Property Development Finance UK - R.I.P?

There is a crisis in property development finance in the UK.

Property developers and house builders are being starved of cash by the major banks and this means that the UK population is being starved of new homes.

Even the most experienced and best connected property finance brokers are struggling to place deals which 18 months ago a number of banks would have been competing for. We are not talking about highly speculative schemes for inexperienced operators but very profitable, well located developments that experienced developers can put cash into.

Still the banks won't lend, because they have branded all forms of development as "very high risk" without actually looking at the individual profile of the deal. This is in complete contrast to their attitude before 2008 of barely assessing risk before lending, just because another bank was in the background competing for the business.

To illustrate the point, only one of the major high street banks will consider funding developments for new customers and even they have decided that they will not fund ANY developments of flats/apartments anywhere. How extraordinary is that, and what an indictment of the mess the banks have got themselves into.

There are a few smaller banks still lending, and thank heavens for them. They are doing their best but of course are overwhelmed by enquiries which is leading to log jams and long delays for approvals and drawdowns.

The picture for commercial mortgages is not too different. The banks will find every reason not to lend rather than approach a proposition with an open mind.

All this would indicate that there is a huge opportunity for new banks to come in to property lending in the UK and to write excellent, low risk, high reward business at a time when there are signs of improvement in the property market and the economy as a whole.

When Will UK PLC Emerge From Recession?

The news today that France and Germany recorded growth in their economies in the last quarter should be good news for the UK.

However, it should also embarrass our banks.

A chronic shortage of credit in the UK is causing our economy to remain fragile and in recession. Those responsible for this lack of credit are primarily the High Street Banks - Barclays, Lloyds, RBS and HSBC. It is their over cautious and negative lending policies that are putting thousands of businesses under every month. The banks have forgotten that they owe their very existence to these people that run these businesses and who they are making suffer so cruelly.

Something that the French and German banks have not forgotten.

UK business will not forget this harsh treatment by the banks they depend on to create the economic growth so badly needed.

Property Development Finance Case Study

Our developer client had identified a site and agreed a loan facilty with his bank. The basis of this facility was that the developer would put in all his funds first, with the bank then providing their share. The client bought the site with his own funds and started building. Once he had injected all his funds he approached his bank again to activate the agreed facility to complete the development. At that stage the bank refused the request, as their policy had changed. This left the developer in a desperate situation with a part completed site with no prospect of finishing the work through no fault of his own. No other high street bank was interested in helping him.

Fortunately, the client was referred to CD Property Finance and we quickly identified that the situation was retrievable. We introduced the client to a specialist property lender who could see that there was little risk in lending to complete the project as the site was free of charge and the ultimate LTV (Loan to Gross Development Value) was likely to be at a level of well under 50%. The lender very quickly provided the necessary funds and the developer is now bringing the scheme to a successful conclusion.

For more information contact Chris at CD Property Finance.
Email: chris@cdpropertyfinance.com
website: www.cdpropertyfinance.com