Current State Of The Development Finance Market

Current State Of The Development Finance Market

As the economic outlook continues to change, the current housing market and interest rate environment have had a significant impact on property development finance. With house prices falling and interest rates increasing throughout 2021 and for most of 2022. The pace of which being greater than previously seen in the 2008 global financial crisis. When the Bank of England raised interest rates by 0.75 percentage points to 3% on the 3rd of November, it was the biggest single rise in the cost of borrowing since 1989. However, due to soaring inflation, last week the Bank of England raised interest rates once again to 4%, the 10th rise in a row. Therefore, making mortgages more expensive and higher inflation puts further pressure on mortgage holders and businesses struggling to pay off their loans.

Our managing director Stuart Parfitt comments, “2023 is going to be a tough year generally and there are some macro-economic factors that make any forecasting challenging. However, by Easter 2024 I would expect to see the mood to be more positive”.

How SME Enquiries Have Been Affected

Stuart comments on how enquiries have fluctuated from SMEs looking for loans. “The turmoil after the Truss/Kwarteng budget appeared to cause enquiries to stagnate but as markets have normalised the enquiry flow has improved. Planning delays continue to represent the main hurdle to increased house building and development lending activity. Although appraisals are now factoring in higher interest rates and flat or decreasing future house prices, putting downward pressure on land values. Land sellers are beginning to accept this is a new reality.”

Type Of Developments BLG Support

Although the average house prices and rises in interest rates are falling, BLG’s lending profile remains unchanged. With the main focus being on standard housebuilding and unit values from £250,000 up to £750,000. Alongside SME developers that can generally bring equity of around 20%. Parfitt adds, “Houses are slightly preferred over apartments but as long as the location supports flat buyers, we are happy to support a suitable scheme. Most regions are acceptable but with build cost inflation we are starting to see appraisals where construction costs exceed 60% of sales values in more remote or areas of lower economic activity”.

Contact our financial experts today who can talk you through your options. They will take the time to get to know you and your aims.

Theo in Credit Operations Team – BLG Rotation Scheme

Theo in Credit Operations Team – BLG Rotation Scheme

Our first Graduate Analyst Theo Athienitis has successfully completed his second rotation under the BLG Rotation Scheme with the Credit Operations team. What has been the most challenging part of the experience? What has been his favourite moment? Read on to find out all the ups and downs along Theo’s four-months journey within the BLG Credit Operations team who are always willing to go the extra mile in customer service.

I have now completed my second rotation, in our Credit Operations department. I spent four months with the team and was exposed to an aspect of property development finance that I had no prior experience with. The Credit Operations team help our borrower customers by guiding them through Credit Approval to Completion – where our customers receive their first drawdown. We aim to make the process of completing the legal process as smooth and as painless as possible. I found that maintaining regular communication and giving clear guidance was key.

My favourite moment in my time with the team was the completion email of the first deal that I had been involved in from the Credit Approval stage. It was satisfying going through all the component parts and becoming immersed in the deal, mitigating potential risks and processing the loan. The most challenging aspect of this role was the process driven nature of this experience.

The experience taught me a lot about the requirements of fulfilling this role to the high standards that we have at BLG. More personally, I learnt that I am well suited to a detail-oriented role in operations and that I take immense pride in playing a key role in the life cycle of a development. I am now moving to the Loan Monitoring team, where I will learn how to: process construction drawdowns, manage our in-term risks and process extensions and redemptions.

I would like to take this opportunity to thank Lexie and Laura for their support during my rotation with the team, both professionally and personally. They were incredibly generous with their time and took an earnest interest in ensuring that I had a successful learning experience, whilst making me feel like a valued member of the team.

Theo Athienitis
Graduate Analyst

As well as ongoing support from your designated Relationship Manager, our extremely experienced and knowledgeable Credit Operations Team are here to help guide you through the loan process from acceptance of offer to first drawdown. Each development is different and there are often unforeseen issues to resolve. We understand the complexities of building and will work closely with you.

