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Savills: Investment in Scottish real estate to reach record high

SCOTLAND has attracted more than £500 million of international capital in the first half of 2019, according to Savills.

The latest research by the international real estate advisor shows that 2019 is now on track to become the best ever recorded year for inward investment in commercial real estate in the country.

Some £575 million of international capital was invested in Scottish commercial property in the first half of 2019, accounting for 49% of all investment in the period and representing the largest share of inward capital since 2016.

Investors from Asia accounted for the largest proportion, channelling more than £240m into Scotland in 2019, surpassing the £180m invested in the whole of 2018. South Korean investors spent more than £200m, investing in some of the largest deals in Scotland. Leonardo Innovation Hub was sold to South Korean investors for £100m, with a 5.9% yield.

European investors also continued to spend heavily on Scottish commercial real estate, with almost £200m invested in the first half of 2019. The largest deal this year was to German investors, who bought 4-8 St Andrew’s Square in Edinburgh for £120m, representing a yield of 4.45%.

Head of Savills Scotland Nick Penny said the country’s attractiveness to investors is likely to increase further. “2019 is shaping up to be a record year for inward investment into Scotland,” he said. “Investors are attracted by the strong performance of the economy, record employment and more attractive yields on offer relative to other regional cities in the south east.”

“Recent plans set out by the Government to position Scotland as a forward-looking digital nation by embracing 5G has the potential to enhance Scotland’s global competitiveness and continue to drive inward investment. We are already experiencing a growth in the tech sector, particularly in Edinburgh, and with digital becoming more engrained in business processes and procedures, having a fast and reliable digital infrastructure will become increasingly vital for businesses.”

Overseas investors accounted for more than three quarters (79%) of investment, according to the latest data from Savills. The second quarter was particularly active as more than £400m of deals were completed, four times the amount in the first quarter.

Offices proved to be the most popular sector in the first half of the year with £494m transacted.

Overall, Edinburgh witnessed the highest level of investment in Scotland. A total of £316m in investment was generated through six deals, compared with five in the first half of 2018.

Glasgow and Aberdeen achieved £128m and £50m of office investment respectively. Key deals during H1 included 110 St Vincent Street, Glasgow. Savills sold the site for £48m, reflecting a 5.4% yield. Meanwhile, AB1 on Huntly Street, Aberdeen, was purchased for £13.5m, with an 8% yield, also advised by Savills.

Penny, concluded: “The fundamentals of the office market remain strong. Edinburgh is proving particularly popular due to the combination of a robust occupational market and restricted supply of high quality office space which has led to rental growth in the city. This environment is creating significant demand for office buildings with international investors that want to secure long-term income at attractive yields.”

Source: The National

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Real estate reviewed

Right at the beginning of this year, we predicted that the UK housing market would be shackled by political and economic uncertainty.

Looking back, the uncertainty we have been dealing with has been greater than we ever expected.

Amid all the Brexit brokering and backstabbing, we have seen the number of buyer enquiries with estate agents fall in 20 months out of the past 22, according to the Royal Institute of Chartered Surveyors survey. Many buyers have simply been sitting on their hands, choosing to hold back on buying a home until the outlook is clearer.

Potential sellers have bunkered down too, with many choosing to extend or renovate in favour of taking on the potential risk of moving to a different property.

It is no wonder then that transaction levels are 8 per cent lower now than in the year before the referendum vote.

Buyer numbers hit hard

First-time buyers buck this trend: their numbers have grown 11 per cent since June 2016, boosted by support from Help to Buy and the bank of mum and dad. But cash transactions have fallen 12 per cent, as these more discretionary buyers sit and wait for greater certainty.

Mortgaged home mover activity has also fallen; mortgage lending regulation has made trading up the ladder much harder.

Buy-to-let investors have been worst hit – their numbers have halved since before the referendum, reflecting a tougher tax regime and stricter lending rules.

With transaction activity slowing, it is perhaps surprising that house prices have continued to grow: 1.9 per cent in the year to November, according to Nationwide. However, if one compares that growth with inflation – 2.2 per cent over the same period – the picture becomes clearer. House prices at a national level look to be marking time.

Regional variations

But the story varies across the country. In Yorkshire and Humberside, for instance, values grew by 5.8 per cent in the year to September. There, mortgage loan to income ratios sit at 3.2 and the average deposit is relatively modest, at £27,000.

