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Specialist development finance lender Atelier has provided a new finance facility to Stancliffe Homes to support the sale of 30 completed houses in Forest Town on a development that was halted last year after developer Sherwood Oak Homes went into administration.
 
News Journal, July 2024
Click <a href="https://www.news-journal.co.uk/30-completed-new-homes-enter-market-in-forest-town/">here</a> to read the full article.

Specialist development finance lender Atelier has provided a new finance facility to Stancliffe Homes.

30 completed new homes enter market in Forest Town

20240627 3A7A5335 Edit

Atelier has boosted its origination team with the appointment of Suraj Lakhanpal (pictured above) as lending manager.
 
Development Finance Today, July 2024
Click <a href="https://developmentfinancetoday.co.uk/article-desc-10374_Atelier%20hires%20new%20lending%20manager">here</a> to read the full article.

Atelier has boosted its origination team with the appointment of Suraj Lakhanpal (pictured above) as lending manager.

Atelier hires new lending manager

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Outside view of the Ten Downing Street door

Our CEO, Chris Gardner, speaks to Property Reporter discussing the potential impacts of Labour’s policies on first-time buyers and the broader housing market.
 
Property Reporter, July 2024
Click <a href="https://www.propertyreporter.co.uk/breaking-news/labour-wins-landslide-election-victory-the-property-industry-reacts.html">here</a> to read the full article.

Our CEO, Chris Gardner, speaks to Property Reporter discussing the potential impacts of Labour’s policies on first-time buyers and the broader housing market.

Labour wins landslide election victory: the property industry reacts

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Atelier’s latest research report, compiled by Nicole Lux, predicts a significant upturn in the housing market, pointing to a sustained period of recovery, stabilising interest rates and growing demand for housing.
 
Financial Reporter, May 2024
Click <a href="https://www.financialreporter.co.uk/housing-market-to-see-brief-period-of-decline-followed-by-prolonged-period-of-recovery-report-shows.html">here</a> to read the full article.

Atelier’s latest research report, compiled by Nicole Lux, predicts a significant upturn in the housing market.


Housing market to see brief period of decline followed by prolonged period of recovery, report shows

Screenshot 2024 05 29 112517

A £12.4 million loan has been provided to construct a purpose-built, 76-bed care home in Worcester, specialist development finance lender Atelier has today announced.
 
Caring Times, June 2024
Click <a href="https://caring-times.co.uk/worcester-care-home-build-gets-12m-cash-injection-from-atelier/">here</a> to read the full article.

A £12.4 million loan has been provided to construct a purpose-built, 76-bed care home in Worcester, specialist development finance lender Atelier has today announced.



Worcester care home build gets £12m cash injection from Atelier

ACP Portraits Peter Messenger

Peter Messenger, Senior Development Monitor, shares his expertise on converting listed buildings into housing and talks about how developers are making heritage schemes stack up financially despite rising costs.
 
Property Week, July 2024
Click <a href="https://www.propertyweek.com/markets/a-home-with-history?utm_source=LinkedIn&amp;utm_medium=Organic_social&amp;campaigncode=PW_LinkedIn_Organic" data-anchor="?utm_source=LinkedIn&amp;utm_medium=Organic_social&amp;campaigncode=PW_LinkedIn_Organic">here</a> to read the full article.

Peter Messenger, Senior Development Monitor, shares his expertise on converting listed buildings into housing and talks about how developers are making heritage schemes stack up financially despite rising costs.

A home with history

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The £5.38m facility from Atelier will see the refurbishment and conversion of Hanover House into a PBSA scheme.
 
PBSA News, June 2024
Click <a href="https://pbsanews.co.uk/2024/06/27/atelier-finances-bristol-hanover-house-pbsa-scheme/">here</a> to read the full article.

The £5.38m facility from Atelier will see the refurbishment and conversion of Hanover House into a PBSA scheme.

Atelier finances Bristol’s Hanover House PBSA scheme

20240627 3A7A5410 Edit

Bruce Robertson, lending manager at Atelier, outlines the challenges facing Scotland’s housing market and offers insights on how to rectify these issues.
 
Scottish Housing News, June 2024
Click <a href="https://www.scottishhousingnews.com/articles/bruce-robertson-scotland-has-declared-a-national-housing-emergency-now-what">here</a> to read the full article.

Bruce Robertson, lending manager at Atelier, outlines the challenges facing Scotland’s housing market and offers insights on how to rectify these issues.

Scotland has declared a national housing emergency – now what?

Welcome to ‘Past performance, points to future potential’ – our latest research report.
Once again, we’ve teamed up with Dr Nicole Lux to provide data and insight for SME property developers to help them plan for the medium and long-term. With this piece of research, we started with a simple question: can we use past property market data to predict the future?
We’ve compiled detailed analysis on property prices, inflation, interest rates, demand, supply, mortgage rates, unemployment and population growth. It’s our view that this data can be used to understand the market conditions we can expect to see in the short to medium term.  The data indicates that we are close to the trough, which will be followed by a sustained period of recovery. The analysis points to a recovery in house prices, stabilisation in interest rates, and positive demand.  For developers, the take-out message is act now for the best chance to capitalise on the coming upswing.
With pipelines likely to take 12-18 months to restock and planning, as ever, a drag factor, it’s important for developers to take an opportunistic position and begin bidding, so they are where they need to be when the market turns.
Chris Gardner, CEO at Atelier comments “It has been a pleasure to commission Dr Nicole Lux again on this critical piece of research. We wanted to provide data and insight to SME property developers to help them plan for the medium and long-term. In the UK, private enterprise delivers 60% of new housing – precisely because these developers are agile and can respond quickly to shifts in the marketplace.
“It is important for developers, in particular, to be agile enough to overcome short-term market volatility whilst progressing forward with a clear, long-term strategy. Property is a long-term asset class, and with the data now available to us, we are positive about the future, and we are here to provide finance solutions to professional property developers ready to act.”
We hope you enjoy this research and please get in touch if we can help.
To read Atelier’s full <a href="https://media.umbraco.io/atelier/12cp5txo/past-performance-points-to-future-potential.pdf?url=https%3A%2F%2Fatelierfinance.co.uk%2Fdocs%2Fzuzjxsum%2Fatelier-research-report.pdf&amp;data=05%7C02%7Csamantha.duffy%40atelierfinance.co.uk%7C00ae0ce5c4cc4f7b435508dc79a86aa2%7C719114508bf24ca49ef2fbb7ffdf4987%7C0%7C0%7C638519011790870118%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C0%7C%7C%7C&amp;sdata=G99TfIdiLdPxHUCTdPaLKQ7mQ4xw%2BFvCSOy7%2FmLeQ8g%3D&amp;reserved=0" title="Past Performance, Points To Future Potential" data-anchor="?url=https%3A%2F%2Fatelierfinance.co.uk%2Fdocs%2Fzuzjxsum%2Fatelier-research-report.pdf&amp;data=05%7C02%7Csamantha.duffy%40atelierfinance.co.uk%7C00ae0ce5c4cc4f7b435508dc79a86aa2%7C719114508bf24ca49ef2fbb7ffdf4987%7C0%7C0%7C638519011790870118%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C0%7C%7C%7C&amp;sdata=G99TfIdiLdPxHUCTdPaLKQ7mQ4xw%2BFvCSOy7%2FmLeQ8g%3D&amp;reserved=0">report</a>, click the link above.
Disclaimer: This material is for professional use only, and is not intended as an offer, invitation or solicitation for the purchase or sale of any investment. Its issuance must not be relied upon for the purposes of any investment decision.

SME property developers should act now to capitalise on market opportunities – new Atelier research reveals

One year on from the launch of our modular construction lending framework, our Head of Business Operations Reece Lake, shared his thoughts with Construction News on how the business case for modular construction needs to evolve for it to play an effective role in tackling the UK’s housing shortage.
 
Construction News, April 2024
Click <a href="https://www.constructionnews.co.uk/tech/offsite-mmc/offsite-and-modular-must-be-made-to-work-for-sme-developers-17-04-2024/">here</a> to read the full article.

Offsite and modular must be made to work for SME developers

Alan MacLeod, director of credit, and Martin Gilsenan, chief originations officer at Atelier, explore why there will be plentiful opportunities in the residential development finance market in 2024.
 
Financial Reporter, April 2024
Click <a href="https://www.financialreporter.co.uk/blogs/shaping-the-ideal-development-finance-deal-should-not-be-a-guessing-game-trusting-in-transparency-and-collaboration.html">here</a> to read the full article.

Shaping the ideal development finance deal should not be a guessing game – trusting in transparency and collaboration

The relaxation of Permitted Development Rights will open up a number of opportunities for SME property developers, our Director of Credit Alan MacLeod, recently wrote an article for CoStar Group on the window of opportunity that is now open, and why early funding, as well as speed, is of the upmost importance.
 
CoStar Group, April 2024
Click <a href="https://www.costar.com/article/8162826/changes-to-permitted-development-rights-potential-pockets-of-opportunity?utm_source=newsletter&amp;utm_medium=email&amp;utm_campaign=today_prospect&amp;utm_content=p18" data-anchor="?utm_source=newsletter&amp;utm_medium=email&amp;utm_campaign=today_prospect&amp;utm_content=p18">here</a> to read the full article.

Changes to Permitted Development Rights: Potential Pockets of Opportunity?

CEO Chris Gardner and Chief Originations Officer Martin Gilsenan feature in an exclusive interview with Bridging &amp; Commercial magazine, where they discuss how a tumultuous year for construction in 2023 became a turning point for the company. 
 
Bridging and Commercial Magazine, March 2024
Click <a href="https://issuu.com/bandcmagazine/docs/issue_31">here</a> to read the full article.

Hot deals in cold spots

Specialist development finance lender Atelier has completed financing to assist with the acquisition and refurbishment of a vacant care home in New Southgate, North London.
 
Care Home Professional, February 2024
Click <a href="https://www.carehomeprofessional.com/atelier-financing-refurbishment-care-home/">here</a> to read full article.

Atelier provides £9.8m loan to refurbish vacant North London care home

Atelier talks about providing ‘better property finance, by design’.  For us, this is more than just a tagline. It sums up how we approach running the business, and the way we relate to our network of developers, intermediaries and professional partners across the industry.
There are several ways ‘doing things better’ is designed into Atelier’s credit appetite and approach.
The turbulence within the development and property market over the last few years has highlighted the power of experience.  Our credit team is made up of expert real estate finance specialists.  As a collective, we have seen the property cycle turn and turn again, giving us the benefit of the long view within the development finance sector. This is of real value to our developer clients in challenging unconscious assumptions they might be making. A diversity of perspective and depth of experience means we can be confident we are lending responsibly and protecting borrowers from future pitfalls.
In style, we are collaborative, particularly in our working relationship with our Originations team. We review opportunities together at the point of enquiry, and we undertake credit assessments very early on in comparison to our peers.
For our developer clients there are multiple benefits: certainty, that if we issue terms, we will deliver; speed, in receiving a fast yes or no, and clarity around rationale, whatever the decision. We’re also proactive and work hard for our clients: that means we go the extra mile helping our borrowers structure their loans for success, and working with colleagues across the business, including our own in-house team of surveyors.
Clear criteria, consistent approach
We have a clear set of criteria that we use consistently to review our borrowers requirements, which includes:
Location: is it a suitable and liquid location for the proposed development?
Experience: does the developer have a solid track record, and crucially do they have experience in the region, and with the asset class in question?
Product: can we be sure that the product is right for the proposed location, and the local market? Is there confidence the completed asset can be sold (or rented) at the forecast pricing levels, and are there sales/rental comparables at that level?  This includes our assessment of the proposed exit route.
Recourse: are we clear on the skin in the game? Is there a Personal Guarantee or Corporate Guarantee, with an appropriate Assets &amp; Liabilities statement to support this in place?
Construction: are we happy that the project’s proposed procurement route is robust and reliable, and are the build costs sensible?
For 2024, we are cautiously optimistic 
There’s no denying that 2023 was a challenging year for the property industry, but for us, it was important we doubled down on commitments around giving our clients certainty, clarity and choice. Doing so meant we were able to come out of the year having continued to support developers in diverse asset classes including PBSA, and care homes as well as our more typical residential developments.  
Looking ahead to 2024, we’re cautiously optimistic. There are some positive indications for the property industry already emerging – inflation has reduced, the previous spike in build costs has flattened off, and we have also seen a reduction in mortgage rates.
In the context of increasing demand for variable rates, we believe we stand out from others in the marketplace in that we are happy to offer variable rates that are linked directly to the Bank of England base rate. Without our own standard-variable rate (SVR), we’re able to offer borrowers immediate transparency and simplicity.
Alongside, our clients tell us that it’s refreshing to work with a lender who sees the value in establishing long term partnerships and who wants to improve borrowers’ experiences around communication and responsiveness.
Our message for 2024 is this: we have a strong appetite to lend, and to work with professional residential developers who have scheme fundamentals in place.

Director of Credit Alan MacLeod discusses Atelier’s approach to risk.

Atelier has completed a £26.2m gross loan to Torsion Group for the development of a PBSA scheme, comprising 196 studios near the University of Warwick.
 
Development Finance Today, Jan 2024
Click <a href="https://developmentfinancetoday.co.uk/article-desc-9928_Torsion%20Group%20secures%20%C2%A326.2m%20PBSA%20loan%20from%20Atelier">here</a> to read the full article.

Torsion Group secures £26.2m PBSA loan from Atelier

Going into 2024, what do astute lenders and developers need to know about the latest data from the Bayes CRE Lending Survey? Chris Gardner, CEO sat down with Dr Nicole Lux, Senior Research Fellow to review the latest data from the survey. They discussed the good opportunities available for developers who have well-structured equity and debt who can launch projects quickly and sell and let into the 2025/2026 market. They also looked at the ongoing transformation of the lending landscape, characterised by the retreat of banks and the emergence of other lenders. She highlights several themes in the latest data:
 
<ul>
<li>Evidence of the ongoing transformation of the lending landscape since the GFC, characterised by the retreat of traditional banks, the emergence of other lenders, and most recently a marked increase in newly launched debt funds joining the survey</li>
</ul>
 
<ul>
<li>A shift away from office and retail to residential and logistics, when it comes to lender priorities, and greater segmentation of property portfolios</li>
</ul>
 
<ul>
<li>Macro forces affecting property, including the environmental agenda and decarbonisation, and cultural change eg demand for flexible work and online shopping</li>
</ul>
 
You can read the full interview <a href="https://media.umbraco.io/atelier/ntfdmc3v/atelier-q-a_final.pdf" title="Atelier Q&amp;A FINAL">here</a>.

Q&A - Chris Gardner & Dr Nicole Lux

The two development loans provide £14.6m to build a new 131-bed home in West Yorkshire and £9.3m for a 60-bed home in Cheshire.
 
Care Home Professional, December 2023
Click <a href="https://www.carehomeprofessional.com/two-care-homes-secure-multi-million-pound-loans-from-atelier/">here</a> to read the full article.

Two care homes secure multi-million-pound loans from Atelier

2023 was certainly no walk in the park. I’ve even heard it described as the most challenging year for the development finance market since the Global Financial Crisis of 07-09. Now, I’m not going to sit here and say all of that turbulence, rising interest rates, wavering house prices, and lenders’ appetite dropping like a stone hasn’t had an effect, of course it has, but - and this is important - within this demanding environment, we’ve also seen real pockets of opportunity, and as far as I’m concerned there is plenty to be optimistic about for the future.
As we turn the corner into 2024, I hope that we’re going to start reaping the benefits of the rebounding development funding pipeline, a flourishing BTR sector and continued demand for higher value residential properties. All things considered; it certainly looks like we can look forward to a more predictable market.
The stage has been set for a very different second act, with some residential forecasts even predicting growth as we enter the second half of 2024. Savills has published a 5-year forecast figure of 17.9% growth for 2024-2028, which comes alongside predictions that mainstream transactional activity will pick up pace from 2024, with mortgaged home movers and first-time buyers expected to re-enter the market. Whilst right now it might feel like we’re still in the thick of it, it looks like we’re beginning to turn the corner.
There’s no doubt the rapid nature of rate increases (13 from February ’22 to August ’23) put downward pressure on the UK economy. For me, Andrew Bailey’s ongoing commitment to the mantra of ‘higher for longer’ is a concern. If rates do not start to come down, growth and investment is going to be harder to foster. The market fall-out in the aftermath of the mini-budget and the revolving door of housing ministers (16 since 2010!) has eroded the relationship between the real estate sector and the Government. All eyes are now on next year’s election and the pledges that will be made to try and win back the favour of the industry.
Many of this year’s key themes and challenges are set to carry over with us to 2024 – here are the key drivers as I see them: 
A squeeze in equity: Over the past year, the rising cost of capital has led to a fall in the volume of lending and lower LTVs. New origination volumes for the first half of the year were down by an average of 22% and international banks saw a 43% decline in origination volume. This departure has created a gap in the market, with retreating investors leaving a dearth of available equity, developers now face real challenges when it comes to filling the top of their capital stack.
In the year ahead, developers will need to be broad-minded in how they build their capital stack. Whilst we have remained steadfast in offering consistent LTV ratios, this is not (and not likely to be) the norm in the market. Despite whatever other lenders might be doing, for the right schemes, we are offering a little extra leverage; doing our bit to bridge the equity gap and keep the market moving.
A new government? The market has factored in a change in government in the new year and from the conversations I’ve had, investors appear comfortable with it. There seems to be a feeling that a change of administration could help unblock the logjam that continues to beset the property development market, which, leaving politics aside, is something that anyone in the property industry should welcome. This hopeful outlook towards a change in administration is markedly different to the view of the market during the elections of 2015 and especially 2019.
Pipeline on a rebound: The BAYES Business School has recently reported that the development funding pipeline has rebounded since 2020’s lows, predicting that it will continue to grow in the coming months, with 20% of new loans originating from financing development projects. From what we’ve seen, residential development financing is being predominantly supplied by UK banks and debt funds, and we expect this to continue in the year ahead.
Regional disparity: For the past few months we’ve seen trackers putting out a variety of predictions for the year ahead, with half anticipating that house prices will rise, whilst the other half forecast a fall. I always caution to be sceptical of their prophecies (and mine!). The ‘property market’ doesn’t exist as a single entity. It is built up of many different sub-markets and regions, which are all in a very different position. Cities such as Birmingham and Manchester have undergone a renaissance in recent years, punch above their weight culturally and will remain hot spots for developers in the years ahead. Ultimately, success will fall to those who take the time to understand what their local market wants. My crystal ball tells me that those who take the time to do this will be rewarded with strong sales activity upon completion and favourable development finance terms.
Transparency: With some lenders retracting from the market, developers are concerned about changing LTV ratios and last-minute decisions on transactions. There has been a paradigm shift in the market, lender transparency is crucial. Certainty of funding and deliverability has a value and in 2024, I can only see that value increasing.
House prices and demand: The housing market is beginning to stabilise (hold for applause) but reports that prices will fall and that transaction levels are still on thin ice will continue to be an ongoing concern for developers. However, it’s important to remember that demand exists for the right product. The housing market is like an eco-system, and like all living organisms, it needs to be healthy with good vital signs, if it is to function for the benefit of everyone. 
Developers who curate their products for particular regions and demographics will put themselves on good footing for the years ahead.
The hardest hit by the ongoing turbulence will be the first-time buyers, who are struggling to get on the ladder. Confidence has evaporated from this part of the market, as a direct consequence of higher interest rates.  We recently estimated that 90,000 new build homes are being left empty across the UK, and it’s clear that under-35s are struggling to bridge the deposit gap and many have no choice but to look at the rental market.  That said, there is no doubt that rising rents will make purchasing look more attractive and the tenure of choice for those who can secure a deposit and mortgage.
The BTR sector is forecast to almost double in total value over the next five years by an additional £55bn*.
England will win the Euros: I’ve given up on making QPR predictions, and with the Republic of Ireland failing to qualify (yet again), I have fresh hopes for the home nations in next year’s Euros. If Wales get through the playoffs, it’s hard to see them progressing from the group stage (sorry). Scotland’s draw is also difficult – Germany in the first game, anyone? Despite that, I think the Scots may surprise a few people. England’s draw was generous to say the least and recent predictions have given them a 36% chance of “bringing it home” – joint favourites with France. It may turn out be an even bolder prediction than QPR returning to the Premier League, but one I’m sticking behind.
*Source: Knight Frank

Forget the credit crunch, it’s the equity crunch we should be talking about

Bruce Robertson, Scottish Lending Manager at Atelier talks to Scottish Business News about how to tackle the housing shortage across Scotland and how to support SME property developers across the country.
 
