Sam Howard

Record level of new loans signed up in May 2020

Magnet Capital recorded its best month since its 2018 launch, with the highest level of new business written. Both enquiries and written business have risen with an 33% increase on the prior year.

Magnet Capital has benefited from its consistent approach to lending, which has not changed significantly through the pandemic, and continuing its approach of funding the right housing in the right locations.  It has completed on loans in March and April (including its largest loan to date, drawing down in April) and welcomed new business.

Sam Howard, Managing Director says “We have thrived in May by being open for business during this difficult period. Whereas other lenders immediately pulled down the shutters, our cautious lending model and years of experience enabled us to make sensible funding decisions, limiting potential exposure but continuing to lend.

We have a mantra in the office to be the tortoise not the hare and not to bite off more than we can chew. We understand how much value our borrower and broker partners place on consistency and reliability and this is what long term relationships are built on. In these tough times this is certainly bearing fruit.

We are delighted but not surprised with the recent numbers. Whilst the UK continues to suffer from the Covid 19 outbreak and arguably until we have vaccine, life will not return to the normal, there is a real sense that people want to get on with their lives. The fatigue of the Brexit years plus the seismic shock of the pandemic, has taken its toll but SME developers are seeing beyond this and thinking 15 to 18 months into the future. On that journey and beyond, we will continue to be their partner “

It felt like the chains had been unshackled, as I stepped out of my car, in bright sunshine, at one of Magnet Capital’s development sites last Monday morning. For the first time in over eleven weeks, I was able to do what I enjoy most; visit our projects, see how they have progressed and chat with our developers and their team.

Except it wasn’t normal, I was sweltering in a mask and gloves, despite being on an open-air site, with the two bungalows at wall plate stage. I took my position a good two metres away from the developer, whilst the rest of his team were mostly at home, except for two labourers distancing in a corner of the site. Despite all this, the client was delighted to be back on site having lost a good six weeks due to lockdown, closed suppliers and scarcity of labourers. Thankfully roof trusses and windows were soon to be delivered, so that the site could continue with no delays. Roof tiles from Spain were causing an issue but he had a work around and frankly he is one of the lucky ones.

Across our extensive range of development sites at Magnet Capital, we have heard of difficulties for developers in getting bricks, block and beams and specifically those building materials, which require bespoke factory settings, such as windows and roof trusses. Factories are starting to open up but there is a backlog of orders. To comply with social distancing developers are faced with having only a skeleton crew on sites, which will be magnified when the properties are watertight and are working on internals. Hand sanitiser, cleaning of surfaces, face masks will all be necessary. Delays and rising costs are a reality for all our developers. As a development finance lender we have to be realistic that our clients projects will overrun their loan period and we need to help them either to extend their loans or source developer exit products.

The new normal is also opaque as to what will happen to the property market in terms of house prices and the mechanics of selling new build properties. There will undoubtedly be far-reaching economic ramifications but at the moment there is plenty of pent up demand. The Government’s lockdown measures resulted in an estimated £82 billion of house purchases placed on hold. Some early indications suggest that the market is springing back into life, with Rightmove stating 40,000 new sales having been agreed since 13 May and it saw its ten busiest days ever in May and June.

We are all going to be spending more time in our homes and spacious properties with gardens and nice views should be in demand, whereas flats in high rise blocks, requiring lifts and in urban areas with little outdoor space, might struggle. This could be accentuated by people increasingly working from home, with less need to be in urban areas, close to their place of work. The commute will become less of a burden on the psyche and the pocket, if people are working from home a couple of days a week, meaning that more living space, further out of the city centre, becomes much more desirable.

Agents will need to find ways to cleverly market their properties, offering virtual imaging cameras to create accurate floor plans and 3D simulations of properties, or filming short video tours inside. Potentially the new build market will outperform the second hand market, as the risks are lower visiting a vacant rather than occupied dwelling. The mechanics of buying and selling is further complicated by the difficulty in the current climate of getting valuations, surveys, searches, and dealing with the Land Registry. Sellers need to get all their paperwork ready and buyers need to ensure that they have a decent solicitor that is not stymied by working from home and surveyors that are willing and able to attend the property.

