Reversing the decline of small housebuilders

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Finance (cont...)
Planning status
Funding for construction is extremely difficult for SMEs
to obtain without a full, detailed and implementable
planning permission. Without an implementable consent
lenders are usually uneasy about making finance available
without applying exorbitant fees and very high interest
rates. Again, this reflects the perceived risk of delay and
the potential for unforeseen blockages or costs. For this
reason, SMEs are faced with a decision to either finance all
pre-development costs themselves or only purchase land
with a detailed consent.
‘We’re beginning to find some lenders who will lend on an
outline [planning consent]. But not high street lenders. For
the high street lenders it’s got to be completely plain vanilla,
risk free.’
(Housebuilder interviewee, June 2016)
‘Lenders are saying “if we lend on outline, we cannot be sure
that you will develop the site” and therefore we’re holding a
piece of the land that we might have to trade when what we
want to do is see a business process in which you buy land
and build, but you’re not capable of building because you
haven’t got detailed planning permission and we don’t know
how long that will take”. That fits the theme that they want
all your money up-front because they want to see you’re
capable of developing rather than having insufficient funds
and only ever holding the land. That pushes the builder to a
place where we can’t compete to buy central sites that have
outline planning permission which suit our business model
very well.’
(Housebuilder interviewee, June 2016)