finance and improve output in the sector.”


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