Investors and developers are looking towards less traditional commercial development finance options as the high-street funding becomes harder to come by.

According to a new survey from researchers at Leicester’s De Montfort University, the development finance on offer for new commercial projects in the UK has ‘continued to dry up’.

This is due to major high-street lenders being put off by the euro zone debt crisis, the co-author of the survey, De Montfort University’s Bill Maxted told Reuters.

“Lending organisations commented that the existing liquidity crisis had been made more acute by the problems of European sovereign debt and the unknown extent of contagion between banks,” Mr Maxted said.

The De Montfort survey offers an in-depth insight into the health of development finance, which plays a huge part in the recovery of the construction sector and, in turn, the UK economy.

The University’s mid-year study revealed that the number of lenders who were willing to finance fully pre-let commercial developments dropped from 52 per cent in June 2010 to just 31 per cent in June of this year.

The number of lenders willing to finance speculative development also fell, from 17 per cent to 15 per cent over the same time period, the study found.

According to new research, the vast majority of brokers located in the UK believe that short-term lending will grow over the course of 2012.

The survey, carried out by residential specialist Precise Mortgages revealed that 82 per cent of brokers believed the short-term sector would expand next year.

Despite the on-going challenges associated with funding, most brokers and other finance professional remained upbeat about the future of the sector.

The most positive areas for growth were found to be London and Edinburgh, with 85 per cent and 90 per cent of brokers respectively predicting growth.

Meanwhile, 82 per cent of brokers believed that the growth in short-term loans would be driven in part by continued reluctance of the high street banks to lend and the restrictions on finance as a result.

Fifty-seven per cent of brokers also believed that there would be growth in the private rental sector, according to Bridging and Commercial.

The most optimistic area for predicted growth was Edinburgh, with 79 per cent predicting growth in the Scottish city. A further 56 per cent believed that the growth would be substantial enough to cause more brokers to begin to operate in the sector.

According to new research, the UK’s housing construction industry grew last month for the first time in six months.

The noticeable expansion in the construction industry – which was measured on Markit/The Chartered Institute of Purchasing and Supply (CIPS) Purchasing Managers’ Index – has been partly attributed to an improvement in the availability of property development finance.

The index’s indices are taken from ongoing monthly surveys of business conditions across the country. The index – which can cover manufacturing, construction and service sector activity – showed a figure for the construction industry of 52.3, revealing growth in the market.

More people were employed within the housing construction sector than at any time since May of this year, and new orders for house building also saw a rise.

Deutsche Bank’s George Buckley told the Financial Times, “We can take heart that it doesn’t look as though we’re going to see a contraction on the scale seen in 2008 and 2009,” whilst another expert, Howard Archer
IHS Global Insight’s analyst, told the newspaper, “It’s a relief in the current environment to see any evidence that part of the economy is growing.”

Manchester Airports Group’s property arm has invested £250,000 in speculative refurbishment development finance into a project in south Manchester.

MAG Developments has called upon property agents Jones Lang LaSalle and p3, the property consultants, to work together to market a major, speculatively converted and refurbished business space.

The 16,000 square foot space, which is located at Manchester Airport’s World Freight Terminal, is comprised of industrial warehouse space and office space, and represents the first speculative refurbishment in the area since the credit crunch first began.

Director at Jones Lang LaSalle, Daniel Burn, told the Manchester Evening News, “We expect a high level of interest in these hybrid units – a 50-50 split is quite rare and there are very few similar, modern spaces, with this ratio of office to industrial space currently available in the wider region.”

A detailed programme of work which would see the former freight sheds refurbished into business units has been created, according to Jenny Smith, property manager at MAG Developments.

Ms Smith told the news provider, “We have speculatively created these hybrid units as our research indicates that many SMEs and start-up businesses in the region require modern accommodation; which efficiently enables both the office and warehousing functions to be effectively facilitated in the same premises, as this is key to keeping costs down and maximising the use of space.”

West Sussex County Council has unveiled details of a £50 million development finance package which aims to boost the county’s infrastructure and economy.

The fund comprises £15 million worth of finance which will be directed towards new projects, including construction of new infrastructure and schemes such as high-speed broadband which will benefit businesses.

The council also confirmed that it is to boost its own capital programme by utilising the £35 million worth of financial reserves due to be used for schemes between 2014 and 2017.

Deputy Leader of the County Council, Lionel Barnard, told The Mid Sussex Times, “The state of the economy is causing concern locally as well as nationally, so we have acted quickly and decisively to bring forward this kick-start package of projects.

“I am confident that we are supporting schemes that will have a significant and long term benefits for the economy of West Sussex,” he added.

The county council went on to confirm that the new infrastructure projects were to be “financed by capital funding”, which included borrowing, government grants towards new infrastructure and also income generated from the sale of property or surplus land.

The government is to invest £50 million into a mezzanine debt scheme that will take the rest of its funding from Santander.

The new fund – which will compete directly with the rival Business Growth Fund for business from firms wishing to expand – will be awarded the £50 million from the government’s £1.4 billion Regional Growth Fund.

