There are very few barriers now holding developers back.
Steve Larkin is head of development finance at LendInvest
What a difference a year makes.
At the start of 2019, it’s fair to say that many SME developers were adopting a cautious approach, holding off on deals and projects that excited them because of the big question marks over Brexit and the economy.
Things could not be more different now ‒ it’s as if a switch has been flicked, and the market has moved into life.
Where just a few months ago we had developers unsure of the economic outlook, now they are getting on with building the homes the nation needs, with confidence rocketing.
So what’s changed?
Clearing away the uncertainty
To put it simply, a lot of the uncertainty that had caused the market to slow has been cleared, at least for the short term.
It’s not that long ago that we had a paralysed Parliament, which could only agree on what it didn’t want rather than what it did. But thanks to December’s general election, it has been replaced by a government with a clear majority, able to actually get on with the job of governing.
And then there’s Brexit. Again, just a few short months ago it looked like there may be further extensions, even a second vote on whether to go ahead with our exit from the European Union. With so much in the air, it’s no wonder that the market was cautious.
But here we are in February 2020, and the first part of Brexit at least is done.
With December this year marking the end of the transition period, developers have a good six to nine month window in which they can get on with building new properties, free of any nervous Brexit chatter which could dent the confidence of would-be buyers or cause unwanted delays to the process.
The economic factors look good too. The latest data from the Office for National Statistics shows that employment has risen to 76.3%, a new record high, while pay grew at a rate of 3.2% over the last year.
There are very few barriers now holding developers back.
An excited industry
This rising confidence among developers is spreading across the industry as a whole too.
A year ago, as we went into the annual MIPIM conference, the atmosphere was a sombre one. Industry figures were keen to try to focus on the positives, but well aware of the various hurdles that were impeding building work across the nation.
It’s a different story this year, with excitement already mounting among those set to attend, and not just because it’s being held in Cannes.
Finding funding
When it comes to accessing funding for building projects, the landscape has also improved for small developers.
In its latest survey of small builders, the Federation of Master Builders noted that the number of respondents describing access to funding as a major barrier has been steadily declining over the past five years.
Respondents are asked to score the current lending conditions, from zero to five, with the average score rising notably from 1.63 back in 2017 to 2.15 last year. Clearly room for improvement, but a sign that things are heading in the right direction.
Building the right products
In truth though, the development finance sector is healthier than ever. Even if you ignore the high street lenders, small and medium sized developers have more than 50 lenders competing for their business - there’s plenty of capital available.
However, given the size of this market, it’s unrealistic to expect all of these lenders to thrive if they don’t have the long-term experience, or aren’t lending the sorts of products that developers really need, and in a responsible fashion.
It takes experience to get that product design right. As we saw from the reception our new development finance deal available up to £5m got last year, when you build a product developers can really use, they will embrace it.
