Blend recently launched its first annual ‘Predictions in Development Finance Report’, which analyses the challenges, obstacles and forecasts in the development finance market.

The report makes several specific predictions for the sector, such as:

• rising cost of materials will continue to be an issue for developers
• the lender-borrower relationship has changed and will continue to do so
• there will be a shift towards greater regulation in the market
• SME developers will continue to struggle with lack of funding

DFT talked to Roxana to understand where the areas of opportunity are for specialist lenders, and how the development finance landscape might change in the near future.

What are your predictions in terms of regulation for lenders in the development finance industry?

We expect and hope that the lending industry will move towards being more tightly regulated by the FCA. At present, the UK lending market is highly fragmented, and a large proportion of existing lenders are unregulated, and therefore unaccountable. This sadly means that practices, such as the lack of fee transparency, last-minute changes in loan terms, and poor customer service are widespread, leaving borrowers frustrated and creating a bad reputation for everyone involved. We hope this will change, and believe it already is, as borrowers become more sophisticated and come to expect a higher level of service.

Do you expect tighter regulation for property developers, too? 

That is a very good question and an important point as well. Yes, tighter regulation for developers would be a natural move — and a welcome one — especially after some recent tragedies we have witnessed, such as the Grenfell Tower. 

A concrete example where tighter regulation has been coming into place is the fire safety and smoke ventilation industry that has been experiencing shifting legislature, resulting in changes to designing, installing and maintaining fire safety systems. But what’s interesting is that many industry insiders have been calling for tighter regulation for a long time to constrain unprofessional developers. According to the 2018 study ‘Raising the bar: A post-Grenfell agenda for quality and professionalism in construction’ from the FMB, almost 80% of building firms were desperately calling for tighter regulation in order to deter unprofessional builders from the construction industry.

•   Property investors face 'huge risk' of stranded assets if they fail to decarbonise
•   Developers flock to the security of fixed-price contracts
•   'Seeing is believing. We need more female role models in our industry who represent and expand what is possible'

In the report, you predict that specialist lenders will play a key role in the transition to a greener economy — how can they help with this endeavour?

Many green deals, self-sufficient buildings and regenerative developments have a very specific set of requirements that need to be taken into consideration when seeking debt finance, such as understanding eco-friendly construction designs, self-sufficient buildings that can be operated independently from infrastructural support services, or construction materials that minimise environmental impact. Non-specialist lenders often don’t have the set of skills needed to adequately assess those deals. 
Specialist lenders tend to be nimbler organisations comprising highly skilled individuals with experience in funding non-vanilla deals. Therefore, these lenders are able to be more flexible in their lending criteria and provide loans that other high-street or non-specialist lenders may not be able to get their heads around.

How long do you think it will take for green developments to become the norm in the UK?

No one can anticipate how many years it will take, but what I can tell you is that this is a marathon, not a sprint! We are certainly making the right steps in the right direction, but there is still a long way ahead of us.

The study mentions that lenders will need to adapt to borrowers’ needs —what are the three key things borrowers are looking for?

In recent years, one of the most important shifts we have seen in borrower and broker demand is their need for more customised products and services. 
I would say the three key things borrowers and brokers are looking for from their lenders when it comes to getting development finance are: integrity, commitment, and the will to go above and beyond to get the deal done. This is particularly important for brokers, as they are putting their reputation on the line when introducing a lender to their client, so finance providers need to be able to demonstrate these three qualities.

Do you believe there is a risk of lenders becoming overly reliant on technology?

No, I don’t believe so, as long as lenders understand that technology is just an enabler. It’s a tool that, when used correctly, can make the borrower’s life easier, taking burdensome tasks off their plate. This is how we view technology at Blend; we believe that technology is not a replacement for bespoke propositions and there is nothing that could ever take away the one-on-one personal service. Instead, we believe that technology is just a tool in our toolkit to support developers to be more efficient and help them focus on what they do best: developing and building, while relegating the arduous tasks to technology.