Budget 2014: Small developers offered £500m fund

The chancellor has moved to boost the ranks of small builders across Britain by offering measures to improve access to finance and encourage people to build their own homes.

George Osborne revealed on Wednesday a £500m “Builders’ Finance Fund”, which will offer loans to small developers and help sites of up to 250 homes that have been stalled due to difficulty in accessing funds.

The initiative is aimed at easing the growing housing crisis in Britain, with the number of homes being built running at about half the number required.

The chancellor said at the weekend that the first part of the Help to Buy scheme – which offers buyers a loan of 20 per cent of the value of a new home – would be extended until 2020, in a big boost to the larger, listed housebuilders.

But the extension of Help to Buy was not universally praised. Pete Redfern, chief executive of Taylor Wimpey, one of the top three builders, said that while the scheme was a good idea and appropriate for the current market, “a long-term extension at the current level is further than I would have gone”.

The government-backed scheme has fired a resurgence in the fortunes of the industry, with the profits of the larger companies staging a remarkable turnround from the dark days of the post-crisis years. But several of the biggest builders, such as Taylor Wimpey and Barratt Developments, have hinted that they cannot increase output much further.

Meanwhile, the decline of the SME housebuilder has been stark, with many failing to recover since the downturn. In 1988 two-thirds of all new homes were built by developers with an annual output of fewer than 500 units. By 2012 that was down to less than a third.

The Federation of Master Builders welcomed the £500m fund, as “many major banks are still reluctant to lend for small residential developments”.

But there was some concern that the coalition’s policy would be directed at sites that had already been bought and carried planning permission, while many SMEs are unable to buy land in the first place.

“They’re looking for a quick fix that will bring results by [the general election] next May,” said Steve Midgley, director of Fairgrove Homes and chairman of the small developers group at the Home Builders Federation.

Taken together, the housing policies I announce today will support over 200,000 new homes

The chancellor also said the government would consult on a “Right to Build”, forcing councils to identify “shovel-ready” sites that could be made available to individuals and custom builders.

There would also be a £150m fund for development loans on these projects, and the government would look at making the Help to Buy scheme available on custom build projects.

“That would make a serious difference to us,” said Mr Midgley of Fairgrove, which plans to sell 30-40 homes this year. “I could sell an extra 10 houses on that.”

The government also announced that it would publish a prospectus in the next month setting out how local authorities could propose new garden cities, following on from the announcement of the weekend of support for a development at Ebbsfleet.

The chancellor said: “Taken together, the housing policies I announce today will support over 200,000 new homes.”

But that still falls short of the estimated 240,000 homes that experts believe are needed each year to keep up with household formation in the UK.

The Labour party had previously called for a “help to build” policy, which would offer guarantees to banks lending to small and medium-sized builders and which it claimed would create 10,000 jobs and help achieve its aim of building 200,000 homes a year by 2020.