At the point of writing, the hot topic of debate in the industry is, once again, inflation. The latest round of figures has come in flat, unchanged at 6.7% in the year up to September. The growing concern in the future is oil; with geo-political tensions and global conflicts bidding up the price per barrel, a reflection is expected in petrol and diesel prices, which have already risen in the same period, thwarting the efforts to curb the rising costs inflicted on the UK public.
Typically, the lending market looks at the 10-year UK SWAP rate for guidance on confidence; in this instance, the price of funds on the wholesale market for mortgage lenders has fluctuated dramatically since Q1, ebbing and flowing between 3.55 - 4.91 depending on that week's broader narrative, but 'zooming out' to coin a well-used phrase, the trendline has been increasing steadily since March of this year, from 3.60 to 4.60. The optimistic take on things is that the latest figures have yet to rock the market's confidence with no sudden spike upward.
The issues we may see towards the back end of this year around petrol prices at least have a straightforward cause-and-effect narrative based on issues outside of the country's control; they are not - a reflection of the broader economic plan not working or an indication that central rates won't continue to flatten and retrace, it may just take longer than anticipated. When you remove the behavioural' group think' bias, you realise most projections don't factor in a conveyor belt of fresh crisis events; it's great to be positive, but statistically, we live in an almost perpetual state of global crisis, and it's not in our nature to factor in what we don't want to happen, and the vast amount time that absorbs.
Sticking with inflation concerning our market, in this week's blog, we are having a closer look at the newly published BCIS five-year forecast on construction costs. The BCIS is a fantastic organisation that publishes statistical data based on interpreting cost data in the construction industry. The report forecasts that construction costs are set to rise just over 3% year on year to the third quarter of 2024 and then will continue to grow between 2%-3% per annum until 2028. The BCIS Materials Cost Index is expected to remain at the same level in 3Q 2023, compared to 3Q 2022, and increase by 1.0% in the 12 months to 3Q 2024. The good news is that the report indicates that even though construction output, including commercial and residential property, will fall, we will see a recovery as soon as early 2025.
Chief Economist for BCIS, Dr David Crosthwaite, said: "Against an economic backdrop where we can see the effects of monetary tightening feeding through, we expect the construction industry, as well as the broader economy, to remain resilient."
The theme of reduced output was also reflected in the announcement from Bellway that they will be building 31% fewer homes next year, temporarily creating a slump in the value of the prominent three UK homebuilders, with Bellway's share price falling 4.2% on the news breaking.
These headlines are becoming relatively normalised now, with reduced order books attacking profits and eroding the business's value; however, they do paint an arguably misleading picture, as they aren't considering the size of some of these order books, to begin with, ultimately Bellways hundreds of millions of pre-tax profits demonstrating the robustness of the market even during the toughest of times. Property Week recently reported that the UK's eight largest housebuilding firms paid shareholders £16bn in dividends over the past 18 years; these are solid and profitable businesses, even though the sector's output levels are nowhere near where they need to be.
So how does this affect our market? Supporting the UK SME property developer market will be the key to unlocking these output issues. An oligopoly is a sophisticated word for a small number of businesses controlling an entire industry, and ultimately, that doesn't lead to growth; if it did, the housing sector in the UK would be completely different. We need to increase the number of small developers to increase the number of houses. To increase the number of small developers, we need to find solutions to bring more to market, and that is where the strengths of the solution-orientated alternative finance industry will play a pivotal role.
Our Development Finance clients can benefit from facilities up to 70% LTGDV (Up to 85% LTC) from 5.30% plus the cost of borrowing.
For a full criteria breakdown, please email us at borrowing@investandfund.com or call us on 01424 717564.