An interview with Paragon's Neal Moy: Developers need to be 'cautious' of new lenders competing on price alone

Some of the newer operators in the development finance market are competing on price alone, rather than service — something developers need to be cautious of, claims Paragon Bank’s deputy MD of development finance, Neal Moy (pictured above).

The comment was made during an interview with DFT, where Neal emphasised that the ability and capability to deliver is often more important than the cheapest deal on the table. 

Neal joined the business in September, having worked in the development finance market for 30 years.

He was the founder and managing director of RateSetter’s development finance business before it was acquired by Shawbrook Bank. 

He now supports managing director, Robert Orr, in the newly created role, and aims to grow the bank’s presence outside of Southern England and broaden its product range. 

Since Paragon acquired Titlestone in July 2018, the company has doubled the size of its relationship team, and it recently hit £1.5bn of lending in the three years since the acquisition, with plans to accelerate this going forward. 

DFT sat down with Neal to find out what he has planned for Paragon’s growing product suite, the lender’s aim to expand into the build to rent and purpose-built student accommodation sectors, and what the business will be offering customers to encourage the growth of sustainable property development.

What attracted you to join Paragon?

The strength of the team, the company’s excellent reputation in the market for delivery, and the future vision for the business outlined by Robert. I had seen the great strides made by Paragon after the acquisition of Titlestone in 2018 during my time heading RateSetter’s development finance business, and now it is one of the main players in the sector. It has the type of professional, focused culture that I enjoy, and it felt like a natural fit.  

Paragon’s development division recently hit the £1.5bn lending milestone. What is the next milestone you have planned, and how will you achieve it?

Our plan is to accelerate our pace of lending. It took us approximately three years to reach £1.5bn, and we are aiming to lend that same amount again, but over the next two years. We have grown the team numbers to enable us to do that, plus added experienced relationship directors and support staff, while broadening our product range.

Being part of the Paragon Banking Group is a great advantage here. Paragon is a well-capitalised, successful FTSE 250 specialist financial services company which has grown its deposit base successfully over the past couple of years. That financial strength underpins our commitment to the sector and our ability to support clients. 

Since Paragon acquired Titlestone, it has doubled the size of its relationship team. How are you utilising this increased resource and talent?

By growing our lending activities in our core markets, but also regionally. We have seen significant growth in the South West, and we are also expanding our presence across the Midlands, North West and Yorkshire by bringing in people who have lived or worked in those areas for many years. This will help us to diversify our portfolio risk and enhance our reputation as a core lender in other parts of the country. 

What I’ve been pleased with is the range of organisations we’ve been able to recruit from, including some of the leading names in the sector, and the good quality hires we have made. That is testament to the reputation we are building in this market.

Why has Paragon seen strong demand for its development finance during the pandemic? 

I think there’s three key reasons: firstly, it is the strength of our people; they understand SME developers, how they operate, their challenges and ambitions. The expertise and experience are welcomed by our customers, and more developers now want to work with us. 

Secondly, I think developers and brokers have recognised our commitment to the sector and our ability to deliver the funding that we say we can provide. When the pandemic hit, some lenders withdrew from the market altogether or restricted their lending, which is a nightmare for any developer. We were there to support new and existing clients, and I think that was appreciated by the industry.

Thirdly, we are part of the Paragon Banking Group, which gives us the funding capacity to support SME developers and the certainty of funding that they require to complete their schemes.    

How has the market changed over the past three years, and how has Paragon been able to adapt to evolving developer requirements?

The market has become a lot more competitive with a number of new lenders launching. These are mainly non-bank lenders. That is great for competition, the provision of funding to the sector, and for keeping everybody focused and innovating. 

Some of the newer operators are competing on price alone, rather than service — and that’s where I think developers need to be cautious. This is a relationship business and the ability and capability to deliver is often more important than the cheapest deal on the table. 

How has the sub-£1m development product been received by SME developers?

We’ve been encouraged by the take up of the product so far. We recognise that all developers need to start somewhere, and this product is designed to help those on the start of that journey; customers that may become the larger developers of the future. Doing repeat business is a core focus of the team and getting in early with these developers is important to help us grow this part of the business as we get to know more of these smaller developers. This was a core feature of my approach while I was at RateSetter, and I will be able to nurture it within Paragon. 

This is just one of the ways we’ve been looking to innovate our product range. At the other end of the scale, we increased our maximum loan size, and that has also played well with our larger customers. 

Considering the built environment has a significant carbon footprint, how is Paragon planning to encourage more sustainable property developments? 

This is on our agenda, and we are looking at different product options in this space. We want to ensure we are offering our customers a tangible benefit that encourages the growth of sustainable property developments, and we are aiming to launch something in the coming months. 

More broadly, I think the drive towards upgrading the UK’s housing stock overall will benefit the new-build housing market, including more schemes that require charging points for electric cars as part of the planning consent. I can see a drive to quality and homes that have higher EPC ratings, which new-build houses generally have. There’s a real opportunity for developers, and the industry is in a good place to react to this change in consumer demand. 

How will Paragon be expanding and enhancing its products later this year and into 2022, and will you be looking at new sectors and asset types?

We are always looking to innovate, and there are a number of areas we are looking at — including the green space. Other areas of interest include build to rent and purpose-built student accommodation. It’s too early to discuss our specific plans, but these are areas we are looking at. 

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