During the credit crunch it has been almost impossible to raise bridging finance for new development projects, or even to get previously agreed finance to continue drawing down. This lack of available finance has hindered developers that they have not been able to commence or even complete projects. The high street and private banks have been reluctant to lend in the current climate and uncertain market.
The banks that still maintain that are they are providing lending are making the terms too arduous or providing levels of funding that are insufficient to requirement. Decision times have increased dramatically with the lenders procrastinating in such manner that could identify this as an intentional effort to put developers off. This has made property development finance virtually unavailable in the UK.
Some UK bridging loan lenders now believe the residential property market will begin to increase in value, as they believe the bottom has now been reached with the price drops. Therefore for new or part completed projects in good locations they are willing to provide lending.
Unfortunately the maximum loans available are now down to what they were before the credit crisis. The maximum Loan to Value (LTV) is also down, 100% funding is now a thing of the past, lenders now want developers to contribute some of their own funds or assets adding security to the loan.
The maximum bridging loans are 70% of the purchase price and 60-70% of the build costs, which are paid in areas. It should be noted that development loan lenders use 90 day values for a valuation of the property, this is a forced sale value or auction house value.
Loan terms are normally no more than twelve months, eighteen months on special arrangement, and lending rates for this type of funding are between 1.4% and 2% per month with an arrangement fee of usually 2% of the loan amount. Other costs will include valuation fees and legal fees.
The preferred types of development are small developments with not many units or small blocks of flats no more than six flats per site. The development sites have to be located in areas that are not awash with similar developments or with large unsold or incomplete adjacent developments.
As this type of finance is not provided by all lenders, access to funding can be arranged through specialist bridging loan brokers who have access to a panel of lenders only accessible by intermediaries.