Contact us today to discuss your funding requirements for your next development project.

Our business is helping you build.

A Guide For SME Developers Around ESG

A Guide For SME Developers Around ESG

It is widely reported that the construction and development sector has one of the largest business footprints. Construction building is accountable for around 40% of all global energy consumption. In addition to 23% of air pollution, 40% of drinking water pollution, and 50% of landfill waste. Cement alone is a high contributor, accounting for around 8% of global carbon emissions. Every construction step has an impact on the environment. From the materials and technology used as well as the construction sites built. As a result, many experts are calling for the construction sector to act and move towards an ESG framework.

What Is ESG?

ESG is a collective term made up of three components: environmental, social, and governance. All of which measure a business’ impact on society, and the environment, and how transparent and accountable they are. In addition to how robust and transparent its governance is – this is in terms of company leadership, executive pay, audits, internal controls, and shareholder rights.

What Does This Mean For The Construction & Development Industry?

Within the construction industry and for SME developers there are key considerations that need to be looked at under an ESG framework:

Many current ESG requirements are outlined within Building Control requirements.

Why Implement ESG Principles?

According to CBI the UK’s premier business organisation, two-thirds of investors consider ESG factors when investing in a company. Thus, they are looking at not only the growth of the business but also the impact on the environment and community. Additionally, PwC reported that over two-thirds of customers would buy from companies that support ESG initiatives with customers more willing to pay more for greener products. Lastly, research conducted by LinkedIn found that 71% of professionals would be willing to take a pay cut in order to work with a company that shares their values. In addition, 39% would leave their current role if their employer were to ask them to do something that was against their morals. Therefore, even for SME developers, companies who adopt an ESG framework can benefit greatly. Including reducing risks, securing investments, lowering costs, and increasing reputation leading to more new customers.

How To Implement ESG For SME Developers

Implementing ESG as an SME builder comprises a three part process:

  1. Firstly, a business has to measure and understand its current impacts such as carbon emissions. British Business Bank has summarised some steps on how to measure ESG. These include deciding what to measure, gathering the information, and including stakeholders.
  2. Based on this analysis, a business then has to outline goals and ways in which to improve these. Such as reducing energy use or improving employee well-being.
  3. The next step is to roll out the ESG program to your company to improve the overall baseline and impacts.

Although every business is unique in the way it operates and is set up, there are some core principles that can be followed. British Business Bank has outlined them here. These include creating a team, investment, measuring, and communication.

One important factor to consider is that ESG is here to stay and many lenders will start having ESG criteria and metrics for their borrowers.

UK Residential’s Flight through Turbulence

UK Residential’s Flight through Turbulence

Suraj Lakhanpal, Business Development Director

Navigating Headwinds and Tailwinds facing the Housing Market and Future Living Trends …

 

One may wonder when we will truly appreciate the magnitude of the pandemic’s global impact on the everyday way of living in the UK. Hybrid working has transformed lifestyles, making optimising space in our homes more important than ever. Add to that, the energy price squeeze and cost of living headwinds, making the journey to a new norm longer and more turbulent. But what about those knock-on tailwinds that help our flight accelerate towards our desired destination? Here we observe how headwind events, impacting the housing market, often lead to positive tailwind innovation effects, and to stay relevant, the need to stay on top of future changes affecting the housing market.

It comes as no surprise that Rightmove recently observed that garden offices are now amongst the most sought-after house feature; suggesting the meteoric rise of video conferencing software is here to stay. Indeed, these software tech firms are investing huge sums in the future digitalisation of meetings taking place in the Metaverse. Will VR headsets soon become essential work equipment, to engage with colleagues in your firm’s Metaverse office? Will your avatar, or digital twin, be dressed in formal or casual attire?

