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Don’t overlook construction funding opportunities

by Jeremy Fisher7 minute read
Jeremy Fisher

The Reserve Bank’s recent tightening of policies around investment lending has impacted commercial construction funding, with many lenders making changes to their internal policies.

Up until a few months ago, brokers who worked with developers, particularly across Sydney and Melbourne, were more able to achieve their clients’ construction funding objectives. Until the recent changes, the LVR for consideration was up to 80 per cent and the level of necessary pre-sale debt cover was also 80 per cent. The tightening of investment lending has resulted in most lenders now considering a reduced LVR of up to 70 per cent and requiring a debt cover of 100 per cent for construction finance.

These changes have resulted in construction funding being harder to obtain, and brokers may be finding it more difficult to achieve their clients’ goals. There is also less opportunity to shop around as lenders are showing a preference to working with clients who they have worked with previously. Even developers with a solid track record and many successful developments behind them may find it difficult to get loans approved with a new lender. Brokers should have this in mind when applying for construction funding for clients, as it may not be the client’s scenario that makes a loan difficult to obtain but rather the lender’s new policies.

There are still opportunities for brokers to get clients a suitable deal on construction funding, especially if they work closely with developers to ensure all of the numbers are accurate and that their feasibility model is correct. Opportunities also exist to get loans reviewed and repriced with the same lender, particularly for clients with small businesses. Experienced brokers may be able to negotiate better terms and better rates for these clients as well as offering a duty of care.

The tightening of construction funding policies will likely have the desired impact and maintain stability in the market, and it is likely that these lender policies will ease up again sometime next year.

jeremy fisher
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