Last week felt like the mist was lifting and a sense of normality is returning, However, all we can do is take each day as it comes, as looking too far into the future of the property market is unwise in the best of times and especially in current times.

As I sit working from home with the news on a constant loop, the picture is forming of a dystopian world where  from a corporate perspective there will be few thrivers, aside for big tech, and the rest will be competing to be survivors.

Undoubtedly, the world is facing a crisis like we have not seen for probably a 100 years, and the impact on people’s lives has and will continue to be unprecedented in the short term. Reports are suggesting there will be a wave of soured UK commercial property loans, owing to the slump in retail property. Indeed, from the development finance perspective, restrictions on movement, the closing of building suppliers, the effective shut down of the residential property market for sales and rental has and will lead to serious delays. With regards to residential property, I believe this is overly bleak and once a vaccine and suitable drugs have been discovered, the UK’s passion for property will return.

However, whilst running a development business from my home office, in between Zoom calls, reviewing drone footage and photos of our sites, I wanted to do a bit of stargazing to see what changes for the better or worse might affect our industry. Clearly, I have no crystal ball but just a deep interest in the development finance industry.

An argument that is raging at the moment is whether Covid-19 will lead to a rise of nationalism over globalism. Given that the UK imports significant amounts of building materials, with one fifth coming from China, should the UK be focusing on ramping up domestic production? Whether it is electrical wiring, softwood timber, clay tiles, there is an argument that the UK should be fully self-sufficient. My guess is that there will be a significant move to on-shoring capabilities where possible, although of course some countries are better endowed with natural resources than others and we will still import where there is little alternative.

We are all starting to use technology more in our day to day roles, whether that is utilising: valuation software, drones for building inspections, or zoom sign up meetings. Therefore, shifting the belief that development finance underwriting can’t be automated and that the borrowers need to be met in person and the sites visited. With regards to the surveying profession, whilst physical valuations will still be necessary for the majority of development schemes,  we will see a degree of change , with more virtual monitoring inspections. However, this is likely owing to the rise of modular housing that will reduce the need for so many physical monitoring inspections, rather than Covid 19.

From a lender’s perspective no matter how much a system can be automated, you still need a human to make decisions and review the due diligence that the computer programmes produce. Face to face sign up meetings with the borrowers are crucial to assessing the risk of a development project. Yes ,you are also looking at the valuation information, the site details, cashflow, business plans etc but ultimately you are backing the individual/individuals. At Magnet Capital, we will be reinstating this, of course adhering to social distancing rules, as soon we can. So, don’t get rid of those meeting rooms just yet.

Which leads me on to the question of working from home. It is one that the industry has struggled with for many years. The mantra of management has always been, that you need to have your employees in the same physical space, to create the optimal working environment. The reality is that with modern technology it is possible to work efficiently and productively, without being in physical proximity.

Whether using slack, zoom, dropbox, xero, alongside a business’s existing databases, the ability to work remotely is, if not seamless then close to it. Avoiding the daily commute, not being crammed into a hot desk environment with little natural light, and having the ability to work flexibly is attractive. Now, I am not suggesting that office space is no longer needed but I think there will be a realisation that big expensive offices might need another look. It is of course about having the right systems in place and yes it is easier with a small team such as Magnet Capital’s who have all worked together for many years rather than a giant multinational.

The modern office will be reshaped, with perhaps meeting rooms and desks for those who need to be in rather than paying for a space for hundreds of people. And just a thought – perhaps from a residential development finance perspective, there might be opportunity for developers to turn the unused office space into flats.

To borrow a well worn but largely derided phrase in the financial markets that “this time is different” but I think in some ways it possibly could be.