20/07/2022
Annual UK inflation for June came in at 9.4%, slightly above median expectations.
As a result, the Bank of England is expected to increase its base rate by another 50 basis point in early August.
What are the potential implications for the development property finance market?
(i) GDVs growth expectations will further cool off (higher finance cost tend to dent demand)
(ii) Build costs forecast likely to remain high (i.e. ongoing inflation)
Against that backdrop, credit might become tighter: (i) lower gearing (in anticipation of GDVs contraction) & (ii) increased pricing.
All in, projects will become less profitable whilst requiring more equity on day 1 to plug the debt shortfall….
Expect Return on Equity ("RoE") to be impacted…