According to The Telegraph newspaper, the mezzanine funding will focus on firms which have strong growth plans in place and are looking to expand in regions outside of the South East and London.

Many business owners who do not want to sell a stake in their business to an external investor in order to achieve the funding necessary for growth, are tipped to look favourably upon the scheme.

This new fund will be Santander’s answer to the Business Growth Fund, which is backed by banks including RBS, HSBC, Lloyds, Barclays and Standard Chartered.

The Growth Fund offers deals of between £2 million and £10 million to firms across the country who are looking to expand. The fund was initially created as part of the numerous Business Finance Taskforce commitments that were held last year.

The popularity of bridging loans has been on the rise ever since the economic downturn begun, and now the versatility of the funding medium has been revealed to be one of its greatest assets, according to the Financial Times.

Used by homebuyers keen to purchase their new home but finding it tough to sell on their previous property within the necessary timescale, bridging finance is also used by property investors to pay for the completion of their developments.

Those investors who are interested in rental properties are also making use if bridging finance to fund properties that are in need of refurbishment, as they may not be able to secure buy-to-let funding prior to a rental valuation being carried out.

Other situations in which bridging loans can be utilised includes auction property purchases and non-property related purchases such as project finance or short-term capital funds raising.

As many bridging lenders can complete on a funding deal within a very short time period – sometimes as little as 24 hours from application to approval – the financing is particularly useful to those who need to move fast on a deal to prevent losing out altogether.

Community groups attempting to refurbish public buildings have been helped by a recently introduced bridging loan scheme.

The £1 million interest free Capital Works Bridging Loan Scheme has bridged the delays in funding being awarded to the groups by the Scotland Rural Development Programme (SRDP).

Projects such as the refurbishment of a local town hall were stalled due to cashflow problems as a result of the SRDP’s policy to release funding only once work has been completed and invoices paid off.

As a result, this created major issues for many developments and projects until the bridging loan scheme was rolled out eighteen months ago.

Donald MacLeod, chairman of the Sandness Public Hall, told Shetland News that the scheme was just brilliant:
“You need to pay your contractors first and you also need a bank statement showing that the money has left your account before the SRDP funds are released. It then takes between six and eight weeks before the grant funding arrives in your account.”

“There is no way on this earth that any public hall could finance such a thing,” he said, adding that one £168,000 refurbishment project would not have happened at all if it were not for the bridging loan.

Another project, the construction of the new Scalloway Museum, was also helped by the bridging scheme. Tony Erwood, chairman of SBFS Property Ltd, the firm charged with creating the museum, told the news provider, “Without the bridging loan the project would have folded due to cashflow problems and there would be no new Scalloway Museum.”

Government approval has finally been given for a £180 million property development scheme in Leeds.

The plans – which will see two of the most deprived inner city neighbourhoods in Leeds transformed – have been awaiting approval for some time under the Government Value for Money review.

Now, it has been confirmed that the Little London and Beeston Hill/Holbeck areas will be revitalised using development finance under the housing Private Finance Initiative (PFI) project.

Leeds City Council has given the green light for Sustainable Communities for Leeds (sc4L) to carry out the much-needed redevelopment work, which will see 388 new council homes being built, alongside environmental improvements and the refurbishment of more than 1,200 existing council houses. Work on the major development is expected to begin in the spring of next year.

Leeds City Council leader, Councillor Keith Wakefield, said that the project was ‘massive’ for the city, representing a substantial investment in two of the most deprived areas. “We always had faith that this was a very strong project,” he said.

Leeds City Council’s executive member for housing and regeneration, Councillor Peter Gruen, told the Yorkshire Evening Post, “The delays in achieving final Government approval for this project have been incredibly frustrating for us all, not least the residents of Little London, Beeston Hill and Holbeck.

“This is a huge landmark on a project set to transform these communities as well as provide opportunities for jobs and further investment in key regeneration areas,” added Mr Gruen.

This year’s fast-approaching Mortgage Business Expo (MBE) will be held on 16-17 November at London’s Olympia 2, and will showcase the myriad of means of obtaining property finance, including bridging loans, mezzanine funding and other lending options.

The biggest annual event for financial intermediaries, this year’s MBE will comprise a presentation from BIPAR, the European Federation of Insurance, about the European Commission’s Mortgage Directive.

The presentation, which will take place on November 16 at 3pm, will be entitled ‘The potential impacts of the European mortgage directive on the market,’ and will focus on providing answers to ‘major European mortgage market questions.’

MBE 2011 Show Director, James Prosser, told Bridging and Commercial, “The European Commission’s directive on mortgages has been widely debated and the rumour mill has been working overtime regarding what it will and won’t include.

“We look forward to seeing the UK intermediary profession out in large numbers to debate the direction our market is heading in,” he added.

Buy-to-let finance, the future of the economy and alternative business streams including buy-to-let finance, will be amongst the other hot topics under discussion at this year’s event.