Mid-sized developers to increase use of specialist lending over next three years

According to research from Downing LLP surveying 50 developers who collectively develop £1bn worth of new homes each year, some 92 per cent predict their reliance on specialist lenders to rise. Of those, over a tenth believe the use of specialist lenders will increase significantly. 

The main reason for this shift is property developers’ expectations that traditional, mainstream banks will become less willing to lend due to a possible house price correction and general concerns over the wider economy. Another reason cited that the offering typically gives developers access to more flexible loan terms and conditions, which is becoming increasingly sought after. 

Also, more entrants to the market will give developers a broader choice. 

When asked about how much funding they currently source from specialist lenders, two-fifths said a quarter of their loans came from this part of the market. Just over a third use specialist lenders for 25 per cent to 50 per cent of their funding, and nearly a quarter of respondents said they used specialist lenders for more than half of their funding. 

Overall, 72 per cent of property developers said it was getting harder to secure funding for residential projects because of worries surrounding potential rises to overall costs causing budgeting to become difficult. 

Specialist lenders to grow market share

Parik Chandra, partner and head of specialist lending at Downing LLP, said: “Our research suggests that specialist lenders will take a growing share of the residential property funding market. To date, we have committed over £300m to medium-sized residential property developers, with around £140m achieved in the last financial year. 

“However, regardless of where they source their funding from, in the current market developers need to do more work in preparing comprehensive plans and budgets that they can share with prospective lenders.”