Copy article

UK Construction sector

ended 04. November 2022

At 09:30 this AM, we're getting the latest UK Construction PMI, a gauge of sentiment in the sector. We're seeking a few quick responses to the Qs below from property developers (commercial and/or residential) and anyone in property development finance to the following Qs:

  • Developers: How confident are you as a property developer in the current climate of rising rates and the BoE predicting the longest recession since records began? Will you be building fewer homes or commercial units in the next 12-18 months? What are the main challenges you're facing currently?
  • Property development finance brokers/companies: Are you seeing demand from construction companies drop off? Is it likely to get harder for developers to secure finance in the months ahead as demand drops off and lenders get more cautious?

Any other thoughts, jot them down. Deadline is tight (09:25am today).

2 responses from the Newspage community

Copy all

Copy

Joe Garner
Founder & Managing Director at Joe Garner Consulting
We have staggered our delivery programme to provide breathing space, while the market stabilises after the chaos of the past six weeks or so. The construction and development sector thrives in stable market and economic conditions from labour and materials to interest rates and house price growth. And right now we have anything but. The biggest threat currently to construction, house building and development are rising interest rates, which impact development finance costs, and a lack of government assistance for first-time buyers, low income families and key workers. Following recent rate rises that were out of sync with previous market expectations, many SME developers, brokers and financiers were caught out “mid-deal” resulting in higher finance costs, a reduction of affordable senior debt and an increase in more expensive mezzanine loans and equity investment into schemes. Furthermore, without a valid replacement for Help to Buy it is difficult to plan for the next development cycle, which can be anywhere between 12 and 36 months for SME developers. We need to at least have a decent idea of how and with what support first-time buyers will be able to purchase new build properties. First-time buyers account for nearly 500,000 transactions a year and without the right schemes in place the market could see a significant reduction in these numbers. As finance becomes more difficult to come by and buyer numbers dwindle, it is likely an increasing number of SME developers will reallocate properties already in the development cycle towards the rental market via build to rent and private rental schemes. First-time buyers are likely to become long term renters, not by choice but through necessity.
Copy

Dorian Payne
Managing Director at Castell Group
The underlying fact is there are just not enough houses being built and demand is still there despite rate rises. Therefore, development will continue but the sales market will have to be more elastic and sensitive to pricing and perhaps require incentives. A key focus for us, as a developer, will be trying to 'forward-sell' and lock in our sales to minimise market risk as much as possible. Hopefully vendor expectations for land prices will drop because they're still far too high right now.