When it comes to housing, this year will be one to remember.
As we posted last week on LinkedIn, the average home price has passed the £250,000 mark – an increase of over £30,000 since the pandemic began in March 2020.
However, a forecast by Nationwide indicates that, rolling over into the new year, tax increases and inflation could douse the fire of demand.
“Consumer confidence has weakened in recent months, partly as a result of a sharp increase in the cost of living. Even if wider economic conditions continue to improve, rising interest rates may exert a cooling influence on the market, though the impact on existing borrowers is likely to be modest” said Robert Gardner, Chief Economist at Nationwide.
Many anticipated the slight increase of interest rates by the Bank of England last Thursday, but instead they decided to stick with the already rock bottom rate of 0.1%. Despite this, the Bank made it apparent that a rise will soon be needed.
Inflation is currently at 3.1% but the Bank expects it could reach 5% by early next year.
Eventually, the Bank will need to begin offloading the £800bn debt accumulated over the course of pandemic. This, on top of inflation, is likely to put an impact on long term finance like mortgages.
It is unknown as to when these changes will come into effect, but they are coming at some point next year. Higher interest rates on mortgages are going to have a negative impact on demand for property – particularly for first time buyers.
What can you as a new home builder do to prepare?
The best thing any company can do when preparing for potential incoming costs or a slowdown in sales is to improve cash flow. Here are some ways to keep cash flowing through your business through periods of uncertainty.
The first thing you can do is improve your inventory. Draw up a list of goods and supplies that simply are not getting used up as frequently as others. These can tie up your cash. Inventory such as this could be buyer extras for your properties that rarely get chosen. Sell this inventory or buy much less to improve cash flow quickly.
Another common form of stabilising cash flow is by liquidating assets. There may be some equipment lying around that is simply not getting used. Selling off these assets are a great way to get your hands on some cash quickly.
Finally, the best thing you can do is prepare. Think about how market conditions could fluctuate and be prepared for each possible scenario. Preparation can make you invincible. Draw up cash flow forecasts and sales forecasts for a given time frame and compare your forecasts to your actuals every so often so you know exactly where you stand and how healthy you are as a business.
There are many tools out there which allow you to have total transparency over your business processes. Housebuilder Pro is a business management software system for new home builders. Sales forecasting and other finance related reports are available in Housebuilder Pro software, perfect tools to help you prepare for the near and distant future. Learn more here.
