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Bridging finance and the property market in 2021: A case for cautious optimism

Kenton Hackney is managing director of Kenton Finance

 

Like most industries impacted by the COVID-19 pandemic, the world of bridging finance has experienced a contradictory, sometimes stormy and altogether topsy-turvy last 12 months.

With the general election of December 2019 offering a clear and comprehensive result, 2020 had begun on a positive footing. There was real optimism in the air; so much so that, in February, one bridging finance provider predicted that two thirds of developers were more likely to purchase property in 2020 compared with 2019.

Then came the pandemic, wreaking havoc amongst a market that thrives on foresight and stability. The positive predictions went out the window, and bridging loan volumes fell by £167.88m (45%) in the first half of 2020 compared to Q1 and Q2 2019. Yet as the first COVID-19 lockdown came to end, the sector subsequently experienced a strong rebound, with transactions totalling £115.52m in Q3 – up 46% on the previous quarter.

Having finished 2020 on a strong note, I believe we have much to be optimistic about in 2021. As is the case with many industries, the implementation of the COVID-19 vaccination in the UK will mean most aspects of the property industry to return to a considerable degree of normality by Q3 of this year – including investment, construction and sales. As construction and development return to pre-COVID levels, the need for bridging finance from developers will return.

This return to operating normality is likely to be coupled with considerable pent-up consumer demand for new housing, which would have grown over the end of 2020 and early 2021. Many people across the UK have taken the last 12 months to reassess their housing needs; as a result more people are now seeking a new home that is either better suited to home working, or has access to more green space, for example.

This pent-up demand for new property is also being fuelled by a specific set of market conditions – most notably, low interest rates and exiting incentives such as the Help to Buy scheme. The current stamp duty holiday is due to end on 31 March, but if extended would further incentivise buyers and increase demand through the year. The lifting of travel restrictions will also see demand from international buyers return to pre-COVID levels, further fuelling industry recovery and growth.

This combination of improved, post-vaccine operating conditions coupled with buyer-friendly market conditions will therefore mean increased investment, development and building in the residential sector – much of which will require financing.

This increased demand for finance from housebuilders and developers may be particularly fertile ground for smaller, boutique lenders. Many of the larger lenders are more risk averse, and the instability of the COVID-19 pandemic has resulted in some of the larger lenders in the property finance space severely restricting their criteria or stopping their financing offers completely.

Smaller lenders however are nimbler, often more flexible and better able to pivot. As small lenders of finance to housebuilders and developers, we ourselves have had to adapt to a new reality over the past 12 months – something that would have been an even greater challenge with a bloated structure or stagnant product offerings.

The return to more normal market conditions in Q3, increased demand for housing and the ability for smaller lenders to be nimble and innovate won’t mean the industry – either on lender side or borrower side – will be completely out of the woods yet however.

We must make sure that SME housebuilders in particular – two-thirds of whom have said their growth projections are down due to the COVID-19 pandemic – continue to receive as much support from both government and the wider industry as possible.

It tends to be the household name housebuilders that hog the headlines, but our SME housebuilders play a vital role in tackling the most pressing housing issues of today too. It is estimated 90,000 more social houses are needed every year to tackle the housing shortage, which SME housebuilders are playing an important role in delivering. SME housebuilders also play their part in providing apprenticeships and training, in diversifying the market and in supporting regional residential property markets. SME housebuilders will therefore play a key role in the wider sector’s recovery.

Despite the challenges of 2020 and a rocky start to 2021, there remains much to be positive and optimistic about – both for housebuilders and developers themselves, and those supplying them with the finance they need. Let us continue to work together – with the broader industry and government – to ensure we are doing everything we can to bring the sector back to full strength.

 

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