Four out of five lenders expect to increase their exposure to residential development over the next 12 months.
According to Knight Frank, which surveyed more than 40 funding providers, ranging from UK clearing banks to hedge funds, the unlocking of finance will have a material effect on small to medium-sized housebuilders which have had funding struggles, particularly outside the South East, since 2008.
The types of finance available have become more sophisticated, with nearly 10% of respondents offering five types of funding and a third providing two types of finance.
Respondents to the survey are most likely to fund schemes in London and the South East, but there is also appetite to fund schemes outside these areas. One in five indicated they would finance a scheme in the North.
Some 91% of those surveyed would consider funding multi-housing and mixed-use schemes, followed closely by blocks of flats.
More than half of lenders would look at funding a scheme with planning risks. Knight Frank said this was a marked difference from several years ago when only the most “oven-ready” schemes were considered.
The average minimum loan size stands at £6.6m, while the average maximum facility is £100m. One fifth of respondents would lend between £100m and £250m, and 5% said there was no limit on loan sizes.
Knight Frank found that the typical rate for a senior debt loan is 5.3%, while it is 10% for stretched senior finance.
Sebastian Wallis, head of residential development valuations at Knight Frank, says: “We have seen a marked increase in the range of funders coming to us for specialist residential development valuation advice. Development finance is a sector that a growing number of participants find attractive in view of the risk/reward profile in a market that is facing a significant imbalance between supply and demand.”