New lenders predicted to enter development market

New lenders predicted to enter development market

Specialist lender Roma Finance is expecting high street banks to become more active in the development finance sector..

Specialist lender Roma Finance is expecting high street banks to become more active in the development finance sector.

Scott Marshall, Director at Roma, anticipates greater competition as the year progresses after Royal Bank of Scotland (RBS) announced £1bn of capital support for the development of thousands of purpose-built private rental schemes.

Scott told Development Finance Today: "As confidence returns to the lending market we'll see more competition in 2016, both from existing lenders expanding their operations and new lenders entering the market.

“The high street banks will have more money to lend and, since new housing and office developments are growing sectors, they will probably focus on these areas.

“However, in many cases they can't provide the finance in the time scales required by borrowers, particularly when development land or renovation property needs to be acquired quickly.

Although more high street banks may enter development finance market, broker Positive Commercial Finance is only expecting a limited effect on the sector.

John Waddicker, Director at Positive Commercial Finance, said: "No, I don’t expect any increase in activity from the high street (banks) to impact on the specialist sector. 

“The market has evolved such that SME developers are now accustomed to much slicker underwriting processes, quicker decisions, higher loan-to-cost deals and a greater degree of flexibility from the specialists.

“The higher cost of money from the specialist lenders is accepted due to their capabilities."

It is a view supported by development finance lender Regentsmead.

Ashley Ilsen, Head of Lending at Regentsmead, told Development Finance Today that he’s not expecting a concerted effort by the high street banks to muscle their way into the specialist finance industry, adding that even if they did, it would have little effect on the sector.

Ashley said: “I don’t see the high street banks coming back into the market in a big way, at the moment we have seen them lend tentatively in this sector.

“Historically they have either lent too much or not enough and I still think we are at the stage of them scratching the surface as to what they can contribute to the market.

“I don’t see this having implications for specialist lenders as every lender seems to do things their own way.

“I have seen quite a big variance in lending practices for development finance amongst specialist lenders, challenger banks and high street lenders so I think there is room for a lot of this in the market.

Sometimes a bank will refer a client to a specialist lender if they can’t provide a suitable deal – a relationship that Regentsmead has with Metro Bank.

Ashley added: “We have found our relationship with Metro Bank to be extremely fruitful, mainly because we have a similar ethos in being extremely service orientated.

“As a result of our shared passion for our clients and customers we have found a lot of synergy between our firms and as a result have been able to work together.

“I believe there is scope for this to happen amongst all lenders as most lenders seem to have different appetites when it comes to development.

It’s an understanding that Scott is also seeing: “At Roma Finance, we've had several cases where we have been contacted by a bank or indirectly via a borrower’s solicitor to see if we can provide bridging finance so the borrower doesn’t lose the deal.

“The banks will provide our take out by providing the borrower with a longer term commercial mortgage or development facility.

“However, introducers are far more aware of the lending policies and time scales of both specialist lenders and banks, so we are seeing introducers pro-actively approach us for the short-term loan required."

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