The UK housing market has long been characterised by demand significantly exceeding supply and the situation is getting worse. The National Housing Federation says that 340,000 new homes need to be built annually to meet the current demand as the past pledges of 300,000 new homes being built each year by the mid-2020s have yet to come to fruition. This dynamic presents an ongoing opportunity for property developers to meet the housing needs of the nation whilst also growing their investment.
However, looking at the immediate outlook for the property market, developers may be feeling a little less than optimistic. The latest from HMRC on Property Transactions showed a 3% decrease compared to the previous month in both the seasonally and non-seasonally adjusted estimate of UK residential transactions in December 2022. With the cost-of-living crisis and increasing rates impacting mortgage affordability, transactions are expected to fall further in 2023.
Even before the market slowdown had taken effect, the Home Movers Report from technology company Smoove, said that more than a third of housing transactions fall through. And those property transactions that do complete successfully are taking longer to do so. The Smoove report said that in 2022, the average time to buy a home was 153 days, rising by nearly a quarter since 2019, when the average time was 124 days.
It's this combination of growing long-term opportunities for property developers, combined with a challenging short-term outlook, that has inspired our latest product innovation at Alternative Bridging Corporation.
The product was actually borne out of the Chancellor’s Autumn Statement and the forecast for the UK economy. It was clear from this statement that the property market would be detrimentally affected during 2023, due to the increased cost of home loans and affordability issues because of the cost-of-living crisis, with an associated slowdown in house sales and lengthening of transaction times. So, our team at Alternative Bridging decided to see if we could create a product which could help alleviate some of these pressures. The solution we came up with is PartX Property Finance.
PartX Property Finance is designed to help small to medium-sized developers and estate agents by allowing for the quick sale of newly developed properties. The proposition consists of a pre-agreed part exchange facility that can be used to expedite sales and mitigate against chain breaks on new home developments.
With an agreed facility, developers will have the finance they need to complete a part exchange purchase with the buyer of one of their developed properties. This will help to accelerate the sales process at a time when sales are taking longer and are not as certain as they were 12 to 18 months ago.
In addition, PartX Property Finance can be utilised to offer extra funds for light refurbishment for developers who want to make improvements to the part exchanged property to maximise resale potential.
The facility offers support to our developer clients, many of whom we have worked with for a number of years, but it is also available to developer clients of other lenders.
As a rule of thumb, it takes about as long as a standard unregulated bridging loan to arrange and terms are agreed at the outset, with all due diligence completed in advance. This benefits the developer as it means the facility can be completed quickly and easily when required, utilising a short form of valuation, title insurance and a standard legal charge.
Put simply, PartX Property Finance takes the aggravation out of moving home. Developers will benefit as the product facilitates the fast sale of a property – at its full value. In addition, the owners of the part exchange property will also be selling their property at full value and completing the purchase of their new home without waiting to find a buyer.
PartX Property Finance is a product innovation developed to meet the demands of today’s economic environment. It enables developers to maintain the rate of sale on their sites, and importantly to repay their development facilities on time. A further benefit is that the PartX interest rate is likely to be lower than the rate on the development loan that the client has at the time.
Jonathan Rubins, Director at Alternative Bridging Corporation
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