Survey shows need for development finance hasn’t waivered

By Bridging Loan Directory 18th July 2023

Avamore Capital, a leading specialist lender, has released results of its latest survey, offering valuable insights into the industry’s current landscape.

The survey, which gathers conclusions from its current broker and service provider partners, highlights the challenges faced in the development market and sheds light on emerging opportunities.

Key metrics were reported including the average LTVs, rates, and loan terms across H1 of this year for development and unregulated bridging.

The survey found the average loan term for a bridging product has extended to 12 months with this increase reflecting the longer sales period developers are currently facing.

Respondents also commented on the spread of fixed and floating rates available in the market. 61% are seeing more fixed rates for bridging and 58% are seeing more fixed available for development.

Given the fluctuating economic backdrop and the relatively even spread of options, rate sensitivity did not seem as important when compared with the certainty of completion in 2023.

Beyond metrics, the report speaks to ongoing circumstances that have contributed to a slowdown in the development finance market.

These include increases in development costs, material delays, reduced property valuations, delays in obtaining planning permission, and increased interest rates.

Despite these challenges, results from Avamore Capital’s survey are clear; the need for finance hasn’t waivered; several contributors drew attention to the growing importance of specialist finance, highlighting the fundamental role it plays within a difficult market given its flexibility, and ability to provide developers access to quick funds.

Looking ahead to the next six months, the report suggests that whilst confidence has been impacted more recently, sentiments moving forwards are mixed.

The survey reveals a number of opportunities available to developers depending on how the next six months play out.

For those with a positive outlook, predicting an inflation drop, allowing the base rate to come down, there is a chance to get out of the starting blocks early to snap up ‘cheap sites’ from either a general fall in house prices or the increased number of properties in receivership.

Alternatively, for those more cautious, the rising trend of ‘sales guarantees’ was picked out as the potential next big thing, as this promises a firm exit for both housebuilders and lenders removing speculative risks.

As a relatively new strategy, however, it was noted that it could take some time for the lender market to gain comfort in this space.

For those still on the fence, many responded that the evolution of housing could force developers to make moves.

The introduction of EPC benchmarks, for example, will push developers into ‘greener action’ and could propel the refurbishment market in the months to come.

The report demonstrated that, while the past six months have been challenging, there are still opportunities available for those keen to pursue them.

The demand for funding has not diminished in this period and the outlook remains that specialist lending continues to have a key part to play as we navigate H2 2023.