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The importance of small and medium sized house builders

In recent years, there have been many calls for the government to promote lending to small and medium enterprise (SME) house builders and make funding more accessible.

 

For example, according to a report by the Home Builders Federation, in 2016 development finance, typically available on a project-by-project basis, was at 60% loan-to-value. Prior to 2008, SME builders could obtain 70-90% loan-to-value – post recession, banks are less willing to lend to small housebuilders unless they are certain that there is no risk involved.

IMLA research says 61% of lenders and 57% of brokers feel more state support for development finance would help address the lack of housing supply.

SMEs have played a key role in delivering housing in the UK, but the decline in this industry is not only affecting the national property market – it is also having major implications at a local level, which can often be overlooked in favour of prioritising quantitative results.

Delph - white paper - financial constraints stat SME

At Delph, we have been working collaboratively with builders and developers over the past 70 years. Every business relationship we develop is considered a partnership and these include businesses of all sizes. All housebuilding in the UK is crucial in resolving the housing crisis, which is why we aim to support all housebuilders and developers.

We work with builders and developers by offering the following alternative funding models:

Forward Funding

Under this model, Delph can buy the land and fund construction on stage payments or interim valuations. This approach allows an SME builder to clear the balance sheet, reduce risk, and make large savings on marketing, sales, and finance charges.

Forward Purchase

Builders and developers can secure a large deposit and a guaranteed exit route by selling off plan. This helps cash flow and can also enable better funding terms with banks. It also cuts out sales risk and future marketing costs.

Delph Property Group - Mind the Funding Gap white paper on SME housebuilders - infographic

Investing in SME house builders through funding partnerships enables them to finance new projects, develop their businesses, recruit and train skilled workers – resultantly providing new jobs and opening opportunities within local communities. Having multiple small-scale projects run by SMEs also creates a thriving and competitive local economy.

Delph has long believed that SMEs are an engine for growth – some of our best projects are in partnership with small independent builders – and now there is more widespread opinion that the sector has a vital role in supplying quality housing to local communities across the UK.

Case study: The Hallmark, Manchester

 

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The Hallmark, Manchester – CGI foyer

We are collaborating with Fortis Developments on our Manchester scheme, The Hallmark, by forward funding the construction of the site – a 15 storey block of 145 one, two, and three bedroom contemporary apartments, nearby to Victoria rail station in the city centre.

The Hallmark is now under construction. Delph funds the site in staged payments, which is mutually beneficial for Delph and Fortis:

  • Delph, the investor, pays only according to material work completed as per agreed construction milestones
  • Fortis, the developer, minimises the risk of failing to fulfil the contract and the payments made being lost and they no longer require development finance
Delph Property Group, The Hallmark, Manchester

The Hallmark, Manchester

Gareth Morgan, Executive Director at Fortis Group said:

We’re excited to see such good progress in construction at The Hallmark. Collaborating with Delph means that construction has been able to fly. We’re on schedule to meet development deadlines – this month, the laying of the fourth floor slab has commenced as planned. Hitting these targets is so important in construction – if you fall behind, it costs a lot of money – the staged funding from Delph` reduces our risk and is a key means to our achievements on site.

delph-hallmark-manchester-construction

The Hallmark Manchester – construction progress 2017

The Hallmark apartments are now available to buy through our daughter company, Forty/8 Developments – visit the website for investor guides and brochures.

To find out more about the importance of SME house building and how we aim to support this vital sector, read our ‘Mind The Funding Gap’ white paper.

 


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