Corporate Finance Associates Blog

In the pre-Credit Crunch days there were two essential ways to finance a development project, go with a bank who would usually lend up to 65% of the land value and up to 65% of the build costs drawn down in stages as the development progressed, or secondly go with a specialist lender who would lend up to 60% of the Gross Developed Value (GDV), often resulting in less input from the borrower and very often 100% of the build cost covered.

In the former case, it was great if you had the funds, most developers didn’t as their money was still tied up in the last development that was now being sold, in the latter case, these forward thinking lenders made development funding a much easier proposition.

Well we have the Credit Crunch, and a lot of the GDV lenders either closed their books (some of them having Icelandic parentage) or took a step back to see what the market would bring, and the high street banks just refused to sanction new deals at all, but would not announce to the marketplace that they no longer had an appetite for this sector. Out of all this however there remains some specialists who still know what they are doing and can still help with the smaller projects.

We are now 3 years on and after the previous years where large developers were shedding completed stock, by bulk sales or heavy discounts, and closing up other ‘in progress’ sites after making them wind and water tight, we have seen a  return to a low level of ‘normality’, as in certain parts of the country work has started once again in earnest.

The lending climate has changed however, the GDV lenders are few and far between but will look at smaller residential deals (very few lenders at all are looking at commercial builds unless they are either pre-sold or pre-let to a reputable end user) up to say £5m. They limit their total advance to about 50 – 55% of the GDV and expect the developer to exhaust his own funds first before drawing on theirs. Interest rates are higher often as high as 9% p.a. and if the interest is to be rolled into the deal rather than separately serviced, the LTV limit has to allow for payment of these as well.

There is however further light at the end of the tunnel for very sound, house based, development funding in the SE of the country and in certain circumstances for very tasty propositions we can achieve as high as 70% of the GDV.  At this level funds will run out quickly and I would expect these private funds to be very selective in what they wish to support.

The banks are still there in a minor way but are not keen to lend in excess of 50% of the land costs, and a similar amount of the build costs and there will always be the need to jump through an extensive array of ‘hoops’ first, so don’t expect them to be major players for quite a time to come.

If you have a project that would benefit from our input why not give us a call or visit our contact page.

The recession could be over for the buy-to-let market, as mortgage lending to the sector picks up once again and landlords look to take advantage of more affordable property prices and high tenant demand, says Lettingsearch.co.uk

Buy-to-let investors are beginning to fight their way back into the property market as prospects for the sector improve following a sustained period of restricted financing and, until recently, weak rental yields. With banks finally increasing their buy-to-let lending in quarter three, a period of sustained investment in the industry is set to follow.

Many professional landlords still have liquid cash available to invest and are now likely to look to expand their portfolios over the next few months, buying property at the more affordable levels before prices climb too far. Investments in other asset classes continue to under-perform, and as a result, city bonuses will also be channelled into investment property, bolstering the buy-to-let sector further.

Investment in the sector will be underpinned by strong and rising tenant demand for lettings accommodation, as homeowners and first time buyers turn away from the sales market and will fuel heightened activity in the property market as a whole.

Phil Calderbank, Director at lettingsearch.co.uk, comments:

“Mortgage lenders are once again recognising the important role lettings has to play in the property market and as investors with liquid cash make a move to take advantage the affordable property, strong tenant base and improving returns, I think we can safely say that the recession is now over for buy-to-let.

“Many so-called reluctant landlords have discovered a new income stream and we believe some of these people will stay in buy-to-let and even expand their portfolio. This will further strengthen the buy-to-let sector.

“The current rate of house building cannot meet the demand from potential buyers, and while lending to homeowners remains scarce and the uncertainty over unemployment looms on the horizon, we will see people choosing lettings from every rung of the ladder.”

© MyIntroducer.com 2009