Monthly Archives

August 2020

ashley-ilsen

2020 So far…. The development finance market

By Blog, Development Finance, Opinion

I think it’s fair to say at the turn of the year no one expected that we’d be stuck in our homes for several months and the immediate future of our economy would be looking far from rosy. In fact, going into January and early February, Brexit was still the buzz word on everyone’s lips in the industry. I think the way we responded as an industry was admirable. Had something of this nature happened say seven or eight years ago I don’t think we would have been as well placed to take it on the chin. I believe we’ve matured as an industry in recent years and as a result we are more robust in our lending practices and our ways doing things.

 

As I’ve often complained about before, for me one of the key things the development finance sector needs to deliver is constancy. Without consistency we don’t have housebuilding and new homes being created. Initially it was disappointing to see that some self-styled development finance lenders were unable to decide whether they’re in or out. This is not bridging and the risks are much higher. I strongly believe that if you can’t be in the market offering development finance during the bad times then don’t operate in the market when it’s performing well.

 

The biggest losers from this level of unpredictability is the consumer and, after all, the main goal of the development finance sector is to assist SME builders and developers create new homes. Similarly, I found there to be a high level of frustration amongst brokers unable to place deals with lenders who had suddenly dropped out the market. The deal flow was still there, but some of the lenders were not. However, the majority of us stood firm, with tweaks made to LTVs and some lending criteria understandably tightened. It was great to be able to report that Magnet Capital had one of our strongest months for new business in May, and we weren’t the only ones setting PBs during the lockdown period.

 

One of the criticisms I’ve had of the development finance space over recent years is that we’ve lacked innovation. The most successful lenders over the coming years will be the ones that can innovate and provide new and exciting ways of doing things. Development finance lenders have been on a slow curve to absorb and start using new technologies, so it was interesting to watch the Covid-19 crisis accelerate this movement. Lenders suddenly had to be equipped to have their whole force work from home.

 

At Magnet Capital it was no different for us. We make a strong point of meeting every single person we lend to face to face and for the first time in my career this was no longer possible to do with every borrower. Whilst Zoom was an excellent tool for staying in touch with each other, I don’t believe that there is a replacement for face to face meetings and contact. I’m delighted to report that our site visits and face to face meetings have started again where appropriate.

 

Looking forward I think development finance lenders need to avoid the mistakes of the past. There is no point of coming to market at LTVs you can’t sustain. We are almost undoubtedly staring down the barrel of an unprecedented drop in property prices. Development finance lenders with genuine expertise would have already factored this into their offering long before we reached this crisis. However, I will add that it’s not LTVs that cause the biggest threat to development finance lenders, but internal practices and attitudes to lending. I have seen via some of our introducer partners examples of the corner cutting that still exists in the development finance industry. These are the lenders that are going to be tested the most.

 

Brexit is also still a looming cause of uncertainty in the medium-term outlook. I’ve already seen many cases of building suppliers from the continent looking to raise prices for our builders over the coming year and this could seriously hamper many new build and heavy construction projects. Again, a development finance lender that understands the market will have already factored this into their offering.

 

Unfortunately I don’t have all the answer, but going forward we need to continue sensible lending practices at sustainable LTVS. We will need to continue to adapt. This is how we’re going to provide consistency to our brokers and consumers, and this is how we’re going to continue to thrive as an industry.

 

Development finance grade 7/10

London-city

The UK’s Second Most Expensive Home Now Up for Sale in London

By Blog, Development Finance

Headlines exclaim “Billionaire Wanted” as the second most expensive property in the UK hits the market. Priced at £185 million, this mansion sits on 1-18 York Terrace East, London, and was designed by the famous Buckingham Palace architect John Nash. Nash is renowned for his design of the capital’s royal palace as well as Brighton’s Royal Pavilion and Regent Street.

 

The firm currently pushing to sell the huge property have claimed that someone with “billions” who currently wants to find a property in the UK should inquire.

 

The mansion was built between the period of 1821 to 1826, its current owner Zenprop UK, a property investment firm, speculated to have originally purchased the property four years ago for £200 million. However, despite these claims, the chief executive of the firm has commented that the property was purchased for below the price it is currently listed at.

 

The Daily Mail reported comments made by Zenprop UK’s Derrick Beare claiming that the sale “is not for me to make a return, it’s pretty much to get my money back and move on.”

 

“The current price is a result of Brexit and the pandemic. It should be more, but I don’t think I can get more in this market. It won’t appeal to many people but we only need one person. The kind of person with billions, who wants a place in London.”

 

About The Property on 1-18 York Terrace East, London

 

This newly updated property was originally intended as 18 separate homes, however, after WWII was converted into government offices. During the war, the building was almost demolished after suffering bomb damage, however after public outcry was saved, and most of it afterwards used by the Ministry of Works.

 

In 1967, the terrace was when transformed by the International Students Trust into luxury student accommodation. The property was then used as a home for students studying around the area until it was sold in 2016 to Zenpop UK.

 

Zenprop UK are associated with the South African premier property development and investment company Zenprop Property Holdings. The firm agreed to a long leasehold extension, and have been restoring the building to residential use for over three years.

