HC 1652 Communities and Local Government CommitteeWritten submission from Igloo Regeneration

1.0 Igloo Regeneration

In response to the request from the select committee, this paper is provided by igloo regeneration, the development manager of Aviva’s igloo regeneration fund (www.igloo.uk.net), described by the United Nations as the world’s first responsible real estate fund. Igloo’s expertise is in the funding and delivery of physical regeneration.

The Local Developers Forum is an informal group of small volume residential developers who mainly operate in their local areas. The Forum was formed in response to concerns about the discriminatory impact of the implementation of NewBuy on small developers.

This concern is best encapsulated by the following quotes from Forum participants describing the scheme as:

“fundamentally unfair against the previously outlined principles of the scheme being open to small residential developers”; and

“it seems extremely unfair that smaller housebuilders are left to try and catch up with the process at the end while the bigger ones get a head start”.

However the Forum strongly supports the principle of the NewBuy scheme.

2.0 Summary

Around a third of homes are built by builders who build less than 50 units per annum in the current market.

Nearly half of homes are built by builders producing less than 200 units per annum.

There are around 18,000 small builders in the UK.

The Government has not made available to small builders detailed information on the NewBuy scheme that it is developing with the Home Builders Federation, Council for Mortgage Lenders and Jardine Lloyd Thompson.

However the Scottish Government is developing an almost identical scheme with the same manager (JLT) and this information has been made available.

The NewBuy scheme discriminates against small builders by setting a minimum cell size and by having a number of non volume related costs.

In addition, in the process of creating the scheme, the Government has discriminated against small builders in England by not making information available (a number of large builders are already marketing the scheme) and by promoting a list of builders on its website as being involved in the scheme and not adding further names as builders expressed interest in the scheme.

There are potential solutions to these problems including:

(1)Price the NewBuy scheme so that all costs are on a per home basis rather than fixed amounts.

(2)Remove the minimum cell size requirement.

(3)Ensure that small local developers are able to launch the scheme at the same time as their larger competitors by ensuring that the scheme cannot start until all participants have had a reasonable period from receipt of information to complete all the necessary requirements for making it operational in their businesses.

(4)Remove the list of developers from the Government web site or continually update the list with the names of those developers expressing support for the NewBuy scheme.

3.0 Introduction

3.1 The Government has announced that it will be providing a guarantee as part of a mortgage indemnity guarantee scheme (now called NewBuy) which will reduce deposit requirements for mortgages on new build homes from a current average of around 20% to 5%.

The Local Developers Forum supports this excellent and innovative initiative but is concerned that the implementation will discriminate against small volume builders.

3.2 This evidence is based on information provided to developers in Scotland by the Scottish Government. The Scottish scheme (Mi-Home) is being developed by JLT in parallel with the scheme in England and has the same characteristics as those announced by the Government for NewBuy and some of the Scottish information seems to be written to apply to England. We have therefore assumed that the Scottish scheme information is likely to apply in England.

We have however been unable to confirm this as the Government has not been prepared to provide detailed information on NewBuy.

3.3 Based on a variety of sources (NHBC, Office of Fair Trading, Housing Market Intelligence report, HBF) we calculate that currently around a third of homes are built by builders who build less than 50 units per annum in the current market and nearly half of homes are built by builders producing less than 200 units per annum.

3.4 There are around 18,000 small builders in the UK.

4.0 NewBuy Issues

4.1 The scheme is structured so that each builder will set up a “cell” with each lender providing mortgages on that builder’s projects. Within these cells the default risk on the mortgages is pooled. These cells are likely to have a minimum requirement of 100 mortgages per cell over a three year period. Each builder is likely to need relationships with a minimum of three lenders (because this is likely to be a requirement of the scheme and because lenders often have per project lending limits and to maintain competition—in practice it is likely to be a larger number).

4.2 This means that to set up cells on its own a builder will need to be building an absolute minimum volume of 100 units per annum. This is likely to exclude around 40% of builders.

4.3 The Government proposed solution to this is to allow small builders to share with each other. This is likely to be more complicated to set up, to take a longer period of time and means that builders are sharing risks and returns with their competitors.

4.4 There are a number of fixed costs involved in joining the scheme and in setting up cells. These are not likely to be fully related to volume and therefore give an advantage to large volume producers.

5.0 Lack of Transparency in Set Up Process

5.1 The Government has also been discriminating against small local builders by not being transparent about the negotiations (in contrast with the parallel discussions in Scotland which is where our information comes from) and by promoting certain of the participants on their website.

5.2 This discrimination is evidenced by doing a Google search for NewBuy which produces paid for advertisements by Taylor Wimpey and Barrett who are both named on the Government website.

6.0 Possible Solutions

There are a number of possible solutions to this discrimination that could be introduced before the scheme is launched including:

(1)Price the NewBuy scheme so that all costs are on a per home basis rather than fixed amounts.

(2)Remove the minimum cell size requirement.

(3)Ensure that small local developers are able to launch the scheme at the same time as their larger competitors by ensuring that the scheme cannot start until all participants have had a reasonable period from receipt of information to complete all the necessary requirements for making it operational in their businesses.

(4)Remove the list of developers from the Government web site or continually update the list with the names of those developers expressing support for the NewBuy scheme.

7.0 Conclusion

The Local Developers Forum represents builders who are closely connected with their local communities and who are providing the homes that those communities need.

We support the aims of the NewBuy scheme and congratulate the government on supporting it.

However we believe it is fundamental unjust for public money to be used to discriminate against small and medium sized businesses.

This seems to fly in the face of Government expressed support for localism and for small and medium sized enterprise.

February 2012

Prepared 1st May 2012