For OakNorth Bank, it is the second unprecedented event we’ve experienced (the first being Brexit) in our fairly short history, and it’s been interesting to see how the property industry has fared.
Government efforts to soften the economic blow from the pandemic, such as the removal of stamp duty, have meant that demand in the UK property market has remained strong. The Bank of England reported that mortgage approvals in October were the highest since September 2007 (at the start of the financial crisis). This stronger demand for property is feeding through into higher prices: in its monthly House Price Index, Nationwide said that annual house price growth rose to 6.5% in November, the highest rate since January 2015.
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At OakNorth, we’ve seen double the lending volume going to credit committee over the last six months compared to the same period in 2019. This is for both property and business trading deals. We saw a similar trend in the six months following the Brexit vote when our loan book tripled in size from circa £100m to approximately £300m. This wasn’t because we had softened our lending criteria or made significant investments in marketing, but rather because other lenders were pulling back from the market, which gave us the opportunity to attract clients who we may not have otherwise done.
One of our clients, Hayfield Homes, has defied the challenges encountered by much of the property industry this year, growing by 25%. This is despite a two-month pause of all construction activity during the first UK lockdown. Hayfield Homes has launched two new developments in recent months and its remarkable sales performance across all live sites has resulted in solid growth of the business this year. Knowing that the pandemic would result in a shortage of new homes, Hayfield made the proactive decision to restart construction across all of its developments in May. It was a decision that paid off, as Hayfield’s turnover for the current calendar year is in excess of £50m and it has forecasted it will hit the £100m milestone in 2021. The housebuilder is just one example of the resilience and grit demonstrated by the property industry this year.
Fortunately, with a vaccine now approved, the hope is that we will begin to see some normalcy by Spring next year. In the meantime, it’s important that property developers and investors continue to address the ongoing challenges of the pandemic in their business plans. For example, contracts are taking more time than usual due to increased delivery times, and cost overruns and unexpected delays are likely to continue rising. This is coupled with uncertainty on valuation levels and caution around high leverage. With much of the government’s stimulus measures due to end early next year, such as the stamp duty and furlough scheme, developers should be mindful of the ripple effects that this will have on demand. Then, of course, there’s Brexit — and with no deal now seeming like the most likely outcome, property developers and investors need to stress-test the viability of projects based on what this could do to their supply chains, access to labour, and their contractual allocation of risk.
In the short- to medium-term, most developers will continue to prioritise getting existing projects completed, rather than acquiring new schemes, and so should seek lenders that can be more flexible, offering hybrid solutions or CBILS/CLBILS loans.