LDS launches new Sales Guarantee offering to underwrite development finance
A new proptech online engine has been launched to reduce the risk of development finance for lenders, by providing a guarantee to purchase new homes built by SME housebuilders.
Access to finance is becoming a growing problem for SME housebuilders with The Federation of Master Builders reporting that 42% of SME developers were involved in sites that stalled for financial reasons in 2019.
Lack of available finance was also cited as a major challenge to SME housebuilders in FMB’s 2020 survey with 368 SME housebuilders going bust in 2019.
The unique Sales Guarantee from LDS underwrites the financing of sites, guaranteeing to acquire all unsold units at an agreed price. This ensures a guaranteed exit for both housebuilders and lenders, removing speculative risks and two of the biggest traditional barriers to development funding: pricing and demand.
LDS has already brought forward £23m of new housing development in January 2021.
In removing these risks, LDS opens up previously unworkable scenarios, and allows for much quicker pricing and processing of development finance for all parties. This enables lenders and developers to confidently bring forward much-needed new housing in the UK.
Lenders, development finance brokers, and housebuilders can generate a Sales Guarantee in two minutes after inputting details of the development into the LDS online engine.
The LDS Sales Guarantee then forms the cornerstone of the funding package offered to developers by lenders, which is critical for any new development.
A typical scheme using an LDS Sales Guarantee would see a 77% reduction in cash contributions from SME developers, and a 170% increase in return on investment.
LDS aims to help double the number of homes built by SME housebuilders in Britain within the next five years, equating to over 25,000 additional houses each year, worth approximately £8 – £10 billion of new development.
Once contracts are exchanged, LDS pay developers a 10% up-front deposit. This deposit can be released to the developer to assist with cashflow, be it site purchase or simply working capital. This increases the ability of developers to look at larger sites using the same capital and bringing forward additional housing.
While LDS Sales Guarantees ensure the acquisition of all units on a site, they also allow the developer the ability to maximise their returns via open market sales. This unique position offers comprehensive risk management of downside to lenders, whilst developers retain profitable upside.
LDS is part of Landmark Group, a national investment company founded in 2000. Over the past five years, the firm has seen the size of its investment portfolio increase eight-fold in value and raised over £70m of new funding in 2020 alone (none of it CBILS).
Mark Hawthorn, CEO of Landmark Group, said: “It is accepted that the revival of the SME housebuilding market is crucial if we are to construct anything like 300,000 new homes a year in England. SME developers typically bring forward smaller brownfield and infill sites, these sites have potential for hundreds of thousands of new homes across the country, but developers are often stymied by access to finance. The LDS Sales Guarantee unlocks finances, funding and new development.
“We know that the process to review a new opportunity can sometimes be a bottleneck so set about solving this. The LDS online engine is a unique piece of Proptech which allows interested parties – be it lenders, developers, brokers or agents – to get themselves an instant Sales Guarantee and move forward with confidence. In many respects this is no different to many other online options where you can quickly and reliably sell your car, get an insurance policy, loan etc instantly and at a time and place to suit you.
“The LDS online engine is the start of a never-ending process of innovation and advancement we want to bring to the sector. The overarching aim is simply to improve every possible element of the process to ensure developers and lenders can bring forward more new housing and reduce what has been in my lifetime a perpetual shortage”.
Jason Caprioli, lending director at Kingswood Associates, said: “LDS Sales Guarantees enhance the return on equity for a developer as well as the number of projects they can undertake concurrently. At the same time LDS decreases lender sales risk, something that’s on everyone’s mind in a post Covid and Brexit environment.”
Mark Goldberg, commercial CEO at Together, said: “We have known the wider Landmark Group for many years so were one of the first development finance lenders to be involved with Sales Guarantees. It’s a brilliant product for lenders, developers and finance brokers to consider when structuring finance packages. For Together and our broker partners it offers additional comfort allowing more business to be written and much needed new housing to be created. Together has remained active throughout the recent volatility and will continue to support our developer clients, the LDS Sales Guarantee is the right product, right place and time for the market”.
Create Homes is a larger SME housebuilder providing ‘affordable luxury’ homes for private sale in sought after, semi-rural locations.
Paul Mathison, CEO of the Create Group, said: “LDS has the potential to revolutionise development financing, particularly for SME housebuilders, which are so important to the diversity and security of the supply of new homes in Britain.
“When we established our new homes division in 2015, Create Construction was already a well-known contractor in the student accommodation and hotel sectors, which had been successfully trading for nine years and reached £100m turnover. However, with no trading history as a housebuilder we were forced to use secondary lenders where the best interest rate we could secure was as much as double what we pay now.
“We are now looking to secure funding for our entire pipeline rather than on a site-by-site basis. However, I vividly remember that securing decent, affordable funding for SME housebuilders can be a long and painful process so LDS’ new online instant Sales Guarantee could become a vital first port of call for the SME market.”
