The Budget
There’s always a rush following a Budget speech to provide instant analysis and the ‘hot take’ on the Chancellor’s statement. While this can be useful, it’s almost always based on what was said at the dispatch box in the House of Commons; but that’s only part of the story.
A significant amount of the Budget will not pass the lips of the Chancellor; rather, it will feature in the so-called ‘red book.’ This is published after the speech and consists of hundreds of pages of detail. It’s where the ‘non-sexy’ stuff appears and this includes the Specialist Lending Market – the government will want to have TV and radio covering the Chancellor in the Commons outlining the headline-grabbing elements (despite the fact these are largely trailed in the days preceding the Budget nowadays).
Specialist Lending Market for Property Developers
With this in mind, I find it’s always worth taking a breath after the Budget and looking oneself at the red book in case there’s anything in it which can have a bearing on the specialist lending market for property developers.
In the Spring Budget’s red book, the government said it wanted a “sustainable and accessible housing market” and was looking to drive infrastructure investment and delivery. That all sounds promising, but how would the government look to achieve this? I’m going to quote directly:
High levels of nutrient pollution in protected sites are stalling housing delivery across 74 Local Planning Authorities, reflecting a major barrier to the government’s ambition of delivering 300,000 homes per year. The government has already provided significant support for protected sites that are affected, both to address the pollution at source and to support housing developers to deliver their environmental obligations.
In recognition of the scale of the impact, the Spring Budget announces further support to ensure ‘nutrient neutrality’ obligations can be efficiently delivered, thereby reducing the risks facing developers building homes in affected areas. DLUHC will shortly launch a call for evidence from Local Planning Authorities, backed by a commitment to provide funding for high-quality, locally-led nutrient mitigation schemes.
Anything that can help reduce pollution should be welcomed, as should ways of reducing barriers to housebuilding. However, I’m not convinced that high levels of nutrient pollution in protected sites are collectively a “major barrier” to the government achieving its housebuilding plans – especially as there are no official statistics provided to support this claim.
I think we can safely say that all in all, the Budget offered developers only marginal support, so what’s the outlook and current specialist lending environment for developers?
Essentially, it’s a mixed picture but there are improvements in certain areas compared to the beginning of the year. The key reason to feel more optimistic is that most predictions from economists say that inflation will fall quite dramatically later in the year – the independent Office for Budget Responsibility (OBR) has predicted that inflation will fall to 2.9% by the end of 2023. As we’re currently seeing CPI running at 10.4%, that’s a dramatic decrease. Even if the OBR is being overly optimistic, it’s likely CPI will be less than half its current rate by the end of the year.
With regards to house prices, Savills forecasts a 10% decline in average UK house prices throughout 2023. However, they anticipate price stabilisation by mid-2024 and a recovery of the losses by 2026, which shouldn’t trouble those taking a long view of their investments.
Development Exit Loans
However, these house price falls will be problematic to developers looking to exit their financing at the present time. In such situations, a development exit loan can prove beneficial, especially when a borrower is approaching the end of the loan term and wishes to avoid selling their units hastily or incurring extension fees with their current lender. A development exit loan offers the client a financial cushion without any exit charges.
Specialist Lending Solution – Part X property finance
At Alternative Bridging Corporation, we have designed a new specialist lending solution, PartX, to offer developers another exit strategy, enabling the swift sale of a property at its full market value. Furthermore, the part exchange property owners can sell their property at its full value, completing the purchase of their new home without waiting for a buyer. PartX allows developers to sustain their sales pace on their sites and, crucially, repay their development facilities punctually.
Ultimately, while reducing red tape over nutrient pollution in protected sites, the best way the government can help developers in the short term is by managing the economy prudently and doing what they can to keep inflation as low as possible. At the same time, specialist lenders such as Alternative Bridging will be playing their part in supporting developers with innovative and reliable bridge funding solutions.
Read more Alternative Bridging articles here.
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