Lending Market Update for Property Developers and Landlords
In the current CV-19 situation we thought it might be helpful to provide an update on the lending market and how lenders are responding.
- Property Developers
In general no new Formal Loan Offers (FLO’s) are being issued but Decisions in Principle (DIPS) can be offered by some lenders (not all) subject to construction conditions returning to normal. The lenders simply cannot assess a new case for formal funding as they do not know when the project can start, how long it will take and when it will finish. There is also a challenge having the site surveyed for a valuation. If you are intending on applying for funding its not a bad idea to formulate your proposal including cashflow forecast based on post CV-19 conditions and then when the lenders are in position to provide a FLO you’re at the front of the queue. Collate all documents including planning approvals, previous valuations and architects drawings etc and send them to your broker who will likely have questions and will help you get your proposal ‘lender ready’.
With regards to current projects – lenders are quite focused on supporting existing deals no matter where you have got to before progress halted. The further along you are the easier it is to get additional funds:
- If you are at the wind and water tight stage you could apply for additional funding based on the current value of the site. The criteria is based on the current value and value when finished, Lenders try to avoid exposure exceeding 65% of the gross development value i.e. the end product value and this calculation includes interests and costs. The challenge will be the valuation but we are finding a small number of surveyors willing to try.
- If you have a Practical Completion certificate this is the time you can obtain the highest amount of funding without selling the property. Lenders offer short term loans typically from 12 – 18 months in order to help you with funds while you sell the properties post covid. For any property developer with finished sites and sales that have stopped – this is an option to see you through until things get back to normal. Rates are not expensive compared to some bridging products with the lowest rates around 0.5% pcm – 0.55% pcm (6% – 6.6% interest cost per annum) depending on lender. Rates vary depending on the loan to value percentage with 50% or lower achieving the lowest rate and 75% being the highest LTV and interest rate. However lenders are currently restricting loan to value to 65% and only proving LTV at 65%-75% in exceptional circumstances.
All quotes and applications will be subject to status and the lenders approval process.
- Landlords and Property Investors:
The lending market is volatile and changing quickly. Last week 164 changes were made to lending products as entire ranges were withdrawn, more strict criteria imposed, but more positively some lenders reduced rates.
A number of lenders have announced their changes including:
- Fleet mortgages, Roma Finance, Vida and Pepper Money are not accepting new applications citing the issue with valuations.
- Interbay have stopped accepting new applications.
- Landbay is limiting loan to value to 60%.
- One Saving Bank and Precise Mortgages have halted new and existing applications that have not already progressed to offer.
- Shawbrook Bank & Redwood Bank both appear to be operating business as usual and looking to use AVM’s (Automated Valuation Model) to deal with the challenge of valuations. Current applications that have already had a valuation are progressing as normal.
The market is evolving on a day to day basis, so the best advice is to speak to your broker in order to access the funds you need from a lender that is open for business and has a criteria to accommodate your requirements.