Opinion: Smart insurance and funding choices offer ray of light for under-pressure SMEs

As the housebuilding industry continues to face a perfect storm of challenges causing many developers to batten down the hatches, Jack Bristow from insurance and funding specialist, J3 Advisory, discusses the vital role that SME housebuilders play and how it is more important than ever for them to secure the very best warranty and funding options to protect under-pressure profit margins.
There’s no denying that times are tough for all housebuilders currently. In the face of a weakening housing market, rising costs and an ever-growing number of hoops to jump through in terms of planning, it’s unsurprising that we’ve seen the country’s biggest developers scale back site starts, close divisions and cut jobs to weather the storm. But the housing industry is more than just volume housebuilders. SME developers play a key role; creating neighbourhoods, revitalising pockets of towns and cities and bringing much-needed variety to the housing stock.
Yet it is the SME developers that face the biggest challenges. It is estimated that there are now 85% fewer small housebuilders than a generation ago as businesses face greater barriers than ever before. A survey of 200 SMEs by the Home Builders Federation in July found that 78% are considering scaling back construction activities, while 87% are contemplating a change in business direction. Nine out of 10 small housebuilders are unhappy with the government’s approach to housebuilding, and it has reached boiling point with a letter signed by almost 200 firms being delivered to Number 10 last month.
When the letter was delivered, Stewart Baseley, executive chairman of the Home Builders Federation, said: “SMEs are the lifeblood of all industries, but in housebuilding we are seeing them being driven out by an increasingly anti-development, anti-business policy environment. The planning process is grinding to a halt and regulatory costs are rocketing, whilst the nutrient issue has put the brakes on sites across a quarter of the country.”
“The impact of this policy approach is devastating for SMEs, and businesses unable to operate or generate an income are laying off staff, or increasingly closing their doors. We are urging Government to act now so that the businesses that remain have a chance of survival.”
Regulatory rigmarole
Today’s planning system sees the same rigorous technical assessments carried out on every application, including evaluations of ground conditions, ecological surveys and tree protection measures. No matter whether a developer wants to build five or 5,000 houses, the process is the same. This puts smaller-scale developers at a disadvantage, having to absorb disproportionately higher upfront costs and navigate a higher number of discretionary decisions. In fact, SME builders face approximately 50 times more discretionary decisions compared to their larger counterparts.
Funds tied up
SME developers will also find themselves at a disadvantage due to the number of schemes they can be actively working on at one time. While larger housebuilders have the resources to begin other projects while awaiting planning on a handful of others, SMEs are more likely to have a significant percentage of their available cash invested into one scheme. The more delays in the planning process and the more hoops to jump through will tie up the company’s funds for longer, ultimately resulting in a longer wait until they can start construction and selling.
Protect profit margins and find the right partners
With the warranty and finance market constantly changing, particularly in the turbulent times we’ve found ourselves in over the last year, it’s important for developers to stay up-to-date with the best products and options out there that not are not only priced right but are fully suited to their requirements. This is even more imperative for SME developers, whose margins are already being squeezed by rising costs and falling house prices.
We understand that SME housebuilders with smaller teams may find it harder to dedicate the time to do this, which is why we think we can be the perfect extension to the team to provide this service. Of course, the easy option is to stick with what you know for the sake of time-saving and familiarity, but in these tougher times, it’s vital to be innovative and think differently. Our clients have benefitted from double-digit savings on their insurance costs by our advisors going to market on their behalf. Similarly on funding, we’ve been able to remodel development debt to reduce equity input and increase cash returns. With nearly 900 lenders in the UK market, sometimes it’s simply about knowing a lender that isn’t on the radar of a developer and bringing the two together.
Armed with information
To help all housebuilders get a fair deal for their building warranty, J3 Advisory has launched a free-to-use warranty calculator to give developers an understanding of how much they should be paying and if they could save. Our calculator provides housebuilders with a guide price in seconds, ensuring that they aren’t going into negotiations blind. We’re committed to providing honest and impartial advice for clients, and this is the first step in ensuring that developers are receiving exactly that.
If the UK is to seriously tackle the housing crisis, SME developers will play a key role, not only regenerating brownfield sites deemed unviable for larger builders but also bringing unrivalled local insight and unique designs to provide what’s needed in their regions. Times may be tough, but we believe we can help SMEs and volume builders alike navigate the funding and warranty markets to find the best deals when it’s more important than ever to do so.
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