Development finance: challenges & opps

Even before the pandemic hit, funding (or rather the lack of it) was a key challenge for SME housebuilders. According to a 2017 report by the Home Builders Federation[i], Financing a small housebuilding company’s operations had become increasingly difficult over the past decade. Following the 2008-09 Global Financial Crisis, the market gradually witnessed a drastic change in the terms that SME housebuilders receive when borrowing money to fund construction costs, with many lenders radically changing their attitudes and risk appetite to the sector. Consequently, the number of SME property developers inevitably suffered a major decline. According to the Home Builders Federation, in 1988 small builders were responsible for 4 in 10 new build homes compared with just 12% in 2017. In just the period 2007-2009, one-third of small house building companies ceased building homes. Lack of funding is one reason.

Then, the Covid-19 crisis came on top of such pre-crisis challenges, with the current concerns over possible recession and steeply rising interest rates aggravating those existing challenges. At the hight of the pandemic, many lenders even pulled out of already-agreed facilities and re-focused their resources on deploying government-backed debt injections through facilities such as CBILS. We heard of developers who were left out in the cold by their lenders, a situation that was particularly challenging for developers who were in the middle of a project. But this was also a time when we saw many nimbler, more agile specialist lenders step in and fill the gap left by many traditional lenders. We believe that prior to the pandemic, many of these smaller lenders were seen just as the challengers trying to disrupt a traditional market. But their role during the pandemic, often stepping up their lending capabilities and working to deploy capital where needed, consolidated many of these small specialist lenders as ‘not just the challenger’ but the nimble expert reliable lender who was there when it was needed. Which brings us to the opportunities in development finance as we face the post-Covid, post-Brexit brave new world of higher inflation, higher interest rates and increased uncertainties.

A recent report by the Centre for Economic Policy Research[ii] paid particular attention to the digital disruption of the traditional banking model in the post-Covid world and predicted that digitalization will receive a large impetus, with new entrants challenging banks. And while this report referred to the banking industry in general, very similar trends are already being identified in the development finance market. As discussed in our special report on development finance earlier this year[iii], one of the key trends we have witnessed in recent years is that of lenders trying to adapt to borrowers’ fast-changing needs, namely the demand for more customised products and services. Over the past decade, we have seen how the advent of digital banking has made it easier for users to open bank accounts, transact, send and receive money and travel. While such innovation has not yet reached the world of real estate property lending – the part of the market traditionally more resilient to change – even that is slowly embracing innovation. This is precisely where opportunities reside: the chance for lenders to create easy-to-use digital-powered tools to allow borrowers save time and money.

If you are a property developer or a broker and would like to see how we can support your journey and fund your projects, get in touch with us today at enquiries@blendnetwork.com

BLEND Loan Network Limited is authorised and regulated by the Financial Conduct Authority (Reg No: 913456).


[i] Source: Home Builders Federation, Reversing the decline of small housebuilders: Reinvigorating entrepreneurialism and building more homes, available at https://bit.ly/3xckbjM

[ii] Source: Centre for Economic Policy Research, The Bank Business Model in the Post-Covid-19 World, available at https://bit.ly/3x8qJjp

[iii] Source: Blend Network, Predictions in Development Finance, available at https://bit.ly/3NrJNQN

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