The 2008 credit crunch paralysed the banks and seriously hindered many experienced builders and property developers through a lack of liquidity. As a result many good schemes were mothballed. The poll conducted by Regentsmead suggested that since 2010 there has been a 43% increase in the amount of small to medium sized builders active in the UK.
In addition to these findings a recent Knight Frank report on the development finance market has confirmed that 70% of lenders expect to increase their level of residential development finance over the next 12 months. However property experts at Regentsmead have argued that herein lies the problem.
Prior to the crash in 2008 there was a similar sense of optimism in the market with many bridging lenders and short term financiers stepping into the development market because of the apparent opportunities of this growing sector.
Fast forward to 2014 and we are seeing an interesting example of history repeating itself. Lenders with relatively little experience in this sector are now trying to become competitive on the products they are offering, giving developers an array of choice in rates when sourcing cash for their projects. Interestingly, Regentsmead’s development finance poll showed that 78% of developers would choose reputation and experience of a lender over price when sourcing their finance.
For specialist firms such as Regentsmead who have been in existence for 80 years this latest potential bubble does not alter their attitude to sensible, cautious lending.
Chief Executive James Bloom commented:
“We were one of few lenders that continued to lend right the way through the recession as we have done through the numerous economic dips throughout our 80 year history.
It’s alarming that despite the recent problems some clients still believe they can go with the cheapest deal on offer and then end up coming back to us several months down the line having had bad experiences of lenders that don’t understand the sector. Ultimately these developers will lose money after their projects come to a standstill proving that experience is everything in this industry”
Whilst the signs of an economic recovery are evident in the development finance and general property market it is perhaps a concern that so many lenders are stepping in with relatively little understanding of the nuances of a development finance case.
When another downturn inevitably happens this will be the acid test of a lenders ability. If history were to repeat itself it is likely to be the lenders that don’t understand the market and end up leaving themselves exposed and unable to aid the growing need for housing in the UK.
As the saying goes “to be a genius, all you need is a rising market.”
