Lendhub hosted its event, ‘The Signals Shaping the UK Property Finance into ’27’, featuring a panel moderated by Francesco Prelorenzo, investment director at Lendhub.
The discussion kicked off with a question to Richard Nordgreen, managing director of Lendhub, about his views on whether the market was still viable for SME developers.
Nordgreen said it had felt like a “battleground of late” and planning had become a “nemesis” for SME developers. He said the environment was “really tough” at a national level, with just 212 planning consents in the year to June 2026 against the government’s target of 300,000 new builds each year. Nordgreen said that was a “big shortfall”, and SMEs in particular were only delivering half of the consents that they historically averaged.
However, he said the National Planning Policy Framework, which came out in August, was “pro-development” and he welcomed it. It introduced a separate category for medium development sites of up to 2.5 hectares in area and between 10 and 49 units, which Nordgreen said was good, but the requirement to abide by Section 106 agreements and dedicate sites for affordable housing remained.
“On the one hand, we’ve got a positive for medium developers; on the other side, there’s still restraint,” Nordgreen said.
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He recently worked on a scheme that had 38 units where six were required to be affordable, and the scheme stalled as it was impacted by finance costs and loss of time, which Nordgreen said was a “classic example of good intentions [with] an overemphasis on perfect policies but not actually net gain and pragmatism”.
On the other end, Nordgreen said developers were selling into a “money market”, which was the “worst it’s been in some time” as interest rates surged.
He said buyer sentiment was also challenged and compounded by the cost-of-living crisis.
Further, build costs had been exacerbated and with all these factors combined, “it’s not surprising that SME developers are somewhat retreating”, he added, also noting that the share of new-build developments delivered by SME developers had fallen from around four in 10 in the late 1980s to around one in 10 today.
Jonathan Vandermolen, CEO of Vandermolen Real Estate, was asked if complexity, cost and regulation made the market unsustainable, and he said many things were working against developers.
“There needs to be a serious readjustment on land values,” Vandermolen said, adding that planning obstacles had not changed in years.
“The planning system is broken,” he continued, saying many planning committees did not listen to developers and rejections left firms out of pocket when paying for appeals. He suggested that planning officers have some experience in real estate or invite professionals from the property industry on committees.
Graham Wood, CFO at Barwood Capital, said navigating the planning process had become challenging and “anybody who thinks they can buy an asset, take it through planning and it’s going to be straightforward and stay on plan, you need to think again”.
Regulatory hurdles
Vandermolen also pointed to the challenging high-rise flat market, saying developments over 18 metres could sell, but buyers did not want to purchase because they knew there would be no sales market.
He referred to a high-rise development that recently sold for £18,000 per plot, and said this would have sold for £50,000-70,000 per plot before the Building Safety Regulations (BSR) came in.
“The holding cost, because you can’t get development finance while they go through the BSR [process], for a big scheme, it’s £2m,” adding that the idea that approval timings had shortened was not accurate.
Vandermolen said increasing the height of sites deemed risky under the Building Safety Act from 18 metres to 30 metres, like it is across Europe and the US, “would kick-start large-scale development”.
Working around the market
Edward Horn-Smith, partner at FRP Real Estate Advisory, was asked how borrowers were dealing with higher rates and their ability to get development finance, and said the year had not gone as expected as swap rates were forecast to rise, which had a negative effect.
He said the range of lending available helped the market, particularly non-bank lenders that were able to offer lower rates by charging higher arrangement fees.
Nordgreen said SMEs were adapting by structuring deals and cash flow differently, such as partnering with family offices, local authorities and debt-to-equity hybrids. They are also bringing their exit forward by entering lease agreements or partnerships with registered providers, or becoming the exit themselves, taking on a term debt loan while partnering with family offices. He said many were avoiding the sales market, particularly with flats, as it had become tricky.
Horn-Smith said residential developers became landlords “by default” because there was no sales market for new build. He said the debt market was “strong” and developers with half-built stock were reappraising developments and moving into a buy-to-let (BTL) structure, preferring to wait before selling.
Other asset managers have pivoted into other sectors such as commercial, offices and retail.
Vandermolen predicted there would be more joint ventures between experienced contractors and developers who had survived the market.
Nordgreen said it was important to be positive, and SME developers would do well by remaining “agile in the micro”, with the ability to repurpose sites and a sense of “alchemy” while “the macro environment is poor”.
On a macro level, he suggested developers identify growth areas and consider acquiring publicly owned land by “teaming up with the state”.
