Stephen O’Brien, MD of Wolsey, comments on the BREXIT vote, its implications on UK residential development and particularly SME funding
“One can be clear about one thing, for SMEs operating in the housebuilding sector, the result of the BREXIT vote has led to confidence in funding developments dropping which is bad news.
Uncertainty makes times challenging, awkward and tough. As Britain works through the implications of its exit from the European Union, funders are facing an extended period of uncertainty. We have seen certain Credit Committees have tightened terms; the effect being that SMEs operating in the housing sector are finding funding more difficult to secure.
I’ll look at the situation in the regions in a moment, but it is London that undoubtedly faces the most onerous task in maintaining levels of growth in new home build. The market segments where Help-to-Buy supports sales remains strong. However, in other segments, the runaway price levels and the drag of Stamp Duty continue to be strong headwinds on growth.
There are clear issues with, for example, two bedroom flats in certain London locations where prices are making them unaffordable to first time buyers, as compared to other parts of Greater London where Help to Buy at more realistic prices for the same product is making these locations affordable. Discounting is happening in parts of London where these anomalies occur. This is leading to funders with significant exposures to these markets facing up to potentially difficult situations for the first time in a number of years. Any uncertainly and potential reduction in the interest from the international market for London product prompted by BREXIT only further heightens this concern. It will be interesting to watchhow these funders react which again will directly impact on the availability of funding for SMEs.
Whilst the devaluation of sterling since the vote may assist , there looks to be a significant overhang of future product at prices of c. £1m which is likely to impact on the London market unless confidence returns to 2014/15 levels. For example, a key issue will be the impact of BREXIT on the City. If, as Brexiteers claim, it will be a positive one and not a negative then the overhang will dissipate. Stamp Duty (as outlined above) remains a significant factor. Domestic or international investors are averse to paying the levels of stamp duty sought at the best of times, let alone in a period when London may be repositioning itself in the world outside of the EU.
Outside of these London ‘hotspots’, the impact will be far less strongly felt.
The regions have not, for the most part, seen the huge uplift in prices of the South East. This, with inherent demand for product and help-to-buy initiatives, does provide reassurance for developers that there will be a market for the right product designed for the right location that is affordable. Funding will be available from Wolsey and other lenders for those schemes.
A prime example is Wolsey’s recent funding of St Dominic’s a scheme of 23 three and four bed houses in the popular residential area of Hartshill, Stoke-on-Trent, Staffordshire, which will come to the market through Dunedin Homes & Developments, who have a reputation for providing quality and value for money.
Demand is of course the key factor here and it is why Wolsey believes the housing market in these areas will not run into recession. The UK’s failure over the past decades to supply good new affordable homes in the sort of volume needed to keep pace with demand will underpin the future market for years to come, BREXIT or no BREXIT.
Wolsey is actively writing new business with SME’s in these challenging times.”
Stephen O’Brien, MD Wolsey, September 2016