Communication crucial for borrowers battling against delays

The housing market is in a bright spot at the moment. Speak to anyone in the short-term property loans sector, and they will report no shortage of interest from investors, whether that’s from those hoping to secure and then sell a property for a profit, improve an unloved property to keep it as a buy-to-let, or embark on an outright property development project.

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Luke Egan | Pink Pig Loans
8th October 2021
Luke Egan Pink Pig

However, things aren’t entirely rosy, as all sorts of borrowers are facing upheaval to their projects because of construction-related delays at the moment.

A recent survey of small builders by the Federation of Master Builders (FMB) found that while workloads and enquiries are at their highest levels for a decade, actually completing those jobs is becoming increasingly tricky.

More than half of respondents said they were having issues hiring carpenters and joiners, while a similar proportion said they were finding it difficult to hire bricklayers. These are specialist jobs and may be essential to the completion of the project, whether it’s a simple refurbishment of an existing property or a dedicated new development.

And so if you can’t actually bring someone in to complete that work properly, or have to wait longer than usual in order to do so, then inevitably that will result in project delays.

Missing materials

It’s not just those specialist skills that are proving to be in short supply. There’s also an ongoing shortage of building materials, which is pushing the prices of those materials ever higher.

That same FMB survey found a staggering 98% of builders were facing material price rises, with the strong expectation that further rises were on the way.

Once again, these shortages will result in completions being pushed back, and even if you are one of the lucky ones and manage to secure the items you need in a timely fashion, the increased prices are going to impact the profitability of the project.

The clock is ticking

Delays to a property project are always frustrating for investors. Time really is money, and the sooner they get the development or refurbishment finished, the sooner they can get on with selling it and banking that profit.

But there are also loan deadlines to bear in mind. Failing to complete the project and sell the property on in time may also mean the client is staring down the barrel of their loan reaching the end of its term.

This could mean the borrower faces a significant jump in the cost of that financing, which may erode away any profit they are expecting. It doesn’t take long for a refurbishment or development to slide from delivering a healthy profit to a loss if action isn’t taken.

Communication is key

This is where working with specialists can pay dividends. In some cases, it may be possible to negotiate an extension with the lender, who may push the deadline on their bridging or development loan back. That way the client enjoys a little bit of breathing space and time to get the project completed and the loan paid off, without any unpleasant payment shocks to worry about.

For other clients, refinancing may be the answer. Lenders have recognised the need to provide developer borrowers with a ‘plan B’ by launching a host of development exit products, specifically designed for those clients whose jobs may be mostly there but simply need a little more time in order to get the units completed and sold, which can prove a useful option.

This can be a complicated area of the market, particularly for advisers who only handle the occasional bridging or development deal. Partnering with a specialist means not only that the client benefits from a top-class service when initially looking for the short-term finance they need for their project, but also ensures they are best placed to receive a helping hand should delays and shortages put the completion of that project on hold.

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