Awareness of making UK homes greener, as a critical step in the roadmap towards Net Zero by 2050, is well-known. It is very much seen as the ‘Plan A’ in ticking off the ‘E’ in ESG agendas for most firms operating in the residential sector. For developers and builders, however, new building standards mean more headwinds to navigate; notably a ban on fossil fuel heating systems in new homes from 2025. For larger schemes, that means adoption is needed now to ensure later phased homes are compliant with new rules. Now exacerbated by prevailing energy cost crises, carbon-efficient homes not only mean cheaper bills, but also premium values due to demand from buyers and renters alike.

Whilst new homes and those older stock requiring mortgages will allow the government to lever policy incentives, what about the 10M+ homes owned outright? Whilst energy price spikes will enhance payback periods on green improvements, it remains uncompelling. Rightmove also observed that buyers are starting to negotiate offers factoring in the cost of green improvements. Could the energy crisis be the headwind that pushes older households to finally change flight, to smaller, more-efficient homes so they maintain living standards? In turn, this could become a catalyst that enables younger generations, in their prime home-buying years, to improve older, low-EPC homes stock via greener retrofitting works; ultimately, a tailwind towards destination Net Zero?

The UK’s housing supply-demand imbalance and affordability factors are likely to take several years to fix. Fingers remain firmly crossed that planning departments can be fuelled by government policies towards quicker decisions abilities, to help keep the UK’s housing pipeline engines switched on at least. The coming months may well define currents and effects on house prices – will those doom and gloom headwinds or the supply squeeze in new stock prevail? Future government and monetary policies need to consider proportions and types of home sales sensitive to rising rates in a supply-constrained environment. At what level could interest rates overcome affordability and weigh down on home sales pricing and/or volumes?

A tough set of questions to answer. With a significant pipeline stuck in what feels like a nationwide planning bottleneck, no quick fixes seem possible to cure the shortage of new homes built in recent years. So, in a fast-changing environment, arguably yet to fully embed the global pandemic’s disruption to how we live and work, one could argue that the case for innovation has never been more critical in recent times. Microsoft’s CEO, Satya Nadella, is unequivocal in his belief that “The next 10 years will be a historical inflection point for digital technology, acting as a deflationary force in an inflationary world”. Seeing it as “…the only way to navigate the headwinds we are confronting today.”

How our work and home lives evolve over the next few years remains uncertain in these turbulent times, but looking out for the longer terms of goals and how they apply to construction and the latest living trends are more important than ever to be able to negotiate the headwinds.

Development Finance With BLG

BLG are a leading principal lending specialist in property development finance, we are positioned to help you. Providing residential and commercial finance ranging from £1 million to £15 million we have the ideal skill set to lend and advise. Priding ourselves on fast decisions and flexible terms we can aid you through these turbulent times. Contact our financial experts today who will take the time to get to know you and your aims.

How The Green belt Is Affecting Planning Permission

How The Green belt Is Affecting Planning Permission

What Is The Green Belt?

The term ‘green belt’ is used to describe the buffer between towns and the countryside. The concept has been around since 1890 when it was proposed by town planner Sir Ebenezer Howard. The policy was introduced to contain urban sprawl following post-war housing developments. However, towns and cities do spread organically as they cater to increasing workforces and general population growth. The term is often used in planning discussions around the countryside, wildlife, and habitats and where new building work can and can’t happen.

Research conducted by Ipsos Mori showed that 70% of the general public claim to know little or nothing about the green belt. With 65% knowing in general it should not be built on. This overall view is often used as voting ‘bait’ by local council campaigners. This has been seen recently, during the Conservative Party Leadership race between Rishi Sunak and Liz Truss. They both put forward an outright block on green belt development, which was seen as a vote-winner amongst the party’s membership.

What Is The Purpose Of The Green Belt Policy?

