Sales guarantee to boost SME house builders

Grant Prior 2 years ago

A new online financing service has been launched for SME house builders which guarantees to buy any unsold homes on a development.

Investment specialist LDS is hoping the new scheme will help double the number of homes built by smaller developers within the next five years.

The firm’s Sales Guarantee underwrites the financing of sites by guaranteeing to acquire all unsold homes at an agreed price.

This ensures a guaranteed exit for both house builders and lenders, removing speculative risks and two of the biggest traditional barriers to development funding – pricing and demand.

The guarantee will also improve residential development viability for SME house builders by reducing upfront cash requirements, which lessens the risk of insolvency.

House builders can generate a Sales Guarantee in just two minutes after inputting details of the development into the LDS online Proptech engine.

This then forms the basis of the funding package offered to developers by lenders.

LDS claimed 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 to assist with cashflow.

LDS is part of national investment company Landmark Group.

Paul Mathison, CEO of SME housebuilder Create Group, said: “LDS has the potential to revolutionise development financing, particularly for SME housebuilders, which are so important to the diversity and security of the supply of new homes in Britain.

“When we established our new homes division in 2015, Create Construction was already a well-known contractor in the student accommodation and hotel sectors, which had been successfully trading for nine years and reached £100m turnover.

“However, with no trading history as a housebuilder we were forced to use secondary lenders where the best interest rate we could secure was as much as double what we pay now.

“We are now looking to secure funding for our entire pipeline rather than on a site-by-site basis.

“However, I vividly remember that securing decent, affordable funding for SME housebuilders can be a long and painful process so LDS’ new online instant Sales Guarantee could become a vital first port of call for the SME market.”

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