How non-bank lenders can take up the baton in the construction industry

As continually rising material costs mingle with supply-chain issues and labour shortages, the impact of the current global economic situation is being felt in one of the UK’s most crucial industries: construction. Recent news that a number of English local authorities have made cuts to their house building plans only makes the situation starker. The impact of macroeconomic pressures on developers puts in jeopardy the construction targets that are vital in tackling the UK housing crisis. While Housing Secretary Michael Gove last Autumn committed to a mandatory goal of 300,000 new homes per year, this target now looks to be advisory rather than mandatory. Analysts say this policy shift could cost Britain 100,000 new homes over a five-year period. For the construction industry to provide sufficient housing in the coming years, developers are in dire need of financial support. At a time when interest rates are high and volatile, non-bank lenders with fixed-rate products such as Triple Point can make a real difference. Big demand for small and mid-sized developers Scarcity of supply and high prices have combined to exacerbate the housing crisis in the UK. The average cost of houses in England is now nine times the average annual salary, up from 3.5 times in 1997. These high prices and low supply impact first-time buyers in particular, with recent years seeing the first rung on the property ladder rising ever further out of their grasp. Young buyers, especially those with families, require quality housing, well-connected to infrastructure, and a reasonable price bracket. Without the mass development of such housing, the current crisis will continue to spiral. Well-placed to offer quality, affordable housing, are small to mid-sized developers. Through being selective, smaller construction firms have a greater capacity to focus on developing high-quality projects which meet buyers’ everyday needs. However, though they are likely fundamental to addressing the housing crisis, market conditions mean that their ability to access funding is more challenging. This is where non-bank lenders can offer solutions. Rising cost-of-living, rising cost of homes Not only is funding at attractive conditions becoming increasingly scarce for housing developers, this poverty of capital is accompanied by the rising cost of building. High inflation levels and supply chain backlogs have had a marked impact on the costs of materials, a trend which looks unlikely to reverse anytime soon. Bricks, for example, have seen price rises of up to 20% in January, according to Jewson. Moreover, rising prices affect more than the material. Alongside inflation, a growing skills gap now means firms are facing significant labour shortages beside rising material prices. Indeed, between September and November 2022, there were 48,000 unfilled jobs in the sector. Providing certainty through accessible finance In this period of economic uncertainty, developers would benefit from financial security through trusted partners. With housebuilders scrambling to cover rising material costs and labour shortages, non-bank lenders offer a solution that will help to provide building firms with the security they require, and the UK with the volume of homes needed for future generations. Indeed, the nature of non-bank lenders makes them particularly attractive to small and mid-sized developers. Speedier response times offer developers greater clarity sooner and the opportunity to access funding at short notice. Moreover, the fact that some lenders, such as Triple Point’s property lending team, provide fixed-rate loans means that companies can embark on construction projects with a greater confidence that at least their completion won’t be hampered by an unexpected rise in financing costs. The overwhelming demand for new housing can only be fulfilled if small and mid-sized developers are equipped with the financial support they need. Everything should be done to help non-bank lenders address this funding shortage so that they can help ensure the UK’s house builders can continue to deliver the homes Britain so badly needs.

How non-bank lenders can take up the baton in the construction industry

By Andrew Stoneman, the head of property lending at Triple Point

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