The UK Government states, “The fundamental aim of green belt policy is to prevent urban sprawl by keeping land permanently open; the essential characteristics of green belts are their openness and their permanence”. The UK Government outline the 5 main purposes of the green belt policy, which have remained unchanged since the guidance was outlined:

  1. to check the unrestricted sprawl of large built-up areas.
  2. to prevent neighbouring towns from merging into one another.
  3. to assist in safeguarding the countryside from encroachment.
  4. to preserve the setting and special character of historic towns.
  5. to assist in urban regeneration, by encouraging the recycling of derelict and another urban land.

While preventing urban sprawl, it also protects the agricultural industry and preserves the unique character of rural communities.

How Large Is The Green Belt?

Currently, there are 14 green belts in England and 1 in Wales. The green belt in England was estimated to be around 16,140km2 at the end of March 2021. London had the first green belt, initially proposed in 1935. Alone, London covers 1,638,610 hectares of England’s land area. 13% of England has the highest level of protection, meaning it should never be built unless there are exceptional circumstances. Furthermore, many of England’s green belt areas are crisscrossed with public rights of way. 12% includes the country’s National Cycle Network, 47% are country parks as well as 23% of registered parks and gardens. Lastly, over a third of England’s community forests, are within the green belt as well as tens of Local Nature Reserves. All of which enable wildlife to move between different habitats safely.

Why Does The Green Belt Matter?

As time has gone on, the purpose of the green belt has also expanded. Especially following the Coronavirus pandemic, the benefits that the green belt offers for health and wellbeing can’t be overlooked. During lockdown having local spaces and countryside on our door stop was vital for fresh air and exercise. The benefit of the green belt surpasses just containing urban sprawl. It helps tackle issues such as air pollution, slowing and reducing the impacts of climate change, and providing essential habitats for wildlife. Green belt land often captures carbon, provides space for water to prevent flooding, and protects the water supply. Lastly, two-thirds of green belt land is in agricultural use, meeting local needs for food.

The National Planning Policy Framework

The protection of the green belt in England is set out in chapter 13 of the National Planning Policy Framework (NPPF). The framework urges local planning authorities to maximise the full range of planning tools. Including brownfield registers before considering changes to green belt boundaries. The NPPF demands that there should be “exceptional circumstances” before green belt boundaries can be changed. Furthermore, the framework states that “inappropriate development is harmful to the green belt and should be approved only in very special circumstances”.

Often local authorities, remove land from their green belt and argue the ‘exceptional circumstances, to provide space to meet housing targets. These exceptional circumstances should be “fully evidenced and justified, through the preparation or updating of plans”. It states that, before green belt boundaries are redrawn, an authority must demonstrate that it has “examined all other reasonable options for meeting its identified need for development”, including making use of brownfield land, increasing the density of existing settlements, and exploring whether neighbouring authorities can help meet its needs.

What Does This Mean For Planning

Contrary to the opinion of the public and their perceptions based on the media, England is not all based on concrete. Research conducted by the UK National Ecosystem Assessment (NEA) showed that 93% of the UK is not urban. In England, 54% was greenspace, 18% urban land use, and 6.6% were rivers, canals, lakes, and reservoirs. Yet planning decisions are stymied by nimbyism, parodical committees, and a growing list of decision makers and environmental hurdles to clear. At the same time, planning departments have been hollowed out, by cost-cutting measures at the council level.

When creating housing planning permission, the UK government suggests that plans should:

  • ensure consistency with the development plan’s strategy for meeting identified requirements for sustainable development.
  • not include land that it is unnecessary to keep permanently open.
  • where necessary, identify areas of safeguarded land between the urban area and the green belt, in order to meet longer-term development needs stretching well beyond the plan period.
  • make clear that the safeguarded land is not allocated for development at the present time. Planning permission for the permanent development of safeguarded land should only be granted following an update to a plan which proposes the development.
  • be able to demonstrate that green belt boundaries will not need to be altered at the end of the plan period.
  • define boundaries clearly, using physical features that are readily recognisable and likely to be permanent.

