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There’s little doubt that Help to Buy has been a boon for property developers since its introduction in 2013. But with the scheme coming to an end in 2023 (barring an about turn by the next government), smaller developers are right to be concerned about what this may mean for the new homes market.

Help to Buy was available on this development, St Dominic’s Place, Stoke-on-Trent, for which Argyll provided mezzanine funding

Property developers have a lot to thank Help to Buy (HTB) for. It has helped 211,000 people buy new homes since 2013, and it is said to account for up 40 to 50% of site sales on many new developments.

But the response to HTB has not all been positive. A study by the National Audit Office (NAO) earlier this year claimed that HTB has inflated property prices and boosted the profits of developers.

In addition, it found that only 37% of the 211,000 who used the scheme to the end of 2018 would not otherwise have been able to afford a home. And, almost one in five borrowers weren’t even first-time buyers.

Many recent press reports have focused on the benefit of HTB to developers and emphasised the increased profits of the likes of Redrow, Bellway, Taylor Wimpey, Barratt and Persimmon. But according to The Home Builders Federation (HBF) the “vast majority” of the developers registered with HTB are in fact SMEs.

David O’Leary, Policy Director at the HBF, has praised the scheme saying, “it is a major reason why housing supply is up 78% in the past five years”. “However,” he warns, “the industry acknowledges that the scheme cannot go on forever.”

Gareth Davies, head of the NAO, says the end of HTB poses a challenge to the government as it must “wean the property market off the scheme with as little impact as possible on its ambition of creating 300,000 homes a year from the mid-2020s”.

What does the future hold for SME developers?

This begs a couple of questions:

  • what will the next few years hold for the residential market? and
  • where will the end of HTB leave smaller developers?

A recent report by Savills predicts that we are in for a period of disruption in development driven by a mixture of political factors, financial factors and environmental factors.

Of these, one of the most interesting for SME developers is how the next government (whoever that may be) will respond to the housing shortage. To an extent, it may only be a question of degree, as all the parties to a greater or lesser extent recognise the growing need to build more homes more quickly and to make them affordable by more people.

A report on HTB in September by a House of Commons select committee concluded that the Help to Buy scheme is not making homes more affordable for society in general or helping address other pressing problems in the housing sector. The scheme, it said, has only benefitted one section of society – those that are in a position to buy their own home in the first place.

“The scheme does not address issues with the wider planning system, or other problems in housing, such as the provision of affordable housing to buy or to rent and rising levels of homelessness,” concludes the report.

Government intervention

It seems highly unlikely the 300,000 new homes target will be met without some form of government intervention, most probably in the form of relaxed planning provisions to force a greater diversity of product. Savills concludes that this could result in “the end customer shifting from individual homeowners buying open market sale homes to institutional investors and registered providers seeking bulk purchases of rental homes”.

This would squeeze developer margins and reduce GDVs, but it would have the advantage of reducing developer risk and the time and money spent on marketing, sales and development finance.

Granted, this is more likely to impact larger developers than SMEs with smaller schemes, but a shift to homes bought for rent will bring in more investors and registered providers even for some smaller schemes.

It could also lead to developers entering into partnership with investors or registered providers as Telford Homes did earlier this year with Invesco and M&G. Granted this is a large developer and two major investors, but the principle is likely to filter down.

This is especially the case post HTB if there is a squeeze on mortgage lending and developers can no longer rely on the steady stream of new buyers they have enjoyed since 2013.

If you would like to discuss mezzanine finance for your development, please call us now.

  • “I think they are probably the best provider of mezzanine finance in the market. I am a client and a broker so I’ve dealt with them extensively with both hats on. Unlike some other lenders who do the same thing, Argyll fill you with confidence from the get go and offer support throughout the project. They are all very experienced, have a broad knowledge of the property market and respond to you quickly and professionally and with great efficiency. The relationship between them and my senior lender Close Brothers is seamless and always goes smoothly. I will use them again and will continue to recommended them to other developers.”
    Paul Smeeth
    Director, Charles James Developments Group
  • “I recently used Argyll Property Partners for mezzanine finance and found them highly flexible and good to deal with. They are very clued up about what is going on in the property market and gave me some valuable advice about the development. They have an existing relationship with my senior lender and this made things very easy. All the way through they did what they said they would do and delivered the funds quickly. I would recommend them.”
    Karen Seward
    Director, Modena Homes
  • “I have used Argyll Property Partners for mezzanine funding on a number of developments and always find them highly professional and easy to deal with. I like the fact that they are so straightforward and make quick decisions. As they use their own money to lend they don’t need board approval and this makes the approval process very quick. I have no hesitation in recommending them for mezzanine funding.”
    Lee Clemson
    Director, Mantle Developments
  • “Argyll understood our requirements very rapidly and came up with an almost immediate offer, which was highly impressive. As a result of the strong connection they have with the senior lenders and their speed and professionalism (and that of their lawyers), the whole lending process was seamless. The best recommendation I can give is that we will use them again and I would recommend them to other developers."
    Richard Hayward
    Director, Richard Hayward Properties
  • “We found Argyll to be very quick and efficient. They gave their investment decision in short order and were easy to deal with. They understand the residential property market and had a good knowledge of the North Yorkshire market in which we operate. They were switched on to what we require – fast money and for the process to be simple when it comes to security packages and dealing with professional teams. Argyll were in fact introduced to us by our senior lender and they worked very well together as a team. We intend using Argyll again and have no hesitation in recommending them.”
    Nick Moody
    Newby