Specialist Finance Introducer

Northern Irish SME developers urgently need more funding

Roxana MohammadianMolina

Chief strategy officer, Blend Network

Specialist development finance lender Blend Network recently announced the opening of a new Northern Ireland office in Belfast, responding to the rising demand for specialist finance solutions from local house builders and SME developers. Roxana Mohammadian-Molina, chief strategy officer at Blend, argues that much of Northern Ireland’s lack of housing supply is due to the gap in the supply of finance for housebuilders and SME property developers.

The price of an average house in Northern Ireland has increased by nearly £28,000 since the start of the pandemic, equivalent to annual average earnings in the region. According to data from the Nationwide House Price Index, average Northern Irish house prices saw the second-fastest increase of all the UK regions and nations last year (+12 per cent YoY), higher than the average annual price increase in the UK and more than double that of London. In 2019, the year before the pandemic set off sharp house price rises across all UK regions, Northern Ireland saw the fastest growth in house prices (+3.2 per cent), more than six times the growth in the UK (+0.5 per cent) at a time when the average house price in London was declining (-2 per cent).

While all UK regions have witnessed dramatic house price movements over the past two years due to a combination of the stamp duty holiday and the so-called race for space during and after the peak of COVID-19, the reasons behind Northern Ireland’s price activity appear to be much more complex. The constant lack of supply and the consequent backlog of available new private and social homes across the region have characterised the Northern Irish housing market for well over a decade since many lenders exited the market in the aftermath of the 2008 global financial crisis that left many small house builders and SME property developers badly wounded. Land and Property Services figures show that between 2005 and 2007, 13,000 new residential units per year were being completed. Yet that number dropped dramatically in the years following the financial crisis, to a low of just 5,410 units in 2013 – when estimates from the Construction Employers Federation show a need for 9,000 homes to be constructed per annum in order to meet current demand. Land and Property Services figures on new dwelling completions suggest that in the decade between 2008 and 2019, a deficit of approximately 27,000 new homes was accumulated, the equivalent of three years’ worth of housebuilding targets. The pandemic has further affected housing delivery; in the nine months to September last year, only 5,560 units were completed – down from 7,644 units in 2018 and just over a third of the figure in 2006 (14,098 units).

Northern Ireland’s chronic lack of housing supply is tightly interlinked with the lack of readily available funding for small house builders and SME property developers. The results of British Business Bank’s SME Finance Survey 2020 offer further evidence of an existing bottleneck in funding for SMEs. Respondents to the survey felt that the top two obstacles to SMEs’ demand for finance were the lack of awareness of the finance options available to them (72 per cent), followed by access to the supply of finance (57 per cent). Overall, 83 per cent agreed there was a gap in the supply of finance for SMEs, whatever their stage of growth.

If we are serious about tackling the pressing housing crisis in Northern Ireland, we need to ensure that more funding is available for SME property developers to deliver more homes. M I

Doing equity release right

Stuart Wilson

CEO, Air Group

Last month, the Financial Services Consumer Panel published a qualitative research paper comprised of interviews with 45 equity release market participants to ascertain their view on the process leading up to an equity release sale, and their feelings after it.

When such publications are released, there can be a natural tendency to be somewhat defensive about the findings, or to try to dismiss them if they do not chime with what we believe the industry is providing or with our own experience with clients.

However, my view is slightly different. I feel that the better we can understand the motives of customers, and review whether the outcome they received and the advice process they went through were good for them, the more we should be able to shape advice to deliver more positive outcomes.

And these surveys should also flag potential areas of future concern, which could be headed off at the pass early on, and perhaps ensure that later on down the line, the customer doesn’t feel any remorse or regret.

Compared to the thousands who take out equity release each year, the paper used what was admittedly a very small sample consisting of only 28 actual customers – some of whom said they took out retirement interestonly mortgages – as well as 13 family members and four people who had considered these products. That said, by drilling down, particularly into those pre- and post-completion feelings, I think there is some good feedback to be taken on board.

Pre-sale, the research appears to show that, while there was a general level of understanding about equity release, participants didn’t necessarily know how it worked in practice, or what it would ultimately mean, for example, around ongoing interest payments, compound interest, and the like.

This brings home how important it is for advisers to couch these concepts in terms that customers can understand, because if understanding comes only after the sale has been completed, then the chance of dissatisfaction will be higher. This also holds for the potential impact on equity, inheritance, etc.

The other important point that came through to me, especially in terms of the post-completion reaction, was the need for review time to be built into the process – that is, giving clients the chance to breathe between the advice provided and their decision, and giving them time to discuss things with you and anyone else they might wish to.

There is a natural buffer period that exists between the time the case is written and when it is issued, and it is perhaps during that period that the adviser might want to check in with customers about their intent, so that they do not feel they are already locked into something they can’t walk away from.

Of course, there will be those who want to have the money as soon as possible, but in a sense, it is perhaps these clients who require that breathing space more than others.

I wonder sometimes if we might be able to correlate any customer regret levels with the desire those customers had to get the money quickly and the time they took (or did not take) to decide on the equity release/later life product.

Advisers will often get a sense from these sorts of clients who want everything done yesterday, and it is probably worthwhile slowing them down as much as possible, just to ensure they are absolutely clear about what they are signing up for and the responsibilities that come with that.

Again, this need to complete quickly might also sometimes be a red flag to advisers, especially if it looks like, for example, a family member in the background might appear to be having too much influence over the clients.

Taking the time to speak to them outside that family member’s sphere of influence could be vital in understanding whether the clients’ motives are genuinely their own or they are being pressurised into equity release/later-life lending.

I know many advisers do conduct a post-completion interview with clients, and will keep in contact with them, but not all will. The research appears to suggest a norm of limited contact after products complete, and both advisers and providers should perhaps look at doing more in this area.

With the concept of remortgaging or rebroking equity release plans gradually gaining consumer confidence, this is certainly something that we as an industry need to consider.

It’s plain to see that the lower the level of understanding about the product, the choices they have, their responsibilities, etc, the higher the chance of customers being dissatisfied after completion. We may well think we are being crystal clear in our customer dealings and that there can be no doubt the client is fully clued in about everything you have discussed and what they are signing up for, but that isn’t necessarily the case.

This research appears to show that even if you think you have covered this to the nth degree, there is still a good chance the understanding may not be there.

Advisers may rightly argue that they can sometimes do no more in this area, and if the customers don’t understand at a certain point, they may never do. That is unlikely to wash with a regulator or consumer group, so we need to be careful here, and to build plenty of time into the process to secure their understanding and to ensure we have records of the multiple times information is provided. M I