Development and architecture are inherently linked in the UK. Developers need architects and vice versa. Architects should keep a beady eye on trends within the development sector. Property development is a high spend, high reward area of business. Nothing comes cheap in the world of property – if it does come cheap then it probably isn’t worth anything at all. Developers are always finding innovative ways to seek funding for construction, renovation or property purchases. You might be surprised to find out that the UK has a very comprehensive network of funding schemes designed specifically to help property development and guide it in the right direction.
The UK is currently suffering one of the worst housing crises in recent history, the Tory government has put a great deal of faith in the power of housing developers to solve this crisis. Although this has proven to be a rather naïve assessment in terms of social housing development, it does mean that the government has poured money into the for profit housing development sector in recent years. In the past, commercial properties were seen as the best development properties. Now, thanks to various funding programs, residential development is being valued highly by investors once more. Homes are the new cash efficient developmental investment, but the development of responsibly funded homes is very complex.
This article is a very brief guide to some of the funding options available for UK developers looking to get into the housing market. All of these funding options are designed to help developers make choices that benefit the communities that they are working in and create long term sustainable housing. While a developer might wash their hands of a property once it has been sold on, the work they undertake will have an impact for years to come.
Double Glazing Funding
Many housing developers are seeking to invest in green properties. This is not only due to their desire to save the environment, but also because it is becoming increasingly clear that environmentally sound investment is a great deal safer than environmentally unsound investment in the context of the climate crisis.
One of the ways in which developers can create more sustainable buildings is to install double glazing. Single panes of glass are very bad at retaining heat. Traditional windows made of single panes let out so much heat that occupants are often forced to spend a great deal of money on heating their houses excessively. Almost all heating systems are bad for the environment. They rely upon natural gas or electricity: both sources of power having a very large carbon footprint.
Insulating a home with double glazing makes it more environmentally friendly to heat. Double glazing stops heat transfer efficiently by incorporating a pocket of nonconductive gas in between two plates. This gas is usually argon, which conducts 25 percent less heat than the normal air we breathe. Double glazing windows are not cheap. Both the production and installation of these energy saving windows is pricey enough to have put some developers off the idea altogether. Luckily, there is now ample government funding for the installation of double glazing in developments. Plenty of private double glazing companies are more than happy to help you see if you qualify for free double glazing. The installation of double glazing will also increase the value of your property – especially if it is a residential development. When offering purchasers more efficient homes you are able to ask for a price reflective of this efficiency.
Home Building Fund
Homes England, working on behalf of the UK government, offers very good value loans for developers building homes for sale or rent. This scheme is a response by the current government to the housing crisis and an attempt to promote a financially sustainable residential development market. Whether this scheme achieves its goals in the long term is still up in the air, but developers can benefit from it immediately.
Depending on the size and nature of a project this scheme can offer between 250 thousand to 250 million in very low interest loans. Projects that are approved need to be good value for taxpayers and benefit communities in a broad sense. Priority is given to development projects in brownfield areas. Brownfield areas are currently being prioritized over green field sites due to their perceived ecological unimportance. Developers would be wise to tailor their projects towards the funding criteria of the home building scheme as it offers one of the best options for raining money for large scale development.
The home building fund offers two different kinds of loan: development and infrastructure.
Development loans are assigned in order to cover some of the expense associated with the actual commissioning and building of new homes. These loans have to be taken out over 5 years. If a developer needs to pay for construction or architects, they can apply for this loan in order to cover their costs without going to the banks. Architects should consider the benefits of working with developers who have received this loan: it acts as an assurance of funding throughout the project. Unless developers have a huge amount of capital investment on their side, they will need to balance their books using funding and loans at least some of the time. The Home Building Fund is one of the most well used and easy to understand methods of sourcing capital for development projects.
Although infrastructure loans do not cover the costs of construction or architectural fees, they must be put towards projects that eventually lead to the development of homes. The money can be spent on preparing land for the development of homes. Sewage systems, water works, electricity provision and many other preparatory aspects of home development can be paid for with an infrastructure loan. This kind of loan is taken out over 20 years. Much of the brown field land that the government is encouraging home development on needs a great deal of infrastructural work before the first brick can be laid down. This includes the demolition of warehouses and farm buildings that still stand tall on many brown field sites around the country. Demolition, as any developer knows, can be a real financial headache. On site utilities for workers and architects also need to be funded and put in place. Infrastructure loans were therefore rightly considered as essential to any development funding scheme by the government. Developers would be wise to apply for some kind of infrastructure loan as soon as they have taken control of the land that they wish to build upon.
