The Covid cobwebs have been blasted away with a spectacular recovery in the UK housing market – Rightmove and others report the highest number of monthly sales on record, the highest number of properties coming onto the market in over a decade, record asking prices in many of the regions etcetera etcetera. Stamp Duty and planning changes have accelerated pent-up demand, so these stats come as little surprise, but there are concerns that demand could dry up as the months progress.
From a lender’s perspective the market is in an interesting place right now. It’s common knowledge that the mainstream lenders are supporting existing customers but not actively looking for new deals. Whilst everything has picked up, new deal volumes have been low since lockdown as developers concentrate on delivering product and sales in progress rather than taking on something new.
As well as activity levels, leverage is also in a state of flux. 60% LTGDV remains the norm for a number of banks, but just as many have announced a reduction to 50% (including NatWest – amongst the most active of the big lenders over the last year or so). To add to the uncertainty, it appears pricing has gone up too, with most mainstreams lending at a minimum 4% over cost of funds plus arrangement and exit fees having been nudged up. This figure increases to 6% from secondary lenders amongst those (the minority) who’ve shown signs of activity since lockdown.
On paper, location is undergoing a post-Covid revolution. There’s been plenty of media coverage about the Exodus from the cities, the increased desirability of space and environment and the burgeoning practicality of working from home, which is being borne out by a drop in the volume of willing lenders for super prime and city centre projects. Lower value schemes and metropolitan suburbs are still finding willing lenders, but when compared to regions such as Devon and Cornwall – currently witnessing record prices – it’s clear to see where the crowd is headed.
Whilst a number of projects are starting to emerge, alternative residential has taken a big Covid hit and nobody really knows how either sector (care homes and PBSA) will pan out yet. There will be winners and losers here but for the time being standard resi is easier water to navigate – there will always be demand for houses in the right locations, with the right amenities and at the right price.
Put simply, depending on the what’s and the where’s, post-Covid capital from the big boys is now harder to come by, there’s less in the pot when you find it and it’s going to cost you a little bit more than you’ve been used to paying. Capital is not playing ball. This brings the role of the alternate lender increasingly into the spotlight and with it plenty of opportunities for savvy capital. During uncertain times, the key to successful investment lies not only in backing the right projects, but in backing the teams with the experience to weather the storm.