Contrast this with London, where affordability is stretched to its absolute limit after registering price growth in excess of 70 per cent over the past 10 years. With an average deposit of £118,000 and loan to income ratios already at 4.0, it is no wonder prices were stagnant in the capital this year.

It is a similar story in the south of England, with price growth rippling out further to the Midlands and North.

The next few months will likely see some of the lowest housing transaction levels since the credit crunch as Brexit angst reaches a crescendo.

The market will have to rely on its three constant friends: death, debt, and divorce.

Looking further ahead, the outlook is mixed. On the one hand, the outcome of Brexit negotiations will provide some much needed certainty to an apprehensive market, whatever that outcome is.

On the other hand, interest rates are likely to rise from today’s historic lows, putting more pressure on affordability.

On balance between these two drivers, we expect to see a bounce in value growth in 2020, but only a limited one.

That bounce will be most pronounced in those areas retaining some affordability wriggle room.

The north-west and Yorkshire & Humber look particularly well placed to benefit. London, on the other hand, will remain constrained regardless of any Brexit outcome, simply because affordability there is so stretched, meaning five-year house price growth in the capital and its commuter belt will be in single digit territory.

The balance of improving sentiment and tightening affordability means we are unlikely to see any sharp resurgence in transaction activity.

We predict that transaction levels in five years’ time will be roughly the same as they are now, albeit with even less activity from buy-to-let investors as tax relief on their mortgage interest payments recedes further.

This will put upwards pressure on rents, particularly in supply-constrained London, where average rents are expected to rise faster than incomes.

In a market where home ownership looks set to remain out of reach for many aspiring owners, we need policies that secure institutional investment in the build-to-rent sector, to provide quality rental homes, greater security of tenure and to help rebalance supply and demand.

Source: FT Adviser

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Brexit delay to cause dip in property sales next year

Extended Brexit negotiations may cause the number of property sales to fall by as much as 20 per cent in 2019, estate agency haart has warned.

Buyer registrations are up by 37 per cent but Brexit uncertainty is holding back transaction levels.

House prices across England and Wales in October fell by 1.4% month-on-month and by 0.8% on the year, with the average house price standing at £220,353.

The number of properties coming onto the market rose by 1.1% and by 16.9% on the year. In October, there were over 10 buyers chasing every property across England and Wales.

But the market was less efficient, with the number of transactions falling by 3.3%, and the number of viewings dropping by 2.8%.

First-time buyers
The average purchase price for first-time buyers has fallen by 2.7% on the month and by 9.8% on the year. This comes as the number of first-time buyers registering onto the market has dropped by 3.2% on the month, but rose by 14.9% on the year.

Paul Smith, CEO of haart, said that despite negative Brexit rhetoric from Westminster and the industry, the property market remained resilient in October.

He said: “I believe that even if we encountered a hard Brexit, we would be very unlikely to see the significant price falls encountered during the credit crunch. Greater regulation in the banking and mortgage market, a shortage of supply and government support which underpins the first time buyer market means that a far more likely outcome would be a reduction in transaction volumes.

“The next couple of weeks will prove interesting. Below are my predictions of what could happen to the UK’s housing market following various Brexit scenarios – in my opinion the greatest threat is a delay to Brexit because of political posturing. We could expect a super-charged property market in 2019 if a positive Brexit deal is agreed.

“A no deal Brexit would likely result in a short term blow for the property market, at what would normally be a peak time of the year for activity. The most likely impact would be a slower market, with fewer transactions taking place as both buyers and sellers hit the brakes on their plans.

“Whilst a no deal scenario would potentially be quite damaging, an extended period of Brexit negotiations beyond the set date of March 2019 could prove just as detrimental.”

Source: Your Money

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House price growth expected to rise more in the North than in the South

The traditional north-south divide in house price growth will turn on its head, with the Midlands, North and Scotland expected to see the strongest increases, according to Savills.

New forecasts from the international real estate adviser predicts UK house prices will rise on average by 14.8% between 2019 and 2023.

Savills is projecting a wide range of growth from 21.6% in the North West to single digit growth of 4.5% in London and 9.3% in the South East and the East.

London’s prime market will perform more strongly, with prime central London expected to rise by 12.4%.

Housing transactions are likely to stabilise, with first-time buyer and cash buyer numbers most resilient.

