Matthew Cleave

SME developers should be taking advantage of developing in the regions

The development market in London has always been very attractive to many developers.

Historically the demand for the completed properties has always been strong enough to meet the demand of the local buyers together with a seemingly insatiable demand from the overseas investor market.

While many developers continue to enjoy success in this market, the current political and economic climate has certainly extended the sales periods for completed properties, leading to a noticeable trend towards more development activity in the regions. 

Many of our clients at Arc & Co have already been active in the wider UK market and SME developers should be looking at the opportunities in the regions for several reasons.

The supply of development opportunities has been strong as many local authorities are striving to meet their housing target as the demand for housing continues to grow across the country. In addition, the land values are not only lower than in the London market, but often represent a much lower percentage of the total costs of the project. Subject to the details of the scheme, this often results in a lower equity requirement for the developer. 

The appetite from lenders continues to significantly grow in areas outside of London as they look to secure more of a local presence to these active development markets. They are attracted by the lower capital sales values and continued availability of Help to Buy supporting the sales demand. This has resulted in a funding market that is consistent across the UK, meaning that the funding options are now extensive to the developers. 

The sales activity outside of London has proved to be much stronger over the past 12 months as the local market buyers continue to sustain the demand for new homes. This continues to be driven by first-time buyers taking advantage of the assistance of Help to Buy, not only limiting their deposit requirement, but aiding the provision of appropriate mortgage finance to support the purchase. The continuation of Help to Buy in its present form – together with the recent government announcement of a new Help to Buy scheme from April 2021 – will continue to support the first-time buyer market. 

In addition, the BTL investor market is now active in the regions as yields are stronger and more attractive to both investors and BTL funders. The stronger yield lends itself to the availability of a higher LTV BTL mortgages (in some cases 80%) reducing the capital requirement for the investor. 

This demand is proven from the latest figures from Nationwide. While its report stated that British houses were worth only 0.5% more in December than a year earlier, the results are a mixed picture in the regions, as while the prices remained moderate in the South, the North, North West, East and West Midlands, Yorkshire and Humberside all experienced increases in the range of 3-4%. 

Continued development activity across the UK is beneficial in providing new homes to meet the local demand, stimulating the economy in these same areas and offering a suitable alternative to developers who have previously worked only in the London market.

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