The challenges borrowers face
Property development is surrounded by a degree of uncertainty at this moment in time.
While there is always a risk of overrunning costs and delays to development, the prospect of Brexit being finally resolved is good news for house prices and hence development loan availability and interest rates.
Low-interest rates, a weak economy and a slowing housing market mean that the exit strategy of borrowers may not be as enticing to lenders as they once were if the development isn’t easy to sell on once the work has been completed.
Developers may have to resort to renting out the property they have built rather than selling it on.
Borrowers are also struggling to get their development work completed on time due to a lack of available labour as demographic reports suggest that skilled workers are retiring faster than new apprentices can be trained.
If the costs overrun and current lenders aren’t able to fund the excess cost, developers will struggle to get more finance in to complete the job in a short timeframe leaving them with their project on hold, unable to finish it and unable to make any money from it. However, this is were Hunter Finance could help.
How lenders can help
While lenders have to be wary of the risk they are undertaking, lenders must continue to understand how to balance the risk with reward by understanding the borrower’s circumstances and finding solutions to problems as and when they arise or even before they arise.
Lenders have to understand these new issues and react to them in a way that allows them to be comfortable lending money to developers as well as considering the factors usually assessed in the due diligence stage of the process.
It may be of comfort to the borrower and lender if when an agreement is reached about lending so that the prospect of a financial shortfall, where the borrower may need more than they initially asked for, is covered allowing the project can continue.
Lenders should familiarise themselves with non-institutional sponsored schemes such as the Build to Rent and the Private Rented Sector which developers are relying on for finance options.
This is becoming more common for developers as they rent out their finished project rather than sell it straight on. Lenders need to understand why developers are relying on these schemes and it is important they know how to incorporate the support from the scheme with their backing for the developer.
The new challenges arising in property development finance has to be faced and tackled head-on by all those involved in the process whether it is the borrower or the lender.
We believe if all lenders can understand the challenges developers face then together we can help to find solutions.
If done right, lenders can keep lending confidently while borrowers have the assurance of support throughout the project against the regular risks and setbacks as well as the more modern problems.
This should help continue to create profitable partnerships between borrowers and lenders where a successful project is beneficial to both.