Property bonds provide much-needed alternative finance to housebuilders further to the gap left by traditional lenders who reduced the supply of funds available to SME housebuilders in the wake of the 2008 financial crisis.
With property bonds allowing these housebuilders to raise the finance required to support the costs associated with their development, this can range from the acquisition of land to the construction of the homes.
In the aftermath of the global financial crisis in 2008, access to traditional funding for small and medium-sized housebuilders diminished – leaving a gap that the alternative finance provided by property bonds is crucial in filling.
In 1988, more than 12,000 small and medium-sized housebuilders built 40% of new homes according to research by the Home Builders Federation (HBF). Today, that number has dwindled to circa 2,500 SME housebuilders responsible for 12% of new-build housing.
Changing business models for mainstream banks was, in part, a cause for a reduction in available finance. Departments focused on the SME sector were wiped out in the wake of cuts, resulting in SME lending in general – not just to housebuilders – taking a backseat.
This was then exacerbated by the introduction of Basel III, a set of global measures introduced to ensure banks maintained proper leverage ratios and kept certain levels of reserve capital available. Whilst its intention was and still is genuine, it resulted in many banks to restrict their lending to things that appeared to be practically guaranteed.
Whilst it remains possible for small and medium-sized housebuilders to secure funding from specialist banks for their developments, there is still a significant lack of capital available.
This is where property bonds can become valuable, providing the finance needed for SME housebuilders to deliver high-quality, often environmentally friendly developments that can aid in both tackling the UK’s housing shortage and driving economic growth.
CARLTON Bonds are an IFISA provider specialising in fixed-term property bonds.
Against a backdrop of low interest rates and a volatile stock market, the IFISA can provide an attractive investment opportunity for experienced investors.
The property-backed IFISA has the potential to generate higher rates of return than more traditional investment routes for investors with a greater appetite for risk.
To find out more about property bonds, .