As the saying goes, preparation is the key to success. If the last year has taught us anything about the property market, it’s that being prepared for all possible eventualities could not be more important.
Flexibility is vital, for borrowers, brokers and lenders alike. The property market is constantly changing, and it’s up to those of us within the industry to adjust and adapt to those changes. The exit strategy that your client had at the outset of their project may not actually be an option when the project reaches conclusion.
There can be little doubt that the housing market has entered something of a slowdown of late. The annual rate of house price growth has dropped significantly over recent months according to the Halifax house price index – back in December, the annual rate stood at 6.5%, but it has fallen in almost every month since to reach just 3.3% in May.
But slumps within the property market are nothing new, so it is vital that brokers and their clients have a back-up plan in place, and are fully on top of their different funding options should they need to change course.
We know that if all goes well with a development loan, the properties will all be sold off by the time they are completed, leaving the developer with a healthy profit which can go towards their next project. But things don’t always go to plan. It’s not unusual for a project to suffer unexpected delays, or for the market itself to throw a spanner into the works.
This is one of the reasons our development exit loan has proven so popular. We launched it towards the end of last year, to meet the needs of developers for whom the project is finished from a practical sense, but who still have unsold units. They can move onto the development exit deal, which is more flexible and offers lower-cost funding, and that cash can then go towards marketing and selling those remaining units.
The loan has proven particularly useful for brokers and borrowers precisely because it is an excellent plan B. If something has thrown the original plan slightly off course, it’s a useful option to have in the back of your mind which you can turn to should the need arise.
Brokers play such a crucial role for property investors, identifying not just the most competitive rates but also which lenders are most likely to be interested in different projects. But perhaps just as important is being armed with the knowledge of how to adjust those funding plans when needed, knowing where to turn if plans change.
Steve Larkin is director of development finance at LendInvest