Aldermore Commercial Mortgages – Market Report: Plugging the housing gap

aldermoreWhen the UK Government launched the Funding for Lending Scheme back in 2012, it acted as a shot in the arm for the industry; mortgage approvals began to rise and, perhaps more importantly, consumer confidence began to improve for the first time since the beginning of the housing crisis in 2007/08.

The subsequent launches of Help to Buy One and more recently the second phase of the scheme have created foundations for the first buoyant house building market since the recession began. Housebuilders are building – there’s an appetite to get new homes out of the ground and it’s not just the national housebuilders who will take advantage of this – the small and medium-sized enterprise market will play a key role.

This isn’t simply an assumption. The big four house builders – Taylor Wimpey, Barratt, Persimmon and Berkeley – will cap output at under 20,000 units each per annum because their infrastructures aren’t built to handle much more than this.

They will be cautious, as will their shareholders, of raising input above these levels. It is interesting to note that no housebuilder has constructed more than 25,000 units per annum since the post World War II boom.

Based on output estimates for the next five years, this leaves a big gap which the SME market will be expected to fill. In the 1990s, the SME and regional sectors (ie. those building fewer than 2,000 homes per annum) were responsible for building as much as 80 per cent of the new homes in the UK.

Over the past five years, this share has dropped to under 50%. At the same time, the output of the ‘big four’ has hardly changed; Barratt for example have built around 16,000-18,000 units per year throughout this period. I believe we may see a return to the 1990s with SME housebuilders having a more significant role to play in the next five years.

All this suggests we will see a thriving housebuilding industry going forward. This in turn will help to keep house prices down and in my opinion, suggestions of a housing bubble are premature. Yes London poses its own unique economic quirks, but they are exactly that – quirks and anomalies, and the national media need to start looking outside of the South East for their stories.

Despite the recent increase in demand and output, house prices have remained reasonably firm, and the forecasts are that this will remain the case for the near future at least.

However, it is not all good news. The industry is still planning-led and despite the recent review it is still extremely bureaucratic and Local Authorities are hardly helping the process either.

This will continue to be an issue until some of the core issues within the process are resolved. Community agreement is also a concern and although gaining support of local residents is entirely right and correct, the NIMBY-ism in many of the green-belt areas that we need to build on is causing some serious headaches for the industry.

Additionally, the perception, both inside and outside London, is that finance is still hard to secure; a perception I can only assume is to do with the appetite of the high-street lenders. However, the reality is that there is an abundance of affordable, well-structured development finance out there. You just have to venture away from the usual suspects to find it.

So overall, I am very optimistic about the future of the housebuilding market, especially in terms of the South East region where it appears that there will be plenty of opportunity here in the coming years, driven by a high level of demand in and around central London.


By Rob Lankey, Managing Director of Commercial Mortgages at Aldermore Bank