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Leading housebuilders see profit margins surge but SMEs slow to recover

Profitability at the UK’s largest housebuilders has topped pre-credit crunch highs but margins for SMEs are lagging behind, new research has shown.

Average profit margins at the major housebuilding players with turnovers of £250m or higher hit 11.7 per cent in 2015, having peaked at 11.2 per cent in 2007.

The figures published by broker Funding Options were in stark contrast to the SME end of market, where profit margins averaged 7 per cent – well below the 12.2 per cent highs seen before the recession.

The research suggests the lack of available finance remains a crucial driver of the shortfall in new housing.

“Since capital constraints are the main barrier to investing in the increased manpower or equipment needed to capitalise on new development opportunities, access to funding remains key to housebuilders’ growth,” Funding Options chief executive Conrad Ford said.

He argued that alternative finance could provide solutions for smaller construction companies looking to take on larger projects.

“Banks’ ability to lend to smaller firms continues to be restricted by regulatory pressures, and they are having to impose strict loan-to-value limits that mean a lot of small housebuilders can’t come up with the equity required.

“For those businesses, looking beyond traditional lenders is necessary.”

He added: “Considering alternative funding options can be a good way of getting finance for a variety of reasons – not just accessibility.

“For example, funding may be provided in a more effective and efficient form – such as through leasing arrangements so equipment doesn’t have to be bought outright or unlocking the value of their unpaid invoices through invoice financing.”

His comments echoed those of Chris Carr, the chairman of the FMB’s Home Builders Group, who told Construction News: “It doesn’t matter what anyone tells you, the banks just say we are too high risk.”

Mr Carr said it has become the norm for SME housebuilders to borrow development finance from friends or private investors, rather than turn to traditional lenders.

 

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