The development industry is founded on its inherent ability to problem solve and this skill has made the sector incredibly resilient during the Covid-19 pandemic, writes Richard Hemmings of Close Brothers Property Finance.
Whether it is sourcing new materials via a shrinking supply chain, or finding safe ways to erect steel frames while social distancing, over the last five months the development sector has found a way to ensure the continued delivery of much-needed homes across the region, and the subsequent benefits to local economies.
As a result of this resilience, we have seen housebuilding prioritised across the upper echelons of Government, with the Prime Minister promising his full support to “build, build, build” out of this economic uncertainty.
It is clear to see how critical housebuilding is to the UK economy, as for every £1 spent on housing, £1.40 of expenditure is driven into the wider economy, according to a report for the Government by Regeneris Consulting. I’ve worked in the banking sector for almost 20 years, and 15 of those have been spent at Close Brothers’ Property Finance, supporting the property industry.
There is something very special about the property sector – building tangible assets that are mutually beneficial to the supply chain, the developer, the end user, as well as the local community. It is one of those very rare ‘win-win’ sectors.
Business as unusual
Since lockdown, our client base has remained active, so there was no let-up in terms of our existing loan book. Our 100-person strong team within the division needed to adapt to working from home while delivering the same quality service.
It was termed “business as unusual” – we continued to problem solve and innovate alongside our clients. Through technological advances, as well as good old-fashioned trust, we continued to supply a service that prioritised delivering money quickly and approving new deals within five working days.
However, things don’t always go according to plan, especially in the current climate. We feel it’s important to support clients and back the management of our borrowers from the start of financing right throughout the build – even in a difficult environment.
We are a ‘through-the-cycle’ lender, which means we don’t boom and bust, and we apply the same considered approach to our lending process through the economic cycle. We never shut our doors on our clients.
Under ‘normal’ circumstances, we expect a steady pace of new loans and developments, but during lockdown we have seen a spike in select new clients, and in new developments for our existing clients.
On average, I have been agreeing finance on a new development every week since lockdown, which is testament to the buoyancy of the sector and the industry’s ability to navigate this new market and, indeed, world we are living in.
Looking to the future
Our clients are predominantly SME housebuilders, building in suburban enclaves and market towns, a client base we have specialised in supporting for the past 40 years. What has changed, however, is the growing demand for this part of the property market.
As people continue to work primarily from home, and with many looking to do so for the foreseeable future, there is a growing trend towards moving out of urban centres and finding a better work/life balance. The demand for semi-rural, larger properties is set to continue and we are seeing an increasing number of housebuilders looking to capitalise on this change in consumer behaviour.
While we have seen pent-up demand for housing as we exit lockdown, we need to apply a measure of caution about the long-term strength of the market.
Approximately 40% of newly built house sales are through the Government’s Help to Buy initiative, which is currently being phased out. The new Help to Buy initiative, with regional caps, will be introduced in March 2021. It has been criticised for being unworkable from a buyer perspective, and it also removes financial support for second steppers, who account for 20% of Help to Buy sales.
There is still time for the Government to extend the scheme in its present form, but if that does not happen, we must be prepared for how the change will impact demand for new homes.
There are certainly green shoots of recovery emerging, particularly across the North West, and we remain cautiously optimistic as we look to the future. The property market has shown great resilience and we are in a strong position to be able to help it thrive and build through this uncertainty.
Richard Hemmings is business development director at Close Brothers Property Finance, part of Close Brothers Group.