 

Beare is reported to have insisted there is interest for the property – of course, from incredibly wealthy prospective buyers – one even considering placing a bid of over £200 million. However, due to Brexit this buyer had pulled out.

 

The mansion now stands complete, Grade 1 Listed and 117,000sq ft, thought to be the first time in history that an entire Nash terrace has entered the open market.

man-signing-mortgage-application

Mortgage Application Fraud Rises in the UK

By Blog, Development Finance

Whilst mortgage application approvals have recently increased, benefiting both customers and the economy more widely, unfortunately, alongside this has been a rise in mortgage application fraud.

 

The Bank of England reports that both mortgage approvals as well as lending figures overall rose during the month of June – approvals relating to house purchases in particular rising from the record-low figure in May of 9,300 to 40,000.

 

The central bank stated throughout their Money and Credit report that “The mortgage market showed some signs of recovery in June, but remained relatively weak in comparison to pre-Covid. On net, households borrowed an additional £1.9 billion secured on their homes.”

 

Post-covid, the UK government has offered two rounds of mortgage holidays, both three-months, to offer help to homeowners. This scheme was reportedly taken up by 1.9 million households in the UK.

 

The report further claimed that whilst this was indeed higher than May’s £1.3 billion, it was still “weak compared to an average of £4.1 billion in the six months to February 2020.”

 

Furthermore, the Money and Credit report explained that “The number of mortgages approved also increased in June. The number of mortgage approvals for house purchase increased strongly, to 40,000 up from 9,300 in May” however, “approvals were 46 percent below the February level of 73,700.”

 

Whilst reports of this rise, albeit comparatively low to pre-COVID months, is welcome news to the sector during this turbulent period, SmartSearch, an anti-money laundering service, has revealed that the UK is also experiencing a rise in mortgage application fraud – up 5% during last year with a concerning 13% of adult Brits thinking exaggerating their income on an application was “reasonable”

 

SmartSearch CEO John Dobson, reported by the Express, claimed that “Applying for a mortgage can be an exciting and also daunting task, with many first-time buyers unsure of what to expect during the rigorous application process.”

 

“It is important to remember that a mortgage is a significant financial commitment, and making exaggerations or withholding any changes in circumstances may result in you being investigated for money laundering and fraud, making it more difficult to secure a mortgage or other financial products in the future.”

 

What Is Mortgage Application Fraud and How Do I Avoid It?

 

With mortgage application fraud, individuals will provide false evidence to support their application for a mortgage. SmartSearch have suggested some of the following considerations to take into account during the mortgage application process, all of which should be handled with care to prevent red, money-laundering-related flags:

 

  • Register on the electoral roll so that you can prove your identity to lenders – “If you’re not registered on the electoral roll it is just about impossible to secure a mortgage” SmartSearch claims.

 

  • Disassociate from ex-partners you could still be financially linked to via the credit reference agencies.

 

  • Explain and provide evidence of where the source of your deposit has come from (particularly important when the deposit has been gifted to you, or is from inheritance).
building-construction-site

UK Construction Sees Sharpest Rise in Nearly 5 Years

By Blog, Development Finance

The building industry shows promising signs of a strong recovery after the COVID-19 pandemic, as UK builders report to have experienced the sharpest rise in monthly activity in nearly five years. This rise came during July this year, residential building reported to be the main driver for this significant boost in activity.

 

The rise comes as excellent news for the UK government, who are reported to be relying on this particular sector to help be a driving force in the country’s economic recovery – PM Johnson himself using the slogan “build, build, build” whilst describing the intentions for the post-lockdown economy’s revival.  New and upcoming “once in a generation” reforms have recently been announced to the country that will help to ease certain building restrictions.

 

However, even with these promising results, as concerns surrounding the economy still remain significantly high, the sector has experienced a decline in workers. IHS Markit’s economics director Tim Moore told the Financial Times:

 

“Concerns about the pipeline of new work across the construction sector and intense pressure on margins go a long way to explain the sharp and accelerated fall in employment numbers reported during July”

 

The Government’s Plans for Construction Post-Lockdown

 

Despite this reported decline raising concerns, the UK government has predicted that this drive in construction will create many more jobs throughout the sector, further helping to push for economic recovery following the COVID-related lockdown measures.

 

On the 21st July 2020, Parliament laid out new laws that will enable homes to be built where unused buildings currently stand, without the need for full planning applications. Alongside this, retail and commercial properties will be able to be repurposed quickly in a bid to revive town centres and high streets.

 

Housing Secretary Robert Jenrick has commented the following on the matter, stating that:

 

“We are reforming the planning system and cutting out unnecessary bureaucracy to give small business owners the freedom they need to adapt and evolve, and to renew our town centres with new enterprises and more housing.”

 

“These changes will help transform boarded up, unused buildings safely into high quality homes at the heart of their communities. It will mean that families can add up to 2 storeys to their home, providing much needed additional space for children or elderly relatives as their household grows.”

 

These new rules, set to apply from September, follow on from other measures recently announced to help support home building throughout the country, of which include the addition of £450 million to the Home Building Fund, whilst a new £12 billion programme for affordable homes will help to provide up to 180,000 brand new properties.