by David Khan | May 2, 2023 | Latest News
The impact of energy-efficient upgrades on homes has become a topic of increasing interest in recent years. As the world continues to grapple with the challenges of climate change, energy-efficient upgrades have become a crucial tool for reducing energy consumption and greenhouse gas emissions. At the same time, these upgrades can also have a significant impact on the value of a home, with some studies suggesting that energy-efficient homes can command a premium on the housing market.
EPC Ratings
Energy Performance Certificates (EPCs) have become an important part of the housing market in recent years. An EPC rates the energy efficiency of a property on a scale of A to G, with A being the most energy-efficient and G being the least energy-efficient. The certificate also provides recommendations on how to improve the energy efficiency of the property. Properties with higher EPC ratings are more energy-efficient, which means that they are cheaper to operate. Rightmove reported that 47% of landlords say they would not buy a property with an EPC rating below a C in the future.
What Is The Green Premium?
The green premium is the difference in price between an energy-efficient home and a comparable home that is not energy-efficient. In other words, it is the premium that buyers are willing to pay for an energy-efficient home. The concept of the green premium is based on the idea that energy-efficient homes are more valuable than comparable homes that are not energy-efficient, as they are cheaper to operate and more environmentally friendly.
The green premium can be measured in a number of ways. One approach is to compare the sale prices of energy-efficient homes and non-energy-efficient homes in the same neighbourhood or market. Another approach is to estimate the increase in the value of a home that results from energy-efficient upgrades, such as the installation of solar panels or the replacement of windows and doors. A survey by RICS, which involved estate agents, revealed that 41% of them believed that purchasers were displaying a higher level of interest in energy efficiency.
Energy-Efficient Upgrades & House Prices
Investing in energy-efficient upgrades for a home not only reduces the property’s environmental impact but can also lead to significant energy savings, resulting in lower utility bills over time. Houses with upgrades such as heat pumps are typically considered to have a “green” premium due to their energy efficiency and eco-friendly features. Heat pumps are highly efficient and use renewable energy to heat homes, reducing the carbon footprint of a property.
Several studies have examined the impact of energy-efficient upgrades on house prices. These studies have generally found that energy-efficient homes command a premium on the housing market. Santander’s research indicates that individuals are willing to pay a 9.4% premium on residences that have been retrofitted to comply with “energy efficiency standards.” Additionally, estate agents believe that buyers would be willing to pay up to 18% more for such properties. By analysing extensive data, PriceHubble has determined that properties with poor energy efficiency are valued at up to 20% less than their energy-efficient counterparts. According to Rightmove, enhancing a property’s energy efficiency rating from an F to a C could result in a 16% increase in its value.
The reasons for the green premium are straightforward. Energy-efficient homes are cheaper to operate, which means that owners of energy-efficient homes save money on their energy bills. In addition, energy-efficient homes are more environmentally friendly, which is becoming an increasingly important consideration for many homebuyers.
The Impact On The Housing Market
In addition to the impact on house prices, energy-efficient upgrades can also have a broader impact on the housing market. One potential impact is that energy-efficient homes may sell more quickly than comparable homes that are not energy-efficient. This is because buyers may be more attracted to homes that are cheaper to operate and more environmentally friendly. Furthermore, energy-efficient upgrades may lead to an increase in the overall value of the housing market. This is because energy-efficient upgrades can reduce the demand for energy, which in turn can lead to a reduction in the cost of energy. This reduction in the cost of energy can make housing more affordable, which can increase demand for homes and lead to an increase in the overall value of the housing market. As energy-efficient upgrades become more common, builders may begin to incorporate energy-efficient features into new homes as a standard practice. This can lead to an increase in the overall quality of new homes, which can also lead to an increase in the value of the housing market.
Market Shift Concerns
This potential shift in the market poses a significant concern for mortgage lenders and their regulators, who fear a potential “disorderly transition”. Lenders are taking steps to encourage their clients to retrofit their homes by offering various incentives, including cash-back schemes and low-interest loans. Furthermore, government initiatives and financial incentives, such as the Renewable Heat Incentive (RHI) in the UK, are encouraging homeowners to switch to renewable heating systems like heat pumps. These incentives can further increase the green premium of heat pump-fitted homes, making them an attractive investment for homeowners looking to improve their property’s value while minimising their environmental impact.
