Category

Opinion

sam-howard

Housing and the Climate Crisis

By Development Finance, Opinion

Walking past the Extinction Rebellion protest in Bishopsgate, a few weeks back, whether you agree with their tactics or not, brought the reality into focus, that our planet is in serious trouble. The onus is on every single one of us to do more and it will require a concerted effort.

Given that Magnet Capital’s focus is to support our SME Developer clients in building the right new build houses in the right places, it is pertinent to shine the spotlight on what new homes can do to help the country meet its target of reducing greenhouse emissions to net zero by 2050. The new and existing housing stock currently accounts for circa 20% of emissions.

Somewhat under the radar, the Government in its 2019 Spring Statement has turned its attention to residential housing emissions by including a commitment that, by 2025, they would introduce a Future Homes Standard for new build homes. This would include low carbon heating and world-leading levels of energy efficiency. The Government has now published a new consultation, setting out these plans, which is open to responses until 10 January 2020. This consultation marks the first step towards implementation of the 2025 Future Homes Standard, proposing to tighten the standards on energy efficiency and ventilation in new homes as of late 2020.

It includes two options:- the first is a 20% improvement on carbon dioxide emissions by ensuring new build houses have triple glazing and a waste water heat recovery system.

The second would result in a 31% improvement which require only double glazing but crucially low-carbon heating and/or renewables such as photovoltaic (solar) panels.

The government’s aim is for the housing industry to develop the necessary supply chains, skills and construction practices to deliver low-carbon heat, and highly energy efficient new homes by 2025. Crucially, it has been rumoured to include the banning the installation of fossil fuelled heating systems in homes built from 2025. Whether this means gas boilers will be banned for new builds is a matter for debate, given there are genuine concerns over whether alternatives such as air source heat pumps are viable because of their high initial cost and current ability to heat a home.

However, what is not in doubt is that new build house builders cannot bury their head in the sand, as the first raft of changes of increased efficiency standards will apply by the end of next year. These will have cost implications for house builders and SME developers need to be aware.

Changes are coming and some will be painful but ultimately we all have to up our game to protect our planet.

 

ashley-ilsen

The Government Need To Be Doing More For SME Builders and Developers

By Opinion

Ultimately the government need to be doing more for SME builders and developers who are facing what is already an uphill struggle. We regularly hear complaints from our clients about the rising costs of building new houses; anything from labour to supplies have been on a steady increase of late. When this is twinned with a flat property market all that leads to is a squeeze on margins, making opportunities for developers scarcer.

There needs to be a bigger push from the government to incentivise people to build homes again. We all know we’re a long way away from the targets that we are supposed to meet and this is not going to improve without drastic changes to both the demand and the supply side.

I was a big fan of help-to-buy when it was first introduced however this was only supposed to be a temporary short-term fix, and not long term dependency as it appears to have morphed into. There is a distinct lack of dynamism and forward thinking from our government when it comes to housebuilding and sadly I don’t see this changing anytime soon.

Paul Israel

Beware of the mast gift horse – be wary of what lies beneath…

By Opinion

Lucky landowners with properties in the right spot have been able in the mobile phone revolution of the past 20 years, to rent out land for phone masts, over 40,000 now in the UK. With the telecom provider obtaining planning in place, surplus land has been able to help the owner from helping these big corporations and putting in place a phone mast. Historically, these values have been between £4.5k to £9k annually under 15-year leases, depending on location.

With the coming of 5G and the need for another 40,000 new phone masts, the new Electronic Communications Code contained in the Digital Economy Act 2017 and introduced on 28 December 2017, is as a result likely to sharply reduce landlords’ income from these agreements and leave them with less control over their properties. The government in a bid to help roll out new phone masts for 5G had the bright idea to change the way mast contracts were negotiated under this new code so that instead of mutual negotiation the value was changed to alternative land use. No doubt the big telecom corporates were involved in its drafting.

In the city this value may be higher, but in the country some of these spots have very low alternative use values, as a result existing phone mast locations at the end of their contracts have seen offers from the telecom companies for annual lease values plummet from an average £6k annually to sometimes now offering as low as £32 pounds only a year.

So, in that instance you would then think the landowner could just give the telecom mast company notice, and tell the provider they can take their £200k of equipment elsewhere, but no, in the new code, the mast provider can go to Tribunal and have the value and mast site protected and withheld.

Loss of control is much greater, although, there is no right to “add” equipment, which may give landlords room to negotiate for more negligible rent. However, new rights include, to connect to a power supply; interfere with or obstruct an access route; and to lop trees have been added as well as right to keep the site, so land value could be potentially affected.

