Interest rate fluctuations, regulatory changes and evolving market dynamics are significantly changing the property development finance landscape.

As developers and financiers adapt to a changing landscape, it is crucial to understand the key trends and challenges shaping the industry.

Interest rate changes are reducing, albeit slower than the government had originally intended and the SONIA interest rate benchmark is falling to a place whereby the lower yielding properties can attract high leverage positions.

But no uniformity
Interest rate fluctuations are not uniform across development types, however. In residential, lower rates have helped developers secure financing for large regeneration sites. This can include sale, purpose-built student accommodation (PBSA), and Build to Rent (BTR) units.

On the other hand, in commercial property, lower rates have made it more challenging for developers to secure financing for lower-yielding properties and is seen particularly in central London and the Southeast.

As a result, those operating in these areas have had to be more creative in their financing strategies, often turning to alternative lenders and more flexible financing options.

Switch to alternative lenders
The role of alternative lenders is increasingly important as traditional banks become cautious in their lending practices.

This has opened up opportunities for challenger banks and non-bank lenders to step in and fill the gap. These lenders are often more willing to take on higher leverage positions and offer more flexible financing terms, making them an attractive option for developers.