Savills expects rents to rise 13.7% over the next five years with London rents up by 15.9%.

Lucian Cook, Savills head of residential research, said: “Brexit angst is a major factor for market sentiment right now, particularly in London, but it’s the legacy of the global financial crisis – mortgage regulation in particular – combined with gradually rising interest rates that will really shape the market over the longer term.

“That legacy will limit house price growth, but it should also protect the market from a correction.”

Transactions, rather than house prices, are often seen as the ultimate measure of market strength.  Sales volumes have fallen only -6.9% since the Brexit vote to 1.145 million, demonstrating the resilience of the UK housing market, Savills says.

The firm expects this figure to decrease by 1% over the next five years.  But a continued rebalancing of the composition of the market is expected, with mortgaged buy-to-let investor purchases falling by -23%.  This will add to upwards pressure on rents, particularly in London, as investors look to lower value, higher yielding markets.


London house prices have risen by 72% over the past ten years, well ahead of any other region. The average home buyer with a mortgage now pays just under £429,000 and has a household income of almost £76,000 (58% higher than the UK average).  Even with borrowing at over four times that income, these households still need a deposit of £123,000.

Small falls (-2.0%) are expected in London’s mainstream market next year, before values bottom out in 2020 and tick up steadily from 2021.  Price growth in London over the next five years is forecast to total 4.5%.

The prime London markets are less dependent on mortgage borrowing and will outperform the mainstream, Savills says.  The UK capital is expected to remain an attractive place to live, work and own residential assets, supporting12.4% price growth in prime central London by the end of 2023.

Regional story

At this point in the cycle, the highest price growth is expected in the lower value markets much further from the capital, which have seen nothing like the 10-year price rises seen in London – just 1.9% in the North and 5.8% in Scotland.

The Midlands, the North of England, Yorkshire and Humberside, Scotland and Wales all have the capacity for borrowing to increase relative to incomes, even allowing for higher interest rates, and this will support price growth ranging from 17.6% to 21.6% across these regions.

Key regional economies – most notably the metros of Manchester and Birmingham – have the capacity to outperform their regions attracting both local and investor buyers.

Wales will perform in line with the Midlands as it has done in previous cycles, but it is a hugely diverse market.  There may be increased housing demand crossing over from Bristol once the Severn bridge tolls are abolished.

Scotland, which has only recently returned to pre credit crunch peak, is performing strongly, particularly Edinburgh and Glasgow, which have seen prices rise 8.9% and 7% over the past year, respectively.


Housing  transactions have fallen from 1.619 million in 2007 to around 1.145 million this year, but are forecast to remain stable over the next five years, though the market mix has changed.

Cash buyers now account for almost a third of all sales (31%).  The bank of mum and dad has provided important support to first-time buyer numbers and, judging by receipts from the 3% surcharge for additional homes, cash is also an important component of investment demand, Savills says.

Mortgaged first-time buyers, the only buyer group to have expanded since 2007 – from 359,000 to 370,000 this year – continue to be supported by Help to Buy and the bank of Mum and Dad.  Numbers are expected to remain robust despite the prospect of a less generous, more targeted Help to Buy, with a fall of just -2.7% anticipated by 2023.

Mortgaged home mover numbers have fallen dramatically since 2007 as existing home owners move home less frequently.  Numbers are down from 653,000 to 370,000, but having adjusted for stress testing of borrowing, are expected to remain constant over the next five years.

Buy-to-let buyer numbers will continue to come under pressure.  Stamp duty and mortgage-interest tax relief changes have led highly leveraged investors to rationalise portfolios or pay down debt.

Rental growth to outpace income growth

Rental growth is expected to track house price growth, averaging 13.7% over the next five years. Tightening access to mortgage finance and limited social housing supply is driving demand for privately rented homes at all price points.

Cook concluded: “Until the market sees a significant injection of build to rent stock, rental demand will outstrip supply and rents will rise.

“Investor buyers requiring borrowing are expected to focus on higher yielding markets and this will put further upwards pressure on rents in some of the most expensive rental locations.”

Source: Mortgage Finance Gazette

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UK property sees biggest fall in sentiment in August

UK property posted the largest drop in sentiment this month following the Bank of England’s decision to raise interest rates, which put pressure on the asset class, according to the Lloyds Bank Investor Sentiment index.

