British Business Bank and United Trust agree £500m boost to SME housebuilders
United Trust Bank has secured an ENABLE guarantee via the British Business Bank which will allow UTB to increase significantly the amount of development finance it provides to SME housebuilders in the UK.
The transaction is expected to enable UTB and the British Business Bank to support the building of new housing with a value of more than £500m over the lifetime of the guarantee.
This is the first time the government-owned British Business Bank has used the ENABLE guarantee specifically for the housebuilding sector.
The 2017 Federation of Master Builders survey highlighted the challenges that SME housebuilders face in accessing finance; 54% reported that a lack of finance constrained their ability to build more houses.
The British Business Bank’s Small Business Finance Markets report for 2016/17 further highlighted smaller housebuilders’ difficulties, finding that, while non-top 10 housebuilders had accounted for 73% of completions in 2009, this had reduced to 53% in 2015.
UTB’s executive director, Noel Meredith, and chief financial officer, Jonathan Ayres, have worked closely with the British Business Bank’s guarantee and wholesale solutions team to structure the ENABLE guarantee for development finance.
Graham Davin, CEO of UTB, said: “We are now able to promote greater access to funding for SME homebuilders. Property development funding is a complex area where specialist banks can make a large difference, but the capital requirements are onerous, and mitigate against specialists allocating capital to the sector.
“The culmination of our joint efforts to adapt the BBB’s existing guarantee to make it suitable for property development loans is a meaningful improvement to the capital efficiency of the bank for these loans. This allows us to support more house building projects across the country.”
The British Business Bank’s ENABLE guarantee programme encourages banks to increase their lending to SMEs by reducing the amount of capital required to be held against such lending. Under an ENABLE guarantee, the UK government takes on a portion of the counterparty’s risk on a portfolio of loans to smaller businesses in return for a fee. In this instance UTB will allocate this additional capital to increase its funding to new build and redevelopment projects undertaken by SME housebuilders and developers.