acquisition

'We're likely to see more acquisitions of specialist development lenders', claims solicitor



The development finance market could prove to be an attractive sector for challenger banks to enter.

Earlier this month, Paragon Banking Group confirmed that it was in the early stages of considering a possible acquisition of development finance lender Titlestone.

One industry professional has claimed that if specialist banks were to acquire development lenders, it could give them a competitive advantage among other banks, as long as the benefits offered by the lending functionality were retained.

Could more development lenders be snapped up by specialist banks?

“Absolutely – when you look at the rationale behind Paragon’s approach for Titlestone, the thinking there is clear to see: development finance is an attractive market and acquisition is a fast route in,” said Ruth McCarthy, joint head of real estate commercial at JMW Solicitors.

“The big lenders who are still heavily involved in the buy-to-let market will be looking to reduce their exposure following taxation changes that have made it a less attractive option – it’s all about de-risking and diversifying.

“Given the fact that development finance is a very active, lucrative market, we’re likely to see more acquisitions of specialist development lenders as banks look to ingratiate themselves within the sector and benefit from the current strength in the marketplace.”

Alexander Moss, operations director at Zorin Finance, believed that the benefits of a challenger or specialist bank taking over an alternative lender depended on the details.

“The key feature which has enabled the substantial growth of alternative lenders since the financial crisis is their exemption from capital controls and other regulations, which continue to inhibit the appetite and ability of the banking sector to provide development finance.

“This has enabled alternative lenders to entertain more possible development types and provide funding at high leverage more quickly than banks. 

“The one thing that the banks possess is scale and ability to fund larger schemes.”

Nathan Ellis-Calcott, director at Thistle Finance, claimed that the potential takeover of Titlestone by Paragon was simply a reflection of challenger banks seeking to diversify into areas where they had seen opportunity.

“For banks, acquiring a specialist development lender can be a much more seamless way into this market than creating a whole new division, which can be a recruitment challenge and take a lot of time not just to get up and running, but achieve credibility.

“Acquiring a development lender, by contrast, means you can hit the ground running from day one with an established team and track record.

“What you’re unlikely to see is a challenger bank acquire a development lender and then significantly tighten its rates or criteria – that would be commercial suicide.”

Kit Thompson, director of short-term and development finance at Brightstar Financial Ltd, believed that anything that increased liquidity in the market was a positive thing and should ultimately help housebuilding.

“Banks should also have access to cheaper funding lines than the family offices, high-net-worth individuals and smaller lenders that have moved into the development space in [the] post-credit crunch years as the high street banks have had far less appetite in this higher-risk arena.

“Each lender will identify its own appetite for risk and margin and cheaper lenders will naturally lend more conservatively at lower LTVs, because they can cherry pick cases and only lend where risk is lower and profits higher.”

Narinder Khattoare, CEO at Kuflink, added: “If specialist banks acquire development lenders, this could give them a competitive advantage among other banks, as long as the benefits offered by the lending functionality are retained.

“Development lenders are generally more flexible than their bank counterparts and, as such, can offer borrowers more bespoke services.”  

James Salford, partner in real estate finance at Addleshaw Goddard, claimed: “Although [it is] interesting from a market perspective, Paragon’s mooted acquisition of Titlestone raises a few key questions, both in terms of what the transaction achieves, but more widely as to whether this is a new trend we will see in the market or simply a one-off transaction and what it means for development finance generally.”

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Will this help or hinder housebuilding?

Narinder believed that the housebuilding industry was complex, and that the more easily and reliably developers could access finance, the more efficiently the market would function.

“As such, housebuilders will be in the best position to progress and complete projects when there is a competitive loan market, driving down the cost and increasing the availability of development finance.”


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