Residential lenders eye greater risk as market stabilises
The Knight Frank Q3 2014 survey of more than 50 residential lenders, including banks, hedge funds and private equity firms, showed lenders were prepared to grow their loan books over the coming year and were becoming more open to planning risks as well as higher loan-to-value lending as the economy returns to sustained growth and the residential market stabilises following the financial crisis.
The survey showed 78% of respondents intended to grow their loan books over the next year - up from 75% in Q3 2013 - while 60% said they would consider a scheme with planning risk, up from 50% a year ago.
However, the survey said there were no signs banks were returning to the years of higher risk lending that preceded the financial crisis.
“The survey findings mark another step on the return to a more liquid lending environment following the financial crisis,” said Knight Frank head of London residential research Tom Bill.
The survey said increased competition was forcing down the cost of debt, with 36% of respondents saying they had cut their pricing as a result of the increased competition.
Peter MacAllan, Knight Frank head of residential development finance, said the competition was driving lenders into offering new forms of finance. “Some of the mainstream senior bank lenders are now providing mezzanine finance and they weren’t doing that a year ago,” he said.
The survey also showed that rising house prices were a concern for lenders, particularly in London, despite recent signs of the market cooling, with a drop in the proportion of respondents favouring central London as a location for development finance.
Meanwhile, the survey also found that the overall appetite for lending has grown in the UK regions, where the recovery has been patchier, with 38% considering schemes in the Midlands over the next 12 month, up from 28% a year earlier, and 34% saying they would consider schemes in the north of England, up from 21% in Q3 2013.