Disabled Facilities Grants
New homes need to be accessible to people with disabilities. Some existing homes under development are woefully inaccessible and need upgrading with specialist equipment. Disabled facilities grants are in place to help fund these upgrades or incorporate them into an emerging design.
Disabled facilities grants are issued by local authorities and vary in size according to the work that needs to be undertaken. Developers can only apply for this kind of grant if they also intend to act as the landlord for a disabled person. If a developer wishes to sell the homes before they are occupied, then this kind of funding cannot be sought.
There are various works that can be paid for using a disabled facilities grant. Most of these works involve the adaptation of existing buildings to provide more accessibility and safety to people with varying needs. Wider doors, lifts, accessible toilets and ramps are all necessities for many disabled people and need to be installed in homes occupied by them. There has been a great and welcome move towards making commercial spaces more accessible to disabled people, but this drive has unfortunately not been reflected in the domestic housing situation. The Disabled Facilities Grants are an effort to try and make domestic homes safer and more practical.
Housing Growth Partnership
The Housing Growth Partnership is a nonprofit social impact funding organization. It was set up as a collaborative partnership between Lloyds Bank and Homes England with the express purpose of tackling the housing affordability crisis through investment in development projects. The partnership encourages developers to create affordable housing by providing them with funding if they meet housing sustainability criteria. By equating the sustainability of housing prices with the success of profit driven developers the partnership is hoping to cultivate a more socially progressive and useful housing development market.
The funding structure of the partnership is more complex than a typical bank loan. They invest money interest free but expect returns on the investments they have made. They provide this investment primarily to projects that aim to create affordable housing for rent and purchase.
Initiatives like the Housing Growth Partnership are extremely useful to housing developers, who can make affordable housing work for them. One key issue with housing development in the past was the tendency for developers to only invest in high rent and quick return properties. This meant that cities were being pumped full of apartments that only the very wealthy could afford – decimating the very multiplicity that creates a unique city space and pushing poor people away from the city altogether. Suburban areas also have this issue, which is caused by the development industry. The Housing Growth Partnership is theoretically designed to put an end to this pattern and help more people find homes they can afford.
Custom Build Serviced Plots Loan Fund
The Custom Build Serviced Plots Loan Fund is a unique scheme that has been put in place to help developers facilitate the creation of homes built to custom specifications by landowners. The pot of money assigned to the scheme in 2014 was 150 million pounds. As such, it is only really useful for small scale developers.
Development of self and custom build plots is not new in the UK. From the 1950s until the 1980s several custom and self-build development projects were funded with some success. They offered tenants and property owners the opportunity to create their own living space under the architectural guidance of a development team. These were also often created in collaboration with local councils. Pioneering architect Walter Segal created the blueprints for customizable self-build homes which were eventually developed in Lewisham as council houses. These homes were eventually sold off and now carry rather hefty price tags. They are all beautifully customized and built by the original tenants themselves. Several other schemes were less successful, but this was largely down to holes in funding.
The Custom Build Serviced Plots Load Fund was set up to provoke more imaginative and cost-effective housing developments in the private sector. If a developer can produce and lease ‘shovel ready’ plots of land for custom building projects, then they are fully entitled to this loan. The purchase of this land cannot be funded – only the necessary investments in infrastructure and landscaping needed to make a plot ready for building. These can include investments in on site utilities, roadways, earthworks and national grid connection.
Funding is limited to 3 million pounds per project, which is an extremely small amount of money when it comes to development costs. It should not, however, be sniffed at. The interest rate is very low and the fund helps to promote fascinating architectural diversity. Planning permission needs to be sought by applicants before any kind of loan is approved.
Builder’s Finance Fund
The Builder’s Finance fund is a 525 million pound pot of money set aside by the government to help fund smaller developers. The fund will only finance projects described as ‘small or medium’. In legal terms, this means development projects of between 5 and 14 homes. In certain circumstances the Builder’s Finance Fund can be combined with a Custom Build Serviced Plots Loan in order to pay for infrastructure.
As usual, the funding is provided in the form of a loan with extremely favorable interest rates. These rates are fixed and their actual amount is negotiated during the agreement phase of the funding process.