Real estate and the funding landscape

The real estate sector has long been a source of profitable income for lenders and that is unlikely to change under the new Labour government.

Yet with the government’s strong focus on residential development, ambitious legislative agenda and changes to the tax landscape, borrowers should continue to review their borrowing making sure they have the best funding for their business.

There are over 300 lenders serving the real estate industry in the UK including the main banks, challenger banks and specialist bridging lenders. It makes for a competitive landscape with a dizzying array of funding products available. Lenders have enjoyed a busy period with refinancing expiring facilities, with borrowers having to contend with falling land and property values alongside a higher cost of borrowing.

The fall in the Bank of England headline interest rate at the end of August, the first in four years, has offered a glimmer of hope for many borrowers, but interest rates continue to be challenging for others.

Looking forward, we would not be surprised to see lenders reduce their exposure in the buy to let market following Labour proposals for tenant/landlord powers, leasehold reform and the changing tax landscape. Investors are already looking to sell properties or refocus their activity, with October’s Budget viewed as a pivotal moment.

Yet, there are opportunities too. The Labour government have an ambitious residential development programme, having set the challenge to build 1.5 million new homes and to free up land to support that.

If its housebuilding pledge begins to gain traction there will be plenty of lenders keen on providing the finance developers will need and they have more than enough capital to support a significant uplift in demand.

How Kreston Reeves can help with real estate and funding

The Kreston Reeves Funding Team is very well connected with a large number of real estate lenders and can help you find the best borrowing requirements for your business.

The team also keep an eye on the various funding schemes that are available for property businesses to access and how they change.

Here are just a few of the funding options that are out there;

The Growth Guarantee Scheme

The Growth Guarantee Scheme from the British Business Bank was launched on 1 July as the successor to the Recovery Loan Scheme. It is designed to provide access to finance for UK smaller businesses (up to £45m t/o) as they look to invest and grow. It offers a wide range of products for businesses across all sectors, with real estate businesses potentially benefiting from term loans, overdrafts and asset-based lending.

Finance of up to £2m can be accessed via this scheme with the lender supported by a 70% government-backed guarantee. Businesses can use the finance for any legitimate business purpose including managing cash flow and investment.

Homes England

Homes England and its Levelling Up Home Building Fund is designed for housebuilders based in England who are struggling to access finance from traditional lenders.

Loans can be used to meet the development costs of building homes for sale or rent, with financing also available to support community-led housing projects, serviced plots for custom and self-builders, off-site manufacturing, new entrants to the market and groups of small firms working in consortia to deliver larger sites.

Homes England can also partner with lenders, with a lender providing, for example, say 50% loan to gross development value and Homes England providing a further 15%.

Development loans are available from £250,000 to £10 million. There are criteria that must be met, including:

• Borrowers being a UK-registered corporate entity or limited liability partnership.
• Plan to build five or more homes on a site in England.
• Borrowers have a controlling interest in the land and with outline planning permission in place.

Kreston Reeves enjoys a close relationship with Homes England and can help developers access this valuable funding.

Bounce Back Loans

Whilst applications for Bounce Back Loans closed in March 2021, changes have been made to repayment terms, called ‘pay as you grow’, that can benefit property businesses. Now, borrowers can:

• Extend the loan term from six years to 10 at the same fixed interest rate of 2.5%, representing a very cheap source of finance.
• Take one six-month repayment holiday during the repayment window.
• Reduce payments for six months by paying interest only, available up to three times during the term of your loan.

Should you have any questions or would like to know more about any of the above products or how we can help you with a broader funding search please contact the Kreston Reeves Funding Team.