Untangling the dark art of funding

Specialist development finance lenders are increasing in popularity, but how do they support SME housebuilders? David Alcock, MD at Blend reveals what these lenders offer and what they look for.

Related topics:  Finance,  Housebuilder,  Funding
David Alcock | Blend
16th March 2023
David Alcock Blend 572

Development finance can be difficult for SME property developers to unlock. A survey of almost 200 SME home builders across England and Wales carried out by the Home Builder’s Federation revealed that access to finance remains one of the key barriers to housing delivery, even though stark regional differences exist.

18% of respondents in the North and 24% of respondents in the Midlands saw development finance as a major obstacle, as compared to just 3% of respondents in the South. Sadly, many small and medium-sized housebuilders see development finance as a challenge that is preventing them from reaching their ambitions for growth and threatening the existence of some. Others see it as a dark art that’s difficult to untangle, owing to development lenders having different levels of appetite, varying onboarding processes and providing limited certainty as to getting a deal done.

But development finance is not a dark art. I should know, as Managing Director at development finance lender Blend where transparency sits at the core of how we support developers we work with. What is true though is that development finance is a very specialised space that needs experienced lenders who appreciate the many challenges of being a property developer, to name but a few, securing trades, planning delays and cost inflation – the gauntlet that it is to be a developer. So, developers have enough on their plate and the last thing they want is the added complexity of funding.

That’s why housebuilders need a lending partner who can add value to their journey by taking the funding challenge away from them. This is why over the past few years we have seen a shift towards specialist lending in the construction industry, with developers preferring to work with lenders who only focus on development finance.

A truly specialist lender, can put on a developers’ hat to grasp the challenges they face, be it from finding the right site at the right price through to the final unit sale and all in between.

The growth of the specialist lending market over the past decade is nothing short of spectacular. According to the Bank of England, specialist lenders have increased lending volumes by 328% between 2009 and 2021, from under £5bn to more than £21bn. Perhaps even more impressive, they increased lending by 32%, or £5bn, between 2020 and 2021 alone. Today, specialist lenders have become a key partner in many experienced developers’ journey and are often preferred over traditional lenders.

Specialist lenders often adopt a more flexible approach to lending. To begin with, they assess schemes on a case-by-case basis, not the ‘it doesn’t quite fit in the box’ which helps to eliminate the dreaded ‘the computer says no’ response that developers might otherwise receive from a high street lender.

Then when it comes to the funding itself, specialist lenders are more likely to offer tailored funding solutions that work for the unique and changing needs of a specific scheme. After all, no two development proposals are there same, there are a myriad of variables that can drive different outcomes.

That’s why many specialist lenders are happy to advertise their solution-focused approach to lending with deep development experience at every level within their lending teams. Property developers, especially mid-sized developers, appreciate this highly personalised and tailored service to lending and the supportive approach to navigating the challenges of funding.

That means that they can focus on what they do best, building and developing much-needed homes in the knowledge that they have a funder who speaks their language and understands their business.

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