The UK is currently going through a housing crisis with the cost of buying a home rising faster than wages, leaving many workers priced out of the market. Currently, Greater London contains 35,000 hectares of green belt land. Building on just one-quarter of that land would provide over a million homes. With this housing crisis, there is a desperate need for better-designed, well-located, and affordable properties.

In a recent white paper by Lichfields, they analysed every local authority’s brownfield register. They concluded that even if every site they analysed was built to full capacity, it would not meet the current aims. Equating to just under a third of the 4.5 million homes that are needed over the next fifteen years.

However, the land is not included in the green belt for environmental, ecological, or recreational reasons. In addition to the green belt not being inclusive of ‘special parts of the countryside. This, therefore, creates a certain confusion, especially for the general public. There is evidence to show the urgent need for an improved public understanding and knowledge base. Planning permission is being delayed due to this interchangeability in public discourse and the misconception that has been created.

The Green belt & Planning Permission Constraints

Planning Director at the Home Builders Federation, Samuel Stafford believes “the green belt, is now sucking the life out of planning. The ‘green belt’ concept is misunderstood, polarising and toxic and needs to be reimagined for the 21st century.” From the Lichfields report, they found a slew of local plans have been withdrawn, ‘shelved’, stalled, or are not taking on the feedback of local plan inspectors in recent weeks and months. This was believed to be due to the contentious topic of current housing needs. This leads to discussions around how and where to build homes, which ultimately lead back to the green belt. Of the 70 local authorities, Lichfields analysed, 74% of them had not adopted a new local plan in the past ten years and contained a green belt.

The Future Of Planning Permission

Housing today has suggested that guidance from the planning policy itself should be improved. If done so this could aid local authorities to get local plans approved. There should be a clear point made that all other reasonable options have been considered prior to the request to release green belt areas. Once exceptional circumstances are met, the green belt can be released and therefore land value can be captured. Samuel Stafford states that “guidance could be strengthened to make clear that for every hectare of green belt that is allocated for development at least a hectare of retained green belt will be improved by way of either environmental quality and accessibility”.

However, it is believed that it is time in 2022 to reevaluate and assess green belts. The Campaign to Protect Rural England (CPRE) has recently called for a comprehensive land use strategy. Furthermore, the UK2070 Commission has also identified that England does not have a spatial plan or a long-term framework for major infrastructure investment and development.

Housing today believes “the government should not back away from its manifesto pledge of building 300,000 new homes a year by the middle of the decade. We badly need more homes, and a lack of supply is a major factor in creating problems of affordability for both buyers and renters.” They believe that “with the right commitments from ministers and the industry, it is possible to build more homes and help the government to meet its objectives to “build beautiful”, improve quality and safety, and boost home ownership” across the UK.

Stuart’s blog: Britain’s Broken Planning System

Stuart’s blog: Britain’s Broken Planning System


“It’s a truth universally acknowledged” to borrow a phrase, that Britain’s planning system is broken. Problem is nobody knows how to fix it, so here’s my 10 pence worth.

Increase Planning Fees – there you go – that’s going to be popular! But hear me out.

 

 

Britain needs a professional Planning Agency, properly resourced with its own budget independent of Local Authority funding. There is no way the public purse is going to finance that and nor should it – it has to be funded from planning fees. And planning fees will increase as a result BUT and it’s a big BUT, an independent Agency run on professional lines would have professional service standards and the interminable delays would be driven out.

The argument against a Professional Planning Agency is that it would be under central control and lose the link with local politics. But that need not be the case, a substantial amount of planning work is administrative. Reviewing applications for compliance with Strategic Plans and  Planning Legislation, reference and negotiation with statutory bodies, reviewing planning pre-commencement conditions, to name but a few. These in theory have service standards, however in practice those standards are impotent.  We need to divorce decisioning from administration and at least resource the administration properly so that service standards can be achieved.

And the cost – well it will cost more, the question is whether the efficiency gains are worth the cost – I believe they would be but would welcome stakeholder feedback.


Stuart Parfitt, Managing Director, BLG Development Finance 

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