Funding Circle announced recently that it will scale down new property development lending, with plans to completely stop lending of this type by the middle of next year.
Property development loans represented 10% of FC’s loans at the end of February 2017, and 7.6% of the overall portfolio. As the typical term of a loan is 12 months the portfolio will liquidate very quickly.
Property development portfolios typically have different risk characteristics to the small and medium-sized enterprises (SMEs) loans within FC’s portfolio. While the SME loans are amortising both the principal and interest, the property development/bridging finance loans are usually interest-only. FC take a charge over the property and apply a ‘bullet repayment’, where the entire principal is due at the end of the repayment term. GDV ratios are around 65<70% on average, with a concentration in London and the South East.
Although disappointing, there are fortunately many expert short and long term property lenders who have developed this niche and will continue to challenge the banks, and provide a necessary supply of funds.
Accessfunds are delighted to work with numerous such lenders.
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