A luxury housing company set up by Sefton Council might need to borrow more money over concerns around its future.
In a report produced ahead of a council cabinet meeting next week, challenges around delays with construction, sales and completions were all reported.
“External factors” affecting the company’s performance have included issues with the supply of labour and materials and the wider “volatile” situation in the housing market.
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The report states this has led to an number of delays of up to a year in completing some the 141 homes planned as part of the first phase of its business plan – at Meadow Lane in Ainsdale, Barton Close in Crossens and Buckley Hill in Netherton.
Delays are being driven by “supply chain issues and the availability of certain trades.” according to the report.
A catalogue of issues has beset the development at Buckley Hill, including “exceptionally long lead in” times for services to be diverted, which impacted on sub-contractor and material prices, leading to a “a further period of uncertainty for Sandway Homes regarding price.”
The number of homes on the site has also been reduced, which led to renegotiations with the combined authority over grant funding. Issues with sub-contractors have also contributed to a delay of at least 12 months, according to the report.
For the company and the council, this has led to a catalogue of knock on effects – including reductions in the amount of a planned dividend, the possibility of more and longer term loans from the council, potential delays to money for land sales being handed over to the council, as well as an increased risk to Sefton Council and implications for the viability of further projects.
While the council now expects to earn £2m more from the three projects than previously anticipated through sales and grants, it is expected there will be a reduction in the dividend returned to the council from £1.3m to £1m.
This £300k reduction is due to increased construction costs – up by £2m and an increase in overheads.The council also expects to receive £2.2m from the sale of land to Sandway Homes, although the payment of this may now be delayed.
With the schemes carrying an “inherent risk” the report looks at the “worse case” scenario and how this could impact the council, suggesting dividends could end up being reduced to just £400k.
The company may also find itself needing to borrow more money from the council – although with “significant risk” from the wider conditions, the report says any further extension to debt levels should be weighed against the risk to the council.
The company has spent £13m so far with over £3m of payments still outstanding. This will increase once Buckley Hill becomes “contractual” according to the report. The council estimates the total value of the builds scheduled to be around £32 million.
Cabinet member for Communities and Housing Cllr Trish Hardy said the decision to set up Sandway Homes was “correct” but added that recent government actions, including the autumn statement were having a “negative impact”.
Cllr Hardy said: “Understandably, the perilous state of the British economy is having an effect on Sandway’s business plan and as this report highlights, while profit levels remain at the forecast 2019 levels, we are going to have to work closely with the company to monitor the ongoing situation.”
The report, which also suggests a number of scenarios for an “exit strategy” for the company should the situation deteriorate, will be discussed at a meeting of Sefton Council’s cabinet next Thursday, December 1.
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