A new Proptech engine, which transforms viability for SME housebuilders and their lenders, has issued more than £600m worth of instant Sales Guarantee proposals in its first three months.
LDS has reported that its online engine, which launched in January, supplied a total of £603,200,000 worth of Sales Guarantee proposals for new housing developments in the first quarter of 2021. LDS’ target for the year is to issue £4billion of proposals.
Enabling SME housebuilders to construct more homes is seen as key to help solve Britain’s housing crisis as larger developers are reaching capacity. In April the Housing Minister Christopher Pincher said: “A successful SME sector is crucial in our shared objectives of planning reform and increased housebuilding.”
In March the Chair of Homes England Peter Freeman said one of his top 10 priorities is “ensuring SMEs play a greater role in housing delivery.”
Access to finance has been a growing problem for SME housebuilders, with the Federation of Master Builders reporting that 42% of SME housebuilders were involved in sites that stalled for financial reasons in 2019.
In 1988, SME housebuilders were responsible for 40% of new build homes, compared to around 10% today. This equates to a drop of 75% in the number of homes built by SME housebuilders in just over three decades.
The unique LDS Sales Guarantee removes all speculative and exit risk for housebuilders and their lenders by underwriting the financing of sites, guaranteeing that housebuilders can call on LDS to complete on any unsold units. This catalyst opens up increased access to finance and the ability for increased output. LDS can also release 10% of the guarantee value to the housebuilder unsecured and at zero interest.
The combined effect of increased leverage and the LDS cash release reduces housebuilder cash contributions by an average of 77%. This in turn enables housebuilders to bring forward up to four times more new housing from the same cash base.
The response to the new Proptech engine since its launch shows the strength in demand from the sector, with SME housebuilders keen to bring forward new sites – if they can unlock financing.
A recent SME housebuilder to bring forward a site through LDS was D T Joseph Developments Ltd. A Sales Guarantee and a £424,656 cash injection were provided by LDS enabling the development of 16 new homes with a GDV of £6m.
In Terrington St Clement, Norfolk, a local developer and construction company was able to acquire a site after LDS provided a Sales Guarantee and a £720,000 cash injection which was used towards the site purchase. Plugging the financing shortfall has enabled the developer to bring forward 44 new homes, including 9 affordable units, with a GDV of £10.6m. For this transaction, the Sales Guarantee is estimated to have increased the developer’s return on investment by 137%.
The £603m of proposals requested between January and March 2021 spanned 67 sites, consisting of 1,551 new homes across England and Wales. The sites range in size from 10-59 units, with GDVs of between £3m-£38m per site, with the average at around £9m.
Lenders, brokers and housebuilders can create a free, no obligation Sales Guarantee proposal in around two minutes using the LDS online Proptech engine. A Sales Guarantee allows them to remove speculative risks, increase access to finance on improved terms, release cash, and completely transform viability.
Mark Hawthorn, CEO of LDS, said: “We are pleased, although not surprised, to see interest in Sales Guarantees growing rapidly.
“The response in the first quarter since the Proptech engine was launched gives me huge confidence we will meet our goal of £4bn in Sales Guarantee proposals for 2021.
“The adoption of Sales Guarantees by the market is driven by simple facts – they remove risk, reduce cash requirements, and increase returns. The compelling duo of higher returns and lower risks completely transform the viability of sites for both housebuilders and lenders, allowing much-needed new housing to be brought forward.
“SME housebuilders tend to build on smaller brownfield and infill sites in already-established areas, which hold huge potential for additional homes across the country. By helping them to unlock development finance and boost their output, we are driving the revival of the SME housebuilding market and helping the Government meet its target to build 300,000 new homes each year.
Daniel Lloyd, Founder and Owner at D T Joseph Developments Ltd, said: “LDS transformed the financing of our Spring Meadow development in Ramsbottom, enabling us to move forward and provide 16 high-quality and energy efficient family homes for the people of Ramsbottom and surrounding areas.
“As an SME, receiving a guarantee that someone will buy the new homes you’re building is a weight off your shoulders as it significantly reduces the risk from our development and enabled us to secure better rates of lending.
“The Sales Guarantee and the initial cash injection completely transformed the viability of the development and increased our capacity for future developments. LDS gives us the potential to build more much-needed homes – we are already looking at other sites long before we would previously have been able to.”
LDS is part of Landmark Group, a national investment company founded in 2000.