Home Property How the specialist finance sector can boost the UK’s housing stock

How the specialist finance sector can boost the UK’s housing stock

12th Sep 23 12:00 pm

Estimates from Shelter suggest that there is a deficit of 4 million homes in the UK. So, it is of little surprise that as the next general election moves into view, both major political parties are ramping up their rhetoric and outlining potential policies for dealing with the country’s housing shortage.

Any such promises will be met with a degree of scepticism. After all, successive governments on both sides of the divide have failed to meet their electoral commitments when it comes to boosting the stock of housing over recent decades. The current government is set to fail to meet half its annual target this year, while the last Labour government’s housebuilding record consistently fell below its commitments for much of its three terms in government.

Clearly, manifesto pledges do not always translate into effective, realised policy. As such, passively waiting for any government to single-handedly tackle the housing crisis in unrealistic. Instead, the private and public sector must work together to deliver a more equitable housing market.

The financial services sector will be central to this collaboration. More specifically, in finding ways to deliver capital to those best able to boost the housing supply, the specialist finance industry has an important role to play. Here are five examples of how specialist lenders can make a difference.

  1. Funding property developments

While specialist lenders will not typically provide the initial development finance needed upfront for a housebuilding project, they can assist as the project nears completion.

Unfinished developments are common across the UK. Often this will be due to a developer running out of money – a particularly prevalent issue as rising costs mean initial budgets no longer cover the full scope of work required.

Specialist finance in the form of development exit loans can help. Here, lenders can give developers breathing space to pay off their initial development loan and avoid any late repayment fees. Additional capital can then be provided to enable the completion of the project and the eventual sale or rental of the property.

  1. Converting commercial properties

Since the pandemic caused a shift towards hybrid and remote working, figures from Goldman Sachs show that 14% of London’s commercial floorspace is sitting empty (a trend noted in cities around the world) – and this figure is expected to rise as under-construction commercial developments reach completion this year.

With the demand for commercial units falling, there is a compelling argument to be made for converting these city-centre buildings into residential properties in order to boost housing stock.

Further, after the government amended ‘permitted development rights’ in 2021, properties that fit into the Class E category – including banks, gyms, shops – are now easier projects to take on as they do not require the same degree of planning permission to change the usage.

This is where specialist lenders come in. They can provide bridging loans that give landlords, developers or investors the capital they need to convert a disused commercial property into houses or flats.

Furthermore, with many commercial units sitting empty in city centres – which is where the most demand for residential properties is – lenders will also be helping to ensure that the housing that is added to the UK’s stock will actually meet the demands and needs of today’s buyers and tenants.

  1. Extending existing properties

As important as it is that we build more homes, some thought should also be given to increasing the square footage of existing properties. Indeed, tackling the housing crisis is not purely about building more new builds, it is about creating more space – whether that is through extra bedrooms or increasing the size of living areas.

Like commercial property conversions, the government is legislating to make these extensions easier to do. For example, Housing Secretary Michael Gove recently announced that red tape would be slashed in order to allow more people to carry out loft extensions.

The aim is to ‘make better use of the buildings we already have’, and lenders can play a key role in providing investors and landlords with the flexible, fast capital they need to carry out an extension to their property.

  1. Renovating derelict homes

Similarly, funding the renovation of empty buildings to make them liveable again is another highly effective way that specialist lenders can help boost the UK’s housing supply.

According to data from Leeds Building Society, there are currently 676,452 empty homes in England, of which 248,633 have been empty for more than six months. Given the chronic undersupply of homes in the country, it is vital that any derelict property is brought back onto the market for buyers or renters.

However, many empty homes are likely to have fallen into a state of disrepair or dilapidation, while some may be stuck in legal complications or probate.

Fortunately, for investors looking to flip a derelict property – in turn boosting the number of liveable homes there are in the UK – there are avenues for finding such opportunities. For instance, there are sites and auctions entirely dedicated to finding abandoned property and guiding the purchasing process. Meanwhile, lenders can provide the finance that investors need to carry out an auction purchase or renovate a property to get it up to scratch.

  1. Keeping the housing shortage on the agenda

The housing crisis is not solely a public sector issue. Stakeholders from across the property market can help by bringing forward insights and solutions to the issues preventing more homes from being delivered for renters and buyers.

To that end, the fifth way in which specialist lenders can help boost housing stock is to simply keep discussing the issue. Public awareness is proven to be an integral contributor to bringing about legislative changes where housing shortages are concerned. Whether representing developers, investors, buyers or renters, the entire financial services and real estate sectors, combined with policy-makers in the public sector, ought to share knowledge and ideas for tackling the issues at hand.

Some potential ideas are outlined above. No doubt readers will have plenty of their own. Ensuring there is an active, open conversation about practical means for addressing the housing shortage is critical to any long-term success.

Paresh Raja is the founder and CEO of Market Financial Solutions (MFS), a London-based specialist lender that provides bridging loans and buy-to-let mortgages. Prior to establishing MFS in 2006, Paresh worked as a senior professional consultant in one of the top five management consultancy firms, and also set up an independent investment group.

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