Access to Finance - A More Diverse Debt Market?

Debt is scarcer and more expensive. Banks are lending but on more restricted terms. It’s difficult to borrow any more than two thirds of a property’s purchase price. This means that only those investors with equity can remain “in the game” and take advantage of the drop in property values.

Property Finance 2012, the first in a series of special research reports, published by Property Week in association with The Association of Property Bankers and CREFC reveals that the UK property debt market is redefining itself. There is broad agreement that the UK debt market will become more diverse, as is the case in the US.

The report suggests that UK borrowers should expect capital to be provided by a much wider variety of sources over the next few years. Senior lenders will increasingly look to work with mezzanine debt funds to provide a more complete debt package to the market. Why? Because constraints brought by tighter banking regulations will prevent banks from lending at loan to value ratios of great than 65%. In the US, insurance companies have also emerged as lenders.

The diversity of finance providers would be welcomed by many borrowers who are keen to avoid being as dependent on bank finance as they used to be. Over the medium term, borrowers need to be able to access a broader range of lenders and lending solutions and, have the ability to talk to someone about a range of debt products- fixed-rate, short or longer term loans.

The lenders themselves also welcome the diversity. 80% of the report respondents said that the biggest most positive impact of the financial crisis on debt markets would be greater diversity of debt providers.

The bottom line appears to be that lenders and borrowers alike are welcoming the emergence of other, non-bank lenders into the debt market.