So, what’s actually happened since the new code came in? Mutual new mast agreements have now crawled to a standstill and there are cases now going to court to test the legislation, which surely needs significant amendment.

In the code there is scope for compensation in addition to rent for:

Faced with the prospects of a lower consideration, landowners are likely to claim compensation for their loss, as they can be entitled to do. Typical heads of claim will be:

  • Land taken – this will vary between each site (such as between farmland/woodland, farmyard/car park etc);
  • Injurious affection – this allows a landowner to claim for any drop-in value to his retained property (say to a house within sight of the mast);
  • Disturbance – this ought to cover the landowner’s time and trouble in dealing with access requests, which at say five requests a year per operator could equate to well over £2,500 per annum; and
  • Fees

If approached, where until recently a new mast was a potential positive for land, we understand is don’t agree any offer for a mast offer without proper advice first.

Paul Israel

It’s the worst of times, it’s the best of times: Happy First Year Magnet Capital

By Opinion

While British politics remains mired in continual and it seems perpetual uncertainty or lack of resolution; there still remain such absolute certainties; the British weather has kicked in, there is a new season of Strictly Come Dancing, Labour and Conservatives MP’s don’t get on, new political parties don’t seem to last very long, the tube goes wrong,  and every Monday morning in the Magnet Capital office the dynamics begins with critical analysis of whoever’s footie team is (temporarily) in the ascendancy before analysis of the new episode of Peaky Blinders and onto the day’s loans business…

Some things do change though; England finally won a Cricket World Cup this glorious Summer; opening a bank account does take just a bit longer than 5 years ago,  and the government might be looking at reforming the stamp duty system that from 2015 that along with other issues brought to an end the UK’s 20 year property boom

For all the political unknowns, and threats of tax changes and economic slowdown the UK economy remains the 6th biggest in the world and economic growth in Britain in the current year for all the talk, growth is the same as the average in the Euro zone (1), and we are way ahead of Germany and Italy this year, the Government is (so far) in control of the Budget deficit, and with historic low interest rates, and a lot of money waiting to be deployed (liquidity) the ability to re-bound with confidence can be quick – should certainty in the market return

Making predictions in current times on Brexit, the property market, Manchester United’s next score and what happens to Stamp Duty may appear a mugs game at the moment, is an election coming? We seem in a waiting period.

Stamp duty changes proposed have included the seller paying, instead of the buyer, which we think is impractical, sharing the payment (also difficult), raising the minimum charge, cutting the rates at the top (obvious, but looks like it is helping rich people), but something will have to move eventually, as like in all taxes if the take drops then a rethink is needed.

Property business issues may be the same, interest rates, stamp duty, the costs of build changing, but the fundamentals of build haven’t – Most developers just want to get on and build, find the next project and move on…

However, here at Magnet Capital we operate in the engine room of the property world, deals still happen, so we don’t feel the slowdown as some have on higher unit prices, particularly in parts of the South East – and a year in since we started we are very proud the map of England and Wales in our office, is now ablaze with green dots of ongoing projects we have signed up and after 12 months showing our first 6 yellow redemptions where we have lent which have successfully completed.

The team has grown with two new starters this month and a bigger office, roll on Year 2….

sam-howard-magnet-capital

The Bigger Issue

By Opinion

Our new Prime Minister, Boris Johnson, is highly skilled at generating headlines and positive soundbites, which certainly generate interest and coverage. However, trying to figure out what his polices are on any particular topic is never easy.

One minute, we are preparing for a no deal Brexit and then next that the odds are a million to one against there being a no deal Brexit. Perhaps, this ambiguity is both designed to confuse the enemy and simultaneously provide backside covering if things go wrong or perhaps it is a clever way of playing the cards he was dealt or more accurately dealt himself.

Anyway, as you know my interest lies in the housing market, so in these early days of the Johnson premiership, I want to try to figure out whether his new government has what it takes to make meaningful change and also hazard a guess at what their policies will look like.

A new Prime Minister heralds a new Secretary of State for Housing, Communities and Local Government. Robert Jenrick is in and James Brokenshire out. Likewise, a new Chancellor, Philip Hammond is out and Savid Javid is in. Savid Javid was a previous Secretary of State for Housing, Communities and Local Government, oversaw the White Paper for Housing on 2017 and has previously spoken about borrowing £50bn to fund new housebuilding. So there are possible clues in a selection of a team that may be inclined to provide the fiscal fire power to invigorate the housing market, whether that is tax cuts and/or increased spending/borrowing.

