BUSINESS SUPPORT SME DEVELOPER GUIDE
IN DEVELOPMENT M ost of you will be familiar with this worrying statistic: back in the late 1980s, smallbuilders delivered more than ● Don’t solely rely on high street banks – specialist development finance providers, challenger banks, and peer- to-peer (P2P) platforms often have a strong appetite for smaller, unique projects. When presenting your plan, be sure to demonstrate your exit strategy (how you’ll sell the homes); If you’re a Master Builder contemplating the leap from contractor to developer, the industry needs you 2 Development finance – how do I pay for it? Finance is often seen as the biggest hurdle, but it is manageable once you understand the core components of the capital stack, which refers to:
40 per cent of new homes in the UK – yet these days, it is just nine per cent. Simply put, the UK needs more housebuilders and more SME developers. To help you make the move from builder to developer, the FMB has created a new SME Developer Guide . While the full guide covers everything from site management to zero-carbon standards, making the initial leap relies on mastering three non-negotiable fundamentals . 1 Land – where do I build? You can’t build a house without the land, but the best sites aren’t always advertised openly. You need to become an expert in sourcing. ● Go beyond the portals – your local council’s Local Land Availability Assessment (LLAA) is publicly available and details sites identified for housing that may not yet be on the market. ● Think laterally – use online
● equity – your own money (or investment from partners) that absorbs the first layer of risk; ● senior debt – the main bulk of the loan, typically covering 60-70 per cent of the build costs, usually provided by a bank or specialist lender; and ● mezzanine finance – the high- interest layer that fills the gap between equity and senior debt, helping you to maximise leverage while reducing the initial equity you need to put down.
and an understanding of your construction costs and timeline. 3 Planning – can I build it? Before committing time and money, confirm your project’s viability with the planning system. Talk to the local authority early. A pre-application discussion is a powerful tool. It helps you to understand local planning policy, identifies potential conflicts before you submit a costly formal application, and gives you insight into what planners want. All developers are subject to financial charges designed to fund local infrastructure. These are generally delivered through two mechanisms: ● Section 106 (S106) agreements , which are specific to your site and may require contributions like affordable housing; and
The FMB gives its thanks to the guide’s two sponsors
Openreach supports developers, big and small, to connect to its open access telecoms network across the UK with competitive pricing including free Full Fibre for 20+ plots.
● the broader Community Infrastructure Levy (CIL).
mapping tools to hunt for small back-land opportunities (land behind existing properties) or hidden brownfield sites.
Factor these costs into your initial land valuation and feasibility study, not as an afterthought. Ignoring these overheads can destroy your project’s margin before you even lay the first brick. These three foundational elements – land, finance and planning – are essential to being a
● Build landowner credibility – when you approach a private landowner – especially for a smaller, un-brokered site – show them a record of quality builds (your FMB membership helps here) and a clear action plan. Having a professional team (architect/ planner) lined up makes a big difference in that first conversation.
United Trust Bank’s Property Development division provides funding to support housebuilders and developers in England and Wales, helping them to create around 4,500 new homes at any one time.
successful developer with a profitable, low-risk project. Scan the QR code for the full guide.
26 Master Builder
www.fmb.org.uk
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