Scottish Business News, November 2023
Click <a href="https://scottishbusinessnews.net/tackling-scotlands-housing-shortage-key-challenges-to-overcome-in-2024/">here</a> to read the full article.

Tackling Scotland’s housing shortage: key challenges to overcome in 2024

Chris Gardner, Joint CEO at Atelier calls for mortgage lenders to step up and offer 95% loan-to-value mortgages to help tackle the housing crisis. 
 
Property Wire, November 2023
Click <a href="https://www.propertywire.com/adviser-news/buy-to-let/lender-urges-industry-to-bring-95-ltv-lending-back/">here</a> to read the full article.

Lender urges industry to bring 95% LTV lending back

Atelier was founded to provide development finance solutions that SME developers can depend on. As we look to 2024, the development finance market is entering a period of transition. Choice matters more than ever.
<div class="mceNonEditable embeditem" data-embed-url="https://vimeo.com/881669211" data-embed-height="240" data-embed-width="360" data-embed-constrain="true"><iframe src="https://player.vimeo.com/video/881669211?app_id=122963" width="360" height="180" frameborder="0" allow="autoplay; fullscreen; picture-in-picture" title="Offering choice to SME developers"></iframe></div>
It’s our priority to offer SME property developers the right finance solutions – right for the scheme and right for the market. If developers want total certainty, we offer some of the most competitive fixed rates on the market. But, if developers want flexibility, our tracker loans follow the Bank of England base rate. With an Atelier tracker, the minute Bank rate falls, your interest rate reduces too.
Every loan we provide is a partnership between the intermediaries, the developer and us. When we agree the loan, it's really just the start of the project. As interest rates normalise, we’re focusing on choice to help intermediaries and developers make the most of the opportunities that lie ahead, in 2024 and beyond.
Click on the video above to hear our Joint CEO, Chris Gardner on how Atelier is increasing choice to help developers select the finance that’s right for them, right for their scheme and right for the market.

Why choice has never been so important for SME property developers

Chris Gardner, Joint CEO at Atelier, advises Development Finance Today that “The ramifications of the prime minister’s decision will be significant, but they will be felt gradually and unevenly across the property development market.
 
Development Finance Today, October 2023
Click <a href="https://www.developmentfinancetoday.co.uk/article-desc-9723_Property%20development%20market%20faces%20%E2%80%98gradual%20and%20uneven%E2%80%99%20impact%20after%20Sunak%20scraps%20rest%20of%20HS2%20project">here</a> to read the full article.

Property development market faces 'gradual and uneven' impact after Sunak scraps rest of HS2 project

The 27-month facility — agreed at 66% LTV — will be given alongside an investment from Housing Growth Partnership (HGP).
George Seabrook, lending manager at Atelier, commented: “The combination of Stancliffe Homes and HGP is a powerful one — both have an impressive record of delivering attractive, highly saleable homes in this stunning part of the UK.  Our peak debt facility will enable Stancliffe to run sales of completed units alongside the construction of later phases, providing optimum funding efficiency and keeping down finance costs.”
 
Development Finance Today, September 2023
Click <a href="https://www.developmentfinancetoday.co.uk/article-desc-9691_Atelier%20agrees%20%C2%A312.1m%20peak%20debt%20loan%20for%20Stancliffe%20Homes%E2%80%99%20HGP-backed%20scheme%20in%20the%20Peak%20District">here</a> to read the full article.

Atelier agrees £12.1m peak debt loan for Stancliffe Homes' HGP-backed scheme in the Peak District

Selling off-plan has long been a technique favoured by developers. It offers certainty and helps manage cash-flow, allowing them to complete the sale of each unit as soon as it’s ready, making it easier for them to start focusing on their next scheme.
Buying off-plan has been attractive for buyers too, as they get first choice and can often specify the interiors and benefit from off-plan financial incentives.
Selling off-plan has become less fashionable as <a href="https://mr1.homeflow-assets.co.uk/files/site_asset/image/5679/9598/Hamptons_Off-Plan_Sales_Index_-_May_2023.pdf">data from the estate agent Hamptons</a> shows. Selling off-plan has reduced significantly over the last few years – while more than 70% of new homes completed in London in 2016 were sold this way, across England and Wales the figure was 46%, and by 2022 this had declined to barely a third (34%).
During the recent era of low interest rates and steadily rising property values it has made sense for developers to wait until properties are finished before releasing them to the market. Leaving it late to start the sales process increased the developer’s chances of achieving the highest possible price; a gain that would easily cover the cost of a few extra months of interest payments on their development finance facility.
However the rapid rise in interest rates and the cooling of the property market seen over the past year mean it’s time for a rethink.
The market’s shifting dynamics mean homes are taking longer to sell and achieving top prices is becoming harder. In June, the <a href="https://www.rics.org/news-insights/market-surveys/uk-residential-market-survey">RICS Residential Market Survey</a> recorded the lowest level of buyer demand for eight months, with net new buyer enquiries dropping to -45%.
Meanwhile data from Hamptons showed that last month it took the average seller 49 days to accept a buyer offer, making it the slowest July in a decade.
More striking still were the prices achieved. The average home sold in July for nearly £9,000 less than the level achieved last August, according to the latest <a href="https://www.halifax.co.uk/assets/pdf/july-2023-halifax-house-price-index.pdf">Halifax House Price Index</a>.
At the same time, higher interest rates in development finance mean that every month that a completed home sits unsold, developers’ profit margins erode faster.
If we assume that the cost of servicing the debt on an unsold unit has increased by an additional 6% per year, compared with last summer, each month that a £500k home at 70% LTV (i.e. with a debt balance of £350K) sits unsold now equates to an increase from £1,750 per month to £3,500 per month in interest every month.
For a £1m home at 70% LTV, the extra cost of interest has increased from £3,500 a month to £7k per month. These costs come straight off the developer’s bottom line, so in the current slow market the case for selling off-plan is overwhelming.
To maximise their chances of successfully selling off-plan, developers should plan their sales strategy before they even break ground and make sales and marketing an integral part of their development schedule.
If you’re a developer, here are five practical ways to keep your off-plan sales on track and your interest costs down…
Create a product the market wants:
Ensure the specification of your product is in line with what the local market wants and what your target buyers are willing to pay for. There is no point spending additional money on high-end spec if there isn’t the demand for it, and if it won’t add significantly to the sale price you ultimately achieve.
Study comparable schemes closely, and remember your estate agent can be a vital source of intelligence here – they will know the intricacies of the local property market and can help you choose the right pricing and sales strategy to get the right buyers through the door.
Choose your estate agent carefully, and early:
Your estate agent will be the public face of your development, so you must be certain of their ability to make it stand out and attract buyer attention. Engage an agent early and agree a marketing strategy with them.
It pays to start warming up potential buyers as soon as construction starts in earnest – for example by creating a website for the scheme with CGIs, floorplans and details of the specification and by posting time-lapse videos on social media of the build’s progress.
Put up an advertising board outside the site to raise awareness. Think carefully about how long the sales period will need to be – and how you can limit the risk of construction overruns eating into it. Stress-test your build schedule for several delay scenarios, and only agree to a launch / open day date if you are 100% sure you can make it happen. 
Get on the legal front foot:
Make sure the legal paperwork for the properties is prepared well in advance.  With help from a solicitor, decide early how to divide the titles, what each buyer’s deeds will comprise, how any communal areas will be delineated and managed, and so on.
Estate agents need to know these details so they can answer queries from prospective buyers, so ensure your agent is briefed accordingly. In the case of flats, set up a management company and seek your agent’s advice on tenure, lease length and management fees as these details influence each property’s sale price.
The best way to speed up the conveyancing process is to ask your lawyer to pre-empt what buyers’ solicitors might ask. This is likely to involve the creation of buyer packs, which will include answers to all standard legal queries.
Needless to say, you should deal promptly with any outstanding planning or building regs issues to ensure they don’t become banana skins for sales. Above all, ensure you have a draft contract ready to go out as soon as you accept a buyer’s offer.
Showtime:
Complete at least one show home as early as possible. Most prospective buyers find it hard to visit a muddy building site and envisage what the completed units will look like, so having a show home that’s warm and well-dressed makes a huge difference.
Make sure it’s safely accessible and kept spotless to give your estate agent the best chance of turning every viewing into a sale.
While the commission model means the agent’s interests and yours are aligned when it comes to achieving the best possible price for each unit sold, it may also be worth linking the agent’s fee to the speed of the sale to ensure things don’t drag on unnecessarily.
Know your pricing:
After months of planning and construction, it can be easy for developers to fixate on achieving a certain sale price for each unit. The current fragility of buyer demand, however, means developers may have to lower their ambitions.
<a href="https://www.estateagenttoday.co.uk/breaking-news/2023/8/house-price-cuts-hit-their-highest-level-for-nine-years">An analysis by Hamptons</a> of the homes sold in July by 550 estate agent branches across Britain found that 50% of properties had had price reductions.
With price-cutting now so widespread, many buyers have come to expect it. To decide if discounting is right for you, you need to fully understand the cost of your finance – and how much interest you will be paying each month your properties remain unsold.
The question you need to ask yourself is whether you would do better to accept a discount now in order to secure a sale (which will pay down your development loan) rather than keep paying your lender interest in hopes of getting a better price in future.
Know what your bottom line is at all times, and if you feel the market is worsening, discount early to secure sales ahead of your competitors.
Remember also that there are other ways to incentivise buyers. With some would-be purchasers struggling to get a full deposit together, offering to cover their legal fees or even their stamp duty could be more effective than a discount on the headline price.

Five top tips for selling off-plan

Atelier has provided Rengen with £30m of loans to establish purpose-built student accommodation (PBSA) schemes in key university cities.
 
PBSA News, August 2023
Click <a rel="noopener" href="https://pbsanews.co.uk/2023/08/15/atelier-provides-rengen-with-fourth-pbsa-loan-this-year/" target="_blank">here</a> to read the full article.

Atelier provides Rengen with fourth PBSA loan this year

Development lender Atelier has appointed Edinburgh-based Bruce Robertson as lending manager to “play a central role in growing the scale and variety of Atelier’s lending in Scotland”.
 
Real Estate Capital, August 2023
Click <a rel="noopener" href="https://media.umbraco.io/atelier/sxspdka2/atelier-appoints-robertson-for-scotland-push-rei.jpg" target="_blank" title="Atelier Appoints Robertson For Scotland Push REI">here</a> to read more.

Atelier appoints Robertson for Scotland push

Development lender, Atelier, has partnered with renowned software firm, HubSpot, to launch an innovative customer experience platform aimed at streamlining and personalising each borrower’s journey.
 
Fintech Global, July 2023
Click <a href="https://fintech.global/2023/07/13/atelier-collaborates-with-hubspot-to-enhance-lending-customer-experience/">here</a> to read the full article.

Atelier collaborates with HubSpot to enhance lending customer experience

There is evidence that land values are falling and BTR and student accommodation sectors are providing opportunities for SME developers, according to an in-depth report commissioned by development lender Atelier.
 
Development Finance Today, June 2023
Click <a href="https://developmentfinancetoday.co.uk/article-desc-9528_New%20report%20points%20to%20falling%20land%20values,%20with%20BTR%20and%20student%20accommodation%20offering%20big%20opportunities">here</a> to read the full article.

New report points to falling land values, with BTR and student accommodation offering big opportunities

With the property market, site values and the cost of finance all going through a period of transition, SME developers – who together build half of the new homes delivered in Britain each year – are facing both challenges and opportunities.
To help make sense of the market and identify those opportunities, we asked Dr Nicole Lux, Senior Research Fellow at London’s Bayes Business School, to take a deep dive into the mid-size residential development space.
Her findings show that while rising interest rates have increased developers’ borrowing costs, they have also pushed up costs for those holding Real Estate assets, including land, with debt finance.
This marks a fundamental change in the sector. For 12 years following the Financial Crisis, increasing values outpaced financing costs, meaning that holding an asset was neutral and owners were often shielded from ‘normal’ market forces.
But over the past 18 months, the rapid increase in base rate – which in May reached its highest level for nearly 15 years – has led many owners to rethink their strategies, contributing to a surge in the number of motivated sellers and, in some cases, forced sellers.
Our analysis reveals the market is now on the move in response, with an improved balance between buyers and sellers leading to a significant (and long awaited) softening of site values. These movements could be the key to unlocking new opportunities and the delivery of much needed new housing.
The research also identified some marked differences between regional markets.
Data from JLL shows that in the big six UK cities outside London, economic activity, as measured by Gross Value Added (“GVA”) has increased by 22% on average over the past 10 years and similar growth rates are forecast for the next 10 years.
Manchester is expected to enjoy the strongest 10-year growth at 25%, with Bristol and Edinburgh both forecast to see growth top 20%, compared to a national average of 16%.
Meanwhile the constrained supply of new homes due to come to market in 2024 and 2025 is set to support sale values. Development site ‘starts’ were down in all regions in 2022, and as these feed into lower numbers of completions this year and next, prices and rental values could strengthen.
The research also looks at the availability and cost of finance, and the outlook over the short and medium terms.
Together with Dr Lux, we conclude that the fundamentals for residential development remain sound. The UK has an increasing and ageing population, constrained supply and strong end-user and institutional investor interest.
To read Atelier’s full <a rel="noopener" href="https://atelierfinance.co.uk/docs/zuzjxsum/atelier-research-report.pdf" target="_blank" title="Atelier Research Report">report</a> about where the best development opportunities are likely to lie, click the link above.

As land values reset, residential development opportunities are emerging - new Atelier research reveals where

Atelier’s joint CEO Chris Gardner speaks to Deputy Editor Lucy Scott, from Real Estate Capital Europe and identifies the “pinch points” that make it hard for SME developers to obtain finance for modular schemes.
 
Real Estate Capital, April 2023
Click <a href="https://www.recapitalnews.com/atelier-devises-framework-to-solve-pinch-points-of-financing-modular-construction/?utm_source=linkedin&amp;utm_medium=post&amp;utm_campaign=li-atelier-devises-framework-to-solve-pinch-points-of-financing-modular-construction-apr23" data-anchor="?utm_source=linkedin&amp;utm_medium=post&amp;utm_campaign=li-atelier-devises-framework-to-solve-pinch-points-of-financing-modular-construction-apr23">here</a> to read the full article.

Atelier devises framework to solve ‘pinch points’ of financing modular construction

Development lender Atelier has created a clear lending framework for developers building with offsite and modular construction technology.
 
BDC Magazine, April 2023
Click <a href="https://bdcmagazine.com/2023/04/atelier-becomes-first-major-lender-to-launch-framework-to-finance/">here</a> to read the full article.

Atelier becomes first major lender to launch framework to finance housing developments built with offsite and modular technology

Our joint CEO Chris Gardner talks to Bill Lumley in The Banker this week about the increasing appetite of the major banks to digitalise loan drawdowns. 
Click <a rel="noopener" href="https://www.thebanker.com/Transactions-Technology/Technology/Standard-Chartered-joins-lending-digitalisation-trend" target="_blank">here</a> to read the full article

Lending digitisation trend

While there is broad agreement in the real estate sector about the transformative potential of offsite and modular construction techniques, there has long been a tendency to see them as tomorrow’s technology.
For SME developers, these Modern Methods of Construction (MMC) offer significant opportunities – from better build quality and increased sustainability to reduced build time – but they also come with challenges.
Recent research by Savills shows that 7.5% of the new homes delivered in the UK – 15,000 homes a year – are already being built using offsite or modular techniques. That figure is forecast to surge to 20% – 40,000 homes a year – by 2030.
Compared to conventional construction techniques which use widely available materials, MMC supply chains are still maturing, and not all lenders, from development lenders to high street mortgage lenders, are comfortable or adept at funding non-traditional schemes.
Our Offsite and Modular Construction Lending Guide has been produced with the help of more than 30 experts from across the modular and offsite manufacturing community, including real estate professionals and trade bodies such as the NHBC (National House Building Council) and BOPAS (Buildoffsite Property Assurance Scheme).
Chris Hall, Innovation Services Manager at NHBC, said: “The potential benefits of offsite construction are clear; consistent build quality, reduced costs and time on site, and strong sustainability credentials.
“More developers are considering these Modern Methods of Construction, and that’s why Atelier’s lending framework is so timely. By making it easier for residential developers to incorporate offsite technology into their plans, and by providing the finance and support they need to build their schemes successfully, Atelier is addressing market challenges in a clear and concise way.” Terry Mundy, BOPAS Consultant, added: “For all the good work that has gone into raising industry standards in the design, manufacture and installation of offsite construction systems across the UK, one of the challenges that has proven harder to overcome is reassuring lenders to provide finance for such offsite schemes.
“By introducing its offsite and modular construction lending framework, Atelier is now raising the bar in the development finance sector, to facilitate the positive shift towards modular and offsite construction.”
We’ve created a clear lending framework, and published detailed eligibility criteria, that set out how and when we will lend on well-researched, well-costed schemes that use modular and offsite technology.
We’re offering loans ranging from £5m to £40m, at up to 70% LTGDV, to SME developers and intermediaries seeking finance for schemes that meet our eligibility checklist.
Our goal is to be the lender of choice for developers who decide offsite is right for them – a trusted, expert partner who understands the technology and can provide reliable finance, a competitive interest rate and ongoing support, right through to the successful completion of their schemes.

