Government loans and grants

KEY LEARNING POINTS

  • The Government has a range of programmes available to help finance multi-unit private homebuilding projects, and to support neighbourhood planning. This help can be accessed by landowners, developers, builders, enablers and communities (subject to meeting eligibility criteria)
  • Funding for these programmes can be combined as long as bids are not already supported by another Government programme
  • Councils should be knowledgeable of the funding programmes that are available and make local landowners and communities aware of them
  • Councils or other public bodies cannot directly access any of this funding but they can work in partnership with a private sector partner or community group who can bid for it. They can also access funding through the Public Works Loan Board

INTRODUCTION 

The main programmes are: -

  • The £150m Custom Build Serviced Plots Loan Fund supports projects that create five or more serviced building plots for private homebuilders
  • The £525m Builders Finance Fund supports projects of five to 250 homes undertaken by smaller developers
  • Grant funding and technical support is available via the £22.5m Neighbourhood Planning programme and the £3.5m Community Buildings These programmes can help communities draw up a Neighbourhood Plan, Neighbourhood Development Order or a Community Right to Build Order. Parish and town councils can apply
  • The Housing Growth Partnership has been established by the Government in partnership with Lloyds Banking Group to make £100m available to small and medium sized builders to support projects of between five and 75 homes
  • The Public Works Loan Board

About

This is one of many Briefing Notes that explain resourcing, planning, land, finance, demand, marketing, consumer support and various technical issues. To see the full range of guidance click here.

Definitions

For the purposes of this Toolkit we have made the following definitions:

NOTE

This Briefing Note will be revised when the Regulations to support the commencement of the Self-build and Custom Housebuilding Act 2015 and the Government’s Right to Build policy are finalised.

CUSTOM BUILD SERVICED PLOTS LOAN FUND

The Government established this £150m loan fund to help support the creation of serviced building plots.

The Fund opened in 2014 and is administered by the Homes and Communities Agency (HCA). The agency is inviting bids on a continuous basis until 31 March 2020 (or until the fund is fully allocated). Applications for sites in the Greater London Authority area are being processed by the HCA. The Greater Manchester Combined Authority will consider funding bids for sites in the ten local authorities in Greater Manchester.

The Fund is available to private developers (particularly small and medium-sized), housing associations, Community Land Trusts or community groups (recognised under the 2011 Localism Act) in England. Applicants must be a constituted body of good standing and capable of delivering the project. As the Fund provides loans (rather than grants), local authorities or other public sector organisations cannot apply, although they can work with a private or third sector partner that is entitled to bid.

Bids can be made at any time and will be assessed on a rolling basis. Typically, the initial assessment of a bid should be completed within one month from submission.

Bids are assessed in a two-stage process: -

  • Initial assessment to check if it meets the criteria
  • ‘Due Diligence’ and ‘Know Your Customer’ (KYC) to verify suitability for funding

Funding is administered in the form of a repayable loan with interest rates of between 0.6 per cent and 10 per cent. The rate will vary from project to project depending on the creditworthiness of the bidder and the collateral offered. Repayment is agreed on a project-by-project basis following a set of repayment milestones.

This project near St Helens will provide 19 serviced plots, and the infrastructure work was financed via the Fund

Projects that deliver serviced building plots for both self and custom build homes are eligible for funding. The Fund considers serviced building plots to be shovel-ready parcels of land with planning permission, laid out and ready for construction with access and utilities/services provided to the plot boundary.

The Fund considers self build projects to be those where an individual directly organises and commissions the design and construction of their new home. Custom build is when someone works closely with a developer to build a new home. This could include a fully commissioned home or fitting out a previously constructed shell. The Fund supports both forms of development. Plots can be sold to individuals for self build projects, or to a developer that is delivering the custom build unit for an end user.

