Sales stall, what are the options?
The challenges in the property market are continuing according to the latest data from HMRC, with May 2019 delivering the lowest number of sales for the month since 2012.
Property transaction figures from the taxman show there were 89,830 sales on a non-seasonally adjusted basis last month. This is the lowest figure for May since 75,350 transactions were recorded in 2012.
Regionally as usual there were big variations.
The biggest drop was in Wales, where sales fell 24.5% over the month to 3,040 and 30% down compared with 12 months ago.
Transactions in England rose 2.3% on a monthly basis to 75,640, but were down 4.7% annually.
In Scotland, sales fell 0.7% over the month to 7,920 and were down 4.5% annually, while volumes rose 9.4% in Northern Ireland on a monthly basis to 2,230 but fell 0.8% annually.
This data supports the anecdotal evidence we are seeing daily with our clients, who are increasingly seeing their capital tied up in finished stock awaiting sale, and development finance lenders applying some pressure on repayment. Whilst the market remains subdued for sales, and the continuing political crisis appears not to offer any immediate respite, there are other financing options that clients can consider.
Subject to the rental income and yield profile of any finished schemes, there are a lot of options for raising a BTL or portfolio mortgage to repay the development finance and potentially release some of your capital. This also means the interest will be meet from the rental income rather than continue to roll up into the facility on a development loan. equity as well as replacing the debt on more favourable terms.
Alternatively, for those committed to selling the stock and not converting to short/medium term rentals, there are several short-term loans on the market that are designed to provide “Sales Period” funding. These products are sometimes referred to as “Developer Exits” as it replaces the development finance loan with a new facility, can free up locked in capital and provide the time you need to sell into this market. Typically, the lender will take 100% of the sales proceeds every time you sell a unit, but in cases where the overall loan is low relative to the value of the property you may be able to receive a percentage of the proceeds as well.
There are a range of potential tax and VAT implications that need to be considered in conjunction with your professional accountancy advisor, and you will clearly lose any new build premium. However, it is an alternative to waiting for existing stock to sell, considering deep discounts or missing out on new opportunities where you might be able to buy into new projects at attractive prices given market sentiment.