Atelier launches offsite and modular construction lending framework

The timing and manner will have been different for each of us, but 2022 was a year of ‘penny drop’ moments. For some it was the return of war to Europe and inflation’s spike into double digits, for others it was the rapid rise in the Bank of England’s base rate, which in just 12 months has jumped from near zero to its highest level in 14 years.
For the generation of real estate professionals who’ve never known anything other than the era of rock-bottom interest rates – which began as an emergency response to the global recession of 2008-9 and then never ended – this all feels unfamiliar and unsettling.
2023 will be the year that the full impact of these rapid changes is felt. The Bank of England estimates that four million UK households will face a higher monthly mortgage bill next year as a direct result of the jump in interest rates.
For property developers and those of us who provide the finance they need to buy land and build homes, the ripple effects will be more complex and nuanced. They will bring challenges but also great opportunities as capital chases the best quality schemes. Here are the key themes to watch for:
Rates will keep rising, but not as high as feared: Economists continue to debate the nature of Britain’s inflationary problem and how high interest rates will need to go to contain it. But after CPI cooled in November, some are daring to hope that inflation may have peaked. In response, forecasts for the benchmark SONIA rate have been pared back. It’s now predicted to peak at 4.57% in August, which though high by post-2008 standards, would have been unremarkable in the preceding decades.
Nevertheless, for developers looking for certainty of cost, the case for borrowing at a fixed interest rate is compelling. Atelier is committed to providing a comprehensive, and highly competitive, range of finance options, and that’s why we kept all our fixed interest rates unchanged following the base rate rises in both November and December.
Demand for homes will cool: The slowing economy, coupled with reduced affordability and the end of Help to Buy, will squeeze homebuyer demand in 2023. With Savills predicting a 10% fall in house prices over the year, an equally serious concern for developers could be a fall in transactions. First-time-buyers, rightly seen as key to the market, are the most exposed to rising mortgage costs as they have the least equity; if they stay away the whole market could get stickier.
Nevertheless improving value will bring out tactical buyers, so developers who build the right homes in the right locations should do well. Understanding the sort of buyers that an area attracts – and the sort of home they want – will be more vital than ever.
Land values will fall, but not far enough: Higher interest rates, elevated construction costs and softening buyer demand will all squeeze residual values – meaning that many deals that might have looked great six months ago no longer stack up. Land values have begun to cool in response, as landowners have their own ‘penny drop’ moment.
Anecdotal evidence suggests land values in some areas have already dipped by 10%, and this is welcome. But with developers’ profit margins likely to come under sustained pressure over the next 12 months, land values, cost assumptions and project fundamentals will need scrutinising like never before.
Less lending, lower LTVs: The rising cost of capital will make life harder for development lenders who lack a strong liquidity profile and a robust balance sheet. As a result, the market should expect to see a fall in both the volume of lending and in typical LTVs. Many institutional lenders are already adopting a highly cautious approach, limiting themselves to lower LTVs and reining in their lending appetite, while at the other end of the market some family offices have withdrawn from development lending entirely.
A market rationalisation is coming: The BAYS Business School estimates there are currently 400 lenders in the UK real estate market, up from just 180 in 2017. 2023’s challenging environment will not be kind to the poorly capitalised, smaller lenders. Some will become ‘zombies’, nominally open for business but never lending in practice, and others will retract from the market entirely.
Quality will seek quality: Capital will continue to flow into the sector from private equity firms that built up large cash reserves over the past few years and are now seeking longer-term, more stable returns than those offered by equities. As a result, liquidity for the best schemes will remain strong – though it’s likely that lender appetite will focus almost exclusively on top-tier locations. Schemes in secondary and tertiary areas may struggle to get a look in.
Energy efficiency will stay on everyone’s agenda: 2022’s energy crisis has transformed the way the property sector views energy efficiency. Even with the Government’s Energy Price Guarantee, the sheer cost of heating a home means that for many buyers, a high EPC rating has morphed from a ‘nice to have’ into a must-have. On the development front-line, we’ve already seen agile SME developers give themselves a market advantage by adapting to buyers’ increased appetite for ultra-energy-efficient homes.
Atelier is determined to make it easier and cheaper for more developers to build greener homes. That’s why 2023 will see us increase our Carbonlite Challenge lending, which offers a significant interest rebate to developers whose schemes pass a series of rigorous energy-efficiency and sustainability tests.
Queens Park Rangers will win promotion back to the Premier League (eventually): This time last year I boldly predicted that 2022 would see QPR return to English football’s top-flight. That forecast wasn’t so much wrong as premature, with my beloved club still requiring a further period of consolidation and reflection.
As a long-suffering season ticketholder at Loftus Road, I’m fond of quoting John Cleese’s character in the film Clockwise: “It's not the despair. I can take the despair. It's the hope I can't stand.” Argentina fans probably said the same thing after they lost to Saudi Arabia in their first match at this year’s World Cup. And look how that turned out.

Martin’s market musings, 2023 edition - Reckoning or reset?

The era of ultra-low interest rates lasted 14 years but ended in a matter of weeks.  Property developers and their lenders have adapted fast.  In an exclusive interview, Atelier’s Joint CEO Chris Gardner told Real Estate Capital Europe: “Professional developers and intermediaries recognise there is going to be a readjustment as rates rise.”
 
Real Estate Capital Europe, December 2022
Click <a rel="noopener" href="https://www.recapitalnews.com/small-ticket-lending-enters-a-new-era/" target="_blank">here</a> to read the full article

Small-ticket lending enters a new era

Today we’re proud to launch a series of new lending upgrades as part of a strategic plan to grow the scale and the variety of lending across the UK real estate market.
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We have successfully lent £400m since the business launched in January 2020, and currently have £250m of assets under management. With a total lending capacity of £500m, we are raising our maximum loan size to £40m - up from its previous ceiling of £20m.
In addition, we are adding increased flexibility and new options to our offering, including: • An extension of the maximum loan term to three years • The introduction of our first ever variable rate loans linked to base rate. • The introduction of fixed-rate finance at 55% and 60% LTV, whilst maintaining market-leading terms at 65% and 70% LTV.
Graham Emmett, Joint CEO at Atelier, commented:
“Over the past three years, Atelier has cemented its position as an institutional grade lender, delivering £400m of development finance solutions and establishing strong relationships with our valued network of intermediaries and professional SME developers across the UK.
“We’ve done this by assembling an exceptional team of real estate finance professionals, and then investing in both our people and our technology to support high-touch, high-value relationships right across the real estate community.
“While the market is facing mounting headwinds, our strong liquidity profile and intelligent balance sheet management have allowed us to maintain our fixed rate offering at existing pricing, despite the Bank of England’s recent decision to raise base rate. Our appetite to fund well-structured development opportunities remains as keen as ever.”
Chris Gardner, Joint CEO at Atelier, added:
“Atelier’s strong growth is a testament to the skill and dedication of our team, and to the enterprise of our borrowers. We’ve invested in our brand and in understanding what customers want from their development lender of choice – a trusted, expert partner able to provide certain deal execution, a competitive interest rate and ongoing support, right through to the successful completion of their scheme.
“Right from the start, we’ve been determined that our finance should deliver more than just bricks and mortar. That’s why we’ve focused on funding developments that leave a positive legacy for their local community, and why we created the Carbonlite Challenge, our pioneering sustainable finance solution that incentivises developers to build greener, more sustainable homes by offering highly competitive rates of interest.”

Atelier Market Update

As higher material costs settle, it has become clear that is only one part of the story, and for Chris Gardner, joint CEO of the development lender Atelier, not the most important part.  Gardner says: “You can’t manufacture labour, and to my mind the chief inflationary threat now is the rising cost of employing people, rather than materials.”
 
The gathering economic clouds are already beginning to change some lenders’ appetites.  Firstly the lender will be looking hard at the developer’s chosen location for their scheme as part of its due diligence, Gardner says: “If the UK does dip into recession, property prices in some areas may correct – so we’ll want to be certain that a scheme will deliver the right sort of properties in the right area to achieve the best possible sale value.”
 
Bridging Loan Directory 7 Sep 2022
Click <a href="https://bridgingloandirectory.co.uk/features/lenders-tighten-grip-on-developer-costs-squeezed-by-labour-and-materials-spikes/">here</a> to read the full article.

Lenders tighten grip on developer costs squeezed by labour and material spikes

The development finance sector is navigating this volatile market by proactively collaborating with all professional parties and the smartest lenders, intermediaries and developers are thinking more tactically in the way they structure finance facilities, to enable the sector to keep developing and delivering much-needed new homes.
What will be a “perfect storm” for mortgage lenders?
Mortgage Introducer 27 Sep 2022
Click <a href="https://www.mpamag.com/uk/mortgage-types/commercial/what-will-be-a-perfect-storm-for-mortgage-lenders/421862">here</a> to read the full article.

Even in uncertain times, several things hold true. One of them is the power of creativity and collaboration

Atelier wins Editor’s Choice award and is highly commended in the ESG award category, in recognition of pioneering, sustainable residential finance solution, Carbonlite Challenge.
Chris Gardner, Joint CEO comments “This award is a true team achievement, and a testament to the hard work, drive and expertise of everyone at Atelier.
 
B&amp;C Awards 2022: Winners revealed
Bridging and commercial 20 Sep 2022
Click <a href="https://bridgingandcommercial.co.uk/article/18712/bc-awards-2022-winners-revealed">here</a> to read the full article.

Atelier is delighted to have won the Editor’s Choice Award at the 2022 Bridging & Commercial Awards

Top of Liz Truss’s daunting Prime Ministerial in-tray is the energy crisis, and Number 10 is tomorrow due to announce a huge support package to help the millions of households facing an 80% spike in their energy bills next month.
The Government intervention is expected to focus on the energy price cap, which limits the amount energy suppliers can charge customers. From 1st October the cap is currently due to increase dramatically, meaning the typical household’s energy bill would jump from its current level of £1,971 a year to £3,549.
The respected energy consultancy Cornwall Insight predicts that annual bills could soar to £5,386 a year from January, before climbing even higher during 2023.
Such surging energy bills have dominated headlines and concentrated the minds of homebuyers, developers and the development finance community.
“Energy efficiency has been steadily rising up buyer wishlists for a number of years, but the energy crisis has turbocharged its importance,” notes Jonathan Hopper, CEO of Britain’s largest independent buying agent, <a rel="noopener" href="http://www.garrington.co.uk/" target="_blank">Garrington Property Finders</a>.
“For many buyers, particularly downsizers, knowing the ongoing cost of heating a home has become a central part of their decision-making process. So much so that we now frequently receive briefs from clients that specify that the three things they want most from a property are the right location, the right price and the right EPC rating.
“The sheer cost of heating a home means that for certain buyers, energy efficiency has morphed from a ‘nice to have’ into a must-have.”
The issue isn’t just limited to the older generation, who typically spend the most time at home and thus need to keep the heating on for longer. With many professionals now working from home at least part of the week, demand for energy-efficient homes is rising among younger buyers too.
On the development front-line, Atelier has already seen several astute developers give themselves a market advantage by adapting to the increased interest in ultra-energy-efficient homes.
Take for example the scheme of eight townhouses being built by the developer Placemakers London on a brownfield site in Crystal Palace, Southeast London.
Each house uses an energy-saving air-to-water heating system in lieu of a conventional gas boiler. The homes boast the latest insulation technology and are also fitted with solar panels and a rainwater recycling system, which collects runoff from the roof to flush toilets.
For development director Ken Drumm, such energy-efficient design isn’t a novelty or an indulgence – it’s pragmatic “future-proofing” for buyers who want to keep their energy consumption down.
The design, which meets the targets set by the Royal Institute of British Architects’ 2030 Climate Challenge, should ensure each home has an energy running cost 75% lower than that of a similar-sized property fitted with a gas boiler and built to current Building Regulations.
Under the October energy price cap, that efficiency advantage would deliver a saving of £2,660 a year. Under the January price cap forecast, the annual saving versus a conventional home would surge to an incredible £4,040 a year.
Building a home to Placemakers’ high standards, and using the most energy-efficient materials, still costs more than conventional construction. But we are determined to get more such homes built, and that’s why Atelier has launched the <a rel="noopener" href="https://carbonlitechallenge.co.uk/" target="_blank">Carbonlite Challenge</a>, a bold green finance initiative that gives developers a unique choice – the greener your design, the cheaper your property development loan.
Developed with help from the RIBA, Carbonlite loans give a significant interest rebate to developers whose schemes pass a series of rigorous energy-efficiency and sustainability tests. As more buyers demand greener homes, we want to make it easier and cheaper for developers to respond.
We’re encouraging other development finance lenders to follow suit too, so that together we can make it more practical for developers to build many more energy-efficient homes.
Atelier recently formed a Green Finance marketplace with five other development finance lenders and, with support from Development Finance Today, we want to make it much easier for developers to find out about, and access, green finance solutions for their developments.
The existential threat posed by Climate Change meant that building greener homes was the right thing to do even before this year’s energy crisis. That logic is now truer than ever.
With Britain facing the prospect of high energy prices for months or even years to come, the importance of better insulation and energy efficiency is here to stay – and we should all heed the wake-up call of 2022.
The Government’s support package will offer some temporary respite from soaring energy bills, but it shouldn’t distract us from the urgent need to change the way we build homes. The energy crisis can leave a positive legacy if we make it the catalyst for greener development finance and greener, more efficient homes.

Will the energy crisis be a catalyst for greener development?

Many developers rightly regard the sale of the homes they’ve built as their scheme’s crowning achievement.
 
It’s more than just the moment they achieve their return on investment; it’s also the ultimate realisation of their vision.
 
But as recessionary clouds begin to gather, selling homes is taking longer. New research shows that in the six months to July, the average time taken to complete a sale was 153 days – more than five months – compared to the average of 124 days taken before the pandemic.
 
In large part this is due to bottlenecks among conveyancing solicitors, who have been swamped with demand for their services during the post-pandemic property boom. In recent months the gradually slowing property market may also have made it take longer to agree a sale in the first place.
 
Those developing new-build homes can speed the process by proactively planning their sales strategy and making sales an integral part of the development schedule.  Here are the five key steps developers should take to ensure sales are achieved as quickly and successfully as possible.
 
<h4>Get the sales schedule right:</h4>
 
Once building work begins, developers can become so focused on dealing with construction issues that they put their sales plan on the back burner.
 
But failing to sort your sales strategy until the start of the sales period is a mistake. Engage an estate agent early to help you plan, and remember that it pays to start warming up potential buyers early – for example by creating a simple website for the scheme with CGIs and details of your plans, and by posting time-lapse videos of the construction on social media.
 
Equally you should think carefully about how long the sales period will need to be, and how you can limit the risk of construction overruns eating into it. Stress-test your build schedule for several delay scenarios, to ensure you are left with sufficient time to achieve the sales targets you’ve set.
 
<h4>Showtime:</h4>
 
Complete at least one show home early. Most people find it hard to visit a muddy building site and envisage what the completed units will look like, and showing prospective buyers around too soon risks putting them off.
 
Whereas it was once common for SME developers to leave just a couple of months between the completion of the first home and the rest of the scheme, in the current market this is unlikely to suffice. To have a serious chance of selling off-plan, you will need to be able to show buyers around a show home well ahead of practical completion.
 
Don’t go too far the other way either, and avoid the temptation of finishing the development fully before marketing it. Some developers insist that for properties to sell at the highest price, they need to be totally completed and dressed. While this may be true in some cases, the additional interest costs incurred may wipe out any price premium achieved.
 
<h4>Get on the legal front foot:</h4>
 
Registering legal titles currently takes longer than usual, so this process should be started early. Developers need to think right at the start not just how to cut up plots, but also about what each buyer’s deeds will comprise, how any communal areas will be delineated and managed, and so on.
 
In practice this may mean engaging your solicitor earlier than envisaged, but this expense could yield dividends if it speeds the sale process. Estate agents like to know this sort of detail so they can answer queries from prospective buyers, so ensure your agent is briefed accordingly.
 
The best way to speed up the conveyancing process is to ask your lawyer to pre-empt what buyers’ solicitors will ask. This is likely to involve the creation of buyer packs, which will include answers to all standard legal queries.
 
Needless to say, developers should also deal promptly with any outstanding planning or building regs issues to ensure they don’t become banana skins for sales.
 
<h4>Listen to and motivate your estate agent:</h4>
 
Nurturing the relationship with your estate agent is crucial. Their expertise is often invaluable, as they will know the intricacies of the local property market and will be able to help you choose the right pricing and sales strategy to get the right buyers through the door.
 
You should ask the agent to take an active role in your marketing strategy, and request a detailed plan from them that sets out how and when they will sell off-plan.
 
While the commission model means your interests are aligned when it comes to achieving the best possible price for each unit sold, it may also be worth linking the agent’s fee to the speed of the sale to ensure things don’t drag on unnecessarily.
 
<h4>Lean into your lender:</h4>
 
When agreeing your development finance at the start of a scheme, be realistic about the repayment period you will need. The loan term should include a sufficient period for the marketing and sale of the properties you’re building, plus a sensible margin to cover unexpected delays.
 
Once construction begins, try not to lose sight of the sales period and its importance. Keep one eye on market conditions and keep asking yourself if the sales period you’ve allowed will be sufficient.
 
As you draw down on your facility, keep talking to your lender. If construction runs slow and the project schedule begins eating into its safety buffer, the sooner you flag these issues to your lender, the better.
 
It may be possible to negotiate an extension to your existing facility, or refinance out once the original term is complete, but you’re likely to have more options the earlier you discuss them.
 
Supply chain issues mean that some delays in construction may be unavoidable. But several of the issues most commonly responsible for holding up the sales process can be avoided.
 
Such delays cost developers money, both in terms of the opportunity cost of unsold assets as well as extra interest and fees incurred on their finance.
 
At Atelier we pride ourselves on the strength of the partnerships we form with developers, and on our ability to provide more than just finance.
 
That’s why our in-house team of surveyors and finance experts work with all our borrowers throughout the drawdown process, providing support and guidance to ensure both the construction and sale of their scheme go smoothly.
 
