"We are currently focusing on processes, revamping documentation and upskilling the team on all levels from customer service to technical matters"
FR: You are deputy managing director of development finance at Hampshire Trust Bank. What does this entail on a day-to-day basis?
Being a deputy managing director doesn’t have a defined job spec; I need to be flexible and versatile in how I approach every day in the job. My immediate focus is on building a development finance division which enables individuals to unravel their full potential to its maximum.
We are currently focusing on processes, revamping documentation and upskilling the team on all levels from customer service to technical matters - all that while delivering a record growth year for the HTB development finance division. There are so many areas that we are working on in parallel, but everything is with one aim in mind: building a best-in-class development finance team.
FR: You have ambitious plans for the business. What does your growth strategy look like?
We are looking to triple the book within a relatively short period of time. We have the funding, the team, the product, the motivation and very strong support from the Board that will allow us to achieve that. We have and will continue to hire some of the best people in the industry and that is the key to success.
FR: What are the key product areas for HTB’s development finance division? How does HTB stand out from the crowd?
We have made our name funding ‘everyday homes for everyday people’ and we are very proud of the number of real homes we have built over the years. In addition to this we are now looking to further diversify our offering adding PBSA, retirement living, pre-let commercial and mixed-use schemes.
Our customer journey model is different to the traditional development finance model. At HTB each borrower is supported by a dedicated team of people that drives the transaction forward. This would typically involve a designated lending director, who in turn is supported by at least two relationship managers. Borrowers and brokers can choose who they prefer to work with based on previous experience or the geographical location of the project. We believe that the best development finance product is best delivered by people who live, love and know the areas where they operate.
FR: Lenders have traditionally focussed on London and the South East. What approach do you take to the regions?
This is a really good question and I am proud to say that we have true nationwide coverage. When it comes to the regions we put our money where our mouth is. We have an excellent Midlands, Yorkshire, South West and North West presence and some of our best lending directors and relationship managers are based and operate in these areas. Recognising the importance of a truly UK-wide approach, HTB opened an office for its development finance team in Leeds in 2018. The Bank believes that development finance is a local business and therefore we employ local people who understand the markets in which they operate, understand regional developers and the differences between the South and the North and are able to structure deals to meet regional demands.
FR: How significant are cases that fall under Permitted Development (PD) to HTB? Are you noticing any trends here?
A PD project is an interesting beast. Some PD conversions provide relatively affordable, self-contained accommodation that offers a good quality step-up option compared to a typical HMO or co-living option. On another hand, some PD conversions offer sub-standard accommodation: low ceilings, lack of natural light/small windows, micro units crammed into the limited space, awkward residential space configuration dictated by the constraints of the envelope. Unfortunately, these types of developments still exist; they continue to circulate around the market with very little appetite from the mainstream lenders.
Thankfully, most developers have now realised that cramming as many micro units as they can into a limited space might not be the wisest decision. I am pleased to see a new trend where developers are looking to re-design space in order to offer quality accommodation, reasonable unit size and a good mix ranging from studios to two-bed flats. These are in higher demand, easier to sell or refinance and would typically be rented by better quality tenants with lower turnover rates and lower payment arrears. These are also a lot more appealing to development finance providers such as HTB.
The housing crisis is real and PD conversions offer a relatively fast solution that has its place on the market and, as such, we are definitely looking to support good quality conversions.
FR: Covid-related supply chain issues and now inflation are making development projects more expensive. What role can brokers play in helping their clients deal with these challenges?
This is the main question on everyone’s mind at the moment. In addition to the usual due diligence, I would suggest an increased focus on two key elements: cash and experience.
When talking about cash, lenders aren’t just interested in the first equity available towards the purchase. We also need to look into the borrower’s ability to release more cash as the project progresses. This is predominantly applicable when you are applying for a facility at maximum LTGDV. The availability of cash to fund future costs overruns is key in a volatile market and it can come in many different forms:
- A lowly-geared portfolio that can release cash in a relatively short term;
- Surplus rental income from an existing buy-to-let portfolio;
- A profit that is due to be released from another development project that is due to complete in the near future.
Specifying these on your development finance application will provide reassurance to the lender and will speed up your application.
Experience is another hot topic in the current market conditions. Extra diligence should be placed on both the borrower’s and contractor’s previous development experience.
Many developers have started creating a detailed deck designed to showcase to lenders their previous development projects. This is extremely helpful and speeds up the process tenfold. Our advice is for developers to keep them as detailed as possible and include information related to Gross Development Value, project timeline, build budget, Practical Completion Date, profit, delivery method (in house/third party) and sales status (pre-sold, currently for sale, sold within x months etc.). Adding before and after photos is also very helpful. It’s important to highlight any past projects that are similar/equivalent to the project being put in front of the lender.
These items, if addressed correctly, will significantly increase the success rate of your development finance application, and speed up response from the lender. Each deal is unique, so I’d always recommend having a chat with our friendly lending directors to identify the best way to meet the borrower’s requirements.
