2021 is the year to set the foundations for SME developers

Peter Owen is head of property development at Saffron Building Society


The past year has been uncertain and unprecedented for the whole economy, but luckily less so for construction. With the recent release of the Office for National Statistics, UK Construction Output figures, the construction sectors continue to see respectable, almost pre-pandemic levels since the bounce back in July 2020.

In the report, new housing figures show £2.9bn was injected into the UK economy in December from developments in the private sector. A phenomenal amount compared to the £426.6m invested in the public sector. The government’s target to build 300,000 additional affordable homes every year is the driver for such investment. Whilst some of the large, private-home construction companies are reaping the rewards of this focus, capitalising on the construction industry maintaining momentum and protecting the economy during the pandemic, there is one other construction sector who can and should be benefiting, too: SME developers.

Now is the time for SME developers to put plans in action

Small to medium-sized construction companies are often the purveyors of quality, affordable homes in the UK. Taking advantage of smaller plots and concentrating on family homes and homes suitable for first-time buyers, they can turn around 3-6 houses typically in a relatively quick time. However, it has never been the construction that has held them back. Generally, it is planning and red tape.

Local authority planners can make it difficult for any development to get off the ground, more so for smaller developers. Smaller developers have little clout and limited experience in dealing with the complex nature of the authorities. The Government is aware of the issues and has made waves to improve the planning system for renovation and change of use, but the logistics of new builds remains tough. With high street buildings currently sitting empty, the Government have focussed on new Permitted Development Rights. Rights will help streamline the ability to change the use of a property, from commercial to residential, without the requirement of full planning permission. The Rights are due to come into force sometime in summer 2021.

The UK government knows that local planning needs modernisation and improvement in the planning and applications system with their respected authorities. Many believe that we will see many changes come later in 2021. Great news from a planning perspective, so definitely a reason for optimism for current smaller developers.

Capitalising on the positive market shift for first-time buyers

2020 saw an unpredictable anomaly for the property market. Nobody could predict what would happen; however, it concluded negatively for first-time buyers. Lenders removed most of their suitable products during the year with 90% Loan to Value products almost wholly vanishing from the market.

In December, this changed with building societies and smaller lenders re-introducing their low deposit mortgages to market, stimulating the first-time buyer market. From the onset of the pandemic, FTBs surprised the market by continuing to provide the demand. However, many were left to wait and see if the market changed to suit them.

What the industry has now is a raft of available products across multiple lenders and a renewed interest from FTBs. For property developers, it is an opportunity – and one which they should not miss. Development of affordable first homes in 2021 could provide much more opportunity for developers than has been available for many years.

Financing for SME property development is not as difficult as assumed

If you are in construction and seasoned in the trade, you may have sat down one day and thought ‘I could do this on my own, what a great business opportunity’ – and you would not be wrong. Assuming you have the required skills and have a decent history with finance, and a good credit rating, you are most of the way there. In my role, I deal solely with property development and financing the projects with my clients. Unlike other mortgages, lending for property development is ‘structured lending where funds are advanced in stages to meet the cash flow needs of the developer throughout the construction phase’.

The lender is there to support you, and specialist lenders have the experience, knowledge and understanding to handhold you through the process.

Strike now for your share of the ‘affordable homes’ pie

Suppose you are serious about starting in property development – or are already a developer and aspire to begin your next property development in 2021 – now could be your chance to strike. The most significant bit of advice is to speak to peers and have a conversation with a broker or a specialist lender to see what your options are. As more FTBs seek their first homes, and lending available to them to buy, all they need now is homes. Frankly, we have not – as a country – got the stock to fulfil them right now. So, strike now while the iron is hot.


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