In the latest Reality Check,
Stuart Buchanan of Acuitus Finance looks at the property funding
market in the final quarter of 2012 and reports on the most
positive funding market since 2008:
This is the most positive lending environment I have seen since
2008. A number of mainstream banks are looking for new lending
business and all have large lending targets for this year.
The specialist lenders are telling the same story and have an
appetite for lending which is far greater than in the last few
This new positivity has seen the start of some interest rate
reductions with a number of lenders offering interest rate margins
at around 0.25% below what they were in the second half of last
year. This is the welcome change to the steady rise in margins that
have prevailed since circa 2008.
Interestingly, these reductions do not seem to directly link to
the Government's Funding for Lending scheme as the lenders
offering reduced rates are not using FFL for property finance.
The new lenders who have been trying hard to make a difference
during the past two years are also increasing the size of property
loans with borrowing of £10m now commonly available. Lenders are
also reducing fees and margins as the regulators' capital
requirements for new lenders start to reduce.
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
- 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, in many cases a lender will be more interested in
the property than the borrower.
facilities: they are still available for good
quality properties or with a lender charging an above average
- Watch the lease length: don't
let your property's lease become too short before initiating
refinancing. Properties with leases of less than five years in
length are mainly not able to be funded, unless they are multi let
and well located with one or two specialist lenders.
- Loan Terms: Most
lenders are now using five-year term loans with 15-20 year
amortisation profiles which are a consequence of the Basle III
rules. There are a few lenders which are mainly building societies
offering 10 - 20 year terms.
- Lending Margins: Interest rate
margins have reduced slightly since the start of the year, in most
cases by 0.25% with average margins 2.75-3.5%.
Ratios: It is unusual for commercial property
investments to be able to attract finance with more than 70%
Loan-to-Value ratios. In order to achieve this LTV ratio, lenders
will inevitably require the asset to be let on a lease term of more
than 15 years.
- Break Clauses: Regardless of
the term of the lease, all lenders now assume, as a matter of
course that if there is a break clause in a lease then that is when
the lease will end. There is no optimism in their analysis of these
- Base and Libor Rates: There is
a general consensus among lenders that Base Rates will not increase
during the next twelve months. Libor Rates have reduced during the
last quarter, and three-month Libor is about 0.03% above BOE base
- SWAP Rates: Swap
rates remained within a low range of 1 - 1.3 % during the last
quarter of 2012 and into the start of 2013.
If you would like more information on any
of the points raised here or need to discuss financing, please
contact Stuart Buchanan at Acuitus Finance:
+44 (0)7879 432868