The lender's view, by Dani Netzer: Development finance in 2022

2021 was a mixed bag for the economy as a whole and for the housing market, and this year seems to have kicked off on the same foot

The lender's view, by Dani Netzer: Development finance in 2022

Dani Netzer is associate director and senior underwriter at Blend Network

2021 was a mixed bag for the economy as a whole and for the housing market, and this year seems to have kicked off on the same foot. As I recently discussed in a piece on what the UK’s economic outlook means for the housing market, the recent announcements that UK economy rebounded with the fastest growth since WW2 has been overshadowed by the ongoing ‘cost of living’ crisis and inflation which keeps edging higher.

But beyond the short-term economic volatility, we recently published a bird’s eye view report titled Predictions in Development Finance, where we discuss key trends.

The next decade will be crucial for protecting the planet and we expect specialist lenders to play a vital role in the shift to a greener economy. At Blend Network, we have been very vocal about how specialist non-bank development finance lenders have a critical role by helping deploy the financing of the changes required.

We believe that specialist lenders will need to up their game to be able to help developers advance in the journey to Net Zero.

Greater transparency

The non-bank development finance market is notorious for its fragmentation, something that has historically been difficult for borrowers who have faced lack of transparency and poor borrowing experiences. But borrowers have grown increasingly sophisticated, demanding value and added transparency, and we expect a shift to greater regulation in the industry.

We anticipate the development finance market to see a shift towards greater regulation and more transparency, particularly around financial promotions and treating customers fairly.

One of the most important shifts we have seen in borrower demand in recent years is their need for more customized products and services, and we anticipate lenders will adapt to borrower’s changing needs and increasing demand for personalization.

For lenders, it is no longer enough to offer the highest gearing or the lowest rates to win a deal. It is about empowering property developers by helping them make informed decisions and giving them access to data and services that were previously only available to PLCs.

Sophisticated tech

With the advent of digital banking and digital lending platforms, the property lending sector – a sector not known for readily embracing change – is embracing innovation, and I expect the development finance market to gravitate towards more sophisticated tools.

Not offering such innovations is becoming increasingly less viable in the digital age and lenders are increasingly becoming aware of this. Therefore, development finance lenders need to up their game and support SME property developers by providing an all-round high-quality service.

The relationship between the borrower and lender has always been known to be an integral factor in the loan approval process. However, recent disruptions have enabled specialist development finance lenders to add more transparency to the loan approval process. We expect that lenders to find innovative ways to keep the interaction with borrowers.

Lack of funding

Lack of funding is one of the key challenges faced by SME property developers, and we expect this to continue to be the case in 2022. A year on from the 2020 FMB House Builders’ survey, which found 33% of respondents said that lending options had deteriorated, and a staggering 42% stated that they were involved in sites that were stalled for financial reasons, we saw that this situation deteriorated throughout 2021. We expect SME developers will continue to face lack of funding.

Lack of funding is far from being the only challenge SME property developers will face in 2022 and we expect that property developers, especially the smaller ones, will continue to face the challenges of rising cost of materials and supply shortages. Yet SME developers will be disproportionately impacted by the rising cost of material.