We’re committed to helping property professionals realise development opportunities, supporting their vision right from the design and build phases through to a successful sale.

The need for speed

It’s tempting to assume that something only exists when there’s a name for it.
 
For years, many people have periodically worked at home without calling it anything other than ‘work’. But months of lockdown living forced millions of us to perform our jobs entirely from home for the first time, and ‘working from home’ entered the collective consciousness as a universal, if not entirely new, phenomenon.
 
Now with lockdown restrictions firmly behind us, the pandemic has fundamentally altered many people’s work and commuting patterns – and millions of Britons are still working from home at least some of the time.
 
<a href="https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/articles/ishybridworkingheretostay/2022-05-23">This week the Office for National Statistics reported</a> that at the start of May, 38% of workers across the UK had worked from home at some point over the previous week. One in seven were working exclusively from home, and a quarter were ‘hybrid working’ – splitting their work time between home and a workplace.
 
The ONS found that 84% of those who had to work from home during lockdown now plan to split their time between working from home and their place of work, and 8% told ONS researchers that they plan to return to their former place of work permanently. How this plays out as life returns to normal remains to be seen but the statistics from the ONS are unambiguous.
 
This does not mean the days of the traditional workplace are numbered. Thousands of people have jobs that cannot be done from home, and will continue to travel to work every day.
 
Given the evident popularity of hybrid working among employees, and the tightness of the labour market, some employers are offering working from home as a way to attract recruits.
 
Nearly a quarter (23%) of businesses told the ONS that they are already using, or intend to use, homeworking as a permanent part of their business model.
 
In other words for now, hybrid working is here to stay for a sizeable part of the workforce.
 
That’s why the shift in what many people want from a home is also here to stay.
 
This trend has important implications for property developers. Those who capitalise on it best stand to gain a considerable advantage in the current market.
 
<h2>A laptop perched on the kitchen table no longer cuts it</h2>
 
Among the professionals who are able to do their job from home, there’s a growing distinction between ‘working from home’ and ‘working at home’.
 
Working in the home for extended periods is now a choice rather than a lockdown requirement. Those doing so are no longer willing to perch their work on the kitchen table, and are instead seeking ways to create a dedicated workspace at home.
 
The most astute property developers have already identified this trend, and are adjusting their designs accordingly.
 
In houses, this often means open plan living – with a designated workspace now seen as being as important as a light and airy kitchen at the heart of the home.
 
Outside space has long been high up many buyers’ wishlists, but it soared in popularity during lockdown – when it provided a respite for those unable to leave their home. Thoughtful developers are now making the garden part of the living and working space.
 
It’s often smaller developers, rather than the national housebuilders, who are the most agile when it comes to responding to changing buyer tastes.
 
An impressive example of this responsiveness in action is an Atelier-financed scheme of eight townhouses that the developer Placemakers London is currently building on a brownfield site in Crystal Palace, Southeast London (pictured above).
 
The development has been designed with future living and working in mind. Each home has a carport fitted with an Electric Vehicle charging point, and uses an energy-saving air-to-water heating system in lieu of a conventional gas boiler. The homes are also fitted with solar panels and a rainwater recycling system, which collects runoff from the roof to flush toilets.
 
Coupled with the latest insulation technology, such features will make the £7.5m development 40% more energy efficient than current Building Regulations require. For development director Ken Drumm, such touches aren’t novelties, they’re pragmatic “future-proofing” for buyers who are likely to be working from home at least some of the time, and thus keen to keep their energy consumption down.
 
Little touches can make a big difference too. The designers didn’t just incorporate a workspace in each property – they also thought about how to make the backdrop look as attractive as possible for future owners’ video calls.
 
<h2>90 is the new 60</h2>
 
The popularity of hybrid working is likely to continue the redrawing of the property map.
 
While those working entirely from home can in theory live anywhere, hybrid workers will still want to be within commuting distance of their workplace. For them it’s a case of extending, rather than cutting, the cord.
 
But people’s view of what is a reasonable journey to work will vary depending on how many days a week they have to go in.
 
Workers who once drew the line at a 60-minute daily commute might be willing to travel for 90 minutes each way if they’re now only travelling in three days a week.
 
Developers researching potential sites therefore need to bear in mind how the ‘catchment area’ of potential buyers will have shifted with the rise of hybrid working.
 
Homes built on sites that were once deemed too far from a major city to be commutable, and thus saw discounted land values, may now be able to command a hybrid commuter premium.
 
It’s worth remembering that hybrid workers are likely to be professionals, and thus wealthier than the average buyer. The ONS data shows that 61% of workers who earn more than £40,000 were either hybrid working, or working entirely from home, at the start of May.
 
For property developers, this leads to two striking conclusions. Firstly, hybrid workers are a wealthy, and growing, buyer demographic. And crucially, their new working patterns mean that homes built on cheaper sites, further out from major cities, can appeal to them just as much as those built in traditional, more expensive, commuter hotspots.
 
<h2>Hybrid homes for hybrid workers</h2>
 
Deciding whether the shift to hybrid working is permanent or cyclical is a question that remains to be answered.
 
The question for those of us who aim to develop and finance homes that people want to buy is different; what does the rise of hybrid working mean for buyer priorities when it comes to property design and location?
 
The current market is beset with uncertainty – from land values to material costs and availability – but one thing is clear: there is a sizeable number of buyers who want a home where they can work some of the time and commute from the rest of the week.
 
Pandemic-era predictions of a boom in demand for remote farmhouses in rural idylls where professionals can homework forever now look hopelessly out of date.
 
But opportunities abound for developers willing to build hybrid homes for hybrid workers. Even in a frothy and increasingly fragile market, homes that offer a winning combination of ‘homeworkability’ and commutability are likely to command strong values.

For Housebuilders, Homeworking is a Development Opportunity

The latest official data on the construction industry gives a perfect illustration of how finely balanced things are for property developers right now.
On the plus side, there is still plenty of momentum. While the UK economy as a whole contracted in March, construction grew by 1.7% to become the only industrial sector to still be expanding. The fifth consecutive month of growth took construction output in March to £15bn, the highest monthly figure on record.
But despite this strength, the headwinds are picking up. With the prices of building materials, labour and transport costs all soaring, the annual rate of construction output price inflation hit 7.3% in March, its highest level since records began.
Meanwhile the war in Ukraine and UK sanctions on Russia have disrupted the supply of key building materials including steel and timber. As a result, property developers are grappling not just with rising prices but also the threat of long and costly delays.
And yet house prices continue to rise and demand for new homes remains robust – so there are opportunities aplenty for astute and agile developers. But success in the current market requires the right finance, and above all, the right finance partner.
Development lenders rightly ask searching questions of would-be borrowers. Here’s a simple guide to how best to answer them right now:
 
<h2>1. Construction cost</h2>
Seldom has it been more vital – and more difficult – to give an accurate figure for how much a project will cost to build. Inflationary pressure remains very high for many key materials, transport and labour costs, but a detailed development appraisal should bring as much certainty as possible, by setting out which costs are fixed and which are liable to increase.
Clearly the more costs that can be fixed, the better. For works packages that have already been tendered, it should be made clear how long the chosen contractor’s quote is valid for.
Top tip: Even the most detailed cost schedule is at risk of slippage in the current inflationary environment. Developers should repeatedly ‘stress test’ their forecasts and allow sufficient headroom for a range of unexpected cost increases.
 
<h2>2. Track record</h2>
Whether the developer opts for design and build, or plans to lead the procurement process themself, the construction phase of a scheme is only as good as its supply chain.
That’s why when we assess a development’s prospects, we study not just the developer’s track record, but that of their chosen contractors too. We’re looking for evidence that suppliers have relevant experience and expertise, are in sound financial health, and if they have an established relationship with the developer.
Top tip: Contractors who’ve proved themselves to be dependable are worth their weight in gold, and many developers form strong bonds with suppliers they’ve worked with previously. Having a reliable supply chain in place for your project is an asset that will significantly boost your chances of securing finance. Think about how you can document this and demonstrate it to the lender.
 
<h2>3. Programme precision</h2>
Time is always money, but especially so in a complex, sequential building programme where the delay of one element can upend the scheduling of many subsequent steps.
Even in a benign market, a good programme will factor in not just the construction works, but also any enabling works, the likelihood of delays (for example extended delivery times for materials, or congestion in the planning system) and a sensible sales period.
In the current market, in which high demand and constrained supply are combining to cause lengthy delays as materials increasingly come from alternative but faraway sources, knowing the origin of key materials is vital.
Top tip: The financial implications of a project overrun may vary according to both the length of the delay, and its cause. Developers should familiarise themselves with the delay clauses in their construction contracts, and check their lender’s Terms and Conditions, to understand how a delay would impact them.
 
<h2>4. Exit</h2>
Whatever type of finance is being sought, this is the most perennial of lender questions. Whichever exit route is chosen, be it a plan to refinance at the end of a bridging loan term, or the sale of completed properties, the proposed exit must be realistic and achievable, not just in today’s market, but also in the market expected at the time of sale.
Top tip: The more detail developers can give about the local property market dynamics, and their intended marketing strategy, the better. This should go beyond the proposed sales price of each unit, to include how and when off-plan sales will start, and which agent will be instructed. Evidence of a well-researched contingency plan that can be activated if the market turns significantly is also welcome.
 
<h2>5. Finally, finance</h2>
It isn’t widely recognised that lenders all have different lending appetites. In practice this means a developer’s application may tick all the boxes for one lender and none for another. Of course, rates and costs are important, but working with a lender who really likes your scheme is important, as you’ll be in partnership with them for a couple of years.
Nowhere is Atelier’s commitment to partnership more evident than in our attitude to the drawdown schedule. We believe drawdown works best when lender and borrower agree it together.
So when we’re forging a partnership with a new developer, our team of expert surveyors will work through the programme to agree when and how funds will be released.
Top tip: Remember the total cost of finance may be considerably more than the interest. Borrowers should read the Terms &amp; Conditions of their facility closely and consider how a project delay, or a missed repayment, would impact them.
 
Strong partnerships are built on transparency and trust. The benefits flow both ways and so do the responsibilities. While the lending criteria of different lenders will vary, all have one thing in common – a desire to lend.
The best deals are struck when the interests of both sides align. Yes, would-be borrowers will need to satisfy the lender’s requirements. But developers should also use their judgment and instinct; if they can’t see a prospective lender becoming their partner, they should get their finance elsewhere.

Five Steps to Finance – How to get your lender onboard with your development

The best development deals are never just a financial transaction. They should be a partnership between broker, borrower and lender.
And that partnership is never more vital than when the market is going through a period of strong potential but rapid change, like it is right now.
Of all the gravity-defying data points from the latest Land Registry data, to my mind the most striking is this – in February the average UK home was worth £27,000 more than it was a year ago.
When the average home is ‘earning’ more in a year than the average worker takes home in pay, you don’t need an economist to tell you that property prices have decoupled from economic reality.
House prices can only outstrip earnings for so long before there’s a reality check. Add in the cost of living crisis, which is slicing into people’s disposable income and leaving buyers with less to spend on a home, and the current pace of price growth – and by extension, Gross Development Values – starts to look unsustainable.
 
After the Great Relocation, the Great Readjustment
The estate agent Knight Frank predicts that house price inflation will slow to 5% in 2022. That’s well under half what it was in the 12 months to the end of February.
And while few doubt that a slowdown is coming, in my view the brakes will be applied unevenly depending on location and property type.
New builds are likely to hold up better than existing stock, but dig deeper and things are likely to diverge a lot. For instance, town centre developments and those with post-pandemic must-haves like open-plan living and outdoor space will do far better than shoebox-style out of town schemes. 
At Atelier we’re watching the evolution of Gross Development Values closely, as homebuyers’ tastes evolve. Increasingly the rule of thumb for identifying a new development’s buyer appeal won’t just be ‘location, location, location’ but also ‘product, product, product’.
For now though, all this uncertainty means projecting an accurate GDV is harder than ever.
The double-digit surge in house prices over the past year has been both impressive and dizzying. So while buyer demand remains strong and there are some compelling development opportunities out there, developers need to be wary of making the same sort of optimistic sale price predictions they could at the start of 2022.
 
The other moving target
Get your boots muddy on any construction site and you’ll hear one thing amid the din of machinery – the punishing pace of material price rises.
Build costs enjoyed the briefest of respites at the start of 2022, but Russia’s invasion of Ukraine has turned back the clock.
Both countries were previously major steel exporters, and the conflict’s economic fallout has impacted the global supply of structural steel and sent prices soaring.
Meanwhile the surge in energy prices is making energy-intensive materials like concrete and glass dramatically more expensive to produce. Add in record high fuel prices that make transporting everything more costly, and the danger to developers is clear.
Price pressures are now so severe that some developers aren’t just looking at squeezed margins. In the space of a few weeks, surging build costs can turn a viable scheme into a loss-maker.
In March we teamed up with Paragon Building Consultancy to poll more than 100 developers and surveyors about <a href="https://acp.co.uk/news/record-fuel-prices-are-fastest-growing-concern-for-property-developers-as-a-third-see-projects-put-on-ice-amid-cost-inflation">how these pressures are playing out on the construction front line</a>. An alarmingly high proportion – almost a third – had seen projects put on hold over the past 12 months as a direct result of build cost volatility.
  
‘You make your money on the way in’
The current perfect storm of cost pressures might be new, but the wisdom of the old property developer’s adage is as true as ever.
When you’ve got such extreme volatility in both GDV and input costs, developers’ plans need thorough scrutiny right from the start.
Responsible lenders and brokers need to work together, asking searching questions about the land value, whether a scheme can truly be built for what the developer has budgeted, and, when complete, whether it’ll be worth what they predict.
I’ve worked with some superb brokers over the years, and it’s at times like these that they come into their own.
The best are fastidious and fearless in equal measure. They’re willing to roll up their sleeves and delve into the numbers, and they’re unafraid of the difficult conversations, highlighting the hurdles, mitigating the risks, and refusing to tell would-be borrowers only what they want to hear.
For our part, we take a similar approach at Atelier. Our in-house monitors will pore over every decimal place in the costings, but we move quickly and decisively to offer finance when we see a well-planned, well-costed and saleable scheme.
Above all, we never treat a prospective deal as just a transaction. We see it as an ongoing partnership between broker, borrower and Atelier. That’s why Atelier clients have direct access to the lending decision-maker during the application phase, and to an experienced loan manager during drawdown.
 
Simple and certain, right from the start
Amid the fog of uncertainty around GDV, build costs and developer margins, there’s one variable that can be controlled – the cost of finance.
Developers with fewer grey hairs than me may never have worked in an era of sharply rising interest rates. The Bank of England base rate has been below 1% for more than 13 years, but in historical terms this is an anomaly.
With consumer inflation already at 7%, and set to climb higher, the Bank is widely expected to push up interest rates further to put a lid on rising prices. To give you an idea how far and how fast rates might rise, the last time inflation was this bad, in 1992, they stood at 10%.
For much of the past decade, brokers and developers might have been forgiven for taking a punt on interest rates. But failing to fix your interest rate in the current market is an unnecessary risk.
At Atelier, we believe the solution is obvious: we’ve been making the case for fixing interest rates since our inception. That’s why all our loans don’t just offer highly competitive rates of interest; our rates are always fixed for the full term too.
In the past month, we’ve noticed others are spreading the gospel too.
More and more brokers I speak to have come around to the idea, knowing that while they can’t wave a magic wand at inflation, they can at least offer developers certainty over one thing – their borrowing costs.
In fact, right now borrowing costs may be the only thing developers can control.
There’s still huge momentum, and great opportunities to be had, in the market. But with both the GDV and build cost sands shifting, projects need to get off on the right foot – with certainty over their finance costs.
Go fixed and you’ll go far.

The power of partnership - how to turn a good deal into a great one

<ul>
<li>Spike in fuel prices triggered by the war in Ukraine is the fastest rising worry for property developers, new research by the lender Atelier and Paragon Building Consultancy reveals</li>
<li>Chronic shortage of skilled workers and long delivery times top the real estate sector’s list of growing pains, as a third of industry leaders report that budget uncertainty has led to projects being put on hold during the past 12 months</li>
<li>Nine out of 10 say labour costs are still rising, with a quarter seeing wages soar by at least 15% in the past year</li>
<li>“Emboldened” builders are reluctant to shoulder inflation risk, with 74% no more willing to bid for fixed price contracts than they were pre-Covid</li>
</ul>
London, 21st March 2022 — Record fuel prices and the prospect of further interest rate rises are the fastest growing concerns for the UK’s real estate sector, research by the development lender <a href="http://www.acp.co.uk/">Atelier</a>, together with Paragon Building Consultancy, has revealed. 
In a survey of more than 100 developers and surveyors from across the industry, 93% said they are increasingly concerned by the spike in fuel prices unleashed by the war in Ukraine. The average price of a litre of diesel <a href="https://www.bbc.co.uk/news/business-60763742">hit £1.76 in mid-March</a>, a record high.
Respondents’ long-term concerns were dominated by the shortage of skilled construction workers and the long wait times for building materials. While 78% said that six months ago their greatest concern was Covid-19, anxiety about the pandemic has now all but disappeared – with just 9% listing it among their top three worries.
There was some good news on the cost inflation front too; while half of those polled said that building material costs spiralled by 15% or more over the past year, nearly a fifth (19%) reported that material prices have now stabilised or even started to fall. However, the respite may be short-lived – figures from the Bank of England show global metals prices have jumped 15% since February, and this is likely to push up building material costs sharply in coming months.1
Meanwhile the inflationary storm continues to rage when it comes to labour, with nine out of 10 (89%) saying that construction wage costs are still rising. A quarter (25%) of those polled said wage bills rose by at least 15% in the past 12 months, with one in 40 seeing wages spike by over 20% in a year.
These inflationary pressures come as the construction industry booms. ONS data shows that construction output expanded by 3% in the three months to the end of January, three times faster than services, the next fastest growing sector of the economy.2
Despite this progress, cost uncertainty is acting as a brake on development. A third (32%) of the industry leaders polled by Atelier and Paragon said they had seen multiple projects put on hold over the past 12 months as a direct result of build cost volatility.
The prospect of further inflationary pressure as fuel prices soar, and raw material imports from both Russia and Ukraine cease, is weighing heavily on developers’ cost planning. Nearly a third (31%) of those polled are currently allowing a contingency of 10% or more for a standard residential development worth £3m – double the 5% margin typically budgeted for.
In an effort to insulate themselves from cost escalation, over two thirds (68%) of developers are now more likely to ask tendering contractors to bid for work on a fixed price basis than they were before the pandemic. But the survey found few contractors are willing to oblige – three quarters (74%) are no more likely to bid for a fixed price contract than they were two years ago.
Rebecca Nutt, Director of Portfolio Management at Atelier, commented:
“Residential real estate is buoyant but the waves of inflation keep coming, and unwary developers risk being swept onto the rocks of surging build costs and project delays.
“To be successful in today’s market, you don’t just need a watertight development plan but also the courage, skill and contacts to change it at short notice without losing momentum.
“At Atelier we’re acutely aware of the cost pressures our customers face, and that’s why we provide each one with access to our team of in-house construction and finance professionals – who can quickly assist if unforeseen events force the project to change tack.
“We’ve always seen our role to be about more than just providing finance to borrowers. Atelier is always a partner, not just a lender, to the developers we work with – from the planning phase right through to project completion.”
Robert Kendall, Director at Paragon Building Consultancy, added:
“While material cost inflation eased off at the start of 2022, our research suggests the respite is likely to be brief. The supply chain stepped up well to the surge in developer demand as the pandemic eased, but the spike in fuel and raw material prices triggered by the war in Ukraine means that cost pressures are once again likely to eat into developers’ bottom lines this year.
“Those pressures are being felt most keenly by smaller developers, who have less purchasing power and limited leverage when it comes to persuading newly emboldened contractors to share the cost risk, and work on a fixed price basis. With the Bank of England widely expected to increase interest rates further in 2022, the fixed rate finance and expert support offered by Atelier provide vital certainty for developers in an exciting but testing market.”

