Majority of developers are optimistic their projects won't be impacted by Brexit this year

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Some 66% of developers do not expect any of their developments to be negatively impacted this year as a result of the Brexit deal, according to the latest DFT poll. Just over a third (34%) think it will adversely affect them. With the pandemic causing the closure and slowdown of many development sites during the past year, alongside numerous lenders pulling out of the market or putting their funding on hold, developers have had a difficult period starting or completing their projects. As we emerge from the dark shadow of Covid restrictions, will Brexit become the next hurdle to hold the development market back?

Phil Gould, principal at Avamore Capital, emphasised that the impact of the UK’s separation from the EU had been felt long before Brexit formally took place. “Soon after the 2016 referendum, the market saw reports around the reduction of available labour from the EU workforce; furthermore, developers were already experiencing the impacts of increased material costs due to fluctuating exchange rates against the euro. Cost overruns and unexpected delays were a clear consequence of Brexit uncertainty before this year (indicated by the launch of our finish and exit product in 2019, which was designed to address exactly these points) and so, we witnessed developers working to the circumstances around them. This year, Brexit consequences may be set to intensify, but developers have had the luxury of time and been able to foresee some of these issues arising, and therefore make appropriate allowances.” 

While the housing shortage persists, interest rates remain low, the availability of funding remains high, and the government continues to support the construction sector through planning reform and economic support, it stands to reason why developers are still hopeful. 

It’s all about residential

Clearly, there is currently more confidence in the residential sector, which likely reflects the lack of supply, compared with the commercial property market. According to the January 2021 Land Registry UK House Price Index, the average property price stood at £249,309 - a 7.5% rise year-on-year. The North West witnessed the strongest growth, where prices increased by 12%.

“We obviously have an enormous shortage of housing, and it is difficult to see that changing any time soon,” said Adam Tauber, specialist underwriter of development finance at Crystal Specialist Finance. He added that there has been a surge of commercial-to-residential developments and expects this type of conversion to be unaffected by Brexit.

Robert Orr, managing director at Paragon Development Finance, points to the extension of the stamp duty holiday as having provided further stimulus, while the new iteration of the Help to Buy scheme will support those looking to purchase their first home. “Many people have been forced to spend much more time at home and that has helped them reconsider what they want from their property, including quality of finish and efficiency of space, which can be better catered for by new-build homes,” he commented. “Developers are also marketing property in an environment of constrained supply. Housing stock for sale is below historical levels as people have held off putting their homes up for sale during a pandemic, so this has created a strong environment for developers when combined with an upsurge in buyer demand.”  

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