Other key criteria are: -

  • Projects have to provide at least five plots – it is not available to individuals who want to service their own plot
  • Projects of more than 200 plots can be funded, but they will need to be divided into phases, with each phase meeting the Fund’s eligibility requirements
  • Land purchase costs cannot be funded. The Fund can be used to finance site infrastructure works that directly relate to the construction of the homes, such as access roads, footpaths and cycle-ways. It can also fund on-site utilities/services to plot boundaries, works required to prepare the plots (including remediation), associated demolition costs, fencing, any structural landscaping that is required to secure the immediate boundary and associated professional fees
  • Sites will need outline planning permission (with reserved matters) as a minimum. However, applications may be considered on sites without planning permission if the applicant is in control of the land (optioned) or where the site has been designated in an adopted development plan. However, no loan funding will be advanced until an outline planning permission is in place
  • Funding is limited to £3m per project (or phase) and up to a maximum of 75 per cent of eligible costs. Projects with lower funding proportions are normally favoured

The HCA has published a prospectus that sets out the detailed eligibility criteria to access the Fund. Expressions of interest need to be submitted via the HCA’s partner portal. Applicants will need to register on the portal, if they have not done so already.

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Tell potential applicants about the Fund

This £150m fund provides loans to the private sector. Make sure your local builders, landowners and communities are aware of it

BUILDERS FINANCE FUND

The £525m Builders Finance Fund supports smaller projects of between five and 250 homes in England. Its main objectives are to address the difficulties some smaller developers have faced securing finance, and to help bring forward stalled (but viable) sites.

The Fund opened in 2014 and is administered by the HCA. Applications for sites in the Greater London Authority area are being processed by the HCA. 

The Fund runs until 31 March 2017, or until it is has been fully allocated. Projects must be able to use or ‘draw down’ any agreed funding by 31 March 2017, and it is expected that some funding will need to have been used by 2016. This means funding bids must be submitted well before these dates. Applicants from within the Greater Manchester area need to bid under the £300m Greater Manchester Housing Fund, which is administered by the Greater Manchester Combined Authority.

The Fund is available for Small and Medium Enterprises (SMEs) planning projects of between five and 14 homes. SMEs are defined by the European Union as any entity engaged in an economic activity, irrespective of its legal form, which employs fewer than 250 people and which has an annual turnover not exceeding €50m and/or an annual balance sheet total not exceeding €43m.

Private organisations that don’t qualify as SMEs can still access the Fund, but their projects have to be between 15 and 250 homes.

The Fund also supports private homebuilding projects that meet the above criteria. Funding can also be combined with the Custom Build Serviced Plots Loan Fund. For example, an organisation can seek finance via the Builders Finance Fund to buy a site and to finance the construction of shell-finish homes, and bid separately to the Custom Build Serviced Plots Loan Fund for finance to prepare and service the plots. Bids for funding for works already supported by another Government programme are not eligible.

Applicants must have control of the site they are seeking to fund. Typical applicants include house builders, developers and Registered Providers, although other private sector organisations, such as joint venture partnerships (including landowners working with a builder, contractor or Community Land Trust), can also apply. Organisations can seek funding for different sites, but each application must comply with the eligibility criteria. As the Fund provides a loan (rather than a grant), local authorities and other public sector organisations cannot apply, though they can work with an eligible private or third sector partner.

Applications can be made at any time and will be assessed on a rolling basis - typically bids are assessed monthly and applicants will be notified of the outcome in about two months. Each bid is assessed and scored, then shortlisted and assessed in detail before a decision is made. The relevant local authority will also be contacted for its views on each application.

Bids are assessed in a two-stage process: -

  • Initial assessment to check if it meets the criteria
  • ‘Due Diligence’ and ‘Know Your Customer’ (KYC) to verify suitability for funding

Funding is administered in the form of a repayable loan with interest rates of between 0.6% and 10%. The rate will vary from project to project depending on the creditworthiness of the applicant and the collateral offered. Repayment is agreed on a project-by-project basis following a set of repayment milestones.

