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British Business Bank agrees ENABLE Guarantee with United Trust Bank to boost lending

United Trust Bank (UTB) has secured an ENABLE Guarantee via the British Business Bank.

The Guarantee will allow UTB to increase significantly the amount of development finance it provides to UK SME housebuilders. The transaction is expected to enable UTB and the British Business Bank to support the building of new housing with a value of over £500m over the lifetime of the guarantee.

This is the first time the government-owned British Business Bank has used the ENABLE Guarantee specifically for the housebuilding sector.

The 2017 Federation of Master Builders (FMB) survey highlighted the challenges that SME housebuilders face in accessing finance. It found that 54% reported a lack of finance constrained their ability to build more houses. The British Business Bank’s Small Business Finance Markets report 2016/17 further highlighted smaller housebuilders’ difficulties, finding that, while non-top ten housebuilders had accounted for 73% of completions in 2009, this had reduced to only 53% in 2015.

UTB’s Executive Director, Noel Meredith and Chief Financial Officer, Jonathan Ayres, have worked closely with the British Business Bank’s Guarantee & Wholesale Solutions Team to structure the ENABLE Guarantee for development finance. The British Business Bank’s ENABLE Guarantee programme encourages banks to increase their lending to SMEs by reducing the amount of capital required to be held against such lending. Under an ENABLE Guarantee, the UK Government takes on a portion of the counterparty’s risk on a portfolio of loans to smaller businesses in return for a fee. In this instance UTB will allocate this additional capital to increase its funding to new build and redevelopment projects undertaken by SME housebuilders and developers.

Graham Davin, Chief Executive Officer of United Trust Bank, said: “We are now able to promote greater access to funding for SME home builders. Property development funding is a complex area where specialist banks can make a large difference, but the capital requirements are onerous, and mitigate against specialists allocating capital to the sector.

“The culmination of our joint efforts to adapt the BBB’s existing guarantee to make it suitable for property development loans is a meaningful improvement to the capital efficiency of the bank for these loans. This allows us to support more house building projects across the country. UTB is breaking new ground with the ENABLE Guarantee product and will continue its commitment to the SME home building sector with innovative financing and through the cycle funding.

“This transaction is also a great example of the value of co-operative state and private sector engagement.”

Keith Morgan, CEO of the British Business Bank, said: “Banks have frequently reported that the high capital requirements associated with development lending have restricted their ability to lend to SME housebuilders. Our ENABLE Guarantee is specifically designed to address this issue.

“We are very pleased that our ENABLE Guarantee will help UTB provide the extra finance that smaller housebuilders require to allow them to grow, succeed and build the new housing stock the country needs.

“We have worked closely with UTB and drawn on the market expertise of the Homes and Communities Agency to make this transaction happen.”

Margot James MP, Small Business Minister, said: “Building an economy that works for all means creating the conditions for businesses of all types to start up and scale up. By helping to unlock new investment to create over £500m of new housing, this British Business Bank guarantee will make a big difference in helping smaller housebuilders to grow, invest and hire, delivering more jobs and more homes in all corners of the country.”

Alok Sharma MP, Housing and Planning Minister, said: “We know that access to finance is a key barrier for SME housebuilders to enter the market and grow their businesses. That’s why we launched the Home Building Fund last year to support smaller builders and to help diversify the housing market, delivering thousands of homes and jobs in the process.

“It’s great to see the ENABLE Guarantee scheme being extended to SME housebuilders, giving even more SME businesses in this sector the chance to deliver the housing this country needs.”

Brian Berry, Chief Executive, Federation of Master Builders (FMB) said: “Nine years after the financial crisis, the FMB’s 2017 House Builders’ Survey shows more than half of SME house builders are still saying that difficulties accessing finance are proving a major barrier to their ability to build more new homes. These difficulties make it much harder for existing SME house builders to flourish and grow and deter new firms from entering the market. This results in a less dynamic house building sector
that is less able to expand to build the homes we need.

“The picture has improved slightly in recent years through the increased prevalence and appetite among smaller, specialist lenders, but these lenders face their own barriers, not least in the capital requirements placed on them. The British Business Bank’s action to help ameliorate this is a big step forward and we hope that this agreement with United Trust Bank proves a successful model that can be replicated and extended.”