‘Dabbling’ lenders should avoid development finance, say experts

Ashley Ilsen, head of lending at Regentsmead, said: “To be a true development lender you need years of expertise and specialist knowledge and it isn’t simply something you can jump into overnight. As the market has slowed down over the last 18 months it’s not as easy to rectify problems on site when things go wrong. It is of course a feature of development finance that projects will encounter issues not seen at the outset and it’s on the lender to have an ability to deal with these. In my opinion there is also a question mark over using funding for a crowd into property development as I suspect the investors don’t have a full and intimate understanding of the risks involved.”

Ilsen added: “We are at a period of excess liquidity in the market. A lot of lenders are under pressure from their funding lines to get money out the door which is a dangerous thing. I suspect more lenders will enter the development sector because of the opportunities available, regardless of having the appropriate expertise.”

Earlier this week alternative lending platform Funding Circle announced plans to scale back its property development lending with a view to exiting the property market completely by 2018.

In a statement announcing the decision James Meekings, UK managing director and co-founder said: “We are proud of what we have achieved to date. Since we launched property development finance in 2014, small developers have built thousands of homes across the country and investors have earned 7% per year. We have taken this decision because we are absolutely focused on making Funding Circle the first choice for small business loans globally.”

Brian Rubins, director of Alternative Bridging, (pictured) called the move “a good decision”.

“They have a core business to focus on,” he said. “Dabbling in development finance will be both a distraction and a recipe for disaster unless they give it the attention it needs both before and after drawdown.

“Development loans are not files in a drawer. Monitoring construction, making stage advances and dealing with reductions from sales is ongoing. Service is essential and we speak with first-hand experience, our team has its hands full making sure our borrowers and brokers receive the immediate service they demand and deserve.”

Nigel Bowers, business development manager at UK Property Finance, said: “The decision by Funding Circle to withdraw from funding development finance transactions is not a real shock as their core business has always been SME funding so they are quite rightly concentrating on their strengths.”

Bowers said the move is not an indication of problems within the development finance area.

“Our website is seeing more traffic than ever before and with the increasing number of specialist funders in the market the prospects suggest the strength in the sector will continue,” he said.