Residential development finance market improvements good for the housing market

Residential development finance market improvements good for the housing market

12:46 PM, 14th August 2014, About 10 years ago

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40 finance providers ranging from UK clearing banks to hedge funds reported back in a survey by Knight Frank indicating improvements to the residential development finance landscape giving encouragement to the housing market and its desperate need to increase supply.

80% of the lenders expected to increase their exposure to residential development over the next 12 months, with less than 10% looking to decrease.

Significant report findings were:

  • The average interest rate charged for senior debt, across all loans is 5.29%.
  • 91% of lenders say they would consider funding mixed use and multi-housing schemes
  • More than half of lenders will consider a scheme with planning risks
  • A net balance of 70% of lenders expect to increase their level of residential development finance over the next 12 months

Head of residential development valuations at Knight Frank, Sebastian Wallis said, “we have seen a marked increase in the range of funders coming to us for specialist residential development valuation advice. Development finance is a sector that a growing number of participants find attractive in view of the risk/reward profile in a market that is facing a significant imbalance between supply and demand”.

Residential Development FinanceUnsurprisingly most lenders are likely to fund development projects in London and the South East as housing markets in these areas have demonstrated resilient demand throughout the economic downturn.

However there is now improved appetite for lenders to fund schemes throughout the rest of the UK. This reflects the increase in demand for housing helped not only by the governments Help to Buy scheme, but also be the improving UK economy and future expectations for growth.

The Graph to the right provided by Knight Frank shows where lenders would consider providing development finance over the next 12 months.

Although the development finance market is still not flowing as freely as pre-credit crisis times, the recent unlocking of funds will have a positive effect for house builders who have previously struggled to find backing for their projects.

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