Funding Property Development in England and Wales

In May 2019, the then Housing minister Kit Malthouse said the Government targeted the building of 222,000 new homes. This was more than built in all but one of the last 31 years and its development accelerator Homes England would continue to provide assistance to build properties more quickly. A large part of this assistance by Homes England directed towards Small and Medium-Sized Enterprises (SME’s) developers is The Home Building Fund. The Fund provides Development Finance Loan funding to meet the development costs of building homes and Infrastructure Finance Loan funding for site preparation. As a government-backed initiative, the Home Building Fund also reflects wider government priorities including:

As a government-backed initiative, the Home Building Fund also reflects wider government priorities including:

  • obtaining value for money for the taxpayer;
  • supporting projects that focus on areas of high affordability pressures;
  • supporting projects that help the SME developer market, brownfield developments or innovative developments;
  • and assisting applicants who can demonstrate that without this funding the scheme would not progress as quickly or would not progress at all.

obtaining value for money for the taxpayer; supporting projects that focus on areas of high affordability pressures; supporting projects that help the SME developer market, brownfield developments or innovative developments; and assisting applicants who can demonstrate that without this funding the scheme would not progress as quickly or would not progress at all.

We consider some of the funding options for the SME property developer outside of their first points of call of their existing bank or their funds. Certainly, for SME developers seeking to build more than five homes, the use of their own funds (or indeed of their family and friends) may soon be exhausted. If there are project delays or unforeseen problems, then the build-up of financial pressures may mean their family and friends may find themselves exhausted too!

This is where The Home Building Fund seeks to make a difference. Its lending will require appropriate security, typically against property assets, and can be provided on either a short- or long-term basis. And it may be able to unlock developments that would not otherwise happen.

The Fund offers development finance loans of over £250,000, typically for a period of up to five years. Whilst the infrastructure finance is available before 31 March 2021, loans for development finance can be drawn down until 31 March 2023. The Fund provides loan finance which can work alongside other forms of financial support too, so subordinated lending will be considered.

This may allow the developer of at least five properties to use their existing high street banker along with their income from off-plan sales or sales of completed homes to pull together a funding package that can allow the whole of the project to be developed whilst minimising the number of external loan costs.

One final point is that the developments must be in England, though other areas within the United Kingdom have similar support schemes. The Wales Property Fund can provide two-year loans of up to £4m for residential and mixed-use developments only in Wales, including loans up to 65% of Gross Development Value or 100% of build costs.

Within the North East of England, seven local authorities have combined to work together to secure a £10m Fund operated by FW Capital to offer development funding to local SME housebuilders. The aim is to help kick start the development of small-scale property schemes throughout the North East.

Similar to the scheme in Wales, two-year loans are available. However, in the North East, Property Fund loans are limited to £1m to fund development costs.

Furthermore, within other English regions, there may be additional support. So, it’s wise to speak to your corporate finance adviser to understand the financing options available to fund property development.

This article was taken from Real Estate Matters – Issue 14. Read the full publication.

If you would like to discuss in more detail or if you would like to speak with a member of our Construction & Real Estate team about how we can help, please contact Hannah Farmborough or call on 0207 429 4147 to be put in contact with your local representative.