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Private fund activity grows

Small private lenders are becoming a bigger fixture in the mortgage market as investors seek new sources of financing for development projects.

Mortgage advisers say investors are increasingly likely to turn to private lenders for new build financing on units and homes, as bank credit conditions tighten.

They predict smaller finance companies will grow market share following the Government's housing reforms, the reintroduction of loan to value ratios, and the potential introduction of interest-only lending curbs and DTIs.

Hamish Patel of Mortgages Online said: "More people are looking at development funding for units and houses, and there's a lot of funds available for that kind of stuff, with people looking for returns on their money. They aren't getting that from term deposits."

"I've had two or three private funders contact me in the past month looking for deals," Patel said. 

Jeff Royle, an adviser specialising in non-bank deals, predicted a rise in private development funding.

"Private lending is definitely on the increase. The banks have little or no appetite for development funding unless the customer is well heeled in both assets and cashflow. Most are not."

Private funders are active and keen to provide bridging finance, loans for development projects and funds for commercial deals. 

"They will charge higher rates than the banks, 7 or 8%, but they don't look at income," Patel added.

Patel said private lenders tend to provide loans for one to two year terms, meaning borrowers need an exit plan upon completion of a development.

While small private funders will work for some borrowers, Patel warned there were key differences to consider. 

"Some non-bank lenders will only charge you on what you use, but some of the smaller private funds will have all the money drawn down and charge you interest from day one."

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