The monthly index, which measures net investor sentiment towards an asset class, found UK property fell 9.1 percentage points (ppt) to 4.9%, the biggest fall in August.

The BoE’s decision to hike rates by 25 basis points to 0.75% on 2 August, the highest in almost a decade, is thought to have had a “significant” impact on property sentiment as banks’ costs translate into consumer borrowing costs.

Sentiment was low across all UK assets with the BoE’s rate rise expected to put downward pressure on UK gilts, which saw a drop of 6.9ppt to -9.4%.

UK corporate bonds and UK shares also took a hit in sentiment, falling 0.9ppt to -7.1% and -4.5ppt to -3.1%, respectively as Brexit concerns continued to weigh.

A recent survey conducted by trading venue Liquidnet found 83% of asset managers are putting in place preparations for a ‘no-deal’ scenario while 49% have already put them in place.

Sentiment towards eurozone equities shuffled up 0.9ppt to -7.5%.

Markus Stadlmann, CIO at Lloyds Bank, commented: “Continued uncertainty around Brexit is percolating into investor sentiment and the valuations of [UK gilts].

“There is a clear divide in UK investor sentiment on equity markets. UK and eurozone equities are losing support, while overseas markets remain in favour.”

US equities saw the biggest increase in sentiment, jumping 12.1ppt to 13.8% as major stocks continued to perform well following the correction in February.

However, Stadlmann warned there could be “trouble ahead” amid concerns inflation could spike if a “true” trade war materialises with China while the Federal Reserve’s plan to normalise rates could cause a spike in the US dollar, impacting US exporters.

“US equity warning indicators are telling us to expect continued high volatility and a sideways movement rather than a major fall in stock prices in the next few weeks.

“The US may have the lowest unemployment figures in 49 years but this could have a negative effect on US equity values,” he continued. “With labour demand exceeding supply, wage growth could drive inflation.”

Elsewhere, emerging market and Japanese equities saw a slight rise in sentiment, climbing 0.8ppt to 18.1% and 1.9ppt to 13.3%, respectively.

Source: Professional Adviser

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Estate agents facing pressure as housing market cools and online players expand

Estate agents could be next on the high street casualty list, with more set to experience financial difficulty as the housing market cools and online firms move onto their turf.

Experts at accountancy giant KPMG reckon that pressures on high street agents will come to a head in the second half of the year, piling further pain on town centres reeling from hundreds of retail store closures.

Blair Nimmo, KPMG’s head of restructuring in the UK, said: “High street estate agents are presently facing an unprecedented set of challenges.

“The rise of online-only agencies have combined with falling house prices, a general slowdown in sale activity and a raft of legislative changes, all of which have generated headwinds for your average high street agent.

“I would therefore not be surprised to see operators across this sector struggle over the second half of the year and beyond.”

High street strugglers

  • House of Fraser
  • Maplin
  • Toys R Us
  • New Look
  • Carpetright
  • Mothercare
  • Jamie’s Italian Byron

Profits at the likes of Foxtons have come under intense pressure recently, with the London property market slowing considerably since the Brext vote.

Britain’s biggest listed estate agency Countrywide, which is behind Hamptons and Bairstow Eves, is also in full-blown crisis as it seeks to raise emergency funding.

It comes as the rise of online firms such as Purplebricks, Emoov and Tepilo has eaten into the market share of bricks and mortar firms.

The high street has been pummelled this year by several high profile retail administrations and store closure programmes.

House of Fraser, Maplin and Toys R Us have all gone bust, while New Look, Carpetright and Mothercare have all shut stores.

The casual dining space has also come under pressure, with Jamie’s Italian and Byron among the firms to close restaurants.

“We continue to see companies in the casual dining and retail spaces battle hard in the face of changing consumer attitudes towards spending, coupled with increased costs as a result of the living wage and business rates pressures,” Mr Nimmo said.

“Whilst a number of chains have survived through the implementation of successful CVAs or via pre-pack administrations, inevitably there have been site closures and job losses across many parts of the country.”

But a study by KPMG of notices in the London Gazette shows the total number of companies in England and Wales entering into administration during the second quarter of 2018 fell sharply.

A total of 302 companies went into administration between April and June 2018, compared with 347 in the previous quarter, a fall of 13%.

