The Intermediary – August 2025 - Flipbook - Page 46
SPECIALIST FINANCE
Opinion
In any market, it is
all about delivery
W
hatever
the market
weather, quick
decisions and
the efficient
delivery of
property finance are hugely important
to brokers and their developer clients.
Earlier this year, we aended
the annual MIPIM conference in
Cannes. While the weather le a lot
to be desired, we did learn a lot from
brokers about their priorities.
The usual always applies – lower
rates, higher leverage – but what came
across loud and clear was how much
deliverability maers.
Lenders will claim across the
board that they deliver fast,
efficiently underwrien, finance.
Many undoubtedly do. But there’s
considerable variation between
lenders about what that deliverability
means when the chips are down.
Getting deals over the line
For brokers and their clients, geing
a deal over the line is the ultimate
goal, but there’s no point geing a deal
done if the terms don’t stack up. This
is where the market is increasingly
seeing hold-ups, frustration and even
deals collapsing aer weeks of work.
Brokers tend to know where to go
to get terms that stack up for their
clients – one lender might be the go-to
on higher levered loans at a slightly
higher rate, with more conditions
aached. Another may offer certainty,
with a rate that reflects that.
Experience will tell brokers where
to take each deal, but it’s also worth
understanding what drives lenders’
appetite for certain types of business.
It comes down to how lenders are
funded – how a lender’s own capital
stack is structured maers not just
for pricing and criteria, but crucially
when it comes to deliverability.
There is a lot of money looking
for a home in residential property
development debt in the UK at
44
The Intermediary | August 2025
the moment. Large retail banks,
investment banks, institutional
investors, and private equity funds
are all interested in gaining some
exposure to residential development
debt – it’s a decent hedge against
equity volatility and provides an
asset-backed income uncorrelated to
bond markets.
How a lender’s funding lines are
provided are dictated by the investor’s
needs, appetites and the covenants that
exist within their own governance.
Where an investor wants safety, rates
will be lower, criteria less flexible and
gearing less adventurous. For investors
more interested in higher returns,
terms will go further up the risk curve.
This deals with the cost side
of a deal, but the real factor that
takes that deal over the line is
how much autonomy the funder
gives the originating lender to
make underwriting judgements,
and whether they manage any
discretionary capital.
Bridging loans typically turn over
in around six to 12 months. Refurb
work is usually seen as lower risk
than ground-up development, and the
lending decision will more likely fall
to pricing for that risk.
But as the industry knows, this
market is a prey fixed size. Over the
past five to 10 years, investor appetite
to fund residential property debt in
this way has outgrown the natural size
of the short-term market. This has
seen a bleed of funding lines over to
the development finance market in the
small to mid-sized development tier.
Bridging and development finance
have long been thrown together
in the same breath, but as those
who specialise in the laer know,
they’re far from the same thing.
Underwriting decisions are necessarily
much more involved than for a
more straightforward bridging loan.
Borrower experience, relationships
and leverage are absolutely key, and
loan sizes are oen much bigger.
PARIK CHANDRA
is partner and head of
private credit at Downing
Property Finance
This has created some tension
for specialist lenders, many of
which have focused on bridging but
recently extended into development
on the assumption that these loans
can be made on a similar basis. The
funding lines and investor appetite
is there, but increasingly we are
seeing investors become much more
involved in underwriting decisions
– and it’s largely where originating
lenders are less experienced in pure
development finance.
Not only does this additional layer
of diligence add significantly to the
time it takes to complete a deal, it also
– more oen than not – results in the
final terms bearing lile relation to
those initially offered in principle.
In development, changing the
commercials of a deal in the middle
of an application can kill it overnight.
These loans are longer term, oen up
to three years, and there is less wiggle
room to dither on terms until the
last moment.
This type of behaviour is geing
more frequent, according to the
brokers we speak to – lenders
that assume development is a
straightforward extension of bridging
are stumbling at the final hurdle.
Investors aren’t happy, and criteria
becomes even more restrictive and
pricing higher.
Certainty in autonomy
For developers, and consequently
their brokers, this means working
with a lender that has the autonomy
to underwrite without having to defer
every decision to an investor, giving
them certainty on deliverability.
Delivering on the terms expected in
the time agreed as is as important as
headline rates and fees. ●
