Smaller (SME) developers face supply chain issues, delays, and cancellations of residential projects, and mezzanine lender Davon has warned that action is urgently needed.
David Norman, director at Davon, said that in addition to planning delays and rising costs, suppliers now want upfront payments, while lenders are unwilling to release funding for them.
Norman said the finance industry should be more open to off-site payments, and that the Government should consider backing lending for some kinds of materials.
He said: “We understand that banks and other senior lenders want to see materials safely delivered to site before releasing funds, but we have to recognise that the industry has changed with many more suppliers requiring to be paid in advance of shipping materials.”
Norman added: “Holes are opening up in the funding stack. We need to be more open to the challenges of offsite payments and cashflow shortages in general and find a way to adapt.”
Building regulations and the drive to net zero have led to more system builds using big-ticket materials, such as timber frames and prefabricated components, meaning developers need more cash to pay for materials upfront.
Norman said: “The building industry is being expected to change to meet carbon targets, so we need a government-backed system for financing materials that contribute to that goal.”
He added: “I think there is a particularly strong case for making such a scheme available to SME residential developers who are building new homes in a housing shortage but do not have the deep pockets of the big housebuilders.”
Davon reported growing demand for mezzanine finance – second tier lending to back up primary bank loans – as SME developers try to plug holes in the funding for projects.