Year-on-year, the number was up from 297 administrations seen during the same period in 2017.

Mr Nimmo added: “The latest figures reflect a relatively positive picture for most businesses.

“For the most part, adopting a long-term cautious approach appears to be paying off for the majority of firms, although sectoral-specific challenges and broader global economic changes will inevitably force some businesses to reconsider their operations and potentially restructure their organisations to improve efficiencies.”

Source: Shropshire Star

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Scottish pubs and care homes outperforming rest of property market

PUBS, care homes, students flats and hotels are outperforming traditional property sectors, according to a new report.

Research by leading property consultant CBRE reveals Scottish commercial property had another positive quarter at the start of the year, reflecting wider improvements reported for Scottish GDP.

The Scotland Property Quarterly report shows the performance across the three main sectors of office, retail and industrial property was average with very little change.

It was the “alternatives” sector – a mixture of smaller, specialist real estate types ranging from student accommodation and care homes to pubs, hotels, leisure and roadside services – that outperformed everything else in the first quarter with returns of 4.0%, and 13.2% over the 12 months to the end of March.

On an annual basis, most sectors in Scotland saw an improvement in returns. For all property, returns rose by around 25 basis points over the quarter to stand at 7% for the twelve months to the end of March. This contrasted with the UK, which saw annual returns dip lower over the same period.

Total returns for Scottish retail in the first quarter were 1.2%, a slight decrease on the 1.5% total return in Q4 of 2017. The annual total return for retail over the year to the end of March was 5.4%. Last year, capital values for retail in Scotland were, on average, flat.

Performance has edged lower this year due to weakening rental growth in the first three months of 2018.

However, these overall figures for retail are somewhat misleading given the diversity of local and sub-sector performance. This is evident in the data for capital growth in Scotland, with retail warehouses values virtually flat (-0.1% over Q1), compared to more robust growth for high street retail (0.9% growth over the quarter). Scotland saw the fastest capital growth for high street retail in the UK, outside of London.

Returns dropped back to 1.6% in this period, the same rate of return that was achieved in Q3 2017, and down from the 2.2% return in the final quarter of last year.

Rental growth remained in negative territory, but this is not typical of market conditions in the larger office markets of Glasgow and Edinburgh.

Industrial capital and rental values were virtually unchanged during the first quarter of 2018. As such, the sector had to rely solely on the income return of 1.5% in order to achieve a total return of 1.4%. Over the past twelve months, the sector remains the strongest performer of the three main sectors, with an annual total return of 8.1% during the year to the end of March.

Aileen Knox, senior director at CBRE Scotland, said: “The returns for alternative property have been very impressive so far this year with the sector now forming an increasing share of the real estate market.

“Around the start of the century, alternatives accounted for just 6% of the properties in the sample but now in 2018, it forms 19%.

“Our data also reflects the growing importance of alternatives as an asset class for investment purchases; as our analysis demonstrates, more money was invested into Scottish alternatives in 2017 and in Q1 2018 than went into the retail sector.”

Source: The National

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Just 9% of buyers start searching for a home by visiting an estate agency branch

Only a fifth of buyers have used an estate agent as their first port of call when searching for a property in the past year, with almost six in ten relying first and foremost on portals.

Zoopla has released a report – Insights into New Homes Buyers 2018 – looking at what motivates people to buy a new-build in the UK, but which also unveils interesting data on the use of agents and ZPG’s competitors.

The report used a sample of 600 respondents who have either purchased a home in the past year or intend to do so,  and found the preference for resale homes versus new-build properties was split almost equally at 36% and 37% respectively, with 27% claiming no preference.

The majority, 57% of respondents, said they would use a property portal as their first port of call when searching for a home, compared with 19% for agents. This was made up of 9% who visited a high street agency branch, 7% who went through an agent’s website and 3% who used agent leaflets that had come through the door.

Just 9% of buyers start searching for a home by visiting an estate agency branch Commercial Finance Network

Broken down by type of property, 75% of buyers said they used a portal when researching for a new-build, while 82% did so for resale homes.

Almost half, 46% of buyers, consulted an agent’s website when looking for a resale property, but the figure dropped to 37% when it comes to new-builds.

The research also had a dig at ZPG’s competitors, finding that 64% browsed new homes and 47% bought after visiting Zoopla. In comparison, 53% did their research and 36% purchased after visiting Rightmove, with the figure dropping to 24% and 17% respectively for OnTheMarket.