Chris Brown, chief executive, and founder of Climatise states that “It is essential for the government to play a role in facilitating a smooth shift towards energy-efficient housing. The cost of retrofitting a house to reduce its impact on the environment, through better insulation and replacing a polluting gas boiler with a cleaner and three times more efficient heat pump, cannot be entirely recovered through energy bill savings”.
With looming climate deadlines and carbon budgets running out, the government’s lack of action in this area may only increases the risk of a sudden and dramatic shift in the housing market. As a result, the green premium gap may widen rapidly, emphasising the importance of retrofitting homes to improve energy efficiency and reduce carbon emissions.
by David Khan | Apr 26, 2023 | Advice, Featured
As a property developer, you’re likely aware that development projects can be unpredictable, even if you have years of experience under your belt. Unexpected setbacks, such as delays and rising costs, can make it difficult to complete a project on time and repay your initial loan. In some cases, lenders may not be able to offer an extension or forbearance, and you may run out of funds to complete the project if you’re self-financing. Fortunately, developer exit finance can provide a solution to such situations, helping you to save your project and avoid financial losses.
What Is A Development Exit Loan?
The development exit loan serves as a form of bridging finance aimed at supporting developers as their project nears completion. By replacing the current development finance, it lowers finance costs and releases additional equity to aid cash flow or for subsequent projects.
This type of loan is typically used when a developer encounters unforeseen circumstances. For instance, cost overruns, delays, or changes in the market that make it difficult to pay off any outstanding loan on a recently completed or nearly completed property. Instead of abandoning the project or continuing to invest additional funds, the developer can exit the project and recover some or all their investment through a developer exit loan.
The loan is usually secured against the property being developed, and lenders may also require additional collateral to mitigate the higher risks associated with early exits. However, the loan terms can be flexible, allowing the borrower to repay the loan over a shorter or longer period, depending on their needs.
Why Are Development Exit Loans Used?
A developer exit loan can provide additional funding, additional time, or both, to complete a property project with the end goal of exiting the loan and earning a profit. These loans can be useful in situations where the project has experienced setbacks due to unforeseen circumstances, such as insufficient contingency planning, events outside of everyone’s control, or miscalculations.
In the past year, there has been a directionally 50% increase in developer exit loan business. This is primarily due to developers exhausting their own funds and original lenders being unable to extend the loan term if the project is not completed, often due to restrictions imposed by their own funders.
Who Offers Developer Exit Finance?
Developer exit finance is not a widely known financing option since not all property finance lenders offer it. Generally, it is provided by lenders with more diverse and flexible funding lines, allowing them to cater to a broader range of borrower situations. These loans are often offered by lenders with specialised expertise in the development sector, rather than lenders who solely provide bridging loans. This is because the lender needs to possess a deep understanding of how to structure more complicated cases and have the necessary development experience to evaluate the build and help in completing it.
Who Can Use A Development Exit Loan?
A development exit loan is generally provided to developers upon reaching practical completion of a property. This loan option is particularly useful for developers who are faced with unexpected challenges, such as adverse weather conditions, unanticipated expenses, or unforeseen issues that can significantly affect the project’s timeline and budget. In such situations, developers may find it challenging to repay any outstanding loans on the property, and a development exit loan can offer much-needed support. By refinancing the current property development finance and providing additional funds, this loan option can help cover the unexpected expenses and provide relief to the developer. This allows them to successfully repay the loan while minimising the financial risks associated with the unforeseen circumstances.
Can The Property Be Considered Wind And Watertight?
When considering a developer exit loan, one important factor to determine is whether the property in question is wind and watertight. This means it has been constructed to a point where it is resistant to the elements, such as wind and rain. This is typically achieved when the property is sealed against water and air infiltration, and the roof, walls, and windows are properly installed to prevent leaks.
When a property is wind and watertight, obtaining a developer exit loan is a straightforward process with minimal risk. These loans function similarly to standard bridging loans and can be available at similar rates and terms, up to 75% loan-to-value. This is because the property has already been built, and valuations at this stage are typically accurate.
However, if the property is not wind and watertight, the process becomes more complicated, although some lenders can still provide assistance. These cases would typically fall under the lender’s developer funding range and require more customized underwriting and development expertise, but it remains possible to obtain financing.
