Higher rates forecast to increase demand for development exit finance
Rising interest rates and inflation are set to increase demand for development exit finance, LendInvest has predicted.
Michael Minnie, senior business development manager at LendInvest, noted that “rising costs and rising interest rates have been putting people off buying houses”.
This, in turn, can result in a longer wait for sales for developers.
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“This becomes a problem for a couple of reasons,” he said in a blog on post on the specialist property lender’s website. “Often times developers build in a window to sell the properties within their development loan, so they can pay that facility back without the need to refinance, [and] developers use the proceeds of these sales to invest in their next acquisition and next project, so if the sale slows down, so does increasing housing supply.”
This occurred in March 2020, Minnie said, when the coronavirus lockdown resulted in the temporary shut-down of the property market.
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“Development exit [finance] was looked to as an alternative then as hundreds of houses expecting a quick sale were left empty and the developers needed to bridge the gap before the market opened again,” he said.
“It’s now three years later and developers are facing a similar problem – albeit one with less Joe Wicks workouts – as homebuyers react to rising interest rates and inflation. Development exit is, once again, going to play a large role in the coming months.”
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Minnie said that the value that development exit finance offers is definitely increased in the current environment, and that lenders need to meet that need with quick finance and flexibility.
“Keeping developers building should be incumbent on all lenders in the current housing crisis, and in a slowdown lenders can continue to support that with the right funding, delivered quickly and made simple,” he added.