Looking at appetite for new-builds, the report found families were the biggest audience for developers.

Almost half (47%) of respondents with families had the strongest preference for this property type compared with just 14% among empty-nesters. Couples with no children didn’t have any preference.

Respondents did however raise some concerns about new-builds, with 37% saying they could be too small and 21% worried about the location. Looking at the positives, 37% claimed the sales process for a new-build was easier and 32% said they cost less to run.

Chris Browne, sales director at ZPG’s new homes division, said: “When it comes to building and selling new homes, a one-size-fits-all approach will not work for developers.

“Our research reveals that buyers at different stages of life have clear, and differing, preferences for new homes and therefore developers need to keep their target market at the forefront of their mind – both when building and marketing these properties.”

Source: Property Industry Eye

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The real story of UK house prices

It is fair to say that UK house prices are under pressure after the decision to leave the European Union and the ongoing “troubled” negotiations. When you also throw in a benign economy, also considering the positive performance since the 2008 mortgage crisis, it is perhaps no surprise that sentiment has taken a hit. However, when looking at the bare statistics, what is the real story of UK house prices?


If you look at the graph below you will see that since February 2017 there have only been five months in which house prices are fallen. While the London effect will have impacted the monthly change, it is worth reminding ourselves that these figures do take into account the rest of the UK and everything is on a weighted basis. So, if you look at the basic statistics, yes, the UK market is under pressure but is it really as gloomy as some experts would have you believe?

The real story of UK house prices Commercial Finance Network


It is fair to say that the annual, and even longer, performance comparisons are more relevant to the property market, investment in which should be considered on a long-term basis. There will be situations where investors are able to “flip” a property to make a short-term gain but on the whole the best performances come from long-term investment strategies. This is perfectly illustrated in the following graph which shows that in the 12 month period to the end of February 2018 UK house prices still increased by 4.4%. Even though this is one of the lower annual increases of late, it is still well above inflation.

The real story of UK house prices Commercial Finance Network

It would be foolish to suggest that UK property prices do not have potential for further downside in the short to medium term. It would be misleading to suggest that the worst is over because who really knows what the Brexit negotiations will hold. However, to suggest that the UK housing market is in freefall, prices are plummeting and demand is rock bottom, would appear to be a little wide of the mark?


It is safe to say that the London property market dominates the UK housing market and has done for many years. It is interesting to see that while the London market recently posted an annual 1% fall in property prices (and a more recent 2.1% monthly fall) the UK property market is still in positive territory. We have areas such as the West Midlands posting an annual rise of 7.3%, the East Midlands posting a rise of 6.3% and Scotland (where there are political concerns and a pending independence referendum) posting an increase of 6.2% over the last 12 months.

The real story of UK house prices Commercial Finance Network

We are also seeing evidence that London property investors are looking to cash in their “London premium” using funds raised to acquire properties outside of the capital where many deem there to be “better value for money”. This has prompted some experts to suggest the London house price boom is over, investors are looking elsewhere and prices will continue to fall. In reality we have been here on numerous occasions, the London market is hit hardest when the UK hits trouble but time and time again it has bounced back. Will it bounce back this time?


It would be foolish to suggest that the UK property market is not under pressure and investors are not concerned about Brexit, they are. However, when you look at the basic facts and figures relating to UK property prices in recent times it looks nowhere near as bad as some “experts” would have you believe. As they say, what can’t speak can’t lie.

Source: Property Forum

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Time to think small if the government is serious about solving the UK’s housing crisis

You can forget trying to unravel our tangled planning regime. Forget improving access to land. And forget trying to ease the squeeze on skilled construction workers.

The government shouldn’t bother with any of the above if it won’t do more to help homebuilders secure funding to get projects off the ground in the first place.

This is a funding void that has drastically shrunk the number of small housebuilders in the UK.

In fact, if you hark to 1988 – which was the most productive housebuilding period in British history – there were 12,200 small builders in the UK. By 2014 (the latest figure available), the number dropped to 2,400, which is a decline of 80 per cent.

And when you look at the largest 10 housebuilders in the country, not a single one was founded after 1990.

Of course, the dire lack of housebuilders only serves to exacerbate the country’s supply crisis.

