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Market slowdown presents an opportunity for brokers

Octane Capital Octane Capital
Posted on Jan 03, 2023 | in Blog

We think 2023 will be a big year for developer exits.

High mortgage rates coupled with the increased cost of living will have bred inertia amongst house-buyers and the early part of the year will see many adopting a 'wait-and-see' approach.

Chestertons predict 2023 will be "characterised by a slower property market during which around 25% fewer properties will change hands compared to a 'normal' year."

It's a common comment within the valuation reports we are seeing and it's something we have noticed on sites we are currently secured on. Simply put: properties are taking longer to sell than in previous years. Whilst by no means a reason to panic, it's something which will be on the minds of developers who have development finance coming to term in the next few months.

This presents an opportunity for brokers; a concerted effort to target this type of scenario could prove lucrative.

For those not familiar, a developer exit loan is a short-term facility which is used to refinance development debt and is repaid as each unit is sold. Broadly speaking, there are three reasons this type of facility could be attractive for developers:

Time. The principle driver for these enquiries is time pressure from the existing lender. The result of the aforementioned market slowdown is that many developers will simply need more time to market and sell their units.

Cost. Octane's new bridging rates start at 0.33% per month + BBR. It's likely that, in many cases, these rates will be cheaper than the borrower's existing development finance. Lowering the overall cost of borrowing could be an additional benefit.

Cash. Cashflow is often an issue for developers. A developer exit loan can release funds on completion (above the clearance of the existing lender) - and potentially on each sale - to help improve the developer's cashflow position.

Octane are well positioned to help with this type of scenario:

  • We lend on complete (or almost complete) new-build developments throughout England
    • We lend up to 70% LTV and have appetite for large, multi-unit schemes.
    • Interest is rolled up and payable on repayment, with no servicing requirement.
    • We are flexible on day one cash releases and on split sales proceeds.

If you have a case you would like to discuss please contact one of the team today.

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