5 reasons to build houses in 2015

by Malcolm Jones

3 years ago

5 reasons to build houses in 2015

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5 reasons to build houses in 2015

1. Supply and demand.build houses

The current housing shortage is at the highest level for decades. There is a demand for over 260,000 houses to be built each year. The current level of new builds is at less than half this and the demand is increasing with the increasing population. We live on an island that is not getting any bigger!

2. Economic Factors

There are a number of signs that the UK economy is out performing the big western economies and certainly Europe. This has lead to the UK being considered a safe haven for foreign investment with asset purchase injecting further demand into the property market. The Bank of England have maintained the base rate at an all-time low of 0.5% since March 2009. Wage inflation is low and with oil prices plummeting to below $50 a barrel this week and deflation in Europe there is little inflationary pressure in the short term to suggest the interest rate will rise any time soon.

3. Section 106 obligations

These have been removed for small-scale developers. Developments of 10 units or less (with a maximum combined gross floor space of no more than 1,000 square meters) will be exempt. It is estimated that, on average, it will save £15,000 per new dwelling.

4. Stamp Duty Land Tax

The recent changes in Stamp Duty, has seen a major cost saving for the majority of buyers. With the average house price in the UK now £275,000, the stamp duty would have been £8,250 but is now only £3,750 producing a saving of £4,500 for buyers.

5. New Lenders

The High Street banks, when they are lending, are very restrictive as to where and who they will lend to. Fortunately we now have access to a number of new alternative lenders that have recently entered the commercial finance market with far less restrictive lending criteria. They will lend throughout the UK and at higher loan to cost ratio than the main banks.

Contact Malcolm Jones

Commercial Finance, Development Funding and Bridging Finance
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Comments

Tony Atkins

3 years ago

As I am a small developer I thought I'd add a couple of glass-half-empty comments:

1. Demand for new housing may well drop significantly due to the crackdown this year on mortgage lending to buyers. People may want to buy a house, but this means little if they can't get a mortgage.

2. I'm less positive on the economy: things are not looking good in Europe, our main trading area, and a lot of the current growth is based on domestic consumption, which has its limits. If the pound strengthens, exports will continue to struggle, although most commentators think the US dollar is on a long-term rise, which will help our exports. However, wages and wage increases remain stubbornly low for most people, which does not bode well for people seeking mortgages.

3. S106: about 50% of councils west of London, according to my planning consultant, are ignoring the exemption for small sites, and are continuing to charge S106 to small builders, both for social housing and per-house tariffs. These councils plan to challenge the legality of the exemption, and they may be calculating that the Government will lose the election, in which case a Labour-led government is almost certainly bound to cancel the exemption.

Even worse, most councils in the South-east will be replacing S106 with Community Infrastructure Levy on 1 April 2015, so the exemption only last for 3-4 months anyway! The Government has proposed no similar exemption for CIL charges, which seems invariably much higher than S106. In my nearest local authority, for example, a 4-bedroom 175 sq metre house worth £500,000 is charged about £18,000 in S106, but from 1 April it will be charged at £365 per sq m, which totals just under £64,000.

CIL represents a huge increase in charges and is going to crush the life out of the small developer market, which is what the local authority wants to see happen: it is focusing on delivering large new estates on agricultural land controlled by the national housebuilders. This will deliver lots of free social housing and infrastructure contributions, as the land is so cheap and profits are high, and the council doesn't want small builders interfering with this arrangement by providing competition.

4. The reduction in stamp duty is marginal, especially given the crackdown on mortgage supply.

Neil Patterson

3 years ago

From speaking to many readers currently the highest profit margins, if the business plan is sound, are in development and refurb.

However the capital and experience required is greater than for standard Buy to Let investment.


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