Record fuel prices are fastest growing concern for property developers as a third see projects put on ice amid cost inflation

We need to talk about Carbon. Fortunately, policymakers and forward-thinking players in the property sector already are. And the focus is shifting to whole-life carbon - not just the emissions released by a building's operation, but also the carbon embedded in its construction.
 It's an issue we at Atelier are tackling head on with our Carbonlite Challenge, developed with the help of the RIBA. And as this piece by the Financial Times's Angus Peters reveals, legislation could be coming soon too.
UK looks to regulate embodied carbon in real estate
FT Sustainable Views, 3rd February 2022
Click <a rel="noopener" href="https://www.esg-specialist.com/uk-looks-to-regulate-embodied-carbon-in-real-estate/" target="_blank">here</a> to read the full article

Is embodied carbon about to be enshrined in law?

<h3>Foreword</h3>
Graham Emmett, co-founder of Atelier
The start of a new calendar year naturally leads to forecasts about what might be in store for our housing market.
After a tumultuous 2021, there is much to ponder: how high might interest rates go? Where are property prices headed after a record year? How might further Covid waves affect economic activity?
UK house prices soared by a tenth in 2021, according to the Halifax, with the average home ‘earning’ more than many Britons, with a £24,500 increase in value over the year.
Behind the headline figures, much has been made of the gulf between price rises in London and the regions. The capital’s relative sluggishness, and the widespread shift to remote working, have led some excitable commentators to predict that an exodus of professional workers from urban to rural areas will ultimately squeeze the life out of our most vibrant cities.
Our assessment at Atelier, is that these would-be obituary writers are jumping the gun, a view supported by new analysis by our Consultant Economist, Bob Pannell.
Bob’s latest report suggests that the ‘race for space’ in more rural locations is already losing steam, and we are now seeing the first patches of blue sky for the capital’s sales and rental markets. In many ways, this reversal makes a lot of sense.
Even with the rise of people working from home, the economic benefits of agglomeration remain strong, and replicating them remotely will never be an easy task.
Of course, it’s impossible to know with certainty what lies around the corner, but we anticipate the capital and other major metropolitan centres will strengthen throughout 2022 and beyond, subject to the usual caveats surrounding fresh variants of Covid.
If there is one thing we have learned from our economic history, it is that our cities are always evolving. And while our capital has suffered many setbacks in the past, it has always rebounded more strongly than before.
In that respect at least, we expect the future to be no different.

The Covid city exodus: Reality, reversal or urban myth?

After a rollercoaster 2021, which started with a national lockdown and then saw a boom in both construction and the demand for development finance, Britain’s real estate market shouldn’t expect a quiet 2022. Here Atelier’s Director of Origination Martin Gilsenan lays out his predictions for the New Year.
The only way is up (for interest rates): After several delays, the Bank of England finally pressed the button on an interest rate rise just before Christmas. While December’s change to the base rate was the first increase seen since 2018, it's certain to not be the last. With consumer inflation now predicted to hit 6% - three times higher than the Bank’s target - by early 2022, the ratesetters surely won’t stop there. City forecasters expect interest rates to rise by at least 1% over the coming year. For developers looking for certainty of cost, the case for borrowing at a fixed interest rate is now overwhelming. Those who choose a variable rate loan risk being hostages to fortune, as increasing borrowing costs eat into their bottom line even as they draw down funds.
Property price growth will soften: We saw extraordinary upward pressure on house prices in 2021, fuelled by ultra-low mortgage rates, the prolonged Stamp Duty holiday and buyers’ desire for greater space. With the Chancellor’s tax incentive now gone, the pandemic’s resurgence has led transaction levels to slow in recent weeks - though the chronic imbalance in supply and demand means average prices are still up by double digit percentages compared to this time last year. Yet the spectre of further lockdowns and the flood of new listings typically seen at the start of the New Year should cool the pace of price growth in coming months.
The development sector will continue to experience strong growth: Most developers have a healthy pipeline and sentiment is upbeat. Notwithstanding the challenges above, 2022 should see further strong growth, helped in part by the new Affordable Homes Programme and continuing investment in Build to Rent (BtR) schemes. Demand for bigger homes with more outdoor space remains robust, even though transaction levels have dipped following the end of the Stamp Duty holiday. Looking ahead, a successful roll-out of the Government’s booster jab programme will be crucial to underpin what has thus far been a broad-based economic recovery.
New capital will continue to flow into the market: Capital will continue to pour into the development finance sector, and this will keep loan pricing down as lenders with rigid funding lines compete for volumes. Many financial institutions became highly risk averse during the early stages of the pandemic, opting to build up large cash reserves instead. Their risk appetite has since roared back as the UK successfully rolled out its Covid-19 vaccination programme. Despite short-term concerns about the Omicron variant, many global financial institutions still have vast sums of capital to deploy and view the UK as an attractive place in which to do so.
Developers who go green will increasingly be rewarded with the best interest rates: Atelier’s <a href="http://www.carbonlitechallenge.co.uk/">Carbonlite Challenge</a> might be a pilot programme, but it’s also a trailblazer that other lenders are sure to follow. Developed with support from the Royal Institute of British Architects (RIBA), Carbonlite throws down a gauntlet to developers – the more sustainable your project, the cheaper your finance. It uses the power of global capital to drive down the cost of building sustainably, rewarding green developers with rebates that bring the net annual cost of their borrowing down as low as 4.99%. Other lenders are scrambling to follow suit.
There will be fewer development sites available: The availability of land is likely to remain low in the markets where demand is highest. A toxic combination of landowners holding out for unrealistic values for development sites, and rising construction and finance costs in the face of slowing property price growth, will make some developments economically unviable. Planning permission remains problematic, and the Government’s recent U-turn on its efforts to streamline things hasn’t helped matters.
Residual values will come under pressure: Increased finance costs and spiralling construction costs will no longer be neutralised by relentlessly rising GDVs. Something must give, and it will likely be residual values. As profit margins are squeezed, cost assumptions and project fundamentals will be under the microscope like never before.
The music will stop on ‘pass the parcel’ bridging loans: Rising interest rates, spiralling construction costs and more lenders stretching to 85% LTV bridging loans will leave some borrowers unable to exit. Defaults, LPA and loss of C&amp;I will follow.
Queens Park Rangers will win promotion back to the Premier League: QPR last won the Championship play-off final in 2014. The residential property market was booming back then as well, and with the current season off to a solid start, the omens for 2022 are good.

Mystic Martin's Predictions for 2022

An unpleasant surprise may be coming for Britain’s property developers. If predictions are correct and the Bank of England base rate climbs by 1% over the next 12 months, a developer borrowing £10 million on a typical two-year variable rate could see their borrowing costs soar by £100,000 - a hit that will come straight out of their bottom line.
The decisions of the Bank’s Monetary Policy Committee seldom keep anyone but the most dedicated macroeconomic wonks awake at night. And in truth, an increase in the Bank’s base rate from its current, 300-year low, won’t immediately impact many homeowners - as the majority of those with a mortgage are on a fixed rate.
Nevertheless the debate about interest rates has shone a welcome light on an important, but often overlooked, corner of the property finance market - the rates on development loans.
While few homebuyers would dream of borrowing £250,000 from a high street mortgage lender without asking if the interest rate was fixed or variable, the same question is seldom posed by developers seeking a loan of tens of millions.
That’s not just irony. It’s verging on insanity.
Unlike the residential mortgage market, where three quarters of homeowners have insulated themselves with a fixed rate deal, the vast majority of professional developers borrowing to fund a land purchase or construction costs are currently on a variable rate.
Despite repeated hints from Threadneedle Street that the Bank plans to raise the base rate in an effort to tame surging inflation, many developers who have grown their portfolios with the help of years of cheap debt have yet to wake up to what interest rate volatility might mean for them.
The knock-on effect of all this is that development lenders may see their borrowers’ shrinking profit margins as a reason to take a more risk averse approach, meaning developers may soon face the double-whammy of having to put more money into each deal while simultaneously seeing their profits eroded.
It doesn’t have to be like this. Amid soaring input cost pressures and supply chain disruptions, the case for borrowers to fix their interest rate has never been more persuasive.
At Atelier we can offer the certainty of a fixed interest rate to all our borrowers, thanks to the funding that underpins us. Lending is all we do and we are extremely well capitalised.
By contrast, institutions whose lending is funded by savers’ deposits are likely to have to increase their interest rates once the Bank finally takes the plunge and starts raising base rate.
Their variable interest rates are often euphemistically described as an “all-in rate”. This is code for a lender margin tacked onto a benchmark, typically the BoE base rate or Libor. As the benchmark rate rises, so too will the borrower’s interest payments.
Such loans are all well and good in a benign interest rate environment. And for more than a decade - ever since the Global Recession of 2008 and 2009 - that’s what we’ve had.
In fact, interest rates have been so low for so long that there is a whole generation of developers who’ve never known anything different.
But things are set to change dramatically in 2022. With consumer inflation currently 14 times higher than it was last November, and more than double the 2% target the Bank of England is mandated to keep it at, the Bank has no choice but to act. And its inflation-reduction measure of choice is to push up interest rates.
Traditionally the Bank has shied away from raising interest rates just before Christmas, and there is some speculation that surging cases of the new Omicron variant of COVID-19 may persuade the Bank’s rate-setters to delay pulling the trigger until the New Year.
But it’s a question of when, not if. With the prospect of rising interest rates feeding through directly into the cost of their borrowing, developers need to factor this possibility into their calculations when seeking finance.
Variable rate loans are fine in a long and unbroken period of abnormally low interest rates. But after nearly two years of pandemic-inspired abnormality, interest rates are now set to creep back up towards more normal levels.
Those planning a development next year should bear this in mind, and put prospective lenders on the spot about rates. Getting it wrong now could prove a very costly mistake.

The 100k question: is my development loan interest rate fixed or variable?

<h4>Atelier’s ethos is to allow borrowers to cut through the hierarchy. How so?</h4>
Martin: By giving borrowers access to the decision-makers early on. That's one of the chief reasons Atelier has been able to carve out a distinctive niche in a highly competitive market. From a borrower’s perspective, it means meeting the Head of Credit and the Chief Investment Officer early on in the process, perhaps on-site, and talking through potential supply chain and construction cost issues sooner rather than later. People discover early on that our credit and origination teams work hand in glove. That’s not always the case with other lenders.
Alasdair: Yes, Martin and his team usually discuss new transactions with us once they have done their own high-level assessment so that we can then reach a consensus on the terms we can offer as soon as possible. We are then closely engaged with the broker and the borrower on working towards closing the deal. Meeting the broker and the borrower, ideally on-site, enables us to get behind the numbers, understand the transaction in more detail and tailor the facility to meet the borrower’s needs.  It also speeds up the decision-making process; We all like to avoid email ping-pong wherever possible.
 
<h4>You’re saying risk is not always something you can judge simply by looking at a spreadsheet?</h4>
Martin: We run the financial modelling right at the start of the due diligence process, and if the numbers don’t work, the deal isn’t going to work. But we also look for things to hang our hat on. Where I feel there is merit in an enquiry, I’ll go to Alasdair with the numbers and we look under the bonnet together. We recently had a deal referred to us where the borrower was already talking to a challenger bank, but it was taking forever and they were losing faith in the process. I spoke to the developer on the phone on a Friday and we were on site by Wednesday and had full credit approval in less than two weeks. This is the certainty of execution we seek to offer.
Alasdair: That’s right. The numbers are of course important but there is so much more to understanding the transaction and what the borrower is looking for and we can also move swiftly when the information we need is available at the start of the process.
 
<h4>And how does that approach differ from your competition?</h4>
Martin: Often our competitors’ credit teams will only look at a deal for the first time two weeks before it is due to close, which is the opposite of our approach!  We endeavour to give immediate access to decision-makers, to both the broker and the borrower. That surprises developers sometimes, as most have never had that kind of access before.
 
<h4>The global supply chain crisis has been making headlines for more than a year now. How has Atelier helped developers deal with soaring input costs and labour shortages?</h4>
Alasdair: Even on the best planned projects, things don’t always go smoothly. In the current environment, there are often times when our initial assumptions have to change. The key here is how quickly we are able to identify potential issues and work with the broker and borrower to find a solution. For example, a valuation might come in on a project that is lower than anticipated and project costs might be higher than first thought. None of these issues necessarily means we are unable to finance the development, we just need to find a way to resolve these. It’s a question of how we address any issues and how we interact with the borrower to find a way forward.
Martin: The fact that we are comfortable right up to 70% LTGDV and beyond on occasion, means a down valuation doesn’t necessarily kill the deal. We can look at the numbers, query the valuation, restructure the LTGDV and find a way forward. Where there are forks in a road, and one aspect of the deal proves problematic, then we try to find the solution.
 
<h4>Specialist development finance brokers seem to be gaining prominence in recent years. How do you see their role?</h4>
Alasdair: Most meetings we have are with broker and borrower together. We respect the role brokers play and it’s a case of open communication between all parties from the initial enquiry through to the completion of the development. While we focus on each specific proposal the aim is to establish long-term and close working relationships with both brokers and borrowers based on open and honest communication and a shared professional approach to financing developments. That means dealing with any issues which inevitably arise along the way. 
Martin: A good broker won’t be frightened of opening his or her client to that dialogue. There are some brokers who are guarded, and say, ‘you speak to my client through me at all times.’ While we never undermine a broker or go behind their back, it is a requirement that we meet and are able to have a direct dialogue with the borrower. We want to provide input and add value to the developer and discuss things like build costs and contingency, and thanks to our in-house Development Monitors, we are able to do so. It’s unusual for a lender to have that level of expertise on tap, but our DMs often come into meetings so they can advise whether answers are credible and whether a developer really knows their stuff and has the right attention to detail. Good brokers will embrace that; when a broker is too protective of access to their client, it just creates the wrong impression, and that’s not a way to build a relationship.
 
<h4>How do the origination and credit teams integrate at Atelier?</h4>
Alasdair: It’s not the ‘them and us’ which sometimes happens elsewhere. I think that's partly because my own background is in origination. That’s why Martin and I complement each other very well and we’re on the same page. There is constant interaction between origination and credit, especially if there are bumps in the road that we need to overcome. Martin will often re-engage with a broker long after a deal has passed into the underwriting phase, all of which helps us to achieve our common objectives of financing good quality development projects for experienced developers.
Martin: That’s right. We say ‘yes’ together or we say ‘no’ together. Nobody has to be a bad cop. If you are as well-funded as Atelier, it’s incumbent upon you to be clear as possible about your appetite to lend. It’s no one else’s responsibility but ours.

Lessons In Lending

This month marked an important milestone for the team at Atelier. We’ve now provided more than £200m in bridging and development finance to UK property developers since launching the business at the beginning of 2020.
To date, we’ve agreed 77 loans nationwide and our current pipeline indicates we are on track to reach our next target of £300m by Spring 2022.
As the business has grown, so have our loans. Atelier’s average loan size has grown steadily to over £3m, with our largest loan to date in excess of £12 million. We’re particularly proud of the role our finance has played in the development of sustainable, new-build residential schemes on brownfield sites across the UK.
Whilst our loan origination has been strong, our redemption track record has been equally robust. Current redemptions stand at nearly £70m, with that figure expected to climb to over £100m in the coming months. As a lender, we realise that often the hardest part of lending money is getting it back again. So, our redemption track record is testament to our positive engagement with our borrowers and the loan management skills of our team.
Our figures mirror the resilience of the broader UK housing market, though as we near the end of 2021 there is much to ponder for the construction sector as challenges continue to multiply.
Last week’s Office of National Statistics data revealed the construction sector contracted for the second month in a row in August 2021. The industry is now £214m (1.5%) smaller than it was in February 2020, immediately before the pandemic hit.
Also, this week Savills published its own report which forecasts the number of new homes being built will not return to pre-pandemic levels until 2026. Even then, the estate agent said, completions will still fall 20% short of the Government’s target of 300,000 homes per year.
What is clear is that while demand remains buoyant, soaring material costs, supply chain issues and a shortage of skilled workers are putting immense pressure on delivery times. Even the best planned and managed project is at risk of cost escalation and delays.
As a result, Atelier is continuing to take proactive action by working with borrowers at the outset to ensure potential cost inflation and programme delays are factored into our loan terms. Building this flexibility in at the beginning reduces the pressure on borrowers should an unexpected cost increase or delay materialise during the project.
Other challenges have also been making the headlines in recent weeks. Financial markets are now braced for an era of increased borrowing costs, with consumer inflation expected to top 4% later in the year, double the Bank of England’s target of 2%.
In October the Bank’s Governor Andrew Bailey said it “will have to act” to tame inflation, prompting many to speculate that an interest rate rise could be imminent. I feel a gradual rise in interest rates is likely but would expect the Bank to proceed with caution and provide plenty of advanced messaging to avoid any unnecessary shocks in what is already a relatively choppy market.
The impact of a rise in interest rates on the wider economy should not be underestimated. A whole generation has grown up in a climate of ultra-low interest rates, and the impact of even a small rate rise on mortgage affordability could derail the plans of thousands of aspiring first-time buyers.
With 69% of households headed by someone aged 25 or younger, currently living in private rented accommodation, the pool of potential buyers is still large. That’s why a rise in mortgage interest rates would need to be gradual and considered, given the impact it may have on these potential first-time buyers.

