Finance · 31 October 2017

British Business Bank boosts small housebuilder lending with £500m Enable Guarantee

new houses
High capital requirements for development finance restricts banks’ ability to lend to small housebuilders

The British Business Bank (BBB) has secured an “Enable Guarantee” for United Trust Bank (UTB), so the lender can significantly increase the amount of development finance it provides to small UK housebuilding firms.

The transaction marks the first time the government-backed BBB has used the Enable Guarantee specifically to finance the housebuilding sector.

The Enable Guarantee programme encourages banks to lend more to small businesses by reducing the proportion of capital needed to be held against that lending.

Under an Enable Guarantee, the government takes on a percentage of the lender’s risk on a portfolio of loans in exchange for a fee. In this instance, UTB has said it will use the freed-up capital to increase its financing of development projects run by smaller housebuilding firms.

The BBB has predicted that the agreement will allow for the building of new UK homes to the tune of £500m in total, over the lifetime of the Guarantee.

Commenting on the deal, BBB chief executive, Keith Morgan, has said: “We are very pleased that our Enable Guarantee will help UTB provide the extra finance that smaller housebuilders require to allow them to grow, succeed and build the new housing stock the country needs.

“Banks have frequently reported that the high capital requirements associated with development lending have restricted their ability to lend to SME housebuilders. Our Enable Guarantee is specifically designed to address this issue.”

Recent analysis of the UK housebuilding sector highlights some of the challenges faced by small developers when attempting to access finance. This year’s UK-wide survey from the Federation of Master Builders (FMB) found that 54 per cent of SMEs in the sector are constrained in their ability to build new homes due to lack of finance.

Meanwhile, the BBB’s Small Business Finance Markets report 2016/17 found that, while housebuilding firms outside the country’s top ten largest accounted for 73 per cent of completed projects in 2009, that figure had dropped to 53 per cent by 2015.

According to the FMB’s chief executive, Brian Berry, the challenges of accessing finance have halted growth amongst smaller housebuilders and put new businesses off of entering the market.

Berry added: “The picture has improved slightly in recent years through the increased prevalence and appetite among smaller, specialist lenders, but these lenders face their own barriers, not least in the capital requirements placed on them.

“The BBB’s action to help ameliorate this is a big step forward and we hope that this agreement with UTB proves a successful model that can be replicated and extended.”

Welcoming the move, the government’s housing and planning minister, Alok Sharma, said: “It’s great to see the Enable Guarantee scheme being extended to SME housebuilders, giving even more small businesses in this sector the chance to deliver the housing this country needs.

“We know that access to finance is a key barrier for SME housebuilders to enter the market and grow their businesses. That’s why we launched the Home Building Fund last year to support smaller builders and to help diversify the housing market.”

Government urged to fix housing crisis with more building loans for small firms

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Fred Heritage was previously deputy editor at Business Advice. He has a BA in politics and international relations from the University of Kent and an MA in international conflict from Kings College London.

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