“Solving the nation’s housing crisis is as complex as it is urgent.” Those are the words of the UK’s former housing minister Mark Prisk in a yet unpublished report from LendInvest called Putting Finance First.

While Prisk says we can’t point blame for our dysfunctional housing market in one direction, it’s clear that finance is a major prong in this multifaceted problem.

Lack of funds is certainly a huge stumbling block for smaller players in the property market.

SME housebuilders, of course, can help develop affordable homes – whether that’s through mixed method property, modular homes, or fully-customisable residencies, says Jon Hall, managing director at challenger bank Masthaven.

“These small to medium sized businesses could well mark a turning point, if not the answer, to the UK’s housing woes,” he adds.

But more than half of small builders say the major hurdle is getting enough money together to get projects rolling, according to the Federation of Master Builders.

“The problem is that the loans available to these businesses often aren’t adequate enough to meet their needs,” says Hall. “At the same time, many of these companies are snubbed by high street lenders.”

As a result, he warns that many SMEs seek out other sources of finance, sometimes winding up with outdated products and high interest payments – or else companies turn to complex development finance loans.

Admittedly, there is a £2.5bn government initiative in place – known as the Home Building Fund – which offers finance to home building SMEs in England. But whether that money is being put to good use is another question entirely.

Research from LendInvest indicates that this initiative has financed 153 schemes, delivering 88,000 homes to date. But, 18 months since its launch, it’s not clear how much of this fund has actually been deployed to developers, with no data published from any authority on the performance of the loans either.

It’s a strange dichotomy – the government pledges to build more houses, but how does it expect this to happen without improving access to funding? As LendInvest points out, it cannot be left to the largest housebuilders to solve the housing shortage.

Chief executive Christian Faes says the only way to increase supply is by helping property entrepreneurs raise capital, leveraging both private and public sector investment.

SMEs are currently locked out of the housing market, but specialist lenders have the key to let them in

The big banks have been edging away from smaller businesses for years, so it’s not exactly news that SMEs across all sectors have been struggling to find finance. But the problem is arguably worse for property SMEs, which are held back by regulatory challenges, and are not eligible for the same tax breaks available to small businesses in other industries.

Also consider that the UK has the highest property taxes in the developed world, meaning many small builders are priced out of the market.

The good news is that specialist lenders can help solve the ongoing housing crisis. “If the government wants to hit its target of building one million new homes by 2022, SMEs will need to work with lenders that can provide a range of innovative loans,” says the Masthaven boss.

Hall points out that challenger banks can provide up to 100 per cent of build costs funded in arrears, and maximum loans to GDV at 60 per cent. “SMEs are currently locked out of the housing market, but specialist lenders have the key to let them in,” he adds.

Experienced lending businesses could even act as intermediaries to assess the creditworthiness of borrowers and allocate government funding, speeding up the process as a result.

This was actually a key recommendation in the 2016 Tailored Review of the Homes and Communities Agency – although LendInvest says this has not happened anywhere near as extensively as the industry would like to see.

To date, Homes England has only officially appointed one commercial partner, which suggests that the government body is failing to make use of the full scope of specialist lenders – companies which could go a long way to propping up thousands of SME housebuilders.

LendInvest questions why Homes England does not use a model similar to state-owned bodies like the British Business Bank (BBB) by making full use of the network of commercial partners.

The government has no hope of hitting its ambitious housebuilding targets unless it encourages a new generation of entrepreneurs in this sector

But what about getting local councils involved?

LendInvest suggests local authorities co-invest with alternative lenders in local developments, using a mechanism known as the Public Works Loan Board to offer discounted capital to small builders.

But the collaboration doesn’t end there, as LendInvest reckons more funding from the BBB could be allocated into the property sector.

“Until recently, the property market has been an untapped and overlooked market for BBB, which has focused on providing finance solutions for SMEs in almost all other markets across the UK economy,” the report reads.

It suggests that the BBB appoint more alternative lenders to underwrite property investment and development loans as part of its Enable Guarantee programme.

Essentially, the government has no hope of hitting its ambitious housebuilding targets unless it encourages a new generation of entrepreneurs in this sector. Finance is the biggest barrier preventing this, but specialist lenders cannot do this without collaboration from the state.

If the government is serious about solving the housing crisis, it’s got to think outside of the box, offering the alternative routes which our property market so desperately needs.

Source: City A.M.