During the credit crunch it has been almost impossible to raise finance for new development projects, or even to get previously agreed finance to continue drawing down. This has severely affected the projects that developers have been able to start or even complete. Banks, both high street and private have been unwilling to lend in this uncertain market. Those that say they are still lending when it comes down to it make the terms too onerous or the level of lending they are prepared to provide is too low. The time it takes to get a decision has increased significantly; sometimes it appears that the banks put so many hurdles in the way of finance that they are designed to put developers off. This has made development finance virtually unavailable in the UK.
However some niche Bridging Loan Lenders now think the UK residential property market has now reached the trough of the price drop and will soon start to increase in value again. Therefore they are prepared to start lending on new or part completed developments in good locations. 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, gone are the days of 100% funding, lenders now want developers to put in some of their own funds or assets. Now the maximum 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. Terms for these loans are normally no more than 12 months. 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.