Where to turn as lenders reconsider development finance following Brexit

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The fallout from the Brexit referendum has been far reaching and property developers are already noticing a change in the availability of development finance. The first indications are becoming evident that some lenders have reconsidered their development financing availability, following the Brexit referendum.

It has already become harder for property developers to find financing solutions and if more uncertainty surrounds the UK property market, then finance availability will dry up further.

The UK property market post Brexit

A fall in rents and a rise in vacancy is however expected to be countered by new property development and lending. This will take force even though there is a real risk of a fall in house prices, particularly in London. Estate agents have also reported a sharp drop in buyer interest.

With a continued fear that financial services companies may lose their passporting rights within the EU, property developers may already be asking how they should now fund a housing development.

How to fund a housing development

The good news for property developers is that while high street banks attempt to limit their exposure in development financing, specialist principal lenders haven’t disappeared and continue to offer property development finance and commercial development finance, even as the landscape changes.

Like most UK SMEs, local and regional home builders have always struggled to get adequate access to finance for development schemes. Principal lenders are specialists in providing residential development finance and, by using their local and regional knowledge, they have already demonstrated that they are superior to banks, which once dominated the market.

Principal lenders still want to grow their lending. They understand that construction and development is complex and although mainstream schemes are favoured, principal lenders will consider funding most types of residential development.

Open to experienced developers and house builders, principal lenders are keen to creating bespoke first charge and second charge (mezzanine loan) lending solutions. The underwriting of the development loan will be considered more carefully so property developers should start by well researching the development, in terms of planning, cost, sales values and construction risks.

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