If your property development has been completed but has yet to be sold, and the repayment of the initial development funding is due, a development exit loan could be a viable option to consider. These loans can help you get your project back on track, by providing additional time to sell the units with a financing structure that is flexible, fast, and cost-effective. The added time can be incredibly valuable in terms of maximizing the returns at the end of the project. With a development exit loan, you can take advantage of the benefits of a longer-term financing arrangement, which is typically easier to manage and comes with lower borrowing costs. This type of loan can help you achieve your project goals while mitigating any financial risks associated with the sale of the property.
by David Khan | Mar 30, 2023 | Advice
A recent survey conducted by Close Brothers Property Finance, the Home Builders Federation (HBF), and Travis Perkins reveals the full extent of the challenges and problems currently facing SME housebuilders. Revealing the vast majority of Small and Medium Enterprise (SME) housebuilders in the UK are dissatisfied with the Government’s approach to housing. The survey, which is the most comprehensive of its kind, highlights the major obstacles facing SME developers. Including securing and processing planning permission, availability of land, and staffing shortages in Local Authorities. All of which are putting their businesses at risk.
– The survey found that 93% of SME developers believe that securing and processing planning permission is the biggest barrier to growth.
– While 52% of builders are facing an issue with the availability of land.
– Staffing shortages in Local Authorities were identified as the main cause of delays in the process by 76% of respondents.
– Rising material costs were a concern for 99% of the companies, and energy costs were a major issue for 88% of builders.
– More than two-thirds of SME developers are impacted by the “nutrients” issue, which is restricting development in over a quarter of England’s local authority areas.
– The report also revealed that 92% of SMEs are unhappy with the Government’s current approach to housing.
Peter Wade, Chairman of BLG comments “The survey findings fully support what BLG are seeing and hearing from their customers with major delays and frustrations caused by planning. In fact, we have subject to planning projects which were credit approved back in 2021. These planning challenges favour the larger v SME developers and need resolving to grow the home building sector.”
In its third edition, the SME State of Play Report has brought attention to the potential risks for businesses and hindered participation of SMEs. Due to the planning system’s increasing costs and delays. The timing of the report coincides with the industry’s current acute challenges. Including processing delays for planning applications, housing delivery moratoriums in a quarter of local authority and rising costs.
According to the survey, small builders are already anticipating the effects of the Government’s proposed Building Safety Levy. 40% of SME home builders foresee that the levy, which the Government consulted on between December and February, will impede future housing delivery by posing a barrier to all new homes.
Over recent decades, the dwindling number of SME builders are facing increasing challenges to overcome development constraints. 92% of SME builders expressed dissatisfaction with the government’s approach to planning or housing. Urging Ministers to take corrective measures to prevent a decline in supply levels.
Stewart Baseley, HBF executive chairman, commented: “SME builders in particular are struggling to overcome the growing constraints to housing delivery. The planning process is grinding to a halt and regulatory costs are rising, whilst the nutrient issue has put the brakes on sites across a quarter of the country. SME housebuilders are a major employer and have a key role to play if we are to meet our housing needs, but their numbers have plummeted in recent years. If we are to avoid losing even more businesses amidst a drop in supply, government must take action now to create an environment within which SME builders can operate.”
Rowland Thomas, managing director at Close Brothers Property Finance, adds: “The role of SMEs in the housebuilding industry has consistently been underestimated and often ignored when it comes to policy and planning. The reality, however, is that SMEs play a vitally important role in the creation of a healthy housing market and the consistent erosion of confidence in the government’s approach to planning, especially for SMEs and first-time buyers, gives great cause for concern. As we welcome in the sixth housing minister in just 12 months, we must look to the current planning consultation for solutions from Whitehall and we are grateful, alongside our partners, to have been contributing to that with the aim of finally finding a workable resolution.”
Kieran Griffin, managing director at Travis Perkins, stated: “The results of the survey have reinforced what we already knew in terms of the challenges we have faced over the last 12 months. There is not a construction business in the country which hasn’t faced significant challenges in terms of increased costs and supply chain issues. Collectively, as an industry, we have been navigating unchartered territory, with major global events significantly impacting prices and availability of a range of materials. We pride ourselves in forging strong relationships with our SME housebuilding clients, which are built over many years. While these have indeed been tested over this challenging period, these relationships are built on strong foundations, and we have continued to work closely with our clients to find solutions.”
by David Khan | Mar 29, 2023 | Advice
Property development is a complex and capital-intensive process that requires significant financial resources. From land acquisition to construction, marketing, and selling, property development requires a lot of capital to successfully execute. Development finance is a critical component of financing property development projects. In this article, we will discuss how development finance helps finance property development.
What Is Development Finance?
