Development exits – a bridge to better outcomes

The UK is a country focused on homeownership, more so than many others. In 2020-21, 61% of private renters and 25% of social renters said they expected to buy a property in the future, according to the government’s English Housing Survey.

Related topics:  Blogs,  Specialist Lending
Jason Berry | Crystal Specialist Finance
22nd June 2022
Jason Berry
"If property prices are headed for a correction this year, this might enable more people to buy, but the positive is potentially offset by lower yield."

However, as a country we lack the supply to cater for this demand – an issue that looks set to continue, with Department for Levelling up, Housing & Communities data from October to December 2021 showing a 3% yearly decrease in sites with building work started, and an 11% decrease in the number of dwellings actually completed.

This should be music to a developer’s ears, as constricted supply and high future demand surely implies that exiting onto the sale of properties at the end of a project should be easier than ever.

However, the picture is not that simple. For a start, it should not take me to tell you that we are facing a cost of living crisis that will affect many people’s ability to buy property. While some were able to save during the pandemic, they might well see the appeal of keeping these pots for a rainy day, rather than entering into one of the biggest purchases most people will ever make. This is at a time when house prices are continuing to soar – albeit at slightly slowed rates – making affordability a challenge. Meanwhile, the Help to Buy scheme closes for new applications in October 2022, ahead of the scheme’s end in March 2023.

So, developers may well be facing the uncomfortable truth that their lots may take longer to leave their hands than expected. If property prices are headed for a correction this year, this might enable more people to buy, but the positive is potentially offset by lower yield.

This is just the picture for those whose projects are successfully completed on time, but those faltering housebuilding figures hint to another side of the story. With the pandemic came supply chain complications, hiked materials costs, and labour shortages that have stayed the norm for many industries, construction included. With growing uncertainty beyond our shores, and mounting costs all round, many development projects will have felt the effects, either stalling altogether or simply taking longer to complete than previously expected.

All of this is not to paint a gloomy picture of the current development market. The fact remains that the UK needs more housing supply, and despite delays and challenges, property investors are a savvy lot who – particularly when working with the right brokers and lending partners – will find a way.

Often, that way comes in the form of short-term finance. For those facing a longer turnaround time in selling, a bridge can help repay the original development finance loan, providing much-needed breathing space in order to sell properties. Similarly, bridging can provide extra time to focus on the final touches – when the properties are built, but delays or complications might have left them without those finishing touches, such as internal refurbishments.

Alternatively, bridging might be used in the final stages of a development project in order to release equity and give the developer the capital to embark on their next project straight away. Whatever the reason, with terms reaching up to 12 months, borrowers can rest easy that they have the time and freedom to achieve the quality finish, and indeed the asking price, they originally wanted.

While taking out a short-term loan at the end of a potentially expensive development finance project might sound like a matter of last resort, when used correctly, the funding product is very much one which creates wealth. Additionally, a short term loan can relieve the stress of impending deadlines, reduce costs in the long run, and most importantly, boost overall profits. A bridge can ensure that development projects finish at their absolute finest, and get sold at a pace that allows for the best transactions, not just the fastest.

More like this
Latest from Property Reporter
Latest from Protection Reporter
CLOSE
Subscribe
to our newsletter

Join a community of over 30,000 intermediaries and keep up-to-date with industry news and upcoming events via our newsletter.