Your Free Guide to Property Finance – Blog Launch
For the first Blog post I have provided a brief overview of the property finance market and a link to a Guide to Property Finance which may be downloaded and saved in PDF format.
Sourcing finance for property projects used to be (relatively) easy. Prior to the credit crunch the market was
flooded with banks and other lenders throwing money at eager developers and investors. Fuelled by deep pockets, sales targets and hubris many lenders financed projects which, to this seasoned observer, were car crashes waiting to happen. And they did happen. Many of the lenders went out of business as did their clients.
When Lehman Brothers went bust the lights went out and for the period 2008 to 2011 securing finance for short term property projects was very difficult. Sourcing long term buy to let and commercial mortgage finance for investment property was almost impossible as the banks went about shedding property loans from their books and repairing their balance sheets.
Indeed the high street banking market place isn’t much improved as these banks still have capital and liquidly issues and they are only interested in doing property business (under duress) with clients who have a strong financial covenant and lowly leveraged projects. Getting ‘new to bank’ business across the line is challenging, particularly for short term funding.
Demand for both short term (development and bridging) and long term (commercial investment mortgages and BTL) funding is high. As the economy improves, the value of residential property rises (aided in part by the Government’s First Buy and Help to Buy Schemes) and interest rates remain low, investors are seeking returns other than traditional savings/share plans. This coupled with a shortage of housing (in many geographical locations) has fuelled a boom in the BTL and first time buyer markets. It remains to be seen what effect, if any, the proposed SDLT and taxation (removal of higher rate tax relief on mortgage interest) changes have on medium – long term demand for residential investment properties and funding. There has been a spike in demand since the changes were announced with investors trying to acquire properties before the new SDLT tariff kicks in this April.
Thankfully other lenders have stepped into the shoes of the high street banks to meet this demand. Indeed at the time of writing this update (January 2016) there seems to be a new short term lender coming to the market almost weekly. Many of these lenders have little new or different to offer but the increase in supply is having a positive influence on the market. Pricing is reducing (although it is not and is unlikely to ever be at pre downturn high street bank tariffs), LTV’s are at or near pre downturn levels and geographical spread has reached parts of the UK other than London/SE. All this is good for the borrower and funding for property projects both short term and long term
is now available from a range of sources including investment banks, investment funds, challenger banks, bridging lenders, peer to peer platforms and private investors.
Underwriting ranges from the meticulous – on both the borrower and the asset – (high street and challenger banks) to minimal (a few non-status asset based lenders who are less concerned about the covenant of the borrower) but most lenders are somewhere in the middle. Pricing generally reflects risk (or perceived risk) and/or supply-demand, but not always. There are some lenders that price at the top end of the range but underwrite like a bank. Nice work if you can get it – good luck to therm. We will only work with such a source if there are no other options (unlikely) or they have a USP.
I have written a Guide to Property Finance in which I provide background information on the Development Finance, Bridging Loans and Buy-to-Let and Commercial Mortgage markets in FAQ format.
Furthermore, there are links to in depth Product Suites (LTV’s, pricing, loan sizes, locations, underwriting criteria etc.), a Resources section with useful tools (Aide Memoirs, Finance Appraisals, Finance Calculators, A&L and I&E Templates etc.) which may be downloaded and Industry Links to useful Websites.
To access and download the guide in PDF format CLICK HERE
I trust you will find the information in this guide and associated links of use.
I’m always happy to communicate with readers by responding to Blog posts, e mail or speaking on the ‘phone to discuss a specific project or to chew the cud about the market in general.