The UK economy largely shrugged off any uncertainty about the fallout of Brexit in the months following the referendum.
However, it’s only since Theresa May triggered Article 50 that the implications of the split, both the arduous task of negotiating the terms and the likely impact, are starting to sink in. The General Election result will further fuel these feelings of uncertainty. Recently, news items have focused on lower prices achieved in some areas along with lower volumes of sales and properties taking longer to sell than previously. But this is no cause to panic.
The central London market has borne the brunt of the downturn in activity, but it has also seen the biggest gains over the last decade. What is more, reports from developments we’re funding are more positive. First time buyer activity has been particularly strong, especially when underpinned by Help to Buy equity loans, and this has helped to fill some of the void created by the stark reduction in Buy to Let purchases.
As John Stewart notes in his article, there was a rush to avoid the 3% stamp duty surcharge on second homes introduced on the 1st of April 2016 and this created a falsely high level of activity as investors tried to beat the deadline. Even taking that into account however, the punitive measures introduced by the Chancellor to cool BTL activity seems to have had a sustained effect with a 78% drop in BTL mortgaged purchases in March this year compared to March 2016.
As property index after property index points to a flattening of prices, it’s important to remember that there are also very real factors supporting residential property values and our view at UTB is that we’re not about to see a major price correction outside of prime areas where this has already occurred. Demand for new homes is still outstripping supply in most areas, government initiatives such as Help to Buy equity loans are encouraging and supporting the FTB sector, and will continue until 2021 at least. Mortgage interest rates remain at historically low levels making house purchase affordable in many areas.
[color_quote]That doesn’t mean we shouldn’t be a little more cautious. If the market is entering a period of subdued price growth, developers would be wise to take a more conservative stance on their projected sales values and keep a tighter rein on their budgets. Rising prices provide a safety net which may in the past have saved developers who were over ambitious in the planning stage or over spent during the build. For the next few years that net may be taken away.[/color_quote]
Experienced developers working with experienced lenders should have little to fear. United Trust Bank has developed its business by recruiting highly skilled and knowledgeable professionals whose careers have spanned a variety of market conditions. With our commitment to supporting SME housebuilders and our strong focus on relationship lending we are certain that the opportunities to come will outweigh any threats.