Positive outlook for SME housebuilders

The woes of the SME housebuilder are well documented. According to new research from Hampshire Trust Bank, the construction sector has seen a mere 4% increase in SMEs entering the market since 2010.

However, with increased activity outside of London and the South East in cities such as Manchester, Birmingham and Bristol, smaller construction firms have opportunities for future growth.

A new poll of finance brokers working in the field of development finance has found that more than two thirds expect demand from housebuilders for development funding to increase in 2017.

The broker sentiment survey, carried out by United Trust Bank, found that 69% of brokers believe that demand for development finance from housebuilders will increase in 2017, while a further 27% expect demand to stay roughly the same. Just 4% of respondents expected demand to fall.

“There continues to be a strong desire from SME housebuilders to play a vital role in delivering the new homes the UK desperately needs and specialist lenders, like UTB, are keen to support them,” said Noel Meredith, Executive Director, United Trust Bank. “We are confident that although there will be uncertainty over Brexit and the longer-term health of the UK economy, the fundamentals which underpin the property market persist.

“Demand for affordable starter and standard family homes is strong in most parts of the country and this is still translating into price growth in most regions. Although developers must keep a tight rein on rising costs for materials and labour, those presenting sound proposals to build the homes people want and can afford to buy will find lenders like UTB happy to provide the funding.”

While growth levels remain below other sectors, nearly half (49%) of SMEs in the construction market are optimistic about the long-term economic prospects for their sector, and recent Markit data has shown there is more modest growth in the sector as a whole, which includes the smallest firms to larger housebuilders and contractors.

Robert Grigg, Managing Director of Property Finance at Hampshire Trust Bank, said, “With demand for housing continuing to outstrip supply, our customers are coming up against barriers to developing this vital housing stock. Issues such as planning costs and turnaround times results in an uphill battle for smaller property developers.”

Nina Skero, Managing Economist at CEBR, added, “It’s encouraging to see SMEs across various industries posting a strong performance. This further highlights how vital it is to nurture the optimism they are demonstrating if they are to continue driving economic growth.”

The United Trust Bank survey also revealed that 63% of brokers working in the fields of asset finance, development finance, bridging finance and mortgages felt that the government was not doing enough to tackle the UK’s housing shortage and just 14% were confident that the government would overcome the housing shortage by 2020.

In addition, 74% of brokers described the outlook for their own businesses over the coming year as ‘bright’ with nearly a third (31%) predicting that the UK economy would grow beyond expectations in 2017.

“I do share many brokers’ concerns about the government’s ability to overcome the housing shortage by 2020,” said Meredith. “Although some of the recommendations in the recent Housing White Paper offer some hope of improvement to the dysfunctional planning process, any significant change will probably come too late to meet the ambitious ‘1 million new homes by 2020’ target the government set itself in 2015.

“Planning remains the biggest headache for most of the developers we deal with and unless the very first stage of the development process can be simplified and developers encouraged to build on suitable sites rather than discouraged, demand for new homes in the places people want to live will continue to outstrip supply.”

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