Why developers should grab opportunities now rather than wait to see longer term impacts of Brexit!
We have seen some uncertainty creeping into the property market since the “Big Vote” in June. Some smaller developers have procrastinated and delayed with acquiring new sites or starting new schemes on sites already owned, to try and guage what is happening to consumer sentiment. But we take the opposite view. Yes – there will be some downsides and consequences of Brexit which may be yet to manifest themselves, but it seems unlikely that these will show for at least two years as we will remain within the EC single market for this time period as a minimum. And the problems that the government faces in getting even to the point of giving the formal two years notice of exit (formal triggering of “article 50”) may yet delay the nations exit even further.
So what is happening in the meantime? The base rate reduction by the Bank of England, allied to yield reductions on government gilts have combined to provide the lowest ever mortgage rates – making mortgages more affordable to a wider number of potential buyers. We are seeing rates from around 1.25%! Link this to the governments help to buy scheme, and there is a powerful incentive for consumers to buy a home or move house.
Another consideration is the impact of the reduction of the value of sterling. This seems likely to have a dual effect in the next year or so, being (1) an eventual increase in inflation down the road and (2) an increase in materials prices (and probably wages) and (3) and increase in mortgage interest rates.
If you put off building, especially on land already owned, then the two factors above may conspire to increase your build costs, and reduce your profit margin. Further – it may be in a couple of years that the authorities act to counter inflation with a rise in interest rates – which will possibly dampen consumer appetite to take on a new mortgage.
Finally, we can report the financing market for development schemes is at its most buoyant since 2007, and lenders have become ever more competitive with their appetite and terms. A change in sentiment could of course impact on this.
So if you already own development sites, move forward quickly whilst the financial environment still favours you. Put it off at your peril!
Note: This article is not intended to provide specific advice to any party and represents the views of the author only. We recommend that you seek the views of your professional advisors before committing to any financing scheme.