Thoughts on Brexit and new home building
Wednesday 14 September 2016
In my last article on this topic I discussed the potential impact that leaving the EU could have on the private rented sector and it sparked quite a heated debate on social media. What was obvious to many is that such an emotive issue would always cause a debate. The political spin doctors did a great job in making the issue about patriotism and planted plenty of one line facts, that in isolation had elements of truth, to enable people on either side to entrench their position. I think the greatest distraction was the constant discussion and comparison to Norway which really had no relevance to the UK’s position. Personally, I didn’t feel there was enough information for any member of the public to cast a meaningful vote and despite our friends in Norway being held up as a shining example of life outside the EU, I really didn’t fancy paying £10 for a bacon sandwich and a coffee at a service station like they do.
Focusing on the new homes market, Brexit was always going to be interesting but I’m not sure that the potential impact was fully understood. Initially as predicted the immediate aftermath of the Brexit vote was a fall in the value of the pound and then consequently a stock market crash. The consequence for the ‘big’ home builders was that the fall in share price affected their balance sheet greatly and consequently their ability to either raise finance or raise finance at the necessary rate, diminished rapidly. If you add a general loss of confidence from consumers along with fewer transactions that had to be made at lower prices, you can begin to see the problems that new home builders started to feel. There are mixed views on this and mine is quite straightforward. What they have faced is a blip that means they will have faced some short term pain but by now the main players will have adjusted their plans and be well on their way to implementing their new strategies. During this difficult time though they did have a saving grace that has ultimately propped up sales during what could have been a disastrous time and that's ‘Help to buy’. This scheme has created incredible opportunities for that market, whilst the resale market is still suffering. As an example if a person qualifies for the help to buy scheme then they will only require a 5% deposit and will get a much better mortgage rate. On a 300k property that would mean a deposit of only 15k as opposed to 30k and a monthly mortgage repayment of circa £750 vs £1000, it's quite a difference!
One thing is for certain and that is that such organisations will be much more selective about the sites they develop and the area of the country they develop them in, which concerns me even further in that it's highly likely that new home building may not be taking place in the areas that need it the most. Let us hope the government has a masterplan up its sleeve other than bullying more developers into including social housing provisions in their schemes.