Specialising in mortgages for new build homes, naturally I receive my fair share of enquiries for properties being built in the Nine Elms regeneration area. This site is to include around 20,000 homes, split across several developments, stretched along the Southbank of the Thames between Battersea and Vauxhall. This is all part of a master plan which is set to provide green spaces, visitor attractions, and 25,000 permanent jobs!
The neighbouring boroughs of Wandsworth and Lambeth set up the ‘Nine Elms Partnership’ just seven years ago, and since then we have seen investment in a new tube station, US embassy construction, proposed New Covent Garden Market transformation, and the announcement of Apple opening their flagship HQ!
Most people are of course familiar with the redevelopment of Battersea Power Station, which is set to provide 4,000 new homes, and finally got off the ground in 2012 after three failed attempts over 30 years. This £8bn scheme is backed by a consortium of Malaysian developers, who managed to sell £600m of units within the first four days of the launch of the first phase.
The area has, however, come under fire from the media, and has been dubbed as a potential ‘ghost town’ and ‘property bubble’. Part of this negative media has been fuelled by the nature of overseas investment in the area, which has seen initial buyers selling on their contracts, initially bought around 3 years prior to completion, for (sometimes) sizeable profits to third party investors / end users. Now that the market has cooled, due to factors such as stamp duty hikes, capital gains tax, changes to rental income tax treatment, and of course the EU referendum result; these initial investors have been unable to realise the same level of profits, and in some cases have been forced to sell at a loss, as they had no intention / ability to complete on the purchase in the first place.
Given that there is so much lead time between initial reservation of these units and completion, the investors are quite happy to keep the properties marketed for sale for months on end until they receive an offer which is acceptable to them; if at all. This of course means that if you are to look at an online portal such as RightMove, there would be dozens of properties seen as ‘for sale’ in any one particular development, which does raise questions to sceptics.
The first phase of Battersea Power Station is now starting to complete, and towards the end of 2016, when applying for a Buy-to-Let (BTL) loan for one of my clients, I was surprised to find that Precise Mortgages were no longer lending in SW8 or SW11. This wasn’t just development specific, but post code specific, which I found as bizarre given that these two postcodes cover such a vast segment of southwest London, including rows upon rows of terraced houses and flats surrounding Clapham Junction station.
I moved on, and instead referred the property to my business development manager at Paragon, only to find that they were set to have an internal meeting on the matter, the result of which led to the decline of any applications on new build developments within the Nine Elms area.
Precise and Paragon aren’t your everyday high street lender, however they do have their place in the market and make up a reasonable share between them. They cater more towards your typical professional landlord, with no minimum income requirements, and fairly lenient rental stress tests. They also both offer mortgages for limited company / special purpose vehicle purchases, which are becoming more and more popular due to recent tax changes.
Other lenders in this space would include Kent Reliance, and Fleet Mortgages, and low and behold, they also have issues with Nine Elms!
Finally, I managed to place the mortgage with Metro Commercial, however even that included fairly rigorous scrutiny of the development, and only 55% lending could be offered.
Most major lenders will naturally have their exposure limits, typically lending on no more than 10-20% of any particular scheme, which is understandable. Fortunately, no high street lender would appear to have specifically singled out this strip of the Southbank, though all it would take it one major lender to give in to the media pessimism in order for other lenders to follow suit like a house of cards, and of this self-fulfilling prophesy to realise itself.
Nine Elms of course isn’t the only regeneration project in London, you of course have the likes of White City, with flats at the old BBC ‘Television Centre’ starting at £750,000, or East London’s Docklands, where you have a certain scheme, Royal Wharf, which rivals the size of Battersea Power station, at around 3200 apartments. So far banks haven’t taken a sweeping view of lending on properties in these areas, but given such a large proportion of these homes were also sold to overseas investors, and they are soon to see a vast amount of supply hit the market a similar time, we could see a similar trend to Nine Elms.
Certainly the next few years will present some challenges for builders, investors, lenders, and mortgage brokers alike. Fortunately, given our unique links with developers and regular contact with the country’s largest lenders, we tend to stay one step ahead, and can prepare our clients accordingly.
I’ve personally been to visit a number of these developments, and the likes of Embassy Gardens, Riverlight, and Battersea Power Station are all built to some of the highest standards I’ve seen in London. The general specification of the apartments and lobbies makes it feel more like walking through a high-end hotel in Dubai or Singapore. One of the developments, One Nine Elms, to be the highest residential tower in London at 60 stories, even has its own luxury five-star-hotel within, from which you can order room service directly to your apartment from their ‘world class’ restaurant! The service charge however, will be as eye-watering as the views!
I think that to write off an entire post code is a fairly preposterous stance to take to lending, particularly when you look at the current affluence, along with the ongoing investment and transformation of such an area. It would be far more sensible to exercise a case-by-case approach, as otherwise the domino effect could be catastrophic.