UK housebuilders, particularly those operating in central London, are finding lenders are giving out less finance for new projects since Britain's vote to leave the EU, according to a report by property consultant Knight Frank.

Heightened caution among lenders is causing many to scrutinise deals for longer and reduce the amount of their lending by 5-10 per cent of the project cost, Peter Macallan, head of structured development finance at Knight Frank, told Reuters.

“So what that means is that effectively developers are having to put more cash equity into the deals upfront, giving lenders a bit more comfort in an uncertain market with Brexit, the US election and what demand for UK housing stock is going to look like in three to five years,” Mr Macallan said.

The Residential Development Finance Report 2016/17 by Knight Frank, which surveyed the industry's 50 major operators, said over a quarter of respondents expected the loan-to-value on development projects to fall.

The result could be that builders offer bigger discounts to cash buyers to lure landlords and overseas buyers that might have limited purchases due to Brexit uncertainty and an increase in tax on buy-to-let and second homes.

UK property was the hardest hit sector immediately after the Brexit vote, but new homes demand in most of Britain, including outer London, has returned after an initial dip, according to builders and surveys.

Weak spot

Central London remains a weak spot, with property prices forecast to fall and housebuilder Barratt having cut prices of some of its expensive homes. The pace of building in this region has already slowed.

“There are a number of developers that have recognised the change (in sentiment) and are accepting a fairly large discount to the original asking prices now,” said Sebastian Wallis, Knight Frank’s head of residential development valuations.

The report said big names were especially shying away from central London developments, with about 60 per cent of lenders now operating in the area, down from 78 per cent reported in its 2015 survey.

Lenders were most keen on projects valued at £600-£750 per square foot, whereas demand for projects over £1,000 per square foot had reduced, Wallis said.

Macallan said lenders were more interested in outer London boroughs where demand from first-time buyers remained strong.