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  • Writer's pictureDan Luxon

Whats new with development finance.

Due to the volatility of last year, the turmoil of the political landscape, soaring interest rates, the cost of living and uncertainty within the market as a whole the development market itself stagnated and became very difficult to lend too. However, as 2024 rolls around, there is an improvement in the market and there is now an appetite from lenders to finance development opportunities, on the back of a positive sales market, future interest rate cuts a new budget from (perhaps) a new government. Things are starting to look up and within this article we discuss what we believe will happen over the coming year in development finance

alongside crucial information by the managing director of Blend, David Alcock.


concrete pouring

Post the festive period, rumblings in the market that whilst the mortgage rates stay a similar price and sale prices are slowly decreasing there is more and more opportunity and customer confidence in buying from estate agents. More offers and more viewings whilst prices remain flat allow for a market that is slowly but surely coming back into the fray. 

Feedback post festive break from a regional estate agent I know has been that offers and viewings have markedly increased, whilst stock levels remain fairly flat. Their mortgage broker is busy reissuing revised lender terms given the increasing competition in the mortgage market.

miniature building site

There is a constant shifting in the housing market, and there was a belief last year that we were entering an incredibly volatile period where house prices and sales were set to drop quarter on quarter throughout 2024. However, as the economy has stabilised slightly, both mortgage lenders and financial advisors now believe that the drop in house prices and sales is greatly overdramatised. The housing market is much more stable than first thought and as we transition from the mess of the last few years to more normalcy, the housing market has begun, and will continue to reflect that. 

Throughout 2023, apocalyptic headlines dominated the UK housing market. Last June, credit ratings agency Moody's warned that UK house prices were set to fall by 10% over the next two years and a more severe downturn in the housing market could trigger a lengthy recession. In October, Knight Frank said it expected UK house prices to fall by an average of 7% last year, compared with the 5% fall it had predicted previously.

But by November, Capital Economics was already revising its forecasts for UK house prices saying they won’t fall as the property market defied expectations of a crash – they had previously predicted a 5% drop in house prices for 2023. Now, in its latest UK House Price Forecasts: January 2024, Knight Frank has also reversed its previously bearish outlook and said: ‘We now expect UK mainstream prices to rise by 3% in 2024’.

We believe this might be a bit too bullish (in the short term), but it is clearly another example where sentiment in the UK housing market has changed. What’s clear is that despite the doom-laden predictions, the 2023 housing market was overall more resilient than many had predicted as it continued its slow transition from frenzy to more normality.

With regards to rates within the development finance market, we suggest to not expect interest rates to drop suddenly, as there will be a lull before the Bank of England drop its base rates, and only then will we expect to see rates dropping. However, whilst this may seem negative, we are starting to see more lenders that are keen to leverage up to 75% LTGDV. Furthermore, there are more lenders with an appetite to lend 90+% LTC. There is also a large prospect of interest rates dropping dramatically over 2024 and into 2025, and it is looking more possible for lenders with variable rates to start popping up once more.

Men working on building a roof

Over the last decade or so, non-bank lenders have come out of the shadows to dominate the specialist property development market, and now they are the most common lenders for mortgages/loans, going from underground lenders to become a mainstay of the mainstream. Many have now become regulated and are happier to lend than many high-street banks. 

Read an article here on how non-bank lenders have taken over the mainstream

property development market:

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