As the credit crunch continues to hit hard even though there appears to be some recovery in the wings; we all know that one of the more visible victims of this situation is the housing market. In particular house builders, who have either stopped any new projects or are now lumbered with large volumes of new properties they still struggle to sell.
The knock on effect of not starting new projects has been clear there could be years ahead when house builders could have a period when no properties will be available for release leaving them in a situation when it will be all outlay and no income. The biggest issue is with house builders with plenty of current housing stock and no takers.
There is no point in looking to Government for leadership; they have no more ideas than the average person on the street as to how to solve the issues of the day. As for Banks, well, they have no inclination or pressure to lend and being in public ownership has only meant them becoming more aggressive in cutting down their loan book.
It’s down to business to lead the way and do what most good businesses do best – use ingenuity, innovative thinking, and gumption to come up with a solution, after all, it’s their business and their industry.
Looking at all the parties involved we have the following key players:
The house builder with plenty to sell; the buyers with no money; The Bank of England with a historic low rate and the lender(s) unwilling to lend.
Just like mortar, if one of the component parts is missing or not in the right proportion, quantity or quality – the wall won’t stand. In this scenario the Lender(s) does not appear in enough quantity; the buyers don’t seem to have enough quality and the builders are out of proportion on prices. With this kind of ‘muck’ it’s not surprising that not a lot of walls are being built.
So what’s the solution? Well if all the elements exist then the answer has to be in the way you bind them together. What needs to happen is that house builders need to work in partnership with lenders; they then need to work as one in order to successfully sell and fund new property sales.
This collaboration will only work if the following is implemented:
First, the two parties need to agree that they are working in partnership to achieve the same end result. Second, as part of the terms regarding how they are to work together to promote and attract customers the following rules need to apply:
a) An exclusive working relationship.
b) Each party to promote the other beginning with the builder selling property to those buyers willing to use ‘their’ lender.
c) In turn, the criteria from the lender needs to go back to be being more realistic, for example, a 20 or 25% deposit for first time buyers is not realistic.
d) The buyer is a genuine buyer committed to buying a home not an investment.
e) The builder looks to guarantee part of the loan for an initial short period.
Exclusivity may at first seem a diffcult concept to accept particularly as it appears in favour of the lender, it does. The lender can lend to other mortgage seekers but cannot seek an alliance with another major house builder. Whereas the house builder can only use the lender and no other but in return, the lenders’ criteria is less stringent and more realistic.
For example returning to the issue of a deposit; if the calibre of the buyer is such 100% loans could still be viable, provided the buyer meets the rest of the criteria. In addition the builder will need to guarantee a part of the loan for a short, initial period. Whilst this may at first seem to be unpalatable, the builder needs to remember the object of the exercise namely to sell the vast stock of properties they have in their portfolio. If the buyers’ criteria is correctly identified and applied the risk should be minimal.
So, what should the criteria be? To begin with the buyer has to be just that – a buyer looking for a home to call home not an investment; they will be required to make a 3 – 5 year commitment to living in the property. Their financial status needs to be strong demonstrating their ability to afford repayments (even up to 100% and possibly interest only to begin with) plus all other expenses (utilities etc.), along with a good employment history. The precise details of what is acceptable to be agreed between the builder and lender.
There are however some areas of concern around the execution of this plan.
First and most critical, it must be ensured that the terms and understanding of the collaboration are clearly understood and well negotiated.
The joint marketing and advertising is of a high calibre with properly formatted joint messages.
The criteria for new buyers cannot be not onerous, or poorly presented by sales staff from both parties.
A smooth process from initial contact with house builders’ representative and the follow on to the lender needs to be a seamless experience from the buyer.
Properly trained sales staff, particularly at the house builder sites. It will not be good enough to simply have representatives, they will need to be highly professional, business like and competent in their understanding of the process as it is no longer a matter of showing details of floor measurements and colour options for bathroom suites.
In order to successfully construct this kind of partnership, it is important that the vision is set out and effectively followed and driven through by strong leadership. If house builders and lenders could imagine the powerful effect of such a collaboration in terms of marketing and advertising to potential new buyers of the advantages in choosing the partnership of X lender and X builder to secure their new home – this would have a profound effect on their view of their industry and the market of which the net effect would be taking back control resulting in the a reversal of fortunes.
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