Development Finance Today caught up with those operating in the market to find out their predictions for 2017. 

Last year brought a number of changes to the market with new entrants, changes to the planning system, such as permitted development, and a raft of government housing initiatives. 

With the government’s housing white paper on the horizon and the Brexit process due to begin in 2017, the year ahead is set to bring even more changes to the development finance market.

Philip Hammond revealed in the Autumn Statement there would be a housing whitepaper announcement 

’There will be an increase in the players that enter the development lending space’

Towards the end of 2016, challenger bank Masthaven launched its new development finance division, headed up by James Bloom. 

The announcement prompted talk of further new entrants into the development finance space, despite warnings of an oversupply of liquidity. 
 

Masthaven enters the development finance market

Bret Jackson of Finance 4 Business felt that with the huge shortage of housing in the UK, it expected to see further funding enter the market. 

“We feel that there will be a continued increase in the players that enter the development lending space, which will continue to benefit the client, whether it be more flexible products for relatively inexperienced builders or cheaper rates for higher leverage products for seasoned developers. 

“Whatever happens throughout 2017, we feel the development finance sector will continue to flourish.”

John Waddicker, director at Positive Commercial Finance, agreed adding: “We expect to see a general increase in the amount of development loans being provided by lenders due to the demand for more new housing. 

“We do expect new lenders to come into the market and are already in communication with a handful of new-to-market lenders.”

James Bloom, managing director of development finance at Masthaven, felt the market was changing as new players came on to the scene. 

“…A number of the challenger banks are starting to take major market share away from the high street banks. 

“The newcomers are using technology to disrupt the traditional ways of customers accessing finance.”

New tech-driven challenger banks are eyeing up the development finance market

‘More bridging lenders will try to target development finance’

Ashley Ilsen, head of lending at Regentsmead, stated: “I think more bridging lenders will try to target development finance in various ways.”

Bob Sturges, head of PR and communications at Fortwell Capital, agreed and felt that securely funded lenders could do well as developers look to move away from more traditional funding sources.

“But the opportunity will not go unnoticed by opportunistic players seeking an escape from the overcrowded, low-margin vanilla bridging sector; nor by investors seeking higher returns from their capital.

"The effect of heightened competition could be to reduce interest rates and raise risk. 

“But the property development world is not the same as the bridging world (where these twin effects have indeed materialised).”
 

New entrants will need specialist knowledge and experience to survive long-term 

Ashley warned that those lenders who felt the development finance market was a natural extension of bridging would find that this was far from the case.

“This is all fairly straightforward in a hot market, however, the true test of a lender is when the market turns and problems start to arise on development sites. 

“Specialist knowledge and experience is required to resolve these issues and often it can be complex and difficult for a lender to get their money back.”

“We have seen historic examples of lenders trying to compete on LTV in order to gain more market share in the development sector, but this only ends in disaster.”

‘2017 will see fewer bumps in the road’
 

2017 set to see fewer political bumps in the road

James anticipated an interesting year for the market politically with Article 50 and key European elections causing some uncertainty. 

“I think 2017 will see fewer bumps in the road – for example, the forthcoming changes to planning in autumn 2017 will be a positive step for the market (the change of use from B1(c) light industrial to C3 residential); but hopefully we’ll experience fewer major potholes, like the UK referendum and US presidential election, which delivered unexpected shocks.”

Last year saw the news that permitted development rights would be extended, but towards the end of the year mayor of London Sadiq Khan revealed he was planning to limit the number of conversions to protect workspaces. 

However, Bob concluded: “Our population is growing and the gap between housing demand and supply widening. 

“The authorities, national and local, appear to have no new radical solutions. 

“This is bittersweet news for developers. 

“While they won't be without work, the often unrealistic demands for affordable housing will make otherwise attractive projects unviable.”