Development finance in 2022’s new normal
by Steve Larkin, Head of Development Finance
We’re backing your ambitions with developments up to £20 million. Contact the team to learn more.
A lot has been made of the new normal in the past two years, and with Development Finance taking longer to recover from the shock and instability of the pandemic than a lot of other industries, it’s taken a while to filter down to how we adapt to these changes going forward.
But in many ways, the challenges for developers remain the same; the UK continues to have a significant shortage of homes for homeowners and renters, and desperately needs the stock to meet the ever growing demand.
But what – if any – of the post pandemic issues will shape the Development Finance market in the coming years?
Pent up appetite
The challenge of the past two years, and a fair one at that, caused many to retreat from the market or scale back ambitions as developers remain wary of further lockdowns, self-isolation resource issues and the rising costs and material shortages caused by Brexit.
However, we are beginning to see this attitude change.
Our dedicated team worked on numerous transactions at the end of 2021 and have spent the first month sounding out other large deals, raising our maximum loan facility to £20 million to give developers the right tools to deliver their new projects.
We expect lots of transactions and projects over the next couple of years to help bridge the demand gap; which is where the time in the last 12-18 months we’ve spent growing the team and improving our processes will reap rewards for developers.
Cost of living and materials
A key issue that developers have had to cope with is the price and availability of materials, and while this seems to have calmed a little following the initial shock and high points in 2021, it’s clear that this will remain a notable challenge moving forward into 2022.
We’ll talk more about the cost of materials and what it means in the coming weeks, but another consideration this year is the expected cost of living increases.
Inflation has already risen, and tax and energy price rises will put more pressure on household incomes as the year goes on. This could affect the sales market, placing more emphasis on the need for development exit finance or Buy-to-Let refinancing in the short-term.
As always though, the underlying fundamentals of the UK housing market remain; there are not enough homes, which should keep developers encouraged.
Greener properties
COP26 put the climate crisis into sharp focus at the end of 2021, and incoming regulations for Buy-to-Let properties have signalled that every sector must play its role in reducing carbon emissions.
Government directives, coupled with conscientious consumers, will place a greater emphasis on new or refurbished properties meeting high environmental standards.
This is good for purchasers in two ways, because it helps the planet, but also helps mitigate the impact of energy bill increases. We are supporting the development of these properties with our EPiC Buy-to-Let range, where we offer lower rates for properties with an EPC rating C-A.
So if developing to retain and rent out, this incentivises greener building and rewards the developers for it.
COVID realignment
In the months after the first lockdown, it was predicted there would be a mass exodus from cities to the countryside, as new home workers learned the value of extra living space after months indoors.
This did happen, but not to the extent predicted and we are still seeing as high demand for urban areas as we are in the suburbs. This means developers can feel confident pursuing projects of different types all over the country, with additional opportunities for developments or refurbishments in now disused commercial blocks.
To better support this we introduced refurbishment finance at the end of last year, and our bridging portal better facilitates quick residential and commercial acquisitions.
We’re backing your ambitions with developments up to £20 million. Contact the team to learn more.