The market was expecting the extension of the stamp duty holiday and the Chancellor did not disappoint by extending it for another three months; in addition, he confirmed 95% LTV mortgage guaranteed schemes set to launch from April. But while announcements designed to boost housing demand stole the show, we failed to witness any measures designed to boost the much-needed housing supply.
We welcome more demand...
At a time when the UK-wide first-time buyer affordability index (mortgage payments as a percentage of mean take-home pay) remains above 30% and the London first-time buyer affordability index remains above 55%, measures that allow an increasing number of first-time buyers to get their feet on the property ladder are undoubtedly welcome. According to some reports, the extension of the stamp duty holiday, which amounts to an average tax saving of £15,000, could help 300,000 sales and constitutes a particular boost for first-time buyers.
...but also need to tackle supply
However, as development finance lenders working closely with SME property developers trying to channel much-needed funding into new housing, we are witnessing how incredibly difficult it is for SME property developers and small construction companies to get funding. Therefore, alongside measures that boost demand, we urge the Government to also consider measures that tackle the supply side of the property market. Failure to do so will risk further deepening the existing affordability gap that continues to price-out first-time buyers. Fueling demand without addressing the shortage of housing supply risks creating a time ticking bomb by further inflating prices in the medium to long term and pricing-out more first-time buyers.
With just over 170,000 new homes having been completed in the year ending June 2019 and with construction having taken a big hit during the pandemic, the Government is currently very far from reaching its target of building 300,000 new homes every year.
Lack of funding, especially among SME property developers and small construction companies, is a key reason. According to a report by the Home Builders Federation titled “Reversing the decline of small housebuilders: Reinvigorating entrepreneurialism and building more homes”, today only 12% of new build homes are built by small builders, down from 40% in 1988.
This report states that availability and terms of financing for residential development has become extremely difficult for small housebuilding companies over the past decade or so as lenders have drastically changed their attitudes to the sector since the 2008/09 Global Financial Crisis.
One concrete and effective way for the Government to support house building activity is by working closely with alternative lenders to plug the funding gap and channel funding to SME property developers and small construction companies. Due to their nimble size, flexibility and efficiency, alternative lenders and P2P property lending platforms have demonstrated they can and must be part of the solution to the UK’s housing crisis.
Over the past 12 months, as a result of the Covid19 pandemic and traditional lenders’ obligation to administer the Coronavirus Business Interruption Loan Scheme (CBILS), it was alternative lenders that in many instances kept an active funding lifeline to property developers in need of finance.
Furthermore, these innovative FinTech companies form part of a sector that according to the recent Kalifa review, generates £11bn in annual revenue for the UK and is set to play a key role post-Brexit. We hope the Government will recognise the key role of alternative lenders and bring them to the fold to solve the housing supply crisis.
