The LDS Sales Guarantee, provided pre-construction, ensures the purchase of all unsold homes on a development site and releases a 10 per cent cash deposit on exchange, reducing project risk and increasing the confidence of lenders.
Mark Hawthorn, an Insider 42 under 42 and Property Disruptor, explained the LDS Sales Guarantee product was proving increasingly popular with lenders as it removes their downside risk.
In turn, LDS’ presence on a project helps housebuilders open up access to funding.
“What we have been seeing since the summer is that lenders are pushing more business towards us,” said Hawthorn.
“They say ‘go and see LDS, if they’ll underwrite your scheme, we’ll lend’ or ‘if you go to LDS these are the terms, if you don’t, these are the terms’.
“And it becomes a bit of a no-brainer if you see the spread in terms.”
Hawthorn also believes that developing the SME housebuilders segment of the market should be a focus for the government, saying that would cover a range of firms looking to build anything from 100-unit schemes down to five properties.
While accepting that all housebuilders face barriers which prevent them from delivering new homes, including the availability of sites and the planning process, Hawthorn said financial viability was a key part of the problem for SME housebuilders which is preventing the construction of new homes.
“Thirty years ago SMEs were doing approximately 40 per cent of all housing, now they are about 10 per cent. That 30 per cent is tens of thousands of houses every year.”
A report by Savills which LDS commissioned found that the drop in the proportion of SME housebuilding is equivalent to the loss of at least 64,000 houses per year, with a gross development value of about £20bn.
Addressing the amount of housing in the hands of SME builders would help unlock supply, Hawthorn said.
“It isn’t the absolute solution to the housing market, because there isn’t one, but that would go a seriously long way towards it.”
Mark Hawthorn is a speaker at Insider’s North West Housing Breakfast next month. Click here to find out more about the event.
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