Sales guarantee to empower SME housebuilders

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new Proptech online engine has been launched to eliminate the growing development finance problem for SME developers by providing a sales 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 (FMB) reporting that 42% of SME developers were involved in sites that stalled for financial reasons in 2019.

The unique sales guarantee from LDS, part of Landmark Group, underwrites the financing of sites, guaranteeing to acquire all unsold homes 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.

The Proptech engine 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 £8-10bn of new development.

By removing risk, LDS opens up previously unworkable scenarios, and allows for much quicker pricing and processing of development finance for all parties.

The LDS sales guarantee will improve residential development viability for SME housebuilders by reducing upfront cash requirements, which lessens the risk of insolvency.

Housebuilders can generate a sales guarantee in two minutes after inputting details of the development into the LDS online Proptech engine.

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.

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.

‘Unlocking finance, funding and new development’

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, 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”.

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