In football you can have all the sophisticated strategies you like, but if your defence isn’t up to the job, you won’t get far. The same applies to the property industry – and the basics here are supplying enough homes.
To really increase the number of properties on the market, we need new solutions, not just more of the same old-fashioned mortgages. Tackling Britain’s chronic housing shortage involves imagination.
France aren’t only doing better than us in the World Cup. The French also – despite all their bigger economic issues – generally manage to build enough houses to go around. In fact the former French finance minister Christine Lagarde, now managing director of the International Monetary Fund, has added her voice to the chorus calling for more UK house building.
Across the world, it hasn’t escaped the attention of those in the know that supply and demand in the UK housing market are out of balance – and that this is propelling prices to ever higher peaks.
We’ve witnessed 17% annual growth in London. Organisations like the European Commission, the IMF, and closer to home even the Bank of England, have all urged intervention to boost the supply of property.
Government initiatives have kicked off a bit more construction, and annual housing starts reached 133,650 in March this year – up 31% compared with the year before. But the number of completions hasn’t yet followed suit.
The cause? Planning restrictions are plaguing the building industry like an old injury, but a lack of finance is biting like an angry Luis Suarez.
Without the loans to start these projects, many developers just aren’t working at full match strength. But even if they were, building new homes entirely from scratch can’t provide the complete solution to the housing crisis. To tackle the ever-expanding shortfall, we need to make better use of buildings we already have – making derelict property liveable again and converting old commercial buildings for residential use.
Conversions and property refurbishments have a central role to play in oiling the cogs of housing supply, and savvy property developers are tapping into this potential to meet the soaring demand for new homes.
But transforming unloved dilapidated buildings and surplus commercial property into homes requires dynamic finance with vision and imagination. High street lenders, still scarred from having their fingers burnt in the recession, are hesitant to fund the ambitious or unusual property projects which could provide homes and offices where they are most desperately needed.
But the bridging industry matured during the dark days of the recession, stepping to the fore as mainstream lenders retreated – equipped with the speed and agility to make decisions at short notice and connect the dots for the investors, property professionals and businesses at the helm of economic growth.
The growth of demand for alternative finance has grown only stronger and stronger, helping gross bridging lending rise by 26% in the year to March 2014. The volume of bridging loans over this period has risen by more than one third (35%), as the economic recovery beds down and the property industry gains momentum. This exciting expansion of the bridging industry opens up spare capacity for bigger loans, higher loan to value ratios and bigger deals, to keep pace with rising property prices.
One opportunity the industry has already jumped on is funding property refurbishment and conversions to transform unloved existing buildings into highly sought after homes. Property refurbishment lending has doubled in the last 12 months. And these kinds of loans now represent a growing proportion of all short-term secured lending. Loans for all forms of property improvement account for 61% of total industry gross bridging lending, up from 40% a year ago.
And this uplift is only the start. The latest West One Broker Sentiment Survey found that brokers expect refurbishment activity to grow faster than ground-up development. The industry is hungry to do more to assist refurbishment projects and help overcome the housing crisis. More than a third of brokers say property refurbishment and conversions are areas where they would like even more product availability from lenders.
Brokers understand that finance is no longer just a vehicle to facilitate purchases, but can take the lead and actually increase the number of available properties in the system. The right finance is quick enough to find the space and get the ball rolling on very lucrative projects. Increasingly we find ourselves making multi-million pound transfers which can make all the difference to seriously big projects.
Bridging is growing up fast, and has already graduated from the junior league – with over £2 billion in gross lending each year. Short-term secured loans are going to be a key player if England can solve its structural problems by the time of the next World Cup.
