Uncertainty is, and always will be, part of economic cycles. No forecasting capability could have factored in the impact of the pandemic in which we find ourselves and the consequent uncertainty of what the future holds.
Having operated in the funding market for over 10 years, it has become clear that capital requirements will significantly increase if we are to “bounce back” and deliver on the Government’s targets for new housing.
As in most areas of the economy, COVID-19 has had a significant impact on the property industry, in terms of developers’ capacity to continue construction on-site and also the consequential effect on sales and viewings.
The outlook has been more positive over the last few weeks, as lockdown measures are relaxed and the Government attempts to pump life back into the economy. Construction sites have reopened and pent up demand in the housing market has triggered a steady flow of new viewings, enquiries and offers across residential and commercial properties. In addition, following the Chancellor’s announcement of a temporary holiday in Stamp Duty for properties valued up to £500,000, further increased demand for sales is expected.
As we move into a post-COVID world, it is important that due diligence for new Secured Loans can open up the lending model to cater for a much wider spectrum of opportunities that will undoubtedly result.
Accordingly, The Route – Finance has been reviewing its assessment framework in order to focus on residential development loans where there is a high probability of loans performing as expected – reducing the chance of default and increasing the likelihood of timely repayments.
The strength and proven track record of each borrower’s management team in delivering projects to completion is a critical element of the due diligence assessment. All property projects have risk, but experience of managing through known and unknown challenges is key to safeguarding returns. The intention is to target borrowers with demonstrable experience and a proven track record of completing similar projects in the past.
Capital tied up in projects that overrun prevents monies being reinvested into new schemes. Having less invested in individual schemes, and thus having more schemes, reduces portfolio risk. As capital is returned from sizeable projects across the portfolio, the intention is to deploy capital across a variety of projects. Loan amounts are likely to be smaller and the pricing for these loans will be aligned to the perceived risk. As a result, The Route – Finance will actively source a higher volume of deals for consideration.
Whilst the fundamentals of each project may differ, by introducing risk-based pricing, Members will be able to understand and review the associated risks with each transaction, and thus tailor their investment strategy based on their individual circumstances. Overall, the intention is to generate more certainty and predictability over the repayment profile of the portfolio, in order to generate sustainable returns for Members over the medium term.
If you would like to know more about The Route – Finance’s Private Debt Platform, please contact us or call 020 3141 9040.
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