Property Development Lending Challenges

We have seen many changes in the property development lending sector in the past twelve months with the Covid-19 pandemic driving those changes.  The confidence of those whom fund property developers is reliant on the exit strategy of any project and, of course, buyer demand can be crucial.

Demand from potential buyers saw a huge drop last year as the first lockdown meant all but essential house purchases being put on hold.  We then awaited with bated breath as to how, or if, the market would get going again.  The April 2020 RICS Survey of Chartered Surveyors was unsurprisingly gloomy with most agents reporting a drop in enquiries, new instructions and sales.  However, longer term agent expectations remained confident and a combination of pent-up demand and a stamp duty holiday, kicked things off again nicely.

So, what has this done to the confidence of those in the property development lending sector?  During 2020 we saw a number of lenders withdraw from the market, or in many cases, tighten their lending criteria. Changes in loan to value limits and interest rates were the first things to tighten together with a change in appetite for certain types of project.  The experience for many people during lockdown has led them to appreciate the value of private outdoor space.  This change has meant the demand for homes with a garden, or certainly generous outdoor space, has resulted in many such projects selling quickly off plan.

Development funding rates from 3.95% p.a.  |  Up to 75% LTV
Bridge funding rates from 6.5% p.a.  |  Up to 75% LTV with 100% Refurb
Joint Venture Funding rates from 15% p.a. for up to 100% LTV

House Prices Increased by 10.2% Over the Year to March 2021

The latest report this week from the Office of National Statistics (ONS) shows UK average house prices increased by 10.2% over the year to March 2021, this is up from 9.2% in February 2021; this is the highest annual growth rate the UK has seen since August 2007.  Were most of us in the property development lending business certain of that last March?

The ONS also tells us that “average house prices increased over the year in England to £275,000 (10.2%), in Wales to £185,000 (11.0%), in Scotland to £167,000 (10.6%) and in Northern Ireland to £149,000 (6.0%). However, London continues to be the region with the lowest annual growth (3.7%) for the fourth consecutive month.”

The next big questions will be how the market reacts once the extended stamp duty holiday ends and the effects of recession bite.  We will be watching this closely, as will all lenders in the property development lending market.

But for the time being, the property market is hot and if you choose the right project, there are active lenders with strong appetite to support you.  We have more then 100 lenders on our panel and with more than 350 loan products, we can help with development lending across the UK.

Call us today on 0207 096 2003 if you are looking for property development funding and we will be pleased to assist.  To compare property development finance instantly then click here!

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