Boris Johnson has been a long term believer in home ownership. He realises that as a counterweight to Jeremy Corbyn, homeowners will tend to vote Conservative and to appeal to younger voters, he needs to persuade them that the dream of their own home is attainable. So it is not surprising then that Robert Jenrick has already raised the possibility of the controversial Help to Buy scheme being extended beyond its expiry of 2023. This is not the column for an analysis of Help to Buy but it has contributed to the sale of more than 50,000 new build homes a year and clearly does enable first time buyers to get on the market.

In his first week in Downing Street, Boris has talked about abolishing stamp duty on houses below £500,000 and reducing the top rate of stamp duty from 12% to 7%. George Osbourne’s stamp duty increases have arguably achieved the stated aim of taking the heat out of the housing market but have done a lot to clog up the housing market, especially at the higher end, which invariably has trickled down. Tax on transactions typically reduces housing market activity. However, stamp duty is extremely politically charged and any cuts will be seen as a tax cut for the rich. Given that by the end of the week the Conservative government’s majority in parliament might be whittled down to 1, I doubt whether he will risk trying to reduce stamp duty in the near future.

However, these proposed fiscal measures are really only cosmetic if we are to build the number of houses we need in this country. This will take the Johnson government dealing with amongst other things the real skills and materials shortage in the building industry, the effects of Nimbysim and a broken and under-resourced planning system Further, can Britain adopt modular housing, can it create the infrastructure necessary to support this new housing and can it curb the power of the power of the major housebuilders and enable SME housebuilders and local authorities to build the right houses in the right locations. Only time will tell, but to make a real difference will take more than soundbites.

sam-howard-magnet-capital

Quality not quantity for UK housebuilders

By Opinion

Maybe it is because like me, he used to be a lawyer, but I am rather impressed by James Brokenshire, the Secretary of State for Housing, Communities and Local Government. In a relatively short period of time, just over a year, and in a febrile political environment paralysed by BREXIT, he is trying to get to grips with the significant issues facing the Housing Market.

There have been a number of positive steps, including: lifting the council borrowing cap which enables councils to be able to borrow billions of pounds more for housebuilding, changes to the National Planning Policy Framework and the £1bn Housing Delivery Fund to finance small and medium-sized developers to deliver new homes across the country.

He has also pledged to speed up the planning process, which is a quagmire for SME developers who can get tied up for months or even years attempting to get planning. I am not holding my breadth but he wants councils to be able to approve planning applications more quickly under radical new measures to remove bureaucracy from the system. He said that a new accelerated planning green paper, to be published later this year, will dramatically improve the planning process. Let’s wait and see and the reality is that it comes down to ensuring planning authorities have the resources they need to act quickly.

However, it his focus on calling to account the large housebuilders that has really grabbed my attention, especially on cracking down on poor quality housebuilding and the leasehold scandal.

Last week, he announced that all new-build homes are to be sold as freehold and to reduce ground rents on future leases to zero, in a move to tackle unfair leasehold practices, which has been a shameful exploitation of consumers, with the consequence that their homes will be incredibly difficult to sell in the future.

In terms of housebuilding, the large housebuilders are able to build large numbers of units at a cost that smaller housebuilders simply can’t build at, given their economies of scale and the significant preliminary costs involved before construction even starts.

However, it is often eye opening to see the lack of quality in these cookie cutter style housing developments, who often leave new build buyers with a nightmare of faults to fix as opposed to their dream house. The supposed remedy of a 10 year warranty, in reality does very little to rectify snagging and can leave buyers badly exposed.

Mr Brokenshire has been a vocal proponent of building better homes and is considering forcing housebuilders to sign up to a code of conduct if they want to benefit from the Help to Buy scheme, and is pushing ahead with plans for a New Homes Ombudsman to give buyers of new-build properties greater protection.

In my time in the specialist finance industry running development finance companies, we have literally funded SME developers and builders to construct hundreds of houses. I am struck by the care and attention that SME developers take in their building. It is often the exact opposite of the big housebuilders, where our clients see the houses they build as a labour of love rather than just churning out another unit. This tends to lead to the right houses being built in the right areas and happy purchasers. Don’t just take my word for it – an award winning surveyor who has overseen many developments by both SME developers and big housebuilders said that pretty much every time the quality of houses being built by the client’s of Magnet Capital is superior to the big housebuilders.

There has to be an emphasis in the country on not just numbers of properties being built but the right type and quality of houses in the right place. So, you might not have heard much about James Brokenshire but I think he is doing a good job so far.

