Why property investors and developers should take opportunities now rather than wait to see longer term impacts of Brexit!
We have seen some uncertainty creeping into the property and bridging finance market since the “Big Vote” in June. Some smaller property investors and developers have delayed acquiring new sites or starting new refurbishment schemes on sites already owned, in order to try and gauge what is happening to consumer sentiment. 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, including buy to let loans more affordable to a wider number of potential buyers, and rents have continued to rise. We are seeing mortgage rates from around 1.25%.Another consideration is the impact of the reduction of the value of sterling. This seems likely to have a triple 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 a development or conversion scheme, especially on a site 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 which may reduce sales opportunities (although maintain rental demand!)
Finally, we can report the bridging finance market for refurbishment and 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.
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.