Bridging market sentiment is cautious, says Avamore Capital

The latest market bulletin from Avamore Capital shows that in Q2 2019 figures to April, developers were seeking longer loan terms partly to compensate for potential Brexit-related construction delays. However, many did push ahead with projects because they saw the Brexit extension as proof that “all parties are looking to avoid a hard Brexit,” Avamore reported. 

Developers have reassessed schemes rather than cancel them, particularly with a view to increasing site density. They have also begun to look at co-living schemes although this sub-market remains relatively niche with few lenders.

The opportunity for development appears livelier outside of London and the South as land owners in the these areas hold out on price.

Several lenders have imposed existing criteria more strictly—rather than change criteria. This is evidenced by the falling loan-to-gross development value (LTGDV) rates across the first half of the year. As well, lengthened completion times are attributed to lenders’ more thorough approach to due diligence. 

The average LTGDV was 65 per cent in Q2, down from 66 per cent in Q1 which took figures to January. The slight fall was partly ascribed to down valuations, with developers unable to raise as much finance as in previous periods.

Mezzanine and bespoke funding

Avamore reported that it expects to see “greater demand for mezzanine funding and joint venture equity partners.” Off-book and bespoke facilities also featured more often in the market.

The average loan-to-cost (LTC) was 79 per cent, down from 82 per cent in Q1, as lenders continue to look for developers to contribute more equity.

Completion times hit 8.8 weeks in Q2 compared to 7.4 weeks in Q1. The interest rate on development loans was 0.73 per cent a month (8.76 per cent a year) in Q2, up from 0.72 per cent monthly (8.64 per year) in Q1. The average loan term fell to 19.5 months, down from 20.4 months.

The unregulated bridging finance market saw little movement in rates. The average LTV was 69 per cent and loan term 12 months, both the same as Q1. The completion time lengthened to five weeks, compared to four weeks in Q1. And the interest rate was 0.80 per cent a month (9.6 per cent a year), down from 0.82 per cent monthly (9.84 per cent yearly).