Other key criteria are: -

  • Only projects of between five and 250 homes are eligible – it is not available to individuals who want to build their own home
  • All project costs necessary to deliver the scheme can be funded, including land purchase and home construction
  • Sites need at least outline planning permission (including any relevant Section 106 Agreement). Applications without planning permission may be considered if the applicant is in control of the land (optioned) or where the site has been designated in an adopted development plan. However, applications are required to have an implementable planning permission in place within nine months of bidding, to enable development to commence. Land that has been disposed of by the HCA (or its predecessors) also qualifies
  • The minimum loan available is £200,000 per project, and the Fund will only invest up to 50% of the total cost - applicants have to directly finance the remainder. All applications must show value for money in terms of the relationship between costs and benefit, and meet the full criteria set out in the Fund Prospectus.

The HCA Prospectus provides detailed eligibility criteria, and explains how to access the Fund. Applications need to be submitted via the HCA’s partner portal, and applicants will need to register on the portal, if they have not done so already.

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Builders Finance Fund

Local builders and developers can use this to finance site acquisition and construction costs. It can also be employed alongside an application to the Custom Build Serviced Plots Loan Fund

NEIGHBOURHOOD PLANNING AND COMMUNITY BUILDINGS PROGRAMME 

Communities that want to progress a private homebuilding project via a Neighbourhood Plan or Development Order can apply for funding under the Government’s £22.5m Neighbourhood Planning programme, or the £3.5m Community Buildings programme.

The Community Buildings programme

This programme started in April 2015 and provides non-repayable revenue grants (unless the grant is not spent within the grant period). Applications are administered by Locality (and its partners Groundwork) on a rolling bid basis.

There are two types of grant available for community-led housing projects:-

  • Pre-Feasibility support of between £1,000 and £10,000. This can be used to assess the feasibility of a project before submitting a Community Right to Build Order or a traditional planning application
  • Project Grants of between £5,000 and £40,000. These can be used to prepare a community-led housing project proposal in detail up to the point of submitting a Community Right to Build Order or a traditional planning application

A community can apply for both grants. There are, however, some restrictions.

The grants are not available to buy land or to fund the building of homes or infrastructure works. Support for these is potentially available under other programmes - such as the Builders Finance Fund or the Custom Build Serviced Plots Loan Fund.

In effect the grants can only be used to move the project closer to the submission of a Community Right to Build Order, or (in the case of community-led housing) a traditional planning application. The grant cannot be used to purchase items that could reasonably be financed independently, such as supporting salaried posts, paying for volunteer time, reimbursing expenditure which has already been incurred, capital items such as computers, photocopiers or digital projectors, or general contingency or to cover cost overruns.

Any town or parish council, neighbourhood forum or qualifying community group can apply. A neighbourhood forum is an organisation that is involved in creating a Neighbourhood Plan in areas where there is no town or parish council.

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Tell groups about the grants

Local community groups that want to build their own homes could be eligible for grants of up to £50,000, to get their project fully worked up ready to submit a planning application

THE COMMUNITY RIGHT TO BUILD

The Community Right to Build enables communities to seek a Community Right to Build Order to get planning permission for a specific proposal on a site, without going through the traditional planning application process. Projects can include developments such as: -

  • Family homes to sell on the open market as well as private homebuilding projects which, for example, involve the creation of serviced building plots or self-finish homes (note that individuals who want to build their own home cannot apply)
  • Affordable housing for rent
  • Sheltered housing for local residents

To qualify as a community group an organisation must be incorporated and established to further the social, economic and environmental wellbeing of people living, or wanting to live, in a particular area. The organisation must have at least 10 members living in different homes in the area. Individuals who live or work in that area must be entitled to become voting members of the community organisation and be able to exert control of the organisation through a majority of voting rights and places on the board or governing body.

Applications are assessed by Locality through an assessment panel, based on the information provided in the application form.

