Avamore Capital

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It’s time to get creative

We all need to start thinking outside of the box

Amit Majithia Principal Avamore Capital

In Q2 2020, the ONS reported that output in the construction sector fell by 35%, the most dramatic drop in the last ten years. Boris’ mantra of ‘build, build, build’ announced in June 2020 is designed to offset this and create a stimulus for the housebuilding market; long term, it will incentivise developers to build more, however these changes do not address some of the more immediate challenges the market will face. The availability of finance remains an important factor for developers and home buyers; without funds to transact, government reforms are unlikely to have the desired impact.

Early in the COVID crisis, the government introduced CBILS loans which were set to provide financial relief to smaller businesses. Whilst this has provided some support for developers facing exit challenges, the scheme inevitably has a shelf life; many may not have qualified and others will still be navigating the problems that COVID caused on site. In the medium-term it will fall to the development finance market to become increasingly creative in the support it can offer. Payment holidays and extensions were a temporary fix at the start of the crisis, but six months on, there are new problems. One solution is Avamore’s own Finish & Exit product, designed to help developers stuck on part complete projects due to cost overruns or unexpected delays. Through this, immediate developer needs can be addressed including certainty of funding to complete as well as breathing space to refinance or sell units.

On the buyers’ side, the market also needs to see more support from banks. Historically, the two biggest factors that impact purchasing decisions are the availability of equity deposits and long-term mortgage finance. The latter has returned to normality, but the level

“Despite planning reforms set out by the UK government, limits around the availability of long-term funding still exist

of deposits required from first-time buyers remains high. Banks should be encouraged to be less cautious, but short of a guarantee being provided it is difficult to see how government can influence this.

On a more positive note the government’s extension to the Help-to-Buy scheme as well as the reduction in Stamp Duty rates is making the lower end of the market more accessible. To make a greater impact Stamp Duty rates could also be reduced for the higher thresholds encouraging parents with adult children to downsize, move without significant tax bills and re-direct equity from the sale back to first-time buyer children. We therefore need to see more holistic reforms to stimulate the buyers’ market.

Despite planning reforms set out by the UK government, limits around the availability of long-term funding still exist. Whilst the government’s primary concern should be to support the wider economy in order to increase wealth and employment, further changes such as significant reductions in Stamp Duty across higher thresholds or even VAT holidays on construction materials would be a boost for this crucial industry.