Multiple exit strategies required to avoid loan defaults in current market – Oblix

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  • 29/08/2019
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Multiple exit strategies required to avoid loan defaults in current market – Oblix
Oblix Capital is warning that property developers must have more than one viable exit strategy in place given the current housing market.

 

The lender noted it was increasingly seeing less desirable units on developments taking longer to sell and that failing to account for this could hit developers’ bank accounts.

It also cited data from Rightmove and the Royal Institution of Chartered Surveyors showing properties were taking longer to sell and at lower asking prices.

“This can impact an investor’s ability to repay the development loan when it becomes due,” the lender said, adding “developers need to consider alternatives to selling assets when planning an exit for development finance.”

 

Expensive default interest

Andy Reid, director – intermediary and network at Oblix Capital (pictured), said: “We have noticed a trend that, while the prime units on a development are often sold quickly, there may be others that are hard to sell and, if an alternative solution isn’t found, a developer could be subject to default interest on the development loan – which can be very expensive.

“Developers who find themselves in this situation have a number of choices.

“They could refinance to retain the properties to rent out themselves, aim to sell to investors as a buy to let, or arguably the quicker and easier option is to buy themselves some extra time to sell the remaining units, with a development exit bridge.”

Reid noted that with uncertainty over Brexit looking set to continue to dampen the property market, developers should consider alternative approaches to exiting their development at the start of a scheme, in case they are unable to sell properties in a timely and cost-effective way upon completion.

“So, it is worth thinking about building properties that could be suitable for buy to let or even short-term lets and considering development exit bridging loans as an alternative exit strategy,” he added.

 

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