Brexit and its impact across many lenders

In a week since the result of the UK referendum, the write downs in London from overzealous mezzanine and similar lenders is already starting to show a significant impact on the property market.

We expect to see more resignations from senior bankers as their credit teams start being over-exercised by spread sheet modelling and ‘what if’s’ on the back of London price compression.

In the last 24 hours alone, Ultimate Capital has had a substantial number of new business enquiries due to other lenders doing U-turns. As a result, the Ultimate team are busy working round the clock to ensure that time sensitive deals get over the line successfully.

As a self-fulfilling circle of unnecessary gloom, we expect a significant number of stretch senior and bridging companies to disappear in the next six months. Most borrow from the same four wholesale banks and lend on at a margin – cutting and pasting the same rigid terms onto their customers. As they wind back their positions, look at their books and re-consider their over-weighted positions in London, there will be change.

Brexit will not affect or change the underlying fundamentals of the UK housing market – we expect to see on-going strong demand and continued chronic undersupply for ordinary and hard-working people outside the London property hype and fizz.

Just 143,000 new homes were built last year, and in March, house build starts slowed to their lowest level in three years, even if the Brexiteers manage to ‘pull the drawbridge up’ – and that back-peddling is already well underway! – the UK needs 250,000 new homes a year to address the shortfall created over the last 20 years.

Home ownership has collapsed from 71% to 61% across the board, and from 63% to just 39% in ten years for the crucial ‘family forming’ age group of 25-34 year olds. There has been a 100,000 plus house building shortfall every year for a decade. With a demographic time bomb of older people downsizing and young people struggling to get onto the housing ladder, this will be worsened by a surge in demand.

In the mid 90’s, middle-income employed needed to save 5% of their wages for three years to build a deposit. Now they’d need 5% for 24 years! If, as predicted, 50% of under 35 year olds will need to rely on some form of contribution and having the Government’s help to buy, this factor needs to be key within any developer’s model.

Granted planning permissions are on the increase yet still nationally homes are failing to materialise, with the time taken between permissions and completions rising from 21 months in 2008 compared to 32 months now, despite huge planning relaxations.

Home-owners vote in large numbers and are still a majority, despite an ever-growing army of renters by necessity. And politicians know higher house prices and the related ‘feel-good factor’ garner support from the lower and middle income swing voters who decide general elections.

With that in mind, rest assured it is in the best interests of whoever replaces Cameron and co to keep the housing market strong, no matter the likelihood of even lower rates.

Property has been our background for decades – we’ve seen and helped our customers to weather uncertainty before and through past recessions.

Ultimate Capital is here for the many developers with promising cases who now find themselves let down by other lenders, at a time when new housing is and will be more needed in the UK than ever.