"The pent-up demand for new houses as a result of lower mortgage rates will continue to drive new build schemes being undertaken by SME developers"
FR: Tell us a bit about your background in the industry and your role at Paragon.
I started my career in banking in 1983 after leaving school, my first position was at Barclays. I then got into development finance in 1989 quite through chance.
Over the past 35 years, I’ve worked for UK banks, foreign banks, a merchant bank and a peer-to-peer lender, so have experienced a lot in my career, from more challenging times like the financial crash to the recent mini-budget fiasco, but there have also been some great highlights.
I joined Paragon three years ago and am now managing director of the Development Finance division, which is primarily focused on residential development lending, as well as PBSA, pre-let commercial and some bridging around those products. My day-to-day includes supporting the team with their deals, meeting with prospective clients, attending industry events and working with other business functions to ensure the smooth running of the department.
FR: Paragon recently hit its £3bn lending milestone – have you seen demand for specialist products rise and what else has contributed to your recent growth in lending?
We’ve seen a steady increase in enquiries since the start of 2024 due to a more stable market in terms of build costs and interest rates, which have made more development schemes viable. Furthermore, the pent-up demand for new houses as a result of lower mortgage rates will continue to drive new build schemes being undertaken by SME developers, as we continue to have a shortage of homes to buy and rent in the UK.
We can also attribute our success to the diverse product proposition we have at Paragon Development Finance, such as our funding of PBSA and Build to Rent. In addition to this, we are one of only a handful of lenders that has a sustainable housing proposition, with our Green Homes Initiative.
We launched this in 2021 with funding of £100 million, however, over the past few years, the popularity of the scheme has meant we’ve increased it twice, most recently to £300 million. The scheme enables developers who achieve 80% of EPC A homes in their scheme, to receive a 50% discount on its loan exit fees.
However, there remains plenty of funding available in the market for developers, from challenger banks and private equity-backed platforms, which means developers have a wide range of financers to choose from – which is good for the market.
FR: What trends are you currently seeing in the development finance market – what challenges and opportunities are there for brokers working in this space?
Sales have been slow and so there’s more chance that borrower equity is tied up for longer unless a suitable refinance can be procured. Development exit loans (marketing loans as we call our product) enable developers to release some of their equity and fund the remainder of the scheme, which are much more in demand due to the current market conditions.
Planning also remains a tricky and lengthy process for most and, as such, bridging lending is also a key requirement for many borrowers ahead of being able to start works on site.
FR: What are your thoughts on the Government’s proposed changes to the National Planning Policy Framework and other changes to the planning system and how will they affect the market?
I applaud the idea of reviewing the NPPF and time will tell if this makes a dramatic difference as there’s still the issue of how planning teams are resourced and whether they can accelerate approvals for new schemes and indeed get the sign-offs for pre-commencement conditions.
The current planning system simply isn’t designed for SME developers, so whilst they want to deliver the homes that the UK needs, a lot of smaller developers don’t have the time or resource to tackle the planning system due to the expense and the time and expertise it takes to navigate it, not to mention the long delays that schemes often suffer from as a result.
Therefore, the consultation on NPPF is positive, but we do want to see a dramatic overhaul for it to be able to support SME developers effectively.
FR: If you could read one headline about the specialist lending market in 2025, what would it be?
'Specialist lenders have made a material difference to the number of much-needed houses being built in the UK'.
