2017 marks the 10th anniversary of the start of the Credit Crunch. On the 9th of August 2007, the European Central Bank and the US Federal Reserve took emergency action and injected a combined $90bn into financial markets in an attempt to encourage more lending between banks. Just over a month later, Northern Rock sought and received liquidity support from the Bank of England and we saw the first run on a UK bank in 150 years. Just less than a year later, on the 15th of September 2008, Lehman Brothers filed for Chapter 11 bankruptcy protection in the US. 2007 was the first of several years of significant economic and political uncertainty for banks, businesses, Governments and individuals. 10 years later the formal start of the Brexit process heralds a new period of uncertainty.
Whatever your position on Brexit, it has become apparent that the more extreme predictions for the aftermath of a ‘leave’ result have not materialised; not yet anyway. There was a brief period immediately following the referendum when activity stalled, almost certainly caused by people taking stock of what was a surprise result. However, the lull did not last long. From a UTB perspective, within just a few weeks we were back to pre-referendum enquiry levels and not long after that our Development Finance team was busier than we’ve ever been before. We deduced that some lenders had either withdrawn from the sector or become significantly more cautious. This resulted in those lenders which assessed and acknowledged the new risk and remained open for business, UTB included, taking a bigger share of the market. Subsequently we completed 2016 with another record year.
Although Brexit will create uncertainty there are some fundamental factors which have not been negatively impacted by the ‘leave’ result. [color_quote]There’s still a chronic shortage of new homes being built in the UK, mortgage interest rates remain low and the Government continues to encourage new home ownership through the Help-to-Buy Equity Loan scheme.[/color_quote] There are now more than thirty mortgage lenders offering loans of up to 95% LTV without Government back-up, hence the recent closing of the Help-to-Buy Mortgage Guarantee scheme which the Bank of England deemed no longer necessary. In terms of market confidence, most house price experts seem to predict modest price growth in mainstream markets for the next few years and the recent announcement by Housing Minister Gavin Barwell of plans for three new garden towns and fourteen new garden villages suggests that the Government will not leave the housing shortage unchecked. If further improvements to the dysfunctional planning system materialise there will be even more reason to celebrate, particularly for SME developers.
There is however an element of the development process which will need careful attention. Build costs will almost certainly increase due to the weaker pound increasing the cost of imported materials and the potential for tighter immigration restrictions could exacerbate the shortage of construction labour, leading to higher wages. Although developers have some say over their pricing they are ultimately governed by what the market will pay for their product so tight control of costs is paramount. This should not, however, become an excuse to stop building.
As the Credit Crunch presented challenges to banks and businesses, so will Brexit. Those who accept that uncertainty is part and parcel of change and have the confidence in their own experience and judgement to maintain their course, unfazed by the doomsayers, can prosper. Despite the economic turmoil brought about by the Credit Crunch, United Trust Bank continued to support developers, businesses and individuals by lending throughout. It has, in fact, increased its lending every year since 2007. Ten years on, and with a new set of challenges ahead,
[pull_quote]we stand side by side with those who see opportunity rather than threat.[/pull_quote]