 

Sam Howard

 

ashley-ilsen

Why Transparency is key to a Successful Development Finance Offering

By Opinion
I sometimes find it a bit of a cliché when lenders chant the mantra of ‘the devil being in the detail’.

This is of course completely true when it comes to underwriting a new loan, but this is also easier said than done. Is there something us as lenders can be doing to help a property developer client be as profitable as possible?

When we first look at a new development finance proposal, one thing that’s for certain is that the costs we are presented with on day one are unlikely to be completely accurate. Some expenses will be missed, delays will happen and ultimately a developer’s costs at the end of the project will often be some way away from the initial appraisal received. With the full effects of Brexit on building costs not fully known at this point, it’s more important than ever for developers to make sure that their costs are as accurate as they can be. One area I find that is often overlooked is the cost of development finance, and I believe that lenders should be doing more to be completely transparent about what the cost of funding will be to a developer client from day one, and what this means for their bottom line. This includes being completely clear about hidden costs, such as extension fees, admin charges or any other unfortunate ‘extras’ that I’ve seen pop up in some loan agreements.

The beauty of development finance is that there is more than one way to skin a cat. Every lender approaches development funding differently and more choice can only be a good thing for our market. I do, however, find it slightly disconcerting when a client chooses to go with another lender on the basis that their offering is ‘cheaper’ despite the lender not being fully open about other charges that may not initially be declared. Sadly, it happens all too often.

Our industry has come a long way over the last decade. Reputationally we are wonderfully positioned compared to where we were when I joined the industry in 2012.

It is though, essential that we continue to improve our standards, which includes being completely honest, open and transparent about the way we charge our customers.

At Magnet Capital we thrive on repeat business, with both our broker partners and developer clients. One of the reasons this is the case is because by being transparent on day one, our clients can pinpoint as accurately as possible where their profit will sit come the end of their project. Fewer nasty surprises for a client at the end of a facility term means a much more likely chance of developing a genuine and successful long-term relationship. Trying to predict where the market will be in 12 months, along with fluctuating costs, is making property developer’s jobs harder than ever, and it is therefore our role as lenders to help them as much as we can.

ashley-ilsen

Development opportunities created by Brexit

By Opinion No Comments

Given all the pessimism surrounding the current fractured state of politics in the UK, the underlying fact is that the Government needs to boost the supply of housing, not least affordable and social housing. In fact, all three, or is it now four, of the leading parties put increasing the stock of housing at the top of their agenda. There is a structural shortage of houses being built. The target is 300,000 plus and only 130,000 were build last year so at the more affordable end of the market there will always be demand. I am out at least once a week around the country visiting our clients and introducer partners and outside of London there is plenty of building taking place of the type of affordable houses that is so badly required. So there are significant opportunities for those brokers and lenders who have the experience and grey hairs to lend sensibly in an uncertain climate.

Magnet Capital’s focus is about how we infuse our traditional lending model, which is based on the premise that people do business with people with the efficiencies that modern technology can bring to the underwriting and administrative process. This ensures we deliver funds as seamlessly and as quickly as possible. We have put our money where our mouth is by having a dedicated inhouse resource, who focuses on proprietary systems to ensure we are automating the process where possible, without detracting from what Magnet Capital does best, personal lending. However, nothing beats pulling on the wellies and going to visit our clients on site.

ashley-ilsen

New style lending, with old fashioned principles

By Opinion No Comments

I’m getting asked a lot these days what it’s like to start a new lender in such a testing, saturated market. My response is that I don’t see us as a new market entrant. Ultimately people do business people. The Magnet Capital team is obviously a relaunch of a previous business, but it’s great to be able to bring something fresh and innovative to the table. In my opinion the key to succeeding in today’s marketplace is innovation. As a lender, do we dare to do things a little differently?

The beauty of development finance is that there’s more than one way to skin a cat. Our approach is deeply rooted in decades of ‘old fashioned’ lending principles, however, we are twinning this with a new style of doing things including technology that allows us to be as efficient and streamlined as ever.

My main concern about introducing too much tech as a core part of a lending business is that you run the risk of depersonalising the borrowing experience. As I mentioned, people do business with people, and I think when you’re borrowing money to support the growth of your business it should be done face to face with individuals you can trust, and not a computer screen. At Magnet Capital we place a big emphasis on meeting every single person we lend to, in our office before the loan starts and then on the development site whilst the building project is ongoing. Aside from being great for building relationships, as a lender I think it’s vital to go and look at what you’re lending on. It’s not rocket science, it’s a bit old fashioned, but it’s amazing how many lenders aren’t too interested in looking at what they’re lending on, and meeting the people they’re lending to.