Lenders Return to the Property Market

For the last 2-3 years the main UK banks have pretty much been out of the property development finance market. Mezzanine funders who relied on these banks for business also had to withdraw because without senior debt from banks who could they lend to? Some mezzanine lenders also had finance facilities withdrawn.

This left very few active lenders offering loans to developers. Those remaining consisted of small niche players, private investors and lenders who retained conservative lending criteria throughout the property "boom years". Loan criteria then became even tighter whilst these active lenders "cherry picked" only the very best projects.

Many property developers have been left inactive through lack of funds or have gone through long periods of lenders saying they wanted to lend only to be told months later that no loan could be offered.

The good news is that there are signs that the banking sector is slowly re-entering the property funding market as in some locations such as London for example applicants, with high cash or equity input are no longer being turned away by the likes of Barclays and RBS. Although costs, terms and conditions offered are harder than we have seen in better years.

Further indications that life is slowly returning to the property development finance marketplace is that at least 3 lenders have re-opened their doors over recent weeks. All fit into the more highly geared mezzanine category of funder. As some of these lenders depend on the banking system to raise the funds that they lend on via their mezzanine finance facilities, then again, this is indicative of returning confidence in the sector.

This must be good news for all uk property professionals. More active lenders means more funds available to lend to developers and perhaps just as important more choice and competition between lenders for businesses operating in the property sector. However we would expect that scrutiny of development projects to remain much tougher than previously with lenders concentrating on reasons not to lend for some time to come.

It will probably take a few months to assess how firm the commitment is of these returning property development lenders, however just the announcements are a significant signal of returning confidence in the sector!