Just when property developers thought it couldn’t get any worse following the pandemic and an overheating market thanks to the stamp duty holiday, along comes a shortage of construction products including roofing materials and timber.
The Builders Merchants Federation (BMF) is reporting a rise of around 20% in timber prices and some roofing products being unavailable until August, driven in part by the sudden surge in demand as the construction sector ramps up work.
However, a significant contributing factor is the escalating prices for shipping, the lack of containers to convey construction materials, particularly from China and the Far East, along with the delays being experienced at some British ports.
Costing and contingencies key to combatting supply chain issues
As a short-term property finance provider, our business is tied to the property development market, with few of our loans made available strictly for purchase – there is typically an element of refurbishment, whether it’s a general redecoration or major renovation or extension work.
We have witnessed a significant uptick in enquiries for ground-up development funding over the last three months, particularly to satisfy the growing trend for small developments taking advantage of bare plots or following demolition of a building sitting on a big plot.
However, conversely the enquiries for more traditional bridging loans to purchase and refurbish are not exhibiting the same growth and this news of supply chain shortages will be a headache for developers who will have to scrutinise their costing and contingency allowances.
As a business we were extremely satisfied to have remained open during the lockdown periods of the last 12 months to support our clients and their determination to complete projects, which ensured we were able to report the highest annual lending figure in our history.
But the current market situation feels slightly different, with more external factors beyond the control of lenders or property developers, than ever before and the supply chain issue is just another one to overcome, as we all wait for the overheated property market to cool, once the stamp duty holiday ends.
Problems highlight what it takes to build a property
Typically we see detailed plans for the refurbishment of the properties we are funding and news that items such as screws and fixings, tools, plumbing items, bathroom suites and shower enclosures all coming from China is slowing the market, reminds us all just what it takes to create the new homes we need in the UK.
Report indicate around 76% of building products are manufactured in the UK, but unless only three-quarters of a refurbishment is planned, property developers will need to reassess their projects to see if they can withstand the delays and potential cost overruns.
From a lending perspective, we work closely with our clients to ensure the timescale they have planned is reasonable for the scale of works, so they borrow the funds for long enough, without the risk of penalty fees – seeking the correct time period for the terms would make sense for many.
Experienced developers with a proven track record can take advantage of a blended-rate bridge that benefits them with a low rate for the first few months, when they may be able to complete their project quickly and save interest if everything goes exactly as planned, but with enough time to ensure they are not penalised if things take longer than expected.
Given the uncertainty of supply for some of the products needed for heavy refurbishment, conversion and extension works, the two pace market is perhaps understandable, with ground-up developments taking a far longer term view and less unsettled by the current supply issues.
However, the slowing now will undoubtedly lead to another shortage for property developers if they wait too long for the property market to settle with the supply chain back to normal and that will be their access to affordable funds.
There is no unlimited supply of funds at competitive rates and those developers slow to enquire when the market picks up, may find lenders do not have the necessary funds or the surge in demand has increased rates. We await the next development with interest – literally!
In the meantime, if you are seeking funding for a property purchase, refurbishment or development project, please get in touch with me Alan Coats, Signature’s lending manager in Scotland on 07704 004314 or email alan@signaturepropertyfinance.co.uk