Repairs and maintenance SMEs need to skill up on decarbonisation, shows survey .

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Repairs and maintenance SMEs need to skill up on decarbonisation, shows survey 

Smaller building firms are less confident than larger ones in delivering the decarbonisation of the UK’s 30m existing homes and need support, argues the Federation of Master Builders, FMB.

More than 90 per cent of firms employing 8-13 people were ‘very’ or ‘fairly’ confident compared to over 60 per cent of sole traders according to a survey of 200 SME builders.

Less than a third of the respondents said their clients ‘always’ or ‘often’ asked about energy efficiency or low carbon technologies with 40 per cent saying they were ‘rarely’ or ‘never’ asked.

FMB chief executive Brian Berry said: “Presently, there is limited demand from consumers to carry out the work on their homes.”

Firms identified several barriers to energy efficiency and low or zero-carbon technologies, with the most frequently cited being high costs and low consumer demand.

Cost barriers included the additional time and labour required to increase competence, not only technology costs.

Respondents expressed a preference for ‘learning on the job’ despite the financial and reputational risk of this approach.

The FMB wants to see a funded structure of support for SMEs including mentoring to avoid problems of poor workmanship.

“A robust regulatory system needs to be put in place to guarantee the competence of builders, setting minimum standards to ensure high-quality work that people can trust. This is an issue which has been ignored by successive governments for far too long,” said Mr Berry.

 

New build offers clearer decarbonisation path

Many firms reported that it was easier to incorporate low carbon concerns into new builds compared to repair maintenance and improvement because the regulatory position was clearer.

Repairs and maintenance businesses said less than six per cent of clients ‘always’ asked about energy and carbon efficiencies compared with more than 12 per cent of firms specialising in new build.

The research conducted by Leeds and Nottingham Trent universities on behalf of the FMB revealed the need for clear government guidance on retrofit standards and support for SMEs.

Leeds University’s sustainability research institute director professor Alice Owen said: “The builders themselves seem ready and willing to take up the challenge; they need help in creating the real market demand that will lead to action.”

Nottingham Trent University’s professor of buildings and energy policy Gavin Killip said the findings were a guide for government and business on how to move forward with retrofitting.

Clearly if we are to meet climate targets, consumer incentives to instil confidence to upgrade homes will be a necessity and this in turn will create a much-needed market for the builders delivering it.

“There is huge potential for businesses growth, with the added benefits of improved standards, local job creation, warmer homes, reduced bills and ultimately lower emissions and healthier people – there just needs to be an ambitious plan to make it a reality.”

Brokers Hank Zarihs Associates said development finance lenders were keen to see SMEs supported on upskilling because retrofitting looked set to be an important sector for new business.

When firms work on new-build projects, client interest in energy efficiency and LZCTs is stronger than for projects in existing homes.

Firms’ reported confidence* in their own ability to answer customer queries and deliver energy-related works is higher than the amount of consumer interest reported.

Smaller building firms are less confident than larger ones in their ability to answer customer questions about energy and deliver energy efficiency and LZCTs on projects

Builders have confidence they will meet market demand for retrofitting, should it increase. However, this confidence highlights the need for clear, robust standards of competence to ensure quality delivery.

Small construction firms have clear preferences for the kind of training that works for them, which may not be sufficient to ensure that quality criteria are met.

Firms identify several barriers to energy efficiency and LZCTs, with the most frequently cited barriers being high costs and low consumer demand.

Cost barriers include the additional time and labour required to increase competence, not only technology costs.

Many construction firms rely on regulation or design by others to guide their work, where such regulation or design exists.

Many firms believe that it is easier to incorporate low carbon concerns into new build compared to Repair Maintenance & Improvement (RMI) because the regulatory position is clearer.

Retrofit revolution requires competent builders, warns the FMB

A survey of 200 small and medium enterprises (SMEs) in construction was carried out in November 2023, providing a nationwide snapshot of these SMEs’ perspectives on the market for decarbonising homes in the UK.

Construction firms and installers of home energy systems are vital to achieving these goals, but their voices are rarely heard, because this is a group who are too busy, and too disconnected from policy, to represent themselves in the fora where policy is developed.

sole traders and smaller firms undertake a huge amount of the RMI work where improvements in energy efficiency and low carbon technology are urgently needed. This is a sector that needs to be supported and enabled to create high quality virtual enterprises developing from existing place-based networks.

