Each quarter in Reality Check, Stuart Buchanan of Acuitus Finance reviews the current property lending outlook and gives examples of financing that has been secured on the type of assets that are regularly offered for sale at auction. 

Q3 2011: The Lending Outlook

Stuart Buchanan of Acuitus Finance comments: "Encouragingly, several new lenders have come into the market during the third quarter of the year. They are providing both an alternative source of finance and offering commercial loans with much lower stress rates. These new lenders will often look at a borrower's overall income position. This is enabling higher loan-to-value ratios to be achieved - sometimes as high as 75%.

"As a whole, Q3 saw property lending remain reasonably active as many UK and Irish banks continue to divest themselves of their property loan books and borrowers have to look elsewhere for finance.

"There was further positive news for borrowers as swap rates continued to fall. Five-year swap rates tracked down and touched 1.4% during Q3.With the market expecting the Bank of England base rate to remain at its current low level, investors looking to secure long-term rates are seeing a very attractive environment.

"Looking ahead, investors who are planning to refinance to unlock equity, buy a new property or who have an existing property term loan coming to an end during the next six months, should consider the following:

• Start the process early: a typical finance deal is taking on average three months from start to drawdown.
• Find the right lender: there is no longer one lender who finances all properties. There are five major lenders currently reducing their UK property exposure in 2011 and it is expected that they will pursue this strategy for the next 2-3 years. Accordingly, when looking for finance it makes sense to discount these lenders at the outset.
• Interest-only facilities: they are still available for good quality properties.
• Watch the lease length: don't let your property's lease get too short before initiating refinancing.

Reality Checkpoints

• Loan Terms: In the year to date, the majority of lenders have moved to offering loans with a maximum term of five years. This has been mainly due to the new Basle III banking regulations which require banks to hold more capital on their balance sheets for longer term loans. Unless there is a change to these regulations - which seems unlikely - this trend is here to stay. 
• Lending Margins: Margins have either remained the same during the last quarter or have edged up to 0.25% as lending between European banks has become more cautious and swap rates have reduced. Average margins are now around 2.5 - 3.5%.