Positive news for SME developers

Noel Meredith – Executive Director United Trust Bank

The expectation that the Brexit decision would negatively impact the UK property market became almost immediately apparent as many of the publicly listed house builders saw their share prices slump on June 24th. Although economic sentiment and those share prices do seem to have improved somewhat since the initial knee jerk reaction, it remains to be seen to what degree the political turmoil will affect the property market and the Government’s ambitious housing target. Although it’s inevitable that the volume builders were expected to deliver the lions’ share of the 1m new homes required by 2020, a great deal will also be provided by SME builders and developers. So leaving aside for now the uncertainties presented by the Brexit, the first half of 2016 brought two pieces of news which should have been warmly welcomed by smaller scale developers.

In March, after much speculation, the Government finally announced that the permitted development right for the conversion of office to residential was to be extended beyond the original May 2016 deadline. These rights were first granted on a temporary basis in May 2013 and this initiative has been widely acknowledged as one of the more successful housing policies to come out of the Conservative / Lib Dem coalition.

The scheme has been popular with developers and provided opportunities to create residential units without the need for a planning applications and free from affordable housing obligations or other financial planning obligations. More so, it has given a new lease of life to a number of redundant and vacant office buildings across England giving an aesthetic and economic boost to many town and city centres.

These rights, which fall under The Town and Country Planning (General Permitted

Development) (England) (Amendment) Order 2016, were made permanent on the 6th of April 2016 and included some further amendments to the previous regime. These include office to residential prior approval conversion applications now featuring a new condition allowing local planning authorities to consider “impacts of noise from commercial premises on the intended occupiers of the development”. This is in addition to the transport/highway impact, contamination risk and flood risk which still has to be assessed by the local planning authority. United Trust Bank are currently funding around 300 residential units with many more already complete and sold. With more certainty provided by the amended Order, I expect to see many more of these schemes come to the fore.

More recently, in a judgement issued on the 11th of May, the Court of Appeal reinstated Government policy relieving developers from affordable housing obligations on small development sites.

The judgement overturned a High Court ruling and reinstating the Government’s previous guidance. In November 2014, the Government issued a ministerial statement advising local authorities that affordable housing should not be sought on developments of ten units or 1,000 sq m or less and that where a vacant building is brought back into use or demolished for redevelopment, local authorities should provide a “credit” equivalent to the floor space of the vacant building to be set against affordable housing contributions. That guidance was overruled by the High Court last summer and the ruling had a material impact on the viability of many smaller development sites because of the additional burden developers faced of meeting the costs of affordable housing obligations.

By reinstating the Government’s sensible guidance on this matter, the Court of Appeal will bring many smaller developments previously mothballed back into play and encourage smaller developers to once again see small sites as good and viable opportunities.

The smaller, frequently brownfield sites affected by these changes are most often the types of projects undertaken by SME developers. As such, both should be seen as good news for smaller developers which need more encouragement rather than bureaucratic barriers if they are to help meet the new housing target.

Despite the uncertainty the ‘Leave’ result brings to the UK economy, as a lender with a great deal of experience through a variety of market conditions, we’re still very keen to talk to successful developers looking for a supportive and knowledgeable finance partner for their next project.