The confidence in being able to deliver a low carbon project, if a client asks for it, indicates what we know from research elsewhere2 . Builders want to learn on the job, by tackling real problems. But learning ‘on the job’ also entails real risk for them in financial and reputational terms, if there is not a structure of support, mentoring and snagging/corrective measures all as part of a funded package.

 

The UK is in need of a retrofit revolution, but it is essential that householders feel confident in the people carrying out upgrades to their homes if the UK is to deliver the scale of rollout of needed, according to research carried out on behalf of the Federation of Master Builders (FMB), by Professor Alice Owen, University of Leeds, and Professor Gavin Killip, Nottingham Trent University.

Brian Berry, Chief Executive of the FMB, commented: “What this research clearly shows is that SME builders across the country stand ready to deliver the retrofit revolution the UK desperately needs. However, presently there is limited demand from consumers to actually carry out the work on their homes. The key to boosting this will be putting a robust regulatory system in place to guarantee the competence of builders, setting minimum standards to ensure high-quality work that people can trust. This is an issue which has been ignored by successive governments for far too long. The first King’s Speech following the election is taking place this week, and there is an opportunity to generate real momentum in the retrofit sector, which must not be wasted.”

Prof. Alice Owen, Director of the Sustainability Research Institute, Leeds University said: “This research brings to light the opinions of small, local building firms who are often forgotten in the discussions of how we reduce home energy bills. It will be this group that end up doing the work of upgrading – retrofitting – millions of the nation’s homes, so their opinions matter. It appears there is work to do to ensure that the nation’s local builders are able to retrofit homes, not least in getting clear guidance from Government on a robust set of standards to support the rollout. However, the builders themselves seem ready and willing to take up the challenge; they need help in creating the real market demand that will lead to action.”

Prof. Gavin Killip, Professor of Buildings & Energy Policy at Nottingham Trent University said: “The findings of this research are a valuable guide for how government and business must move forward with plans for retrofitting the UK’s homes. Clearly if we are to meet climate targets, consumer incentives to instill confidence to upgrade homes will be a necessity and this in turn will create a much-needed market for the builders delivering it. There is huge potential for businesses growth, with the added benefits of improved standards, local job creation, warmer homes, reduced bills and ultimately lower emissions and healthier people – there just needs to be an ambitious plan to make it a reality.”

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Shiraz Khan
Stay informed with the latest news, market trends, and expert guidance on bridging loans, development finance, and UK real estate investment. Our blog is here to support your property journey with clear, practical advice.
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Frequently Asked Questions

You may have heard about bridging loans in the context of property investment or moving house, but what exactly are they? Basically, bridging finance is a type of short-term loan that allows a buyer to purchase a property before their existing home or investment property is sold. As the name suggests, it ‘bridges’ the funding gap in the lag between purchase and sale – offering rapid access to the necessary purchase funds for a brief period of time.

Borrowers can access from £5,000 to £250 million, depending on applicant status, the value of the property and other lender criteria. Higher lending amounts are typically reserved for borrowers who can put up several properties as security. Quotes are provided on a Loan to Value (LTV) of 65%-80% in most situations.

Bridging loans can be used in a number of situations. For example:

  1. When people are moving home in a chain, with a gap between completion dates (e.g. needing to pay for the new property before receiving funds on the completed old property).
  2. When property investors or private buyers renovate a home and want a rapid sell-on.
  3. When an individual is looking to buy a property at an auction.
  4. When property investors and developers are looking to pay a tax bill
  5. When buyers want to secure finance against an uninhabitable property.

This type of finance can be used by homeowners, landlords and property developers alike.

The bridging finance market has grown rapidly, with a number of small and focused lenders now on the market, catering for specialist property finance needs. The market has changed because large high-street lenders have become less willing (and sometimes less able) to lend ever since the financial crisis of 2008.

As to whether a bridging loan for property development, auction purchase or private home buying is a good idea, it depends on a variety of factors. Bridging loan requirements vary by lender, but each will have certain common features that need to be considered.

The most notable feature of this type of finance is that the interest rate is likely to be high. At the same time, there are typically high administration fees applied to the loan. Because of this, it is essential to proceed very carefully and with a full view of the facts. Borrowers have been burned by this type of loan in the past, in instances where transactions have fallen through, or where lenders have turned out to be unscrupulous and untrustworthy.

Benefits of instant bridging loans

1. Rapid access to money
2. Ability to borrow large sums – often up to £250 million depending on applicant status
3. Options for flexible borrowing.

