Property Week Q&A – LDS Regional Director on SME financing market21st July 2022
LDS Sales Guarantees Regional Director Ben Jenkinson, former Head of Development Finance Products at Homes England, on lending to small housebuilders.
What is LDS all about?
The LDS Sales Guarantee is a product that gives SME developers and housebuilders the confidence and capacity to build more.
We provide pre-sales of homes before they’re built. Developers try to sell homes on the open market, but if they don’t, LDS will purchase them. There’s no obligation for developers to use us or that backstop. Landmark is a well-established property investor with a £200m portfolio which provides confidence around that backstop. We remove sales risk from projects, which is very helpful, as lenders don’t like risk.
How does that work with your for-profit business model?
Our model is to be paid not to buy homes. On day one, we provide the guarantee and backstop on the sales. But we also release a 10% interest-free deposit into developers’ cashflow. Usually the houses built are sold to private buyers, and when they’ve been sold, we receive our deposit back plus a small fee. It’s not insurance, but a similar product.
What experience did you bring from Homes England?
The reason I’m with LDS is that my team [at Homes England] looked at a very similar structure in Government to what LDS is looking at: the idea of guaranteeing demand to stimulate supply. My product development team scanned the development finance market to look for potential partners that we could work with.
Our thinking was that if you use some Government money and lots of private money and come up with creative structures, you could do lots to help the market and smaller SME developers who need more support.
Tell us about the Assetz Capital partnership…
Assetz is well capitalised and has a big funding line, which is where that £1bn figure comes from. I suspect the speed at which they deploy it will be down to them and market conditions.
What’s the development finance market like now?
Off the back of the last recession, there’s now quite a diverse spread of lenders. But as soon as things get choppy [politically and economically], you get a quick retraction. It remains to be seen how many development lenders will stay in the market and if they do, will lending become more expensive and will they lend less?
How are SMEs faring?
The cost of finance is just one challenge for SME housebuilders, along with the planning system and finding land. The Government is rightly focusing on new homes’ operational carbon emissions.
Better environmental standards cost SME housebuilders more time and money. It’s a bit of a perfect storm. It’s up to development lenders to stand with borrowers and hold their nerve.
Are you developing an ESG strategy?
We’re developing a specific product enhancement to provide information and incentives to the developers who use our Sales Guarantee to provide a tangible benefit to them when they build more environmentally efficient homes.
What are your plans for the next 12 months?
We have another alliance with a large lender planned for September and we’re working on something with a challenger bank as well.