Key criteria relevant to private homebuilding projects are: -

  • The proposed expenditure must be eligible
  • The need for the project spend must be justified
  • Evidence must be provided that sets out how the planned activities will help progress towards a Community Right to Build Order submission, or a traditional planning application
  • There must be some legal ‘interest’ by the applicants in the land or buildings, or evidence of being able to implement the project
  • The project must be realistic, achievable and deliverable in the proposed timetable
  • Activities must be delivered within six months of the application, or within the financial year, whichever is the soonest
  • Costs must be reasonable and transparent
  • The project must show value for money in terms of the relationship between costs and benefit
  • Profits generated from a project can only be used to benefit the community. Assets may not be disposed of, improved or developed except to benefit the community, and in the event of winding up the organisation, assets must be transferred to another corporate body with similar objectives
  • For the Project Support Grant, communities are expected to contribute at least 10% of the estimated costs of developing the proposal to the point where the group can submit a proposal for a Community Right to Build Order, or a traditional planning permission application

Recommendations about who gets the grants are made by Locality’s assessors based on how well the criteria have been met.

Pre-Feasibility Grants are paid as a single sum at the start of a project. Reports on progress (and spend) are required and any unspent grant has to be returned.

Project Support Grant Funding is paid in two stages, with the money released following the completion of agreed key milestones.

The Neighbourhood Planning Programme

This programme covers Technical Support and the Neighbourhood Planning Grant.

Technical Support is available to groups that are developing a Neighbourhood Plan when they have to deal with complex issues such as: -

  • Neighbourhood Forums (where there is no parish or town council)
  • Clusters of parishes
  • High growth areas
  • Deprived areas
  • Business led Neighbourhood Plans
  • Populations of more than 25,000
  • Groups preparing a Neighbourhood Development Order

The technical support provides information (evidence) and advice (professional judgement) to enable a community group to identify its priorities and direction, to draft policy, avoid legal challenges and to engage confidently with stakeholders such as developers, councils, local businesses and residents.

Petersfields’s Neighbourhood Plan has identified land suitable for 120 custom and self build plots

Neighbourhood Planning Grants can be used for a range of activities such as developing a website, training sessions for members, project planning, surveys and developing an evidence base, engaging a planning expert, venue hire, publicity materials, printing and other costs associated with any consultation.

Key criteria for the Neighbourhood Planning Grant are: -

  • Bids are limited between £1,000 and £8,000
  • Funds must be spent within six months or before the end of the financial year in which the bid was approved, whichever is the earliest
  • Retrospective bids for work already undertaken are not funded
  • Staff or volunteer time is not funded, except for specialist consultants

All groups preparing a Neighbourhood Plan or a Neighbourhood Development Order are eligible to apply for a grant of up to £8,000.

Groups facing more complex issues such as clusters of parishes, or working in larger or deprived areas can apply for specific packages of technical support, and may also be eligible for a further £6,000 in grant.

Locality has published a wide range of supporting information to help communities apply for this funding – full details are available here www.mycommunity.org.uk

TOP TIP

Understand the grants and loans that are available

Councils should be knowledgeable of all the funding programmes, so they can provide guidance to local communities, developers and others about which ones they may be eligible for

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Neighbourhood Plans

Local communities that want to encourage private homebuilding as part of a new Neighbourhood Plan or Development Order could be eligible for a grant of up to £8,000

HOUSING GROWTH PARTNERSHIP

The Housing Growth Partnership (HGP) was launched in July 2015 and is backed by the HCA and Lloyds Banking Group. This £100m capital investment fund is available to help SME builders to invest in new projects and to develop their businesses, so they can recruit and train skilled workers and become more competitive.

Unlike the repayable loans offered by the Builders Finance Fund and the Custom Build Serviced Plots Fund, the HGP invests alongside a housebuilder, and then shares in the profit of the development.

Agreements are on a site-by-site basis and the housebuilder’s contribution can be in the form of cash and/or development land. The builder still constructs the homes and receives a management fee to cover his costs. The profit share is negotiated at the start, and usually reflects the level of capital that is being invested.

To be considered housebuilders need to: -

  • Be SME businesses who, on average, have built 10-100 homes a year over the past three years
  • Show they have a track record in land buying, design, construction, marketing and sales of new homes
  • Projects seeking finance need to be between five and 75 homes. They also need to at least have outline planning, so that they can start on site within 12 months, and are therefore likely to be built-out within three years (a maximum project length of 48 months, including obtaining planning permission, is stipulated)
  • Have cover from an acceptable insurance guarantor, and have a satisfactory health and safety record.