Possible downsides of bridging loans:

1. Failure to understand the unique features of these loans can result in financial risk
2. Bridging finance is secured against your property; meaning it can be sold if you can’t meet the repayment terms
3. A costly option with fees and higher interest

Bridging finance interest rates will vary by lender. However, interest costs of 1.5% a month are not unusual, which can equate to an annual percentage rate of 18%.

Bridging loans may have fixed or variable interest rate features. Fixed interest rates are ideal for customers who want stability, as they offer the same amount of interest for the duration of the term. The rate is pre-agreed, but there may be a premium for this security.

The other choice is to have a variable rate bridging loan which can change with the base rate. However, you can save money if the base rate decreases. Borrowers who are less concerned about security sometimes prefer the variable rate option if they believe that the financial markets will travel in their favour. Knowledge and market insight is required here, along with a thorough understanding of personal risk tolerance. If interest rates appear to be rising, most customers will choose the fixed interest rate to lock it in and avoid further increases in the event of a base rate rise.

Bridging loan periods tend to be for several months and there are usually different options for paying the interest portion.

Monthly repayments

The customer repays the interest every month as a separate payment, rather than adding it to the outstanding balance

Rolled-up bridging finance deals

The compound interest is calculated monthly but added to the outstanding loan balance and paid together when repayment is due.

Retained interest

The monthly interest payment due is covered up to a predefined date so that the full sum is only repaid when monies are due.

As well as interest payments, there will be an arrangement fee for the set-up of the bridging loan, which is usually around 1-2%. A repayment fee for exit paperwork may also apply, along with valuation fees for the cost of the surveyor.

Remember, this type of finance is designed to be short-term. As soon as it extends beyond the agreed interim or bridging period, penalties can rapidly stack up. Typically, bridging finance is available for 1 – 18 months.

Yes, there are two broad types: closed bridging finance and open bridging finance.

With closed bridging finance you will tell the lender how you will repay the loan – with what funds and when. These loans usually complete within a few months and the clear exit plan is required as a lending condition.

Open bridge finance won’t usually need this type of exit plan, and it is typically the loan of choice when funds are needed urgently to complete a property transaction. No detailed plan is needed to explain how the debt will be settled, and the finance tends to be offered for up to a year. Of course, it’s important to note that interest will keep being applied throughout this period.

There are also first charge bridging loans and second charge bridging loans.

If you have a loan against a property which is already mortgaged, you’d take out a second charge loan. An example of this would be if you were planning to finance a property extension to improve the property. The categorisation tells the lenders who will have legal priority for repayment if the loan was unable to be paid off at the term-end.

First charge loans apply if the new loan is the first secured on the property.

Bridging loan requirements will depend on the lender. Often, lenders will require that:

Customers must also take out their property mortgage with them too, providing the bridge finance as an interim measure before the standard mortgage comes into play.

Property is put forward as security against the loan. Some lenders expect applicants to have more than one property in order to be eligible for their bridging finance products, but this will depend on the lender and the size of the loan.

Applicants show proof of income – although, interestingly, as loan interest isn’t repaid monthly, some lenders do not request this.

The applicant shows evidence of their property investment track record if they are planning to develop their purchased property.

The applicant can show a business plan if they are using the bridging loan for commercial purposes.

Development loans are another type of short-term property development loan. They are repaid in stages and calculated on the gross value of the development. Personal loans are another option, as are remortgages when timescales are more flexible and a long-term loan is desirable.

Use a bridge loan calculator
Ask for your lender to provide a tailored bridge finance example or illustration around your particular borrowing needs.
Think carefully about the type of bridging loan that you need – whether open bridge finance or closed bridge finance.
Know whether the loan is a first or second charge type.
Clarify whether the interest rate is fixed or variable.
Review products from several lenders.
Be clear on your security.
Read the small print!

Bridging loans are offered by banks, building societies, specialist lenders and brokers. They aren’t widely advertised and usually require a direct application by the customer to find out the product features and offers.

Once you have made an application, a decision will usually be made within 24 hours. The funds then will take around two weeks to be issued, including time for checks to be carried out, the valuation and the actual transfer.

Hank Zarihs are highly experienced and specialist financial intermediaries operating in the property development market. We work with a tried and tested panel of over 60 trusted lenders and can provide excellent bridging finance with attractive features. Contact us to find out more.

Shiraz

Shiraz Khan linkden

Managing Director

Shiraz Khan is the author of the content. Shiraz is the managing director and founder of Hank Zarihs Associates. With over 16 years’ of experience we are master brokers within the short term financing industry. We specialise in a wide variety of short term loans.

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