The Bank of England’s decision in November 2017 to increase the interest rate was widely expected across the sector. While the marginal uplift will have a negligible effect on investor activity, it does signal the start of creeping rate rises over the medium to long-term. Business models and forecasts will need to adjust.
Bank loans are still the top choice for property deals, but their popularity has begun to wane. In an uncertain operating environment, jittery lenders are taking longer to reach decisions. Those that are eager to push forward projects have started to look elsewhere for alternative methods of financing.
Alternative debt financing has become a more widespread choice and has seen an increase in availability. Historically low interest rates have made this a cheaper option than in previous economic cycles, although it is still more expensive than bank loans. Investors looking to get projects off the ground quickly are increasingly using alternative debt funding before refinancing with bank lending.
Looking ahead, alternative debt financing will likely enjoy further upswings, particularly with bank loans set to become more expensive. Mainstream options like private equity now jostle for attention alongside newer tools like crowdfunding and peer-to-peer lending.
Damian Webb, RSM’s alternative finance partner, says there will be a significant change in how developments are funded going forward.
The boom in non-bank lending will lead to a wider range of options and ensure competitive pricing,’ he says. ‘But it is important borrowers secure a funding partner who has the skills and experience to support their projects.
Alternative Finance Partner, RSM