Quality Speaks For Itself

Lack of funding takes it toll on UK Housebuilders and investors

Posted in General information by Ash on July 9th, 2008 03:42pm

Last time out I mentioned that UK developers were reporting a marginal fall in visitors to their show homes and the real problem was availability of finance. I believe that finance is still the key issue in the UK with lenders having been burnt with over enthusiastic lending policies in the recent past now retreating to the trenches completely. A great (or not so great!) example of this is Bradford and Bingley who in my opinion were one of the key drivers behind the buy to let phenomenon. They are clearly suffering as they wobble from one fund raising attempt to another in a desperate attempt to provide themselves with liquidity and shore up their balance sheet.

The knock on effect has not taken long. Over the last week or so we have seen virtually every major house builder in the UK announce major restructures, freezing of new development and write downs in values of strategic land banks. Without exception it was these house builders that led the stampede to build city centre apartments using the easy credit that banks and building societies were making available to buy to let investors.

Whilst I await the latest interest rate decision to be announced tomorrow with some interest, I don’t think this will have much effect. Financial Institutions are just not interested at the moment, they simply want to preserve what cash they have and looking to raise more. The Royal Bank of Scotland Rights Issue got away (just!) but the HBOS issue is already underwater and may struggle. Perversely, I think that this lack of financing and hence new development will help investors in the medium term as less new property comes onto the market good quality property will be in short supply for the rental market as lack of high loan to value mortgages will force more First time buyers to rent and rental yields will start to up. In the short term investors are better off looking for discrete opportunities offshore where growth is still available.

Investors with falling UK property portfolio values as well as those thinking of taking up their rights in an equity issue should remember that markets are cyclical and investing is for the long term. In the short term, sophisticated investors are using the current uncertainty to seek out new opportunities in selective offshore markets where there is still property price growth and funding available. I believe that they will be the winners in the long term.