The immediate reaction to the appointment of Rishi Sunak as UK Prime Minister seems, for now, to have calmed the waters in the markets with Gilt rates heading back down towards pre "Mini-budget' levels. In a nutshell, this movement marginally reduces the cost of government borrowing - a cost that, once trickled down through a series of complicated economic pulleys and levers, eventually correlates with everyone else's cost of borrowing.
So, while we all pause for breath in what has been a turbulent couple of weeks in Westminster, the focus in our sector now changes to what Rishi may or may not implement for housing. This department has unfortunately been passed around in recent years, and we can all agree urgently needs some focus and attention and a definitive plan in place. So, in this week's blog, we unpack some of the suggested proposals and rumours in more detail and how they could positively impact our borrowers in the future.
Investment Zones have been initially touted to accelerate housing stock growth. Pre the now infamous mini-budget, this was an idea packaged together with tax cuts, so with the significant U-turns of late, it's speculation as to how much of this will go ahead; however, at its core - if well managed, it's potentially a really good idea. Unfortunately, obtaining planning decisions is frequently time-consuming and laborious; clients often want or need to make planning amendments to schemes, sometimes to maximise returns, sometimes at the request of funding partners, and sometimes to build the project they want to develop.
The thought process behind these zones is it allows the government to target areas that require re-generation that may be amicable to what has been described as a "liberalisation" of the planning laws and create hubs for focused development. As a result, businesses supported by lenders in the alternative space who don't have substantial legal teams lobbying away on their behalf can get on with building much-needed homes without an initial period of bureaucratic wrangling. Of course, there may be significant challenges to this both locally and in Westminster; many will see it as the beginning of a free for all, and others will see it as a lottery system where certain regions miss out; however, we can say if it works, it will remove a significant barrier to market entry for our clients.
Another idea that has been mentioned in the media is devolving more control to local planning authorities through significant investment on a localised level. This would continue the narrative set in play by Liz Truss, that the 300,000 new homes a year target was unachievable, unrealistic, and another example of "top-down Whitehall policy-making" more in line as she mentioned with the blanket statements set out in Stalinist propaganda, and to get things done, all the decision making had to be made on a local level. Housing Secretary Micheal Gove has given some assurances that the sentiment behind the 300,000 new homes manifesto pledge remains intact, although we are free to speculate on the details at this point.
Empowering local authorities to make stand-alone quick planning decisions on levels of housing supply, town planning, and structuring isn't without its pitfalls; as to continue Liz Truss's analogy, 'all councils are equal, but some councils are more-equal than others', councils are essentially funded by varying levels of government grants and council tax; therefore, some authorities will be much better positioned to take up such a system quickly and successfully. One of the things we look for in a client is local experience and an understanding of the area they are building in; this ties in nicely with the concept of sensible decisions made by locals.
Finally, the most outlandish and interesting rumour in the media is the resurfacing of the '2020 planning for the future' government whitepaper, initially introduced a couple of Prime Ministers ago; this paper proposed a radical change of the system; it was heavy on slogans and intially un-costed, but it suggested a complete overhaul of the system, ensuring every area of the country had viable housing expansion plan in place. Perhaps most interestingly, it suggested scrapping the appeals process in favour of a rules-based system; your proposal would either fit the requirements or doesn't. The current system's approach allows for a third of the decisions to be won on appeal, which is time-consuming and creates a situation where local voices can be lobbied away. However, removing that local consent element in favour of a state-decided 'points' approach may be yet more of the 'Stalinism' Liz Truss jokingly referred to.
So, what's the conclusion? We can only speculate, but it's safe to say changes will have to be made, and Invest & Fund will continue to work closely with our clients and partners to navigate these times. We know that planning efficiency and cost reductions will be critical in supporting the nation's smaller homebuilders, and we look forward to seeing these positive changes implemented.
Our Development Finance clients can benefit from facilities up to 70% LTGDV (Up to 80% LTC) frm 6.40% + Bank of England Base Rate & Fees. For a full breakdown of the criteria, please email us at borrowing@investandfund.com or call us on 01424 717564.