Funding property and construction businesses during COVID-19
The impact of the Coronavirus has struck many UK property and construction companies, as well as investors, but financial solutions
are available. Below we cover how companies are being affected and what they can do to mitigate the effects.
Almost all valuers have stopped doing physical valuations. This is clearly problematic for completing deals. However, some bridging and development lenders are still doing physical valuations and desktops where possible, and thus still able to complete deals.
As the weeks throughout this pandemic have progressed, innovation to get deals done has been increasing. For instance: site visits by drone, video calls where the tenant or vendor walks round the property, or a valuer going to site as long as it is vacant or the occupants are stood outside and all doors are left open.
Physical valuations tend to be required for new build, Buy to Let and higher geared property.
It is important to note that in particular in specialist financing, the ‘Uncertainty Clause’ (or ‘Covid Clause’ as it’s becoming known) is a valuers way of warning a lender that they cannot be certain of their valuation and thus a lender should take their numbers at their own risk. Most valuers are still valuing as though there is no virus but using this cause as a caveat.
Similar to valuations we’re seeing far more pragmatism and innovation in the legal sector. This includes using video calls to clients to witness signatures with examples of neighbours over the garden fence acting as a third-party witness, as well as more reliance on electronic systems for ID and due diligence checks.
Residential and Buy to Let (BTL)
Many BTL lenders have pulled from the market entirely and a lot of lenders across both types of finance are not accepting new applications. Other lenders in the residential and BTL markets are reducing their Loan to Value (LTV) ratio in order to be able to perform desktops where possible, which also enables them to complete.
There are residential lenders who can perform desktop valuations up to 90% LTV. However, the backlog for this remains high; therefore delays can be expected amongst all lenders in the market.
Product transfers are mainly unaffected, and re-mortgages are favourable to most, assuming a decent loan to value.
Development and Bridging
A number of lenders have completely stopped lending and are waiting for lockdown to be lifted, but there are lenders able to send valuers out. Some are providing offers subject to valuation, allowing the legal side to progress whilst waiting on the valuation. This helps to reduce delays once the lockdown is lifted.
The cost of legals will be at the borrower’s risk if a valuation comes back as unsuitable. Those that have successfully had a physical valuation take place can expect their deal to progress. If the LTV is particularly low some are accepting desktop valuations but on a case by case basis.
Lenders have reduced LTVs from 5-10% and increased pricing marginally to offset risk.
People need to be wary of stopping their ability to product transfer at the end of their deal; many won’t allow you to do this during a payment holiday. Payment holidays should be avoided entirely or at best delayed as long as possible. They only last three months and we don’t know how long all this will last for.
At the end of the three months, most lenders will increase the monthly mortgage payments which you would naturally not want when you most need the financial respite. People must remember that they need to pay the three months back one way or another. This is not a grant!
These still remain well priced, but LTVs have reduced. Lenders appetite for retail, leisure and hospitality is almost non-existent, if looking for an owner-occupied commercial mortgage. However, if there is a low loan to value and decent evidence of being able to pay with a strong contingency for this time, then it may be considered (multiple security can also help).
Commercial investments are easier as there are lenders who will consider lending based on the bricks and mortar, vacant possession value. However, there will likely be a lower value apportioned to this and rates will be high. Plenty who will lend with a decent covenant, but the covenant will be scrutinised heavily, now more than ever.
Finance is still available and some lenders, particularly within Invoice Finance, are still open and looking to support new applications from UK construction businesses. However, many of the more traditional term facilities or overdrafts are increasingly difficult to access at this moment.
In order to access a normal commercial lender means you must prepare things like a 12-month forecast and also answers lots of additional questions around how COVID-19 has affected your business.
Read more in Issue 15 of our newsletter Real Estate Matters.Read Real Estate Matters Issue 15
For further information or advice on funding for your business, please get in touch with one of our specialist Funding Team on 01903 234094.