Development finance refers to the financing of projects that promote economic growth and development. The primary focus of development finance is on investments that generate positive social and economic returns over a prolonged period. Development finance is usually provided by banks and development finance lenders such as BLG. Development finance lenders are specialised financial institutions that provide financing to support developers.
Development finance can be used to finance a broad range of projects, including infrastructure development, agriculture, education, healthcare, and property development. In the case of real estate development, development finance is provided to support the financing needs of property developers.
Types Of Funding
Residential development finance and commercial development finance are two types of funding options for property development projects. The main difference between them lies in the type of property being developed.
Residential development finance is used for funding residential property development projects such as housing estates, apartment blocks, or single-family homes. On the other hand, commercial development finance is used for funding commercial property development projects such as office buildings, retail centres, hotels, or industrial units. The lending criteria and terms for both types of development finance can differ significantly.
These can then be split further into different types of finance such as mezzanine development finance and stretch senior development finance.
Learn more about the types of development finance.
How Development Finance Helps Finance Property Development
There are various ways in which development finance can aid developers. The financing can be structured in a way that allows the developer to acquire land without having to pay the full cost upfront. This can help developers conserve their cash flow and improve their ability to fund other activities.
Land Acquisition
One of the significant challenges facing property developers is acquiring land for development. Land acquisition is often one of the most significant expenses in property development. Often developers require significant financial resources to acquire land for development. Development finance can help property developers acquire land by providing financing for land purchases.
Construction
Construction is another significant cost in property development, and developers require significant financial resources to complete construction projects. Development finance can provide developers with financing for the construction of residential and commercial buildings.
Marketing And Selling
Marketing and selling are critical components of property development. These costs are typically funded out of property sales.
Job Creation
Property development is an essential driver of job creation. Development finance can help property developers create jobs by providing financing for construction activities. The financing can be structured to incentivise the developer to hire local workers and use local materials. This can help create jobs in the local community, which can help promote economic growth and development.
Economic Development
Property development is an essential driver of economic development. Development finance can help finance property development projects that can promote economic development.
Development Finance From BLG
Property development is a critical driver of economic growth and development. However, it requires significant financial resources to successfully execute. Development finance is a critical component of financing property development projects. It allows developers to acquire development land, purchase development rights and cover the costs associated with construction and marketing. With the help of a lender, developers can bring their projects to fruition and grow the economy.
BLG is a principal lender specialising in development loans. Providing both residential and commercial development property finance. Ranging from £1 million to £15 million, with competitive terms over 12 to 24 months. Our financial experts take the time to get to know you and your property development project to ensure you get the right loan. Contact BLG today to start your development journey.
by David Khan | Feb 8, 2023 | Latest News
As the economic outlook continues to change, the current housing market and interest rate environment have had a significant impact on property development finance. With house prices falling and interest rates increasing throughout 2021 and for most of 2022. The pace of which being greater than previously seen in the 2008 global financial crisis. When the Bank of England raised interest rates by 0.75 percentage points to 3% on the 3rd of November, it was the biggest single rise in the cost of borrowing since 1989. However, due to soaring inflation, last week the Bank of England raised interest rates once again to 4%, the 10th rise in a row. Therefore, making mortgages more expensive and higher inflation puts further pressure on mortgage holders and businesses struggling to pay off their loans.
Our managing director Stuart Parfitt comments, “2023 is going to be a tough year generally and there are some macro-economic factors that make any forecasting challenging. However, by Easter 2024 I would expect to see the mood to be more positive”.
How SME Enquiries Have Been Affected
Stuart comments on how enquiries have fluctuated from SMEs looking for loans. “The turmoil after the Truss/Kwarteng budget appeared to cause enquiries to stagnate but as markets have normalised the enquiry flow has improved. Planning delays continue to represent the main hurdle to increased house building and development lending activity. Although appraisals are now factoring in higher interest rates and flat or decreasing future house prices, putting downward pressure on land values. Land sellers are beginning to accept this is a new reality.”
Type Of Developments BLG Support
Although the average house prices and rises in interest rates are falling, BLG’s lending profile remains unchanged. With the main focus being on standard housebuilding and unit values from £250,000 up to £750,000. Alongside SME developers that can generally bring equity of around 20%. Parfitt adds, “Houses are slightly preferred over apartments but as long as the location supports flat buyers, we are happy to support a suitable scheme. Most regions are acceptable but with build cost inflation we are starting to see appraisals where construction costs exceed 60% of sales values in more remote or areas of lower economic activity”.
Contact our financial experts today who can talk you through your options. They will take the time to get to know you and your aims.
