I’m writing this as Rishi Sunak just walked away from the shipping box after giving a budget speech that rather disappointed the real estate industry.
Sunak’s speech mentioned “leveling” no less than eight times. The travel direction for regional infrastructure investments, job subsidies and indeed the mountains of public relations around politics are all called upon to encourage many real estate investors and homeowners to venture north. , because real estate values flourish there and yields maintain their superiority over the South.
Who knows, maybe in terms of real estate returns, the famous North-South divide will be reversed definitively?
But while geography might be the new consideration for real estate investors, we also need to consider some challenges that have recently irritated the industry and that require structural innovation in financing. Let me explain.
Real estate entrepreneurs will no longer leave their exits to chance
Returning to the normalcy of early 2020, how many home improvement buyers took into account that we would now be facing a labor and material shortage so acute that it would drive up their costs to such a degree of margin break?
This collision of issues affects not only financial performance, but also the bridging funding methodology, as too many standard bridging facilities do not leave unplanned time to complete projects or the cost of renovations suddenly increases. The resulting pressure on borrowers is therefore significant.
The buzzword in the real estate industry?
As “leveling up” is the phrase regurgitated by government ministers every few minutes, “contingency” is now the word the real estate industry should repeat over and over again.
The UK’s most agile transition, development and renovation lenders have a philosophy in place that includes these newer investor challenges
So, given the events that led to this awkward position, whether blamed on Covid or Brexit or both, borrowers now see the merits of guaranteed exit deals for their renovation projects. Undoubtedly, real estate contractors will no longer leave their exits to chance, preferring the security of knowing that they will be able to refinance themselves on a much cheaper five-year contract once construction is completed and the property leased. How does it not make sense to do this?
Investors and homeowners today are asking for financing deals that must take into account these previously ignored factors – the cost of institutional money is rising, construction and renovation costs are potentially higher, and projects will take longer. .
Fortunately, the more nimble UK lenders for bridges, developers and renovations are adjusting to this new dynamic and have established a lending philosophy that includes these newer investor challenges. In fact, Octane Capital has been running guaranteed exit deals as a product proposition for a while and you could tell we’re a little ahead of the curve.
Perhaps when it comes to property returns, we’ll see the infamous North-South divide definitely reversed.
The one size fits all anyway, if it ever was. The consideration is no longer just the rate, but the ability of the lender to deliver on time and provide the correct loan term. There is no point in saving 10 basis points on your loan if it then has to be paid off three months sooner than your project schedule suddenly dictates.
Brokers are expected to be able to mitigate what I guess you might call this Perfect Storm of Circumstance by working with finance providers who are on top of real world circumstances, a situation that won’t change. probably not much for a while yet.
Being contingent is more important than ever. Especially when the possible alternative is for the client to fail to meet inappropriate terms to the likely detriment of future funding facilities.