This is a result of developers finding it challenging to complete the construction and sell the properties within the original development finance term.

Rising build costs and delays with supply chains are contributing to the delay in completion. Naturally, these factors are affecting confidence and decision-making across the property market, and developers are becoming more cautious in their approach.

In these instances, intermediaries have been stepping in to assist clients, either by providing a 12-month bridge to allow the developer sufficient time to sell the units at full market value without time pressure, or by switching the development finance to portfolio finance on a term basis in the event of the strategy changing when the developer decides to retain the assets. 

However, the current economic climate is now looking more attractive for investors and developers. With inflation now under control, interest rates are decreasing and the demand for properties is increasing because build costs are stabilising.

 

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The opportunity for below-market valuations 

The current economic climate has also seen a significant increase in enquiries, where investors have sourced bulk purchase deals that are below market value (BMV), as a result of block value and distress discount.

Savvy investors are taking advantage of the economic volatility to secure their next properties at great prices at a time when it feels the market is bottoming out.

We have found that we are regularly completing on deals for repeat investors who are able to secure funding on bridging finance from 90% to 100% of the purchase price, so they need very little equity to complete on the transaction. The strategy varies depending on the investor and type of properties they are buying, but typically the three options that they have available are:

• To retain all the assets and refinance the portfolio onto term finance six months after completion, if the yield is high enough to support the loan
• Sell some of the units to reduce the loan to value (LTV) and then retain the rest
• Sell all the units straight away individually and release the maximum amount of equity from the transaction to then repeat the process on another deal.

Over the past two years we’ve seen a steady increase in lenders pushing through the barrier to entry into this crowded market, offering bigger and better bridging loan products. 

With BMVs now a regular occurrence, the variety of innovative bridging products available is truly serving client demand.