‘Perfect storm’ starts to ease in Yorkshire as residential market picks up
The “perfect storm” of interest rate rises, material cost increases and house price stagnation that has led developers to remain cautious about building new homes over the last two years is starting to ease in Yorkshire as the residential market picks up again, according to a property finance expert.
James Espley, director of finance at digital bank OakNorth, said this year had been ‘really tough’ for the industry.
“We’ve seen a lot of caution,” he said. “Over the last 12-18 months, or even two years, we’ve seen a rise in costs, rising interest rates and values plateauing.
“It’s been the perfect storm for developers and a lot of them, therefore, have been hanging on and waiting. But we’re now talking to a few big players in the market and they’re thinking now is the time to get on with something.”
He added: "It’s been really tough for all parties and, personally, I don’t think there’s been enough realism in the market, particularly for people selling their land who think they can achieve the prices that were there two years ago.
“It’s not going to happen and it is stymieing development because it has an impact on the viability of a scheme.
“I’ve been doing this long enough to know that at some point the realism kicks in and it does start to make the market move again. People are able to buy land at the right price and it means the scheme can work.
“We are starting to see signs of that now. We’ve probably put out more sets of terms to developers in the last three months than we have done for the rest of the year.”
OakNorth provides loans, ranging from less than £1m to more than £50m, to developers for both development projects and investment.
It typically provides £80m of lending a year out of the Leeds office into the Yorkshire and North East market to both residential and commercial clients.
In April this year, OakNorth supplied £12.5m of funding to Yorkshire-based housebuilder, Honey, to build over 250 additional new homes across the region.
Meanwhile, the bank financed a further five bungalows for early onset dementia and special needs patient at Park Lane Healthcare’s Lavender Fields Care Village in Pocklington, where it recently developed 24 bungalows and a care home.
“We do quite a lot of funding into the care sector and one of my biggest clients is a big care home developer,” said James. “There does seem to be a trend towards these care villages where you have a lot of facilities and amenities, which help people to live in their own space for as long as they can.
“I think there is going to be a lot more demand for these types of properties in the future.”
However, James said although the residential development market was starting to move there were still delays in the system. “There are a lot of terms going out where there’s not a great deal of movement immediately,” he said.
“But I do think as we go into next year – the first half of next year – we’ll see an uptick as long as nothing else happens in the world to stop it.”
He added: “Developers have been really savvy with looking at where the market is and what they should be targeting in terms of their offering.
“We’ve seen a number of cases where the spec of the scheme has come down a bit because it would potentially reduce the cost of the scheme and also make it available to a wider market.”
James said there was a shortage of buyers for upmarket family homes. “There was a big surge in executive housing at one point,” he said. “They are the homes that have been sticking a bit more.
“The people who are buying those are not wealthy enough to not need a mortgage but the cost of the mortgage they need has gone up quite a lot in the last couple of years.”
Looking ahead to 2025, James predicted an increase in activity across all sectors in development.
“There has been a demand drag as a result of the headwinds that have been there for the last couple of years so I really think that will start to kick in and more work will start."
The average price tag on a newly marketed home fell by more than £5,000 in November, according to property website Rightmove.
The firm said that the typical asking price for a home coming onto the market is £366,592, down by 1.4 per cent or £5,366 month-on-month.
However, looking ahead to 2025, James said he expected the pent up demand to increase house prices, at least in the short term.
“There is a big demand for good quality houses. I think in the short term you’ll probably see prices go up a little bit until we get to that tipping point where supply is there.”