Homes for Scotland seeks lending from investors

Picture: Neil Hanna
Picture: Neil Hanna
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HOMES for Scotland is gearing up to launch a platform for its struggling housebuilder members to win backing from institutional investors as it looks to fill a gap in the private rented housing sector.

Fresh from the launch of the MI New Home scheme – a Scottish Government-backed mortgage indemnity programme negotiated by Homes for Scotland – the trade body says it now needs to tackle the lack of corporate lending and investment in the sector.

Recently installed chief executive Philip Hogg said mortgage indemnity would take care of one end of the problem facing builders – a lack of lending by banks.

He added that the “other side of the coin” was commercial lending to house builders.

“I don’t wish to go down the route of bank bashing, but getting lending for housebuilders is difficult, particularly for the smaller and medium-sized builders,” said Hogg. “We are exploring ways of trying to bring in new methods of ­finance to the industry.”

Hogg said the number of new homes being built in Scotland is falling far short of the government’s target of 450,000 units by 2033. Last year, the sector built only 15,000. At the same time, the number of ­“affordable” and council-owned homes for rent being built is in decline due to budget cuts.

In both Scotland and England there is a growing awareness that the private rented sector could expand to meet housing needs and give a boost to builders at the same time. According to Scottish Government statistics, home ownership north of the Border is about 41 per cent, but the private rented sector is 19.3 per cent, while council housing and housing associations accommodate 39.6 per cent of the population.

The UK government is already ahead of Scotland in tackling the potential shortfall. In August, the chairman of venture capital firm 3i, Sir Adrian Montague, published a report on the subject of investment within the private rented sector. The government backed it with proposals to underwrite private rented schemes with a £10 billion fund, as well as setting up a £200m equity fund to help more marginal schemes.

Hogg said it is “too early to say” whether the Scottish Government would underwrite its own proposals.

While research from the Investment Property Databank has shown that over the past ten years investment in housing to rent by commercial investors has outperformed money put into commercial property or the stock market, there continue to be barriers.

“The market is very fragmented,” said Hogg. “Most of the private rented sector is dominated by landlords with two or three properties. It is not big enough. There are concerns about longer-term yields and there are concerns about potential government legislation that might make it more or less attractive.”

He added: “We are perfectly positioned – we have home builders that know how to acquire land and build houses, we have housing association members that have the skills to manage the property and we have a government that is interested in helping us develop it. We are pulling all those components together... to make this sector attractive to institutional investors.”

The Scottish Government failed to respond to a request for comment.