Atelier surpasses £200m lending milestone amid changing business climate
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.