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Development finance ahead of GDP data

ended 10. February 2023

Tomorrow morning, the GDP data will reveal the state of the construction sector. We're looking for views from housebuilders/developers and development/bridging finance experts ahead of this. If that's you, please answer the following Qs:

For brokers/specialist lenders

  • Have development/bridging finance become harder to secure as lenders are worried about the exit and units selling?
  • Did demand for development and bridging finance drop off in Q4 following the mini-Budget, and how has it been in 2023?
  • Will falling house prices represent an opportunity for savvy developers and landlords?

For housebuilders/developers

  • How confident are you about building/refurbing homes in the current economic climate?
  • What are the main challenges facing you right now (e.g. planning and NIMBYism, [cost of] finance and/or materials, finding the workers needed due to Brexit, etc)?
  • With prices under pressure, is this an opportunity for you to snap up land/units at a bargain?

6 responses from the Newspage community

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Aaron Noone
Director at Master Private Finance
We operate within a market of supply and demand. A high-interest rate or lower profit margin will not end the ultimate life ambition of those living on these islands; to own your own home. With demand for space high, developers with strong equity positions or cash balances have the upper hand in negotiating more favourable purchase prices. Those heavily indebted or reliant on high borrowing will be priced out and, from a lending perspective, that keeps our environment safe through the temporary tumult. Development lenders must open their lending logic to new-start or small-time developers; those with lower purchase prices, average build costs and modest end values. This area of lending lacks focus and innovation, yet is the soundest market available. Bigger is not always better and from small acorns does the mighty oak grow.
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James Blacklaws
Director at JB Commercial Finance
While development finance is still a growing market, the major stumbling block for many clients is concrete proof of an 'exit' from the funding. While previously, a slightly loose strategy such as selling or refinancing the completed project would be sufficient, now more attention is being given to how realistic this is and valuers are required to provide a more in-depth analysis of this and how realistic this strategy is. Falling house prices will always present opportunities for savvy developers and landlords, especially if they are cash buyers or can raise funds from lenders or investors quickly. The increase in the cost of living will likely lead to more distressed sales and agents contacting respected buyers proactively to generate interest for quick sales at knockdown prices.
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Samuel Mather-Holgate
Independent Financial Adviser at Mather and Murray Financial
The amount of development enquiries we are receiving has fallen substantially from the summer. Builders and those looking to refinish just aren’t entering the market now. Higher finance costs and falling assets have scared them off and they would rather sit on their hands until the summer when they can snap up a bargain. By then, rates should start dropping which should also increase confidence.
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Dean Esnard
Director at Magni Finance
Bridging and development lender are still very keen to lend and want to build on huge successes made in 2022. Bridging rates start at 0.45% per month which in the current climate is extremely competitive when the average standard mortgage rate sits around 5% per annum. Experienced landlords and developers are still favoured but generally speaking, if the numbers stack up there are plenty of solutions available from larger established banks to smaller niche lenders.
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Mark Grant
Business Finance Adviser at The Business Finance Branch
We are fortunate to have a large panel of bridging and development lenders and have seen client demand, and funders' willingness to lend, maintained over Q4 2022 into early 2023. Lenders may quote a rate over BOE base instead of a fixed rate now, they may insist on a contingency sum being included in their loan and profit margin may be scrutinised harder - but deals that make sense for the lender - and the client - are getting funded. The outlook for experienced and savvy landlords and developers remains good as they will adapt to market conditions quickly and do deals accordingly.
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Paul Elliott
Managing Director at Propp
There have been a variety of reactions which I think have been driven by how the relevant lender is funded, with balance sheet lenders being a bit more pragmatic than others. I’ve heard stories of surveyors being advised to shave 10% off GDVs for projects with a build schedule of more than 6 months.

With any asset class, if values decrease there are winners and losers and property is no different. We’ve seen landlords gearing up by releasing equity in preparation for a market downturn whilst others have been talking about exiting the market. As for developers, the word on the street is that some of the bigger developers aren’t looking to break ground on new sites until the market starts to recover, but as demand for housing continues unabated, this creates an opportunity for SME firms to carve out some market share.