Game of Loans: Can the property market trump expectations?
It’s been a good year for surprises: two unexpected results with the referendum and the recent US election, Leicester City winning the league and Arsenal not finishing fourth.
The problem with surprises, particularly in the property world, is that they can highlight how fragile the UK property market can be. Earlier this year was saw significant changes to taxes, and with an increase in stamp duty these seem to have taken the some of the fuel out of the property market, at least in comparison with the last two years.
After a year of surprises some of the confidence in the property market has dissipated. Uncertainty now seems to be the theme for the coming year and it’s become almost impossible to predict what the next few years hold. The problem this now causes for development lenders is that we are lending against theoretical values of newly constructed or converted properties in 12, 15 or even 18 months. The results from the past year has undoubtedly made our jobs as lenders harder, but nonetheless we need to be unequivocally committed to housebuilding and helping to provide quality housing stock, throughout the good times and the bad. I’ve always maintained that the true test of a good lender is when we start to enter a difficult market and they are still able to perform. At Regentsmead we were thankful enough to still be funding some quality SME housebuilders right the way through the last recession, and while, like everyone, we still make mistakes, we have had the experience to know how to deal with these.
I’m of the belief that this is the first time since 2012 that real questions have been asked of lenders. We have been operating in a hot market in the last few years and, coupled with artificially low interest rates, this has caused a huge supply of cash and liquidity. It’s been hard to get things wrong with these conditions.
It’s important to add that there is absolutely no reason why the next few years can’t be as strong as the last. The UK economy has had one of the highest growth rates among developed nations and our financial services sector is second to none. I don’t believe any of the talk that leaving the EU will hit London as the financial capital of the world – it’s still one of the best cities on the planet and any multinational organisation must surely feel the need to have operations in the UK.
As for Regentsmead, it’s very much business as usual. In our 82-year history as a company, we have certainly seen some ups and downs, with plenty of surprises along the way. Even though 2016 has perhaps left us with varying degrees of uncertainty, we’re still seeing plenty of quality builders and developers wanting to work with us and all who have great ambitions over the next few years.