Survey shows demand for shake up in developer funding

Survey shows demand for shake up in developer funding

In a survey by Avamore Capital, more than half of developers said that there is a mismatch of what lenders currently offer and what they need to meet today’s challenges.

The research has highlighted that many options no longer meet the needs of today’s small to medium sized developers.

Within the same study, which aimed to explore how open developers are to new ways of sourcing finance, almost all (91%) of developers also said that a strong relationship with a broker or lender has now superseded getting the ‘best deal’, as this is what is actually saving money in the long run given the complexities and variables of the development process post-Covid and Brexit.

“Our research has found that there is a clear desire for a shake up in the residential development financing industry”, says Philip Gould from Avamore Capital.

“Given the dramatic changes in market conditions in the past 18 months, we started to see a significant shift in types of lending that were being sought, and we were keen to explore this with further research.

“Supporting this trend is also the importance of relationship between lender and developer. The research highlighted that certainty and lender reputation can be of greater importance than pricing when evaluating lenders.

“Delays in planning applications, and labour and material shortages, are putting more pressure than ever on development projects. Slow and cumbersome funding application processes are further compounding this, highlighting the importance of speed of execution in a highly competitive environment. As a result, there is growing frustration amongst developers around the lack flexibility throughout the process.

“Hence, we’re seeing a shift towards products with greater flexibility that can streamline the process and reduce the number of lenders involved in what is often a three-stage project lifecycle – initial bridging, development funding and finally exit finance. Navigating a multi-layered process with three different lenders is proving expensive, inefficient, and hence unviable in many situations.

“More favoured now is for a single lender to be able to cater for two or more stages of the development – even if this means compromising on the upfront cost of the deal – given the savings on time, fees and added security of funding.”

Demonstrating the trend towards flexible funding further, Gould highlights that a quarter of Avamore’s completed loans to date have been multi-stage loans – be this bridging to development or development to bridging.

Gould is keen to highlight that there are an increasing number of new products in the specialist lending market – and to expect demand for this to increase further.

“While we’re not saying there is no place for the more traditional approaches to funding, from the large AI-driven high street banks, demand is there for flexible planning. Brokers are in a prime position to look to specialist lenders in order to give greater flexibility and to reduce the complexities of multi-stage development processes.”

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