The start of the year often brings a flurry of predictions and surveys reviewing the year just gone. This year a couple of stories caught my attention.
The first was based on data published by the Ministry of Housing, Communities and Local Government revealing that new-build starts in England were down 11% in Q3 2019, compared with the previous year. The first nine months of 2019 saw builders start 157,550 new homes, a 7% fall on the same period a year earlier.
Meanwhile, completions are still rising — over the same period, the number of new homes delivered to market was up 9% on the previous year.
These statistics are important because they give us a glimpse of how the housing market is going to look in the next year or so.
At the moment, the number of new homes coming to market is relatively high (though not high enough according to most) and the housing market is in pretty good health. Prices are generally supported by consistent demand from buyers using traditional mortgage finance and making the most of the Help to Buy scheme.
But while completions are healthy, this fall in starts reflects just how jittery things got in the economy over the past 12 months of wrangling over our political future.
Developers clearly reined in investment during a period when there was a real fear that the UK could suffer a major economic shock following a hard Brexit. The effect that would have had on demand for mortgage finance — and, crucially, borrowers’ affordability — would have been profound.
Turning off the taps momentarily was a sensible decision in the interests of shareholder protection, but the effects of that tightening in supply will have consequences that are felt for years to come. There is also a question of whether Q3 2019 was a blip or a reversal in trend.
Whatever the answer, the figures caught my attention because demand for housing remains intense. And fewer new builds coming to market leaves space for conversion from existing stock to pick up at least some of the slack.
This is an opportunity for the bridging market, which funds large numbers of refurbishment and permitted developments, returning stock to both the residential purchase market and the private rented sector.
Another thing to have caught my eye was data which showed that the average rates charged on two- and five-year fixed buy-to-let mortgages had fallen by more than a quarter of a per cent year-on-year, according to Moneyfacts. Landlord optimism to invest in buy-to-let or a desire for cheaper deals in 2020 may have led providers to cut rates to entice prospective borrowers.
We’re almost four years into a shift in behaviour from landlords driven by the tax changes announced in 2015 by George Osborne.
Landlords who couldn’t stomach the change in regime, and the effect it had on their financials, are now pretty much out of the market. Those who remain are well into the restructure of their portfolios to protect profitability.
This restructuring has underpinned activity in buy-to-let and there is plenty still to do over the coming years. This bodes well for brokers introducing this business, but it’s also likely to have a knock-on effect on the bridging sector.
While some of this restructuring is down to straightforward remortgaging and reallocation of capital within an existing portfolio, sale and reinvestment into alternative, higher-yielding properties is a trend that we expect to ramp up this year. This provides an excellent opportunity for those in the bridging sector to fund projects that precede the buy-to-let finance requirement, adding capital value and improving rental income potential for landlords in search of just that.