Atelier surpasses £200m lending milestone amid changing business climate

At Atelier we’ve spent a lot of time researching climate change and deciding how we as a company should respond to the challenges before us.
The UK has pledged to achieve net zero carbon emissions by 2050, and this fast-approaching goal is helping us focus our energies on areas where we feel we can provoke debate and bring about meaningful change.
Of course, with an issue as complex as climate change, it’s never easy finding a place to start, though central to this report is the conclusion that the current EPC standard has become hopelessly outmoded. We feel there is an urgent need for a new system that tracks a wider variety of metrics, helping both the property industry and home-buyers to make more informed choices and understand better how homes impact climate change.
With the UK preparing to host the UN climate summit (COP26) in November, now is the time to begin implementing the radical changes necessary to tackle our emissions and deliver better homes overall. We have every incentive to do so, for in business the view from the front of the pack is always the best. And while some see the estimated £250 billion cost of upgrading our homes as prohibitive, others see a solid business case for galvanising stakeholders within the industry and committing ourselves to the challenge.
I am convinced that if we let science and technology lead the way, then society will be better for it, and by sharing our research we hope we can assist others in starting their carbon reduction journey too.
 
Click to read the full paper <a href="https://media.umbraco.io/atelier/fknnn3us/atelier_tl_climate_change_whitepaper.pdf" title="Atelier TL Climate Change Whitepaper">here</a>.

UK Housing: The Race to Zero Net Carbon is On

<h3>As a financier of property transactions, from land purchases right through to the construction of entirely new homes, or the refurbishment or conversion of existing buildings, we take a keen interest in the health of the housing market, and in particular, in the fortunes of the first-time buyers on whom it depends.</h3>
After all, most property chains rely on new money entering the market at the bottom, to oil the wheels and keep people and transactions on the move, as their life, family and work aspirations evolve.
Atelier commissioned this paper as the market stands at a critical juncture – the pandemic has simultaneously created economic uncertainty, an unsteady employment backdrop and a rapid shift in buyer demand. It comes after the market received extensive Government support through Help to Buy and the Stamp Duty holiday. That stimulus, coupled with the reassessment many people made during lockdown of what they want from their home, has pushed up the demand for property to its highest level in 15 years. Some major mortgage lenders report that applications are up 50% on their pre-pandemic level, and Land Registry data shows average prices across the UK rose by 8.9% in the 12 months to the end of April.
Rising property prices and a surge in market activity have never been the friend of the first-time buyer. To better understand how the current market might impact them, and to assess the risks on the property development market and assist our professional borrower base, we asked our Consultant Economist, Bob Pannell, the former Chief Economist with the Council of Mortgage Lenders, to unpick the latest data.
Our findings shine a light on the tricky question of affordability for first-time buyers, shatter several myths, and identify a number of opportunities for mortgage lenders, the regulators and property developers to help struggling would-be buyers more.
 
<h2>Key findings at a glance</h2>
<h3>30% fewer first-time buyers today</h3>
Despite Government support and property ownership remaining the tenure of choice, there are 30% fewer first-time buyers today than there were at the peak in the 1980s.
<h3>First-time buyers are not getting older</h3>
Contrary to common perception first-time buyers are not getting older. The average age of a first-time buyer, 29, has barely changed in two decades.
<h3>Deposits have surged by 24% to £60,000 in the last year</h3>
The average mortgage deposit paid by first-time buyers has spiked to £60,000, favouring the well off and further pulling up the ladder for the less affluent.
<h3>Those on the ladder already are £1 trillion richer</h3>
Housing equity of around £1 trillion has been accrued by older borrowers.
<h3>The potential first-time buyer market is growing</h3>
There are now 10% more adults aged 25–34 – the cohort most likely to want to buy for the first time – than there were at the time of the global financial crisis (GFC).
 
<a style="font-color: #dcb4a5;" rel="noopener" href="https://media.umbraco.io/atelier/rcfmxehv/9724_609_atelier_whitepaper_aug2021.pdf" target="_blank" title="9724 609 Atelier Whitepaper Aug2021">Download our full paper</a> to read all our findings and more.

First-time Buying affordability: The Snakes & Ladders of the Property Ladder

Two years have passed since the government made its commitment to achieve net zero emissions by 2050. But already the talk among brokers and developers is about whether the revolution might be losing momentum.
Weaning the UK’s housing stock off gas boilers is proving harder than Boris Johnson ever envisaged, and the new normal could be farther off than he pretends. Persuading voters to foot the bill was never going to be easy, and although the hope is that human ingenuity will eventually bring costs down, few agree on where the money should come from in the meantime.
<h2>PM still unsure of way forward</h2>
The news that a proposed ban on the sale of new gas boilers may now be pushed back five years to 2040 was interpreted by many brokers I spoke to this week as a harbinger of things to come.
Whatever the setbacks, however, it is clear that fundamental change will come eventually. And it will only be a matter of time before government climate targets impact the housing market – and by extension how residential developers and their brokers fund projects. The broker community will be only too aware that the financial challenges of going green come against a backdrop of already surging input costs.
In its half-term report earlier this week, Travis Perkins complained loudly of price hikes and material shortages, with bagged cement expected to jump 15% in the coming year. The ONS predicts that construction material costs as a whole will rise by 7% to 8% during 2021. Now imagine for a moment how build costs might look in years to come when you factor in a “green premium”.
While the construction industry has been wrestling with skills shortages for years, the combination of expensive new green technology and a dearth of people able to fit it may well end up rippling through the supply chain, impacting both developers and lenders.
<h2>SME developers are vulnerable</h2>
The most commonly used alternative to gas boilers are air-source heat pumps, which can cost up to £8,000 more than a conventional boiler.
For brokers, this “green premium” will undoubtedly mean that developers’ projected build costs require additional scrutiny, and due diligence will involve drilling down into the numbers to see if a scheme can be delivered on budget to a Future Homes Standard.
In this brave new world, SME developers may find themselves particularly vulnerable to longer lead-times and delays. Accurate cost estimates and reasonable contingencies will become more important than ever, as will a detailed assessment of the programme both before and during procurement.
Just as challenging for developers will be establishing a reliable chain of green tech suppliers, and securing prices that remain valid for the length of time necessary.
Fluctuations in price are likely to impact developer cash flow and should therefore be factored into the facility agreement.
Of course the risks don’t just go away once construction begins, and responsible lenders like Atelier will use expert project monitors to ensure not just that the Standard is being met, but also that costs are being managed appropriately.
<h2>Evolve and prosper</h2>
Clearly, the road ahead will not be easy for either developers or their brokers as they try to adapt to radical new ways of building.
Though one big consolation for developers looking to go green is that demographics may well be on their side. Energy efficiency is climbing ever higher on a list of considerations for buyers at the moment. And with the government consulting on setting energy efficiency targets for lenders, the direction of travel is only going one way.
Those brokers who grasp this concept earliest may also be quick to prosper.

After Team GB’s gold rush, brokers must go for green

They say you always remember your first, and I’m certainly no different. It was a cramped two bedroom maisonette in Basildon – marketed “cosy” – which I paid £75,000 for back in the early nineties.
Looking at the photo now (below), it wasn’t much perhaps and some of the neighbours left a lot to be desired. The chap downstairs would play ‘Ride on Time’ by Black Box at all hours of the day and night, and thirty years later that song still gives me a headache.
<h2>Basildon: A place to call home</h2>
Whatever the imperfections, it was a place to call home and like most people I’ve always kept a place in my heart for that first pile of bricks and mortar.
These days, of course, even a place as modest as this would be out of reach for most aspiring First Time Buyers. According to one online property portal, that very same maisonette is now valued at £239,000. A jump of 218% during a period in which wage growth was modest at best and even dipped at times. And it is this disconnect between house prices and wages that is the subject of a new report by the former chief economist at the Council of Mortgage Lenders, Bob Pannell.
Mr Pannell is the country’s pre-eminent housing economist and his observations are always thought-provoking. Titled 'First Time Buying Affordability: The snakes and ladders of the housing ladder’ his white paper – commissioned by Atelier – pulls no punches when assessing the prospects of the government’s much-heralded 95 per cent mortgage scheme. Launched in April, Prime Minister Boris Johnson declared it would “turn Generation Rent into Generation Buy.” A tasty soundbite perhaps, but Mr Pannell is far from impressed, seeing it more as a red herring. He rightly points out that while deposit requirements may now be less onerous, affordability tests are more challenging than ever.
“Regulation now limits most home loans to a maximum of 4.5 times income,” he says. “Yet in 2020 the average property in England cost 7.6 times the average full-time worker’s annual salary.”
“And this mismatch is likely to increase as house prices rise sharply.”
 
<h2>Sluggish salaries trail booming house price growth</h2>
It’s hard to take issue. Annual house prices jumps of 10-14 per cent are now the norm across the country as our housing market threatens to go into overdrive. And yet, salaries are rising by only a fraction.
Indeed, I am reminded of a cartoon by Matthew Pritchett in The Daily Telegraph during a previous housing boom. “If you would like see something far, far more expensive . . . ” the estate agent tells the young couple at the end of their viewing, “. . . then of course I am more than happy to take you back here again tomorrow!”
I know I risk provoking a storm of criticism by suggesting the sensible thing now would be to revisit the income multipliers which have become an insurmountable barrier for many. People will be quick to remind me that it was reckless lending and lack of financial oversight which fuelled a property bubble that burst with catastrophic consequences in 2008 – and I get that completely. But it is also true that many of those currently being told they “can’t afford” to buy a home in this country are in fact paying more in rent than they would on a mortgage. And that makes very little sense to me at all.
 
<h2>Urgent shake-up needed</h2>
I concur with Mr Pannell when he argues that fresh ideas from lenders and regulators are long overdue if we are to help less well-off buyers get a foot on the ladder.
“The time is fast approaching for fresh market innovations or policy interventions to be considered,” his report concludes. “While 95% LTV mortgages have become more readily available, they come with onerous credit scoring and are set to remain relatively costly.”
“Even if the pricing and availability of such mortgages reverts to pre-Covid levels, most would-be first-time buyers will either not qualify for 95% LTV loans, or will choose to save for a larger deposit.”
Of course, a deft balancing act is required if we are to help more families realise their dreams of home ownership, without risking a further economic crisis.
One solution, perhaps, would be to relax the multiplier rule for those borrowers whose jobs can be considered truly secure: the doctors, nurses, teachers and other key public sector workers who are less threatened by the slings and arrows of economic fortune than, say, those who work in the hospitality sector.
A supporting measure might be to encourage lenders to lock rates for life as they do in the United States.
As it is, only a small handful of UK lenders offer 10-year fixed deals covering 90 per cent of the property’s value. And these deals are rarely straightforward.
Tying longer deals to so-called starter homes, the kind which have fallen out of favour in recent years as developers have sought to make greater profits out of luxury apartments, would inevitably encourage more of them to be built.
And borrowers could be offered the comfort blanket of a ‘no penalty’ clause if they seek to exit the deal after five years.
 
<h2>Tree-lined streets</h2>
Whatever the answer, a shake-up is urgently needed in the mortgage market, though as I write this, the Housing Secretary Robert Jenrick is busy announcing a new national model design code to encourage traditional architectural styles on tree-lined streets.
“Our modernisation of the planning system seeks to create not simply more homes, but the beautiful places we all want to live in,” he says in a newspaper column.
Sounds noble, but I wonder how many young families will be able to afford to live on the Housing Secretary’s beautiful tree-lined streets?
With the number of First Time Buyers dwindling, we are now faced with the spectre of a housing market where only the privileged can afford to get on the ladder.
Something which reflects poorly on us as a nation.

Boris Johnson’s 95% mortgage scheme: Much ado about nothing

Whisper it gently, but overseas capital is knocking on Britain’s door once again.
With the Bank of England holding interest rates at their lowest level in centuries, and Britain’s economy still feeling the effects of one of the sharpest contractions on record, global capital’s sudden interest in the UK may seem premature.
The reality is many financial institutions went fully ‘risk-off’ during the pandemic and built-up large cash reserves as a result. With confidence in a recovery and risk appetite increasing, these global institutions have quickly come to realise that the UK (and UK residential property sector in particular) is a very attractive place to deploy their capital.
 
<h2>The Three Bs – Backing Britain’s Builders</h2>
The success of Britain’s vaccine roll-out and stability in the UK housing market following the pandemic’s arrival have made British housebuilders an appealing prospect for global investors looking for strong returns from the anticipated recovery.
We’ve seen this appetite first-hand at Atelier, and during Q2-21 we secured significant additional funds from three leading financial institutions, including a major US investment bank. Our increased lending firepower means we’re now on course to deliver more than £300m to real estate investors and developers across the UK in the year ahead.
One legacy of the financial crash of 2008 was that the major banks pulled out of the development space altogether and, in the most part, the intervening years have seen enough uncertainty to keep them on the side-lines. You’d often hear it said that these larger institutions ‘won’t get out of bed for a development loan sub-£50m’ and lenders like Atelier have played a key role in bridging that gap.
However, after a long hiatus, and as we finally emerge from the pandemic, it seems development finance is slowly coming back in vogue among the financial titans. Perhaps not by way of direct lending to borrowers, but instead by backing high-quality alternative finance providers, as we have just experienced at Atelier. This show of faith in the market and our business should not be underestimated and it’s our job to ensure we deliver on our end of the bargain by deploying these funds efficiently by Backing Britain’s Builders.
 
<h2>Safe hands when deploying capital</h2>
The renewed appetite does not come without caveats of course. And when it comes to deploying capital in specialist sectors like development finance, the banks are keener than ever to have external experts in place to do the heavy lifting for them.
This dynamic plays perfectly to Atelier’s strengths. Our team of seasoned property professionals enables us to source and execute the best opportunities quickly and reliably, providing our stakeholders with a steady flow of high-quality investments, all backed by first-charge real estate assets.
M&amp;G Investments has been an Atelier partner from day one, and we built our business to the exacting standards expected by such institutional investors. But the structure we created – which combines strong liquidity with a flexible capital base – also makes us a powerful, responsive partner for the investors and developers to whom we lend.
Our new funding partnerships, coupled with our excellent redemption track record, give us additional dry powder and flexibility on how we choose to fund deals. Brokers and developers are already noticing the difference – we’re as fast and reliable as ever, but with an even greater appetite to grow our book and complete on the right development and bridging loans.
By scaling up and diversifying our balance sheet we’ve reduced our cost of capital, meaning we can offer even more competitive pricing on the right deals, where lower risk warrants lower rates.
 
<h2>Not just a lender</h2>
The Atelier vision was always for us to be more than just a lender. We choose the schemes we lend on very carefully, focusing on the usual fundamentals but also those that deliver beneficial Environmental, Social and Governance (ESG) outcomes. We fund homes that aren’t just bricks and mortar, but which also make a positive impact on their local communities.
We’re also more than a lender when it comes to our financial backers. We’re a platform that links global institutional investors to the UK’s most forward-thinking housebuilders.
Britain’s much needed housebuilding boom means demand for finance from developers is surging, just as the appetite among major financial institutions to get in on the act picks up.
Atelier is proud to be connecting the two and unlocking the power of global capital to build more, and better, homes in Britain.

Two contruction wokrers looking at printed plans

UK housebuilders are making an increasingly attractive home for global capital

As last week’s PMI data revealed, UK construction isn’t just running hot – it’s white hot.
So far in 2021 the industry has witnessed the sharpest rise in activity since 2014, with housebuilding, commercial projects and infrastructure all surging as the country emerges from lockdown. With interest rates low and lenders itching to lend, you’d think this was an easy time to be a development finance broker. Booming borrower demand and an abundant supply of lender capital. Happy days, right?
 
<h2>Speed bumps as industry accelerates from zero to a hundred</h2>
But the construction industry’s growing pains are throwing up many challenges. And the brokers who are making deals look easy are often doing so not because the finance is available on a plate, but because they’re working exceptionally hard, and because they’re exceptionally good at what they do.
While May’s Purchasing Managers’ Index (PMI) data showed output growth at its strongest since September 2014, and new order volumes increasing at their fastest pace since the survey began just over 24 years ago, there was a sting in the tail too. Input cost inflation was also at a survey-record high during May, reflecting a surge in demand for construction materials and severe supply shortages.
The Office of National Statistics says worse is to come, predicting that overall material prices will jump 7-8 per cent in the course of the year – with timber prices already up 400 per cent. Paint, cement, steel and electrical components are all in short supply, and interruptions in supply mean cost and schedule overruns are worryingly common. The net result is that developers’ projected build costs typically need extra scrutiny. Responsible lenders and brokers will quite rightly ask searching questions about whether a scheme can truly be built for what the developer has budgeted.
Those developers most in need of a bit of extra headroom tend to be the medium-sized players, too large to be able to source everything locally and too small to benefit from the economies of scale enjoyed by the big beasts. As a result ‘squeezed middle’ developments of under 50 homes, while still completely viable, are the most exposed to the danger of spiking build costs – and it is for them that a good broker truly comes into their own.
 
<h2>Unheralded heroics</h2>
Often the efforts of these hardworking brokers go unheralded. It is their diligence and foresight that stops project hazards turning into a full-blown crisis. Yet as one lender remarked to me recently, “They often swim the Channel and get no more than a pat on the head for their efforts.”
Of course a good broker will often be as important to the lender as they are to the client. I’m thinking of the professional who is fastidious about their numbers and doesn’t shrink from the difficult conversations, highlighting the hurdles, mitigating the risks, and refusing to tell people only what they want to hear.
At Atelier, we like to move quickly and decisively when we see a scheme we like, but the old rule of thumb about price per square foot being everything when it comes to development lending has never been truer than it is today.
Our in-house monitors will pore over every decimal place in the costings, and under such scrutiny it quickly shines through when the broker has done his or her own due diligence and properly interrogated the data.
 
<h2>Partnership rather than a transaction</h2>
The best brokers never see a deal as just a transaction. It should be a three-way partnership between lender, broker and borrower. That’s why astute brokers will steer their clients towards funders who favour long-term, solid ideas over short-range sizzle. Another undesirable side effect of the post-lockdown boom is the emergence of a new breed of lender who appears to be here ‘for a good time, not for a long time’. Engaging such lenders, who frequently court deals outside their comfort zone, can be a punishing experience for borrowers as they discover any number of tripwires in the small print if things start to go awry.
Of course, the paperwork is only the start of the journey, and a good broker keeps everyone talking, sometimes until the last snag has been fixed. A case in point is the PBSA sector which saw developments around the country grind to a halt during the first lockdown.
It was edifying to see brokers who could have washed their hands of the whole business instead roll up their sleeves and dive straight back in to stop these highly time-sensitive projects from unravelling. With all the banana skins out there, I’ve often tried to imagine what our industry would be like without the vigilance of our brokers, but every time I try it fills me with dread.
As England gears up for its tilt at footballing glory at the Euros – which sadly for me, Ireland will not be attending – it strikes me that a good broker is like a star striker – who can pick out the net and score from 30 yards.
But a great broker is like a goalkeeper. Less feted, but oh how you’d miss them if they weren’t there.

