As euphemisms go “rollercoaster ride” probably doesn’t begin to do justice to the unprecedented peaks and troughs experienced by the UK development finance sector over the last 3 years. These are certainly challenging times for developers who would be well advised to hope for the best while planning for the worst!
Whilst covid pandemic-related supply chain issues and the impact of Brexit caused the cost of building materials to spiral upwards in 2020 and 2021 the construction industry defied these economic headwinds with a boom in housebuilding, commercial development, and infrastructure projects. As we neared the end of 2021 there were the first tentative signs that shortages were easing and that the pace of material cost inflation was beginning to slow.
Developers entered 2022 with a realistic expectation that life was finally going to get a little easier – then Putin’s tanks rolled over the border and into Ukraine piling yet more cost pressures into the mix! Whilst construction materials from Russia, Belarus, and Ukraine only account for around 2% of the UK’s imports there are some critical items such as timber and cast-iron products. Of greater significance has been the dramatic rise in wholesale energy prices.
Energy intensive industries such as concrete, steel and cement have quickly passed on the impact of higher energy prices to the construction sector whilst renewed Covid lockdowns in China are once again hitting the availability of raw materials. Add to this labour shortages, political instability, rapidly increasing borrowing costs, sustainability regulations and the threat of falling house prices, and once again the UK development sector is under pressure despite a modest autumn recovery in output.
With all these macro-economic headwinds, now is the time for developers to plan strategically and ensure they are working collaboratively with the best brokers and specialist lenders. At Saxon Trust we move quickly to analyse the viability of every enquiry we receive. Crucially our owners have been successful developers themselves, through several economic cycles, giving us a unique insight into today’s challenges.
It's this market understanding and collaboration with our broker and developer partners that informs our product development decisions and led directly to the introduction of our successful Finish & Sell and Market & Sell development exit products earlier this year. These products are the perfect way for developers to push their projects over the finish line.
Whether it’s giving developers more time and funding to complete and then market a project, or just an extended marketing period to maximise their sales return, a Saxon Trust development exit loan has been the answer for a growing number of developers in recent months. In addition to gaining precious time, developers can also reduce the cost of their funding and free up equity they have built up in a project for future opportunities. Maintaining financial agility will be key to staying competitive and maximising returns, whatever challenges we face in 2023 and beyond.