Is 2022 the time to invest in property? - How development finance can ensure you don't miss out
2021 was a remarkable year for the UK property industry. While the economy continued to reel under the pandemic, homebuyers were largely unfazed thanks to the significantly low mortgage rates with stamp duty holidays.
Looking at property sale trends, the crucial question to answer is - will 2022 be the right time to invest in property? It’s a question that’s not limited to homebuyers. Property developers, landlords and property investors are equally cautious of changes set to take place in 2022.
We believe that the 2022 property market will be a buoyant one, and for developers a time to invest in both land and property but this might come across as a sweeping remark. It's important to know the trends that are shaping the UK property market in 2022 and how you can offset initial investment costs via development finance.
Expect property prices and rent to go up
Industry leaders and research firms are optimistic about a solid growth in property prices in 2022 and rent prices won't be far behind. According to a report by Savills, UK property is set to increase 21.5% in value in the next 5 years. JLL has predicted that rent prices will increase 2% in 2022 and considering the average UK property price increased by a whopping 10.2% over the year to October 2021 you can be fairly confident that the graph will continue to have an upward trajectory during the short to medium term.
All of this can be traced back to two factors: pent-up demand and a general lack of supply. The demand-supply graph has been extremely disproportional during the pandemic and supply chain challenges only added to the misery. However, things are stabilising quickly and the property market should see a return to the pre-pandemic state, albeit with an increase in sale prices.
Know the high-growth areas
Before investing in UK property this year, you should know the areas that are set to yield high returns.
Among the established cities with economic and cultural climates, Birmingham and Manchester are enjoying renewed interest. The northwest and the Midlands are the areas where investors are going to see better ROI. But these are not the only places attracting property investments.
Emerging markets and London suburbs are showing considerable growth as well. For example Bracknell, a smaller town outside of London is projecting growth in double digits in the next five years. London is forecasted to grow as well, but it might lag behind the north and the Midlands.
The diversification of high-growth areas has been propelled by the remote work culture and the general preference for a calmer, sustainable and suburban lifestyle.
Increased opportunities for property portfolio diversification
After the pandemic and Brexit, the trend of acquiring homes has gone through multiple changes. Thanks to a steep increase in prices, the affordability of owning your own home is a key factor in an increase of renters, and with that developers are keen to meet the needs of generation rent - adults aged 18-40 who have been priced out of the housing market.
According to SevenCapital, UK renters will leapfrog homeowners by 2039 so rental properties present a clear opportunity for investors. Additionally trends such as staycations and the increased awareness of sustainable living are compelling investors to diversify their portfolios and leveraging development finance is allowing them to undertake multiple new developments simultaneously.
What is development finance?
Development finance is a short term funding solution that’s typically taken out for a term of between 3 to 24 months and can be used to fund both the site acquisition and ground up developments. Development finance can also be used to finance heavy renovations and change of use conversions for residential, commercial and mixed-use developments.
This type of loan can be very cost effective as the loan sum is paid out in tranches as the build progresses, therefore the developer is only paying interest on the money required to get the project to the next phase. With each new phase the project’s value increases ensuring the loan to gross development value (LTGDV) maintains a ratio that’s within the terms of the loan.
It is a specialist financial product designed to meet the requirements of developers by understanding the timescales and financial requirements specific to the construction sector.
What are the benefits associated with development finance?
If you're planning to invest in UK property, a development loan can help.
- Get a short-term (3-24 months) loan to complete the project
- In most cases, borrowers are eligible to get up to 100% build cost, which is disbursed in tranches
- The loan to gross development value (LTGDV) is typically up to 65%, but with additional securities, it can increase to 100%
- Development finance allows developers to finance build schedules and not tie up their capital in their developments.
Finbri: property development finance made easy
Forecasts anticipate a further 3.5% rise in property prices in 2022 and by 2025, total growth in the property market is predicted to reach around 21.5%. Couple this short term capital growth opportunity with the long term shift towards increasingly diverse developments where the UK requires more BTL’s, mixed-use developments, change of use conversions - demand for development site’s in 2022 is high and so is the competition.
Don’t miss your next development opportunity. We can arrange fast finance for site purchases, ground up developments, refurbishment and renovation projects up to £250m.
Book a call with one of our development finance specialists to find out the best rate we can offer on your development.