Stuart Law

Lenders should step up and support the wider market

Recent figures published in Shelter England’s latest report on social housing highlights an ongoing issue with affordable housing supply. In short, the commission concluded that England will require a further three million social homes by 2040.


Given that the current level of social housebuilding — councils and housing associations typically — is a little over 6,000 homes per year, this represents a significant, and unrealistic, increase.

Shelter’s numbers are concerning, being yet another confirmation of the UK’s shortfall in both affordable and social housing of all types. Economic factors such as low wage growth and a strong recovery in house prices following the credit crunch are making properties less affordable each year, while the government’s extended support of Help to Buy subsidies and the Bank of England’s extended low interest rate regime have helped drive those prices up to current levels. This is certainly beginning to attract some lenders’ interest in terms of robustness of valuations if Help to Buy was to be scaled back at some point.

This house price strength highlights a growing argument that the housing ladder no longer exists. When I have analysed this in the past, my view has been that modest house price growth over time supports the housing ladder and assists families to build equity to permit upsizing over time. It is when that growth is excessive versus wage growth that it works the other way and harms the ability to move home, or even to own your own home in the first place. With prices having perhaps risen too strongly in many locations in recent years, and a lack of quality execution of a strategy to deliver more affordable or social housing, the need for more housing for rent or sale at the lower priced end of the market has become increasingly important.

In the absence of housing associations and councils building anything like as much as they used to, the private sector has, to a small degree, started to carry a little of the weight with philanthropically minded landlords sometimes specifically offering properties on affordable rents. But on the whole, recent changes to benefit payments have yet further dissuaded landlords from renting to those on those benefits.

The problems with affordable housing should not be left to solely philanthropic solutions. As highlighted by the creation of the Self-build and Custom Housebuilding Act of 2015, the government has seen the value of people having the freedom to build their own home, with custom-build or off-site modular housing often being more energy efficient and, therefore, substantially cheaper to run in the long term. More importantly, it widens the scope of projects that SME housebuilders could get involved in that are less capital and debt intensive than traditional housebuilding. This is because homebuyers typically provide the home construction finance themselves, with or without the aid of mortgages, leaving developers to just put in infrastructure and sell those serviced plots. Nonetheless, as serviced plot sales take off there will be a need for more debt funding for these projects to circumvent the need for the stage drawdown self-build mortgages and open up the market to all types of homebuyers. This will require more careful assessment of off-site manufacture counterparty risk by lenders, but with larger and larger businesses getting involved in this sector, this may get easier.

When it comes to supporting the development of a more inclusive range of housing, the lending industry will need to educate itself and be more open minded to lending for projects involving affordable homes, off-site manufacture of houses, modular construction, self-build and custom-build serviced plots. With local authorities beginning to work closely with developers to bring better uses to their sites and sometimes to bring a larger than legally required quotient of affordable housing at the same time, it is clear that lenders will begin to see more opportunities to fund schemes that have affordability designed in and there will be a growing need for lenders to be willing to support these projects.


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