The number of development finance lenders has increased by 52% since 2016, according to research from specialist mortgage broker Mortgages For Business.
Over the past five years, almost 40 lenders have either started to offer development finance or have come to the market for the first time.
Paul Keddy, head of Mortgages for Business’ specialist development finance desk, said: “The number of lenders getting into development finance shows how much more competitive the market is becoming. That translates into better criteria for developers, higher gearing and the chance to make more money.”
The nature of lenders involved has also changed. In 2008, for example, the biggest 40 lenders in the space were all bank lenders. While nervous highstreet lenders have gradually withdrawn from the market over the last few years, the pandemic accelerated the change. Today banks make up approximately 15% of the biggest 40 lenders in the development finance space.
Keddy added: “Over the last thirty years, but in the last 15 in particular, it’s been getting harder to access finance. Housebuilders looking to borrow between £2m and £5m can struggle the most to unlock funding.
“The caution of high street banks is evident. Even the ones who are still in the game are running scared. And their due-diligence and internal processes are slowing them down. Some clearing banks are taking up to 5 months to do deals. In a market where time is money, that is absolutely critical.
“This bifurcation of development finance – between the buccaneering non-bank lenders with appetite to lend and the cautious, schletoric, traditional highstreet options – is conversely making it harder to navigate the market.
“It’s harder to access loans because the market is no longer dominated by big-brand lenders. Non-bank lenders are increasingly important to the sector. These lenders haven’t been around for hundreds of years and don’t have the huge brands that developers recognise instantly.
“That means, even for experienced developers – but especially contractors currently working for developers who want to start developing – it’s actually harder to find the right funder than it was 15 years ago. Your best bet is to consult a specialist broker.”
