Firstly, let me say, I hope you and your family are in good health at this very difficult time. I’ll discuss all the key aspects of the impact of COVID-19 on our industry below but keeping safe and well is, of course, the absolute priority.
It took just a couple of weeks from social distancing measures to be implemented to housebuilding sites across the country being closed down. Primarily, this was to protect staff and subcontractors but within 72 hours construction became impractical as getting materials to site became an impossibility.
Furthermore, as sales outlets closed every builder sought to preserve cash and spending on sites in progress no longer made financial sense.
Talking of retaining cash, a number of listed house builders have cancelled planned dividends and many have come to voluntary arrangements with staff to take anything from a 7.5% to 30% pay cut for the foreseeable future. Some have cancelled bonus and pension payments to their executive teams. It is also likely we will see a big reduction in land spend for the remainder of the year.
There’s no doubt the government job retention scheme will help builders slow the drain on cash balances and save jobs during this difficult time. Many sales and site staff are already furloughed. Interestingly, many have been sent home on full pay with employers maintaining the difference between furlough and full salary.
It appears that housebuilders which have chosen to do this are factoring in long term staff loyalty which may be tested in more buoyant times.
With everyone working from home, regular video conferencing calls are being used to keep up progress on ongoing projects and support team morale. A couple of Managing Directors have told me that working from home is actually providing their staff with efficiencies not found in the office.
The biggest distraction is for those employees who also have children at home. Maybe this crisis will change industry attitudes to working from home which have lagged behind many other sectors in the UK.
Housebuilding’s fortunes are always closely linked to the cost and availability of mortgages and already we are seeing changes to lending criteria.
A number of banks and building societies are reluctant to accept any new mortgage applications and have moved the maximum loan to value ratio to just 60%. Some have justified this move on the basis of being unable to complete physical valuations currently.
Others have cited the need to support a high demand of enquiries by existing mortgage customers requesting a payment holiday. Only time will tell if low LTV ratios are a temporary measure or if the lenders persist with much tighter lending restrictions in these uncertain times.
It’s good to finish on a positive note, so I will leave you with this. Housebuilding has been able to assist in the fight against COVID-19 by supplying desperately needed PPE in the NHS. Several builders including Barratt and Persimmon have responded by donating protective masks to local NHS hospitals. If your firm has been involved in donating PPE, well done!