Bank lending to property developers halves in just two years
21 March 2016
- Developers can’t access bridging loans to get projects started
- Shortfall contributing to the housing crisis
Bank lending to property developers is half what it was two years ago, down from £34 billion in January 2014 to £16 billion in January 2016, says Funding Options, the online business finance supermarket.
Funding Options says that this funding shortfall is preventing property developers from starting new projects and could be contributing to the housing crisis.
Developers are having a particular problem in securing the bridging finance or auction finance needed to start a project. Funding Options explains that these are usually short term loans used to take ownership of a property before obtaining a traditional term loan or mortgage.
Without the ability to access this type of finance developers cannot progress projects beyond the planning stage. Both bridging finance and auction finance are typically secured on other property the borrower owns with a term as short as days or weeks.
Funding Options says that banks are happy to offer long term mortgages and term loans secured on property but see the short-term loans as too risky.
Additionally, banks’ processes are often too slow, due to extensive risk checks and capital allocation rules – developers often need cash quickly to complete a transaction.
Outstanding lending by banks to property developers has halved in two years
Source: Bank of England
Funding Options says that alternative lenders, who can make quicker decisions and have different lending criteria to banks, are stepping into the lending gap.
Conrad Ford, CEO of Funding Options, says:
“Property developers need finance to start projects and most traditional banks are unable or unwilling to provide it.”
“The UK desperately needs more new homes as many younger potential homebuyers are being effectively priced out of the housing market. Better access to finance alone will not solve the housing crisis but it is a vital component of the solution.”
“There is a longstanding government target of 200,000 new homes being built each year from 2016 – on current trends there is no chance of this happening.”
“Specialist bridging loan and auction loan providers have different criteria for lending and streamlined decision making processes so are able to step in to fill part of the gap.”
“Developers that come to us say that banks are still happy to provide term loans and mortgages but without bridging finance projects will never get off the ground.”
“This collapse in bank lending to developers cannot be helping the housing crisis — the more difficult it is for developers to secure finance, the fewer properties will be built.”