Two business people walking and talking in a corridor

The Art of the Deal: Good brokers make it look easy

The Government’s plan to overhaul planning rules, announced with only the scantest of details in the Queen’s Speech, could put the Prime Minister on a collision course with Tory backbenchers from the Home Counties. In political terms, taking on the NIMBYish tendencies of wealthy suburban voters who’ve long formed the backbone of Conservative support is bold. But in planning terms, the plan to give central government more say on development – and thus reduce that of local authorities – may not be bold enough.
To get more spades in the ground and cool runaway house price inflation – which is now officially running at 10.2% a year – Britain needs to slash the red tape that frequently ties developers up in knots. Consider the numbers for a moment.
 
<h2>The numbers</h2>
In 2019-20 the total housing stock in England increased by around 244,000, an improvement on previous years but still well short of the government’s target of 300,000 a year. Meanwhile, the National Housing Federation says the magic number needed to ease our housing crisis is more like 345,000 new units per annum. By any measure, we clearly have a very long way still to go.
Thankfully, there is now growing acceptance at cabinet level that the vetoing powers of local authorities need to be reined in if we are ever to make good on the government’s housebuilding targets.
One proposal being considered, which I warmly welcome, is to axe the current Section 106 Agreements which often require developers to contribute disproportionately to local infrastructure as a precondition to securing full planning approval. Developers know from bitter experience that while these financial contributions are supposed to be “fair and reasonable both in scale and kind”, this is rarely the case. The complex bargaining arrangements which have evolved over time have acted more as an obstacle to the building of affordable homes than the community boon they were originally intended to be.
Inevitably, construction projects have stalled as developers and local authorities haggle endlessly without a sod of earth even being turned over. And there is a nagging suspicion that some local authorities have been weaponising these preconditions, making them so onerous that developers often have little choice but to walk away.
The process has been sluggish for years and I know of projects where planning permission has been provisionally green lighted within weeks, only for the Section 106 talks to drag on, rudderless, for many months thereafter.
 
<h2>New rules a false dawn</h2>
In 2014, the government attempted to end these pointless stalemates, introducing an exemption for self-builds and smaller developments. But the new rules ended up proving a false dawn, after some councils resolved to fight them tooth and nail. Eight months after the exemptions were announced, the High Court ruled them ‘unlawful’, and though the Court of Appeal reversed that decision the following year, the matter was far from over.
A further U-turn followed, with the courts eventually ruling that where a new Local Plan was adopted after 28 November 2014, this should take priority over the Section 106 exemption. So in the end what we were left dealing with were exemptions to the exemption. With different councils playing by different rules, the government now wants to replace the Section 106 stealth tax with a simpler Infrastructure Levy, something which should bring greater transparency and certainty to the planning system.
 
<h2>Not near me, please</h2>
Even though a central plank of the government’s manifesto is to build more houses, the trouble is that while almost everyone is in favour of housebuilding, many caveat that noble sentiment with “but just not near me”. In the current climate the construction of new towns like those built after the Second World War seems almost unthinkable. But as someone born and raised in one of them, I feel the lessons learnt from the last wave of new towns, coupled with the post-lockdown demands of buyers, make them a compelling solution to the housing crisis.
Those on the front line of the current unwieldy planning system also need more support and clearer guidance. Planning officers are frequently too few in number and drowning under the weight of both applications and bureaucracy. But with MPs and councillors in the shires dead set on preserving the status quo, the stage is now set for a bitter revolt by backbenchers when a bill finally goes before the Commons this autumn. Given the urgent need for housing, it would be sad to see the government’s plans derailed and sadder still to see councils go on slamming the door on newcomers.
England needs more houses, so let’s not allow local politics to get in the way of that.

Will Boris' battle over planning rules spell the downfall of the town hall?

By any measure, it has been white knuckle, rollercoaster stuff. After coming to a virtual standstill during the first national lockdown, the residential property market has roared back to life.
Figures from HMRC show that 191,000 homes were sold across the UK in March. That’s more than double the number that changed hands during the same month in 2020, and up almost a third on this February. Meanwhile the Bank of England confirmed this week that mortgage lenders grew net lending to individuals by £11.8bn in March – the biggest monthly jump on record – as demand from homebuyers surged.
Development lenders too have been through an extraordinary 12 months, but in our sector the changes have been a little less abrupt. As lockdown first took hold, developer demand cooled and many development lenders overhauled their attitude to risk.
 
<h2>Shrinking LTVs</h2>
With average LTVs shrinking, the market quickly lost steam and projects in distress became opportunities for acquisition. If you were a developer with strong liquidity or a good funding partner, you could deliver these sites at a discount. If you weren’t, well, that was just too bad. With many lenders unwilling to go above 50% LTV, claims that lending was still going on rang increasingly hollow.
On the front line, brokers often joked that the reality was “pretend, not lend.” The more diplomatic version they told their clients was that it was “business, but not business as usual.” Fast forward to the present, and sentiment among both developers and brokers is on a roll – with the lending taps once again open across the industry. But a stop-start attitude to lending does the sector no favours.
 
<h2>Running with the herd</h2>
Rather than running with the herd, Atelier has always preferred to focus on experienced developers with an achievable schedule and a clear exit – in good times and bad.
That’s why, even in the darkest days of last year’s lockdown, we were still writing deals at up to 65% LTV. True, we rejected many more projects than we accepted, and we looked longer and harder under the bonnets of those we selected than other lenders might have done. In the 12 months following our formal launch at the end of January 2020, we funded more than £100m of loans.
But for us lending is always more than a transaction, it’s a partnership. We build deep and strong relationships with our borrowers, because we understand and support what they’re trying to achieve. And we know that for the right borrower, a little extra leverage goes a long way. That’s why we are willing to lend up to 70% LTV on the right deal.
By allowing the developer to stretch their senior debt to this level, we can often spare them the additional cost and hassle of getting mezzanine finance. This in turn makes it easier for them to attract a JV partner if they need to share the equity load. Put simply, I’d rather be at 70% LTV with the right borrower than at 50% with someone less durable.
 
<h2>Race to the bottom</h2>
The current strength of developer demand is sparking a ‘race to the bottom’, with some lenders competing on lower-rate, higher leverage combinations. It’s at times like these when risk-adjusted pricing can become an afterthought.
Not at Atelier. When considering a loan, we ask our borrowers questions that are searching and, at times, challenging. We do this because we want to both assess risk and fully understand their project, not just tick boxes. When we lend, we do so from a position of trust and understanding. Because we’ve looked beyond the headline plan and costings, we can decide to lend at higher leverage than mainstream or less well-capitalised lenders can.
For us, the principles of sound, well-researched and properly underwritten lending held true even during the maelstrom of the past year.
And they’re as true now, as the market booms, as they were when the world seemed to be closing down last spring. For us, and the developers we choose to partner with, a little extra leverage always goes a long way.

Two construction workers in masks checking the temperature on an electronic thermometer

A little extra leverage goes a long way

There has been much backslapping across the construction sector and Whitehall this month over the latest energy ratings for new homes. Newly released Government data shows that 84 percent of new builds in England and Wales are now achieving EPC grades of A or B.
With many in the industry falling over themselves to be seen as champions of the environment, there are some who would have you believe that these As and Bs are the bricks and mortar equivalent of gold and silver medals at the Olympics.
Housing Secretary Robert Jenrick was quick to portray the milestone as “proof” of the Government’s “commitment to a more sustainable future.” A few days later, one well-intentioned lender rushed out an eye-catching new mortgage product for homes with an EPC rating of A, B or C.
 
<h2>Gold standard</h2>
The EPCs, it would seem, have suddenly become a gold standard in sustainable housebuilding, something that has left those of us in the sector who want to drive genuine change scratching our heads. For there appears to be some confusion about what EPCs actually mean, and what their real value is as a yardstick for measuring progress towards a more sustainable future.
Nobly intentioned though they are, EPCs are calculations based on estimated future fuel costs, and therefore reveal only a small part of a home’s environmental impact. Done well, they highlight how a property ranks in terms of its energy efficiency. But while they might tell you where you are, they say nothing about how you got there, nor what you might have done along the way.
For example, a property could be built entirely from steel and concrete – both materials which release huge amounts of carbon into the atmosphere during the manufacturing process – but this very real environmental impact wouldn’t merit a mention in a typical EPC assessment.
 
<h2>Tablets of stone</h2>
Energy assessments should be treated neither as a tick box exercise nor as tablets of stone. And the fact that energy assessors themselves are increasingly finding their methodology under the microscope does little to inspire faith in the system.
One assessor’s D is another’s C, it seems, and the chatter among landlords on property forums is about which assessors can be expected to provide a “glass half empty” report, and who is more likely to see the “glass half full”. The big housebuilders may think along similar lines, whatever their public pronouncements. Which is why a period of critical reflection is required if we are to achieve greater transparency for the public – and to build homes that are green to the core rather than greenwashed.
If the cladding crisis has taught us anything, it is the need to dig deeper, and understand better our materials and processes. Whatever system of grading we eventually settle on, the ability to scrutinise our processes must of course put homebuyers first.
We do not need any more convenient procedures for politicians and developers to flatter themselves. Environmental and energy efficiency standards should be about measuring, and mitigating, a project’s environmental impact. Not marketing.

Solar panels on the roof of a semi-detached house

EPC is too ABC... it's time for a shake-up

It’s one of the strangest – yet most welcome – aspects of these strange times. With the skies emptied of aircraft and streets all but deserted, urban dwellers have become aware of something that usually passes all but unnoticed amid the bustle of city life – the changing of the seasons.
Of course there’s a grim irony here. The Easter weekend’s balmy weather came as thousands of businesses slipped further into the deep freeze. Spring has sprung while the British economy endures a brutally hard winter.
Superlatives no longer suffice when it comes to describing the current state of economic affairs. The Office for Budget Responsibility has warned that UK GDP could fall by as much as 35% in the second quarter of 2020, with Robert Chote, the OBR’s Chairman, describing this drop as “the largest in living memory”. The International Monetary Fund also reached for historic parallels, describing the impact of the Covid-19 lockdown on the world economy as being the worst downturn since the Great Depression nearly a century ago. In the UK, the true toll won’t become apparent for some time. The Government’s raft of support measures – for both companies and employees – have insulated many firms from the lockdown’s sudden, cryogenic freezing of business activity.
When the thaw starts, and our feeling is it will start in May out of sheer economic necessity, we should brace ourselves for thousands of businesses, especially those in the hospitality and retail sectors, not to make it through. It’s a cruel reality that many strong businesses will go to the wall for reasons outside their control. And yet the prospects for the construction and property sectors are markedly better, for three reasons.
Firstly there’s the construction industry’s adamantine resilience to falls in demand. As a sector that typically endures far sharper peaks and troughs than the wider economy, construction has volatility – and the ability to cope with it – baked in.
Then there’s the wealth of recent – and relevant – experience the property industry can draw on. Many of us in the property finance sector have been here before, barely a decade ago. True, the Global Financial Crisis posed different challenges. Compared to the wildfire-like spread of the Coronavirus and the Great Lockdown, it developed slowly. And crudely it was defined by lenders pulling down the shutters and refusing to lend.
By contrast today many finance providers are well capitalised and keen to lend, but are instead being prevented from getting cash out the door by a logistical logjam. Crucially, the difference between 2009 and now is that back then, the finance industry was in totally uncharted waters. Those of us who lived through the GFC are able to apply that knowledge to keep the finance flowing even in the current challenging times.
Thirdly there’s the immutable nature of development opportunity. While there’s plenty of debate about how Britain will be transformed by the Covid crisis, one thing that won’t change is the ability of astute developers to combine vision with funding to generate returns. Some projects will be blown off course by the current crisis, and sadly some developers will lose their shirts. But for every development which runs aground, there will be an opportunity for those willing to seize it.
By definition every residential project is unique; no two locations are the same. And if a development was in a great location before the crisis hit, it will still be in a great location once the Covid cloud passes. That’s why at Atelier Capital Partners, we’re carrying on doing what we do best. We’re continuing to write deals for a range of SME developers and property companies who are planning for the post-Covid future.
It’s far too soon to talk of green shoots. But when the thaw comes and whatever the new normal looks like, our clients will be ready, willing and funded to take the development opportunities that arise. Britain’s chronic shortage of good housing means residential demand is perennial.
It always comes back, no matter how hard or long the winter that preceded it.

No matter how hard the winter, spring always comes

I challenge anyone to not feel a sense of joy at the sights and sounds of this week. After months of stony silence, the ring of shop tills, the chink of glasses in pub gardens and the snip of a thousand hairdressers’ scissors are music to the ears. With queues forming outside the most popular high street shops, optimists are forecasting a retail renaissance and a splurge in spending at bricks and mortar stores.
But lockdown habits are unlikely to change overnight. In February, the most recent month for which figures are available, online accounted for 36.1% of all retail sales – their highest ever level. That may prove a high-water mark, but after a year in which millions got used to the ease and convenience of online shopping, high street stores have a mountain to climb.
A similar debate is underway about the future of traditional workplaces. Tech giants like Twitter, which has over 5000 staff – and had 35 offices – worldwide, were among the first to declare that their people could work from home indefinitely.
 
<h2>High street follows suit</h2>
Now even high street names are following suit. In recent days both HSBC and Lloyds Banking Group have announced plans to shrink their property footprint and leave staff to work remotely.
While the freedom to work from home can be liberating, not least from the cost and hassle of hours spent commuting, it overwhelmingly benefits older and more experienced workers. Permanent working from home would be little short of disastrous for new and younger employees. For them, working alongside more experienced colleagues is vital.
No amount of video tutorials can replace the benefits of observing their senior peers at work, and absorbing by osmosis all the intricacies of how to do the job well. The term ‘lost generation’ may be overused. But it will be all too accurate if we force the cohort of youngsters lucky and driven enough to fight their way to a job in the current anaemic labour market to learn the ropes of their chosen career entirely from their bedroom.
Less than a year ago, the Prime Minister made a tubthumping speech at Dudley College promising every young person the guarantee of an apprenticeship or an in-work placement. Sadly an ‘in-work placement’ is all but meaningless if it doesn’t take place in work.
 
<h2>What would Lord Sugar think?</h2>
What must Lord Sugar – our greatest champion of the apprenticeship – make of it all? Our future stars stuck at home in their pyjamas, grabbing a few minutes here and there on a video call with those supposed to be mentoring them?
Over time such arrangements will only succeed in stifling creativity to the point where we end up degrading the aggregate value of our human capital. I myself learned more about business by being around businesspeople than I could ever glean by gawping at a stranger on a screen.
Remote working has been a revelation over the past year. Like many, my initial misgivings faded as my team pulled together and we made the best of it. We found new ways of working, some of which will live on long past lockdown
 
<h2>Personal connections</h2>
But the fact is humans are social animals and teams of us work better when we’re together physically. Last week BlackRock chief executive Larry Fink, in a letter to his staff, put it like this:
“I miss the personal connections and unexpected ideas that come with meeting face-to-face and sharing a meal together. It’s often through a less structured conversation than one can have on a video call that we learn most about each other and experience intangibles, like culture, that are hard to see through a screen.”
Goldman Sachs CEO David Solomon also wants all his players back on the field, calling the enforced, mass move to homeworking an “aberration” that must be rejected. This isn’t about corporate titans wanting their staff in the office so they can drive them ever harder.
Far, far more is at stake than that. Everyone from the hot dog vendor in Piccadilly Circus, to the chap who hands you The Evening Standard on the train platform, would be put at risk by the abandonment of city centre workplaces. Amid all the hoopla over Britain’s post-Covid bounceback – with equity markets roaring and spending climbing – let’s not forget our duty of care to the next generation.
Company bosses who order all their staff to work from home permanently, and think they’re doing them a favour, are misguided at best. At worst they’re guilty of selfishly assuming everyone feels – or needs – the same.
Office working will surely change. But it must not die. It’s time for bosses to put an arm around their younger staff, in person and socially distanced of course, not doom them to their bedrooms.

As lockdown lifts, office working will change. But it must not die.

If there’s one industry that’s booming in these dark times, it’s economic forecasting. There’s a seemingly limitless demand for – and supply of – predictions for what impact the Coronavirus crisis will have on the UK economy. The one thing they have in common is that they are all bleak.
But economists are divided on how bad things may get, and perhaps more importantly, how long for. The more creative have come up with visual representations of their forecasts. Some predict a V-shaped path for the economy – a sharp decline followed by a rapid recovery.
Others go for a variation on this theme – a W-shaped double dip – while others predict a particularly doom-laden L-shape. Most interesting of all is the t-shaped recession envisaged by Richard Woolnough, the highly-respected M&amp;G fund manager.
Economic forecasting is hard at the best of times. And these are far from the best of times. The COVID-19 pandemic presents a once-in-a-generation challenge, both to public health and to the health of the economy, so we should cut forecasters some slack for producing an “alphabet soup” of different shaped recessions.
The first hard data to capture the economic impact of the Coronavirus, March’s Flash UK Composite PMI, paints a sobering picture. It found that the economy has started contracting at the fastest rate seen since the monthly survey began, more than 20 years ago. The report’s authors estimate that economic output shrank by between 1.5% and 2% in the first quarter of the year and that this figure will be “dwarfed” by the decline expected in the second quarter as the UK remains in lockdown.
For comparison, at the height of the Global Financial Crisis in 2008-9, the UK economy shrank by 2.1% in a single quarter. All the signs are that that decline will look like a summer garden party compared to what the UK has coming down the track. And yet there are reasons to be positive about the months that lie ahead. The first is that the recovery, when it comes, is likely to be as dramatic as the downturn.
Unlike a conventional recession, which is typically the product of a complex and interlinked series of events, this slowdown has a single, proximate cause – the immediate, Government-ordered shutdown of the economy.
While the exact route out of the public health crisis is still unclear, there will come a day when the social distancing restrictions will be lifted. Just as the Government ordered the shuttering of the economy, so it will lift it.
Clearly, from the minute people are no longer forced to stay home, growth and investor sentiment will come rocketing back. Property will be front and centre of that recovery. As the most enduring and popular asset class of all, property – especially residential property – is likely to rebound better than most.
Inevitably there will be a painful hangover from the current shutdown. At the very least we should expect a raft of legal disputes between developers and contractors about who should carry the can for delays to projects that are already in the construction phase. And for those projects that are put on ice while still in the planning phase, there could be question marks about the availability of finance as the mainstream lenders retrench.
That’s why at Atelier Capital Partners we are doing our bit to keep finance flowing, even in the current uncertain environment. We continue to work in close partnership with the broker community and are still writing deals for a range of SME developers and property companies.
We might all be working remotely, but our experienced team has only changed where we work, not how we work.
We have access to deep reserves of liquidity and we’re focusing on doing what we do best-providing vital finance to ensure that when the bounce back comes, and it will come back, our clients are ready, willing and funded.

