Written by Rupert Bates, editorial director of Showhouse, in January’s Showhouse magazine
I don’t have the heart, the drive or the sheer bloody-minded perseverance of my namesake, Alan Bates, who took on the Post Office in that remarkable story that has dominated the headlines this month.
If I did – and not in pursuit of wrongdoing – I would, like the retired sub-postmaster, take myself to a cottage in North Wales to wade through boxes of bank loan books to builders, pausing only for a pint in the pub depicted in the ITV drama Mr Bates vs The Post Office. We do have one thing in common.
This wouldn’t be to uncover a miscarriage of justice, more a misplacement of moral judgement and to understand how big banks work when it comes to funding housebuilders.
I’ve been in the property media game a while, but I still get dizzy when finance directors talk of revolving credit facilities and the like.
I get that big banks are not philanthropists – although the British taxpayer showed considerable charity when we bailed them out during the financial crisis. But, by the same argument that they are too big to fail, they are surely too powerful to unilaterally pull the plug on mission-critical businesses they fund. And the mission to build houses is critical, as all political parties will tell us ad nauseam in the run-up to the General Election.
I’m not talking companies no longer fit to trade or for whom the pulling of the rug is both necessary, fair and inevitable. I’m equally not suggesting that housebuilders should be considered a protected species when it comes to lending.
But when you pull the rug from under a housebuilder, it is not just the floorboards exposed; the entire house falls down and with it the builder’s staff, subcontractors, extended supply chain and homebuyers – deposits lost, homes half-built, the neighbourhood an abandoned building site.
Two things happened in the last month. Stewart Milne Group, the eponymous housebuilder founded in Aberdeen by Stewart Milne, went into administration, and Frank Pennal, CEO of Close Brothers’ Property business, retired after 27 years with the bank.
Lloyds Banking Group, the lender behind Stewart Milne, was bailed out by the government (us) in 2008 to the tune of over £20billion. ‘Ah, but we’ve paid it all back’ is the cry from Gresham Street. More’s the pity maybe, as, at least if still publicly owned in part, we’d have a shareholder right to ask to call off the dogs.
I wouldn’t presume to know what Lloyds’ strategy towards UK housebuilding currently is, but the bank has a frightening amount of skin in the game, and I can assure it, just through the buzzing on my phone since the Stewart Milne news, that plenty of SMEs in particular are incredibly nervous.
Again, I don’t know the details, but a devastated Stewart Milne said he believed one of the bids to save the company he founded nearly 50 years ago “could have delivered a comparable, financial return to administration and, crucially, allowed the business to continue to operate, safeguarding hundreds of jobs and protecting livelihoods”.
The response from Lloyds is telling in its robotic, corporate, pecuniary language:
“Unfortunately, despite several years of support and forbearance, including multiple maturity extensions to the borrowing, this has not been possible in this instance. We will now work with the administrators, as they consider the best options for the business.”
Actually, correction, I do presume to know what Lloyds’ strategy towards UK housebuilding is. It’s written on its website.
“The Group is one of the largest funders of the UK housebuilding sector and we are committed to expanding the availability and affordability of safe, quality and sustainable housing – whether that is supporting our customers, housebuilders, developers or housing association clients. It is central to our purpose: to help Britain prosper.”
Am I singling out Lloyds? I don’t know. Are major banks reconsidering their support for housebuilders? I don’t know. While, yes, there are considerable domestic market uncertainties, not to mention wider geopolitical crises, this is not the cocktail that helped create the last financial crisis, unless bankers want to create another one, refusing to lend the housebuilding industry an umbrella in a shower, with the sun set to come out again – as it always does.
I mentioned Frank Pennal. As commercially minded as the next banker, but Frank was all about building long-standing relationships and lending through the seasons, ready with both an umbrella and sun hat to help his housebuilder clients, and an innate understanding of the business of building.
A lot of ‘Franks’ from banks big and boutique have bowed out in recent years. I don’t know the calibre of those who have replaced them. I rarely get to meet the big bankers; I guess that’s what comes from being faceless.
If someone from Lloyds Bank is reading this, get in touch. I’d love to give you the right to reply – you, not the computer. Have I misjudged your 2024 intentions for the housebuilding sector? It would be good to hear it from the Black Horse’s mouth.