The approval process is expected to be short. A special purpose vehicle is likely to be set up for each project with external debt finance raised to help finance the development. The Partnership expects to make around 50 investments, which should deliver an additional 2,000 homes.

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Direct investment in projects

Local builders and developers can secure finance for their projects from this new fund. They get paid a management fee to build the homes, and the fund takes a negotiated share in any profits

THE PUBLIC WORKS LOAN BOARD

Funding for private homebuilding projects initiated by public authorities and parish and community councils is available through the Public Works Loan Board (PWLB). This is a statutory body that is part of the UK Debt Management Office (DMO), which is an Executive Agency of the Treasury.

The PWLB has powers to lend money to local authorities and other prescribed bodies. The money is provided by Act of Parliament, drawn from the National Loans Fund and rates of interest are determined by the Treasury.

The following public sector organisations are eligible – all English county and district councils, the counties and county boroughs in Wales, the London boroughs, the Common Council of the City of London, the Greater London Authority and its functional bodies, the councils of local government areas in Scotland, the Council of the Isles of Scilly, the Broads Authority and the National Park authorities.

Parish councils are also eligible, but need borrowing approval from the Department for Communities and Local Government. They can seek this by approaching their County Association of Local Councils or, in the case of community councils in Wales, the Welsh Government.

Cherwell District Council secured finance from the Public Works Loan Board to acquire the Graven Hill site from the MoD. It now plans to create opportunities for 1,900 custom and self build homes on the site

Applications are made directly to the PWLB who can lend to its legal borrowing limit. Loans are automatically secured by statute on the revenues of the authority.

Two types of loan are available: -

  • Fixed rate loans – here the rate of interest is fixed for the lifetime of the loan and interest is payable at half-yearly intervals
  • Variable rate loans - here the rate of interest is variable, with payments at either one, three or six monthly intervals. The borrower sets the interval, but once chosen it stays the same throughout

Interest rates are determined by the DMO. Discretionary Rate Discounts are also available.

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PWLB loans can support private homebuilding

The Public Works Loan Board can be a useful source of finance for large and smaller private homebuilding initiatives

SUMMARISING THE MAIN ELEMENTS OF THE KEY FUNDING SOURCES

Government-loans-and-grants-to-support-private-homebuilding-table

 

CONTACTS

Custom Build Serviced Plots Loan Fund

Contact: Homes and Communities Agency

Telephone: 0300 1234 500

Web: https://www.gov.uk/government/publications/custom-build-serviced-plots-loan-fund

Email: servicedplots@hca.gsi.gov.uk

Builders Finance Fund

Contact: Homes and Communities Agency

Telephone: 0300 1234 500

Web: https://www.gov.uk/government/publications/builders-finance-fund-prospectus

Email: Builders.FinanceFund@hca.gsi.gov.uk

Information about the Greater Manchester Housing Fund is available from the Greater Manchester Combined Authority

Neighbourhood Planning and Community Buildings programme

Contact: Locality (My Community Help Centre)

Telephone: 0300 020 1864

Web: http://mycommunity.org.uk/programme/community-housing/

Email: info@locality.org.uk or submit an enquiry form at http://mycommunity.org.uk/enquiry-form/

Housing Growth Partnership

Contact: Housing Growth Partnership

Web: www.housinggrowth.com

Email: info@housinggrowth.com

Public Works Loan Board

Contact: Public Works Loan Board, UK Debt Management Office

Telephone: 020 7862 6610

Web: http://www.dmo.gov.uk/index.aspx?page=PWLB/Introduction

Email: pwlb@dmo.gsi.gov.uk       

 

FURTHER READING

The following Case Studies offer useful insight into the issues discussed in this Briefing Note:

CREDITS

The NaCSBA Research & Development Programme is funded by the Nationwide Foundation and aims to promote the self-build and custom build sector as an affordable route into housing for a greater number of people in the UK.

For further information, please visit:

www.nacsba.org.uk or www.selfbuildportal.org.uk