A deli owner opening his shop door with an Open sign

From alphabet soup to building blocks – how Britain will take baby steps into its post-Covid future

When the first Tesla went on sale in Britain in 2009 – an electric sports car priced at nearly £100,000 – it was dismissed by motor industry insiders as an expensive toy with scant appeal outside the wealthy enclaves of Silicon Valley.
That view persisted for some time. For years rival carmakers made only tentative forays into electric vehicle (EV) technology, with others hedging their bets with the half-way house of hybrid vehicles. Fast-forward a decade and a combination of Government incentives, falling EV prices and greater choice has unleashed an explosion of demand from car buyers.
Last month EVs and hybrids accounted for 13% of all new vehicles sold in the UK, well over double their market share the previous February. Annual EV sales rocketed by 49% during the intervening 12 months; petrol car sales fell by the same amount. In real estate, green finance is yet to have its ‘Tesla moment’. But it’s coming. And soon.
 
<h2>The need for green</h2>
The environmental case couldn’t be clearer. The UN Environment Programme estimates that the construction and operation of buildings together account for 38 percent of global energy-related carbon emissions. For the UK to have any hope of hitting its ambitious net zero targets, reducing emissions in the construction and property sectors is vital. But in terms of the business case, right now the running is being made mostly on the supply side, rather than the demand side.
Forward-thinking lenders are busy looking at how they can steer the sector towards greener, more sustainable development. Institutional investors, who provide the capital that underpins Atelier’s lending, are increasingly keen to see their financial firepower deployed where it will do the most good – delivering Environmental, Social and Governance outcomes as well as a strong return.
But the demand side of the equation is lagging behind. Despite residential developers’ obvious optimism and the strong demand for homes, many builders are focusing on what they know – conventional construction techniques – rather than newer, more sustainable technology they still see as riskier.
 
<h2>Collapsing construction time</h2>
It doesn’t help that there is no hard and fast, easily comparable ‘green premium’. Developers often assume that building green will automatically also mean building more expensively. But modern methods of construction, such as modular, off-site technology, don’t just deliver uniformly energy efficient homes, they can collapse construction time – and thus cost – as well as energy used on site.
Then there’s the consumer. There is some evidence that people will pay more to move into a brand new ‘green’ house. But what about the second hand buyer? The promise of ultra-low energy bills in a home fitted with green tech such as ground source heat pumps should make them more saleable for years to come, but there is no long-term data to go on yet.
Government incentives should help foster demand from homebuyers, just as they initially spurred the uptake of EVs. Sadly the Government’s flagship, £1.5bn Green Homes Grant has become mired in red tape and failed to achieve its aims – just 5% of the funds set aside have been claimed by householders.
 
<h2>Development lenders must step up</h2>
That’s why the property finance community has a role to play, too. The best development lenders are more than just passive suppliers of financial lubricant. They can, and should, be facilitating change. Many lenders currently enjoy strong liquidity and there’s a widespread appetite to lend as residential construction comes out swinging from the torrid 12 months following the pandemic’s arrival in the UK.
As lenders recalibrate their attitude to the risk of building green – with upfront costs reducing and returns looking more certain – they should encourage developers to do likewise. By developing and championing more responsive and attractive green products, the finance industry need not just be a passenger in construction’s Tesla revolution. It can be a driver too.
In real estate, green finance is yet to have its ‘Tesla moment’. But it’s coming. And soon.

An electric car charging dock in an underground garage

Time for finance to be a driver, not a passenger, in Tesla's revolution

If not exactly a cause for breaking out the Dom Perignon, last week’s construction output figures from the Office for National Statistics were at least encouraging. After a truly forgettable year of pandemic, lockdowns and social distancing, things appear to be heading in the right direction for the industry.
The ONS reported that, in January 2021, construction output was still down nearly 3% on the previous February, which readers will recall was the last ‘clean’ month before the UK entered its first national lockdown.
 
<h2>Construction outperforms the market</h2>
While growth would obviously have been preferable, the figures point to a pretty sharp recovery from one of the sharpest declines in recent memory. Construction has outperformed almost every other sector of the UK’s battered economy, which speaks volumes about how other sectors have fared.
That said, the ONS data features an output chart which shows a massive slump in March 2020. It’s a testament to the construction sector that this collapse was followed almost immediately by a rapid recovery. This rebound illustrates the resilience of the sector. After the initial shock of the first lockdown, it realised it could get work done, and got on with it. True, very large sites, particularly public works, were closed. But smaller sites, especially housebuilders, were able to deal with the social distancing requirements and carry on as per.
It was particularly encouraging to see private housing work up 142% between April last year and January 2021.
It helped that the supply chain was able to continue fairly uninterrupted, with building materials’ pricing remaining fairly steady.
The data also implies a lot about the health of the economy – and the sector – as we went into the pandemic. We’re not far off where we would have been had we not experienced the past 12 months. Frankly, it’s defied expectations.
 
<h2>2020 avoided an 'unvirtuous circle'</h2>
Technically, it’s important to bear in mind that the downturn wasn’t a liquidity issue, as was the case with the financial meltdown of 2008. By contrast, 2020 didn’t see banks and other lenders pulling down the shutters, which is often the case at the start of an economic crisis.
There was no spiralling into an ‘unvirtuous circle’, where everything goes to the wall.
And the pandemic hasn’t created a slump in buyer demand. Quite the opposite, in fact. Transaction data has gone through the roof. Seasonally adjusted figures for January 2021 show housing transactions went up by 25% year-on-year. A hot property market gives developers and the housing market a lot to work with, and that’s the case here. Which gives us a lot to be positive about.
We might not need the champagne yet, but we can look forward to it soon.

Don't pop the corks quite yet – but construction proving resilient

A year ago Rishi Sunak’s debut Budget was overtaken by events – the pandemic’s terrifying first wave – almost before he sat back down on the green leather of the Commons front bench. Fast-forward 12 months and, with the economy reeling, his follow-up was rightly billed as the most important Budget in a generation.
Certainly the pressure was on for the Chancellor to announce positive measures for the economy, but he also had to inject confidence into the business community and strike the right tone for the country as we collectively drag ourselves out of the pandemic. By and large, I think Mr Sunak succeeded.
Yes, Corporation Tax is set to rise a bruising six percentage points to 25%. But helpfully businesses won’t have to deal with this for another two years. And besides, I don’t expect it to remain at that level for very long. An attractive corporate tax regime is a calling card for post-Brexit Britain, and a vital way for the country to attract foreign investment – so that rate could soon be pared back.
For many of us that’s pretty much where the Budget downside ended. The Chancellor set out to back the country, its businesses and the livelihoods of working people, and he basically delivered.
 
<h2>Vast support package</h2>
First of all, it was vital that the support needed for the economy to get through the pandemic should not fall off a cliff. And it won’t. Businesses and individuals are being protected via a series of ongoing financial measures that aren’t simply going to be turned off like a tap. That’s great news on a human level, as well as on a property market level.
The Government’s vast support package gives people confidence, breathing space and should help many get back on their feet after a year of pandemic restrictions drove many employers – and their employees – to breaking point. At the same time, it is good to see figures which suggest the economy isn’t going to stay in its Covid-inspired rut for long. The OBR is forecasting a return to pre-pandemic levels by the middle of 2022, with next year also seeing an annual growth rate of 7.3%. It was also hugely encouraging to see forecasts for unemployment coming in much lower than had been the case only a few months ago.
 
<h2>From Rent to Buy</h2>
The link between employment and house-buying activity is clear, and with more jobs being saved – and hopefully more being created as we emerge from the pandemic – this can only be good news for those looking to buy a home, as well as for those of us who finance and build them.
Confirmation that the Government would roll out a 95% mortgage guarantee scheme will help the industry in many ways. It will help first-time buyers – the industry’s seedbed – buy their own home and allow Generation Rent to become Generation Buy if they choose. It will also ease the transition from Help to Buy to a more normally functioning market. And the resulting uptick in demand will help those housebuilders who have struggled over the past months. Even the gradual tapering of the Stamp Duty holiday, with the tax not returning to its normal levels until October, reflected the fact it’s taking far longer to complete transactions during Covid than in ‘normal’ times.
All in all, I think the taxation situation could have been a lot worse.
And after 12 months of mostly grim news, it was refreshing to hear some unalloyed positives coming from the Government.
Yes, there is still some way to go before we are out of the woods. But the moves outlined by the Chancellor to support businesses across the country, to keep people in work and to support those who are struggling, suggest we are heading firmly in the right direction.

A sign saying Temporarily Closed sign on a cafe door

Sunak's sequel takes the economic fight to the pandemic

Tomorrow’s Budget will see a Chancellor juggle the opposing needs of the UK economy like never before. Rishi Sunak has pumped billions into supporting companies and employees whose incomes have been devastated by the pandemic, and he has said there is more to come. But he’s also acutely aware the support cannot be open-ended, and that the Treasury needs to get its finances onto a firmer footing. Hence Mr Sunak’s tightrope walk between two conflicting demands.
Financial support aside, what the business community needs above all is confidence. Just as the Chancellor’s largesse is finite, so business’s confidence is fragile. That’s why the one thing that must be avoided at all costs is uncertainty. There has been talk of a rise in Corporation Tax, but there’s a strong argument that such a move would stifle investment and dent confidence, and we desperately need businesses to take risks and invest in UK plc right now. All sectors of the economy are boosted by job creation and people remaining in work, so employment has to be supported at all costs. As the furlough scheme is gradually wound down, increased taxes for employers would only hold back this ambition. Backing for small businesses is also absolutely crucial; relief on business rates and VAT holidays can work wonders for the hardest-hit small companies.
 
<h2>Stamp Duty stalling the market</h2>
On the housing front, I think the proposed mortgage guarantee scheme – which would see the Government offer lenders incentives to bring back 95% LTV loans – will help buyers with small deposits onto the housing ladder while also weaning the residential sector off its Help to Buy crutch.
Help to Buy has been good for many people, but such Government intervention can’t carry on forever. Ditto the Stamp Duty holiday. While demand across the housebuilding sector is now strong enough for the Chancellor to reel in the temporary relief, Stamp Duty as a whole is looking increasingly unfit for purpose. As a tax on property transactions, rather than wealth, it can put people off moving. This brake on the market is likely to be particularly unhelpful as Britain emerges from the shadow of Covid. The post-pandemic labour market will require a mobile workforce who can relocate quickly and easily, and in its current clunky form SDLT could prove a real barrier. The pandemic has already led hundreds of thousands of Britons to reconsider what they want from their home, and take action. According to HMRC, in January 2021 residential transactions surged 24.1% higher than their level in the same month last year.
 
<h2>Structural review of tax system</h2>
This is very encouraging, but in the longer term we need a structural review of how property is taxed. Above all we need greater fluidity in the property market, and for people to be able to trade up or trade down much more easily than is the case now. In addition to a shake-up of Stamp Duty, the Government could consider introducing incentives to encourage the sort of transactions that are most vital to a free-flowing property market – for example the retired couple downsizing from a four-bedroom house that a young family would love to buy.
Such incentives should bring more homes onto the market, and the resulting boost in supply should keep the lid on runaway property price inflation. The Prime Minister has rightly put ‘build build build’ front and centre of Britain’s post-Covid economic recovery plan.
But solving Britain’s housing crisis isn’t just about building more homes; the Chancellor needs to ensure the tax system plays its part too.

"Dear Rishi"... An open letter to the chancellor

Atelier Capital Partners has revealed that it has funded over £100m of loans since officially launching in January 2020.
Read the full piece <a href="https://www.bridgingandcommercial.co.uk/article-desc-16707_Atelier%20Capital%20Partners%20surpasses%20%C2%A3100m%20lending%20milestone">here</a>.

Atelier Capital Partners surpasses £100m lending milestone

These are extraordinary, unsettling times. Many of us may one day come to divide our lives into “before” and “after” the COVID-19 pandemic. And many of us are worried. About our health, our loved ones and our businesses.
In times like these, we must all do what we can to help our partners.
That’s why Atelier Capital Partners has pivoted its operations to protect its staff and continue to serve both borrowers and the broker community in the coming weeks and months. Since we were born last year, we’ve invested in both technology and people. We’ve assembled an exceptional team of highly capable and flexible staff.
Following the Government’s current advice regarding COVID-19, we’ve activated our business continuity plan and all our people are now working remotely. We’ve changed where we work, but not how we work.
Our priority remains the same – keeping our people safe while we continue to provide institutional grade finance for developers. Our range of short-term and development finance solutions has made us a trusted partner for SME property companies and the broker community across Britain, and we are committed to keeping that trust.
We have access to deep reserves of liquidity and together we’re continuing to do what we do best-providing vital finance to help keep Britain building.

How we’re keeping finance flowing despite Covid-19

The new government, and Housing Minister Robert Jenrick in particular, have a monumental task ahead of them in solving the UK’s deeply entrenched housing crisis.
The pressure is all the greater given that few would bet against the Conservatives being in power for the entire 2020s. The opportunity is theirs, but the scrutiny will be considerably more intense as a result.
In its election Manifesto, the Government states that it is planning to build at least a million homes over the course of the current parliament, and in the areas of the country that really need them.
In order to achieve this, it is aiming (like many administrations before it have aimed, arguably unsuccessfully) to make the planning system far simpler, and quicker, for SME developers to navigate.
Streamlining planning is certainly critical to get housebuilding in Britain on track, and in the volumes that are necessary. Quantity is key.
 
<h2>Building the right homes</h2>
But so, too, for the new Government, is quality, at least according to a fascinating interview that the Housing Minister gave to Prospect magazine in December. In other words, not just building more homes but building more of the right homes.
The Government, says Jenrick, is not just targeting volume through “generic housing estates” but homes that are “rooted in a sense of place and identity” and that build on structures that already exist (but are underused or unused altogether).
SME developers should be highly encouraged by this, as they are the ones who, with their local knowledge and understanding of community tone, are best placed to deliver precisely these kinds of properties.
 
<h2>Upcycling real estate assets</h2>
Regenerating existing communities, specifically by ‘upcycling’ the property assets that are already there, is what many smaller developers do by default. It’s in their DNA.
In many cases they are not building from scratch but bringing to life – or, as the phrase upcycling suggests, injecting new life into existing infrastructure.
They may not be able to compete with the major house builders in quantitative terms but their ability to look at housing through a qualitative lens has a key role to play in itself.
This kind of development is not just more environmentally friendly, as it uses materials that are already in place, but enhances the unique social fabric of areas by bringing out their historical character.
In that sense, upcycling is a step up on recycling as the benefits are not just physical and environmental but socio-cultural, too. It’s genuinely encouraging that the Government has this subtle but much overlooked difference in its housebuilding roadmap for the decade ahead.

Looking at housing through a qualitative lens

Britain’s small and medium-sized developers were squeezed more than most by the fallout from the Global Financial Crisis 12 or so years ago.
According to official figures, nearly seven out of 10 (68%) new homes completed in 2008 were built by SMEs. By 2015, that figure had shrunk to 41% as the smaller players lost market share to the big beasts of the housebuilding sector.
In its 2017 Housing White Paper, the Government put it more starkly, noting that “Britain’s 10 largest housebuilding firms build around 60% of our new private homes.”
Smaller developers, who lack the cash reserves and economies of scale of the big players, suffered during the credit crunch as the high street banks all but ceased lending to them.
They then fell further behind during the boom years that followed the recession, as the residential sector’s behemoths swallowed up great tracts of land – irrespective of whether they intended to build on it immediately or not.
That White Paper, complete with its politically-charged title Fixing our broken housing market, argued that a sector dominated by a few big players has little incentive to innovate, citing ONS figures which show the construction industry has increased productivity by just 11% over the past 25 years – barely a quarter of the improvement recorded by the economy as a whole. It also proposed a number of measures to shake up and diversify the housebuilding sector and, above all, get more homes built.
 
<h2>Supporting SME developers</h2>
The Government has since taken steps to make it easier for SME developers to access finance, and introduced a planning framework that speeds up planning decisions and is more supportive of higher levels of development. Regional authorities have done their bit as well. For example, London’s Small Sites Small Builders programme allows small-scale housebuilders to acquire parcels of publicly-owned land for development.
The initiative, which also helps public sector landowners like TfL and the borough councils dispose of surplus sites more easily, has spurred extra housebuilding across the capital. The Mayor of London’s office estimates that 25% of London’s new housing needs could be met by developments built on sites less than a third the size of a football pitch.
 
<h2>Keeping the wheels turning</h2>
SME developers have kept the flag flying for homebuilding elsewhere, too. The latest official data shows that private sector residential construction is flatlining – in the three months to the end of October, it was down 0.4% on the same period in 2018 – but that smaller developers have played a key role in holding the line.
While the combination of Brexit uncertainty, fragile demand and softening house prices has led many of the sectors’ larger players to mothball their development plans, in many areas it’s the SME players who have kept the wheels turning. In part this continued activity is dictated by cashflow and raw commercial forces. Without the deep pockets and landbanked sites of their larger rivals, smaller developers may not have the luxury of being able to defer investment decisions indefinitely.
But it’s also a testament to their greater agility and the closeness of their connection to their local market. Even when times are tough, developers who are nimble enough to spot and seize opportunities that the big beasts might overlook will thrive. Their success is also being powered by a steady easing of what has long been seen as a major barrier to smaller developers – the availability of finance.
 
<h2>Increased financial firepower</h2>
The Federation of Master Builders’ 2019 survey of housebuilders found that access to finance was seen as a hurdle by just 39% of SMEs, the lowest level recorded in the survey’s eight year history.
A decade ago a new generation of lenders, the challenger banks, stepped up to fill the gap left in the development finance space by the retreat of the mainstream banks. The sector has now matured, and boasts both strength and depth – with a cohort of well-funded specialist lenders providing finance that’s highly tailored to the needs of SME developers.
The combination of their financial firepower and the proven agility of Britain’s regional developers is a powerful one. Together they are changing the face of residential development and tackling Britain’s housing crisis, project after project.

News and Insights

SME property developers should act now to capitalise on market opportunities – new Atelier research reveals