The High Street Banks effectively own large land banks which they do not want to foreclose on as then the debt would have to be written off. This would change the loan from an asset to a liability on their balance sheets. What this means for developers is that funding from High Street Banks is technically possible but practically nonexistent. Therefore the question we ask “Is funding still available for small developers in the UK?”
Things have changed in the development market, where before any scheme, irrespective of their merit, and in any of the less fashionable parts of the country were fundable by banks falling over themselves to get their cash out in to the property speculation bubble. Now although the banks claim to be lending it would appear that they will only lend to asset rich clients with a solid financial base who have no existing large debts. If you don’t need the money the banks will lend to you. This does not help developers who are trying to enter the market or those that own sites but do not have the cash to complete the development.
Fortunately some of the more farsighted lenders are taking a pragmatic approach to lending and they will now lend in most parts of the UK although they are still selective by post code. However gone are the days of high street rates of base plus 2% to 4% per annum now they are between 1.35% and 2% per month. But on the positive side, today’s lenders are more pragmatic and lend on the strength of the project as opposed to the financial standing of the borrower, where before the high street banks would only lend up to 70% of the construction costs, the new lenders who have entered the market will lend 100% of the construction costs.
Residential developments and conversions are now fundable with monthly draw downs made to an agreed schedule as work progresses. Developments comprising one and two bedroom flats are now virtually unfundable unless the loan to value is extremely low and the development is located in fashionable sought after locations. Speculative commercial developments are also extremely difficult to find funding for unless pre lets are in place with quality tenants.
So have things got brighter in the development area and is everything back to normal? Hardly some of the more speculative developments are now less likely to be built as will those with narrow profit margins. High Street banks who are facing political pressure to increase lending are issuing more offers but they are now not being taken up as the loan to value of the lending is now very conservative and the borrowers finances are now under increased scrutiny.
Sunrise Commercial Finance is a bridging loans brokerage in the north of United Kingdom, that provides bridging finance for both residential and commercial gaps, and development finance for overseas property.
www.sunrisecommercial.co.uk
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