Bank lending to developers halves in two years

Bank lending to property developers has dropped from £30.5 billion in October 2015 to £15.2 billion in October 2016.

Bank lending to property developers has fallen substantially over the last two years; this has created more opportunities for peer-to-peer lenders to step in and fill the funding gap, according to Saving Stream.

Now with reduced bank lending high net worth individuals and peer to peer lenders fund many small and medium developments.

“Following a successful 2016, which saw our user base grow substantially and over £250

million of finance raised for property loans in the UK, 2017 is looking just as positive,” Saving Stream said in its annual review. “Brexit sparked a further drop in bank lending to property developers which provided Saving Stream with some great opportunities and this looks set to continue into the New Year.”

2016 was shaped by major political events and subsequent economic uncertainty, but Saving Stream and the wider property market remained resilient and stable throughout, the lender said.

“Our view is that 2017 is likely to see some economic uncertainties as the UK and other countries contend with major macro-economic issues such as Trump’s first year as US president, and the progress of Brexit negotiations,” Saving Stream said. “However, it’s possible that the property market will again remain resilient.

“This is because interest rates are anticipated to remain low, and house prices are expecting to remain robust, encouraging more people to make loans secured against property.”

Over the course of 2016 Saving Stream’s loan book increased by 150%, taking the cumulative value of its property loans to £242 million.

“We arranged 75 different loans last year, with 66 bridging loans and nine development loans,” it said. As cuts in bank lending to developers continue despite the on-going housing crisis, this has played a vital role in helping get new projects off the ground.

“We have the scalability to arrange loans for substantial properties and projects as well as for smaller ones, helping our investors create a diverse portfolio of loans and supporting developers and other property investors with a range of requirements. While 44% of our loans were up to £100,000 in value, well over a third (39%) were in the £100,000-£500,000 bracket, while almost a fifth (17%) were worth £500,000 or more.”

Over the last year the property market has remained buoyant, Saving Stream said, with investor confidence remaining relatively high throughout the period. “A surprisingly positive driver for Saving Stream’s strong performance in the second half of the year was the effect Brexit had on the market, particularly on those lending to the property sector,” it said.

In the days directly following the referendum vote there were concerns that the property market would experience a slight dip in investments. However, Saving Stream said that these concerns proved to be unfounded.

In the wake of the Brexit vote traditional lenders further reduced their lending to the property sector, meaning that developers and property investors in need of capital increasingly turned to providers such as Saving Stream for funding.

This gave Saving Stream access to lower loan-to-value deals that would previously have been snapped up by banks.

Due to the resilience of the market, property has long been a safe haven for investors during periods of uncertainty and this was the case with Brexit. Low interest rates favour high yielding assets such as residential and commercial property, and a slight drop in prices creates more buying opportunities for developers.