DEVELOPMENT FINANCE

Panellists: James Bloom, director at Alternative Bridging Corporation; Mark Elliott, BDM at Sopra Banking Software; James Mole, director at J3 Advisory; and Adele Turton, managing director at Blanc Property Finance

8. There are still obstacles to overcome to adopt MMC While Mole highlights that modern methods of construction (MMC), including modular and off-site building, are becoming increasingly popular in the UK as lenders are focusing more on these schemes as part of their ESG strategies, he points out that not all MMC schemes are viewed equally. “The biggest difficulty comes if you can’t do [the development] on site and have a monitoring surveyor keep track of it—it’s very difficult to get anyone comfortable with it, especially if upfront payments are [required] for things such as timber frame companies.” Mole adds that getting a warranty for these types of schemes can be difficult, and something that lenders might take into consideration.

Bloom agrees, adding that Alternative Bridging Corporation is open to providing funds for MMC as long as the deal has a solid exit plan and the term lender accepts these types of projects. “There’s no point lending on a particular method of construction if you then find out the end purchaser can’t get a mortgage because the long-term lender doesn’t accept that method of construction,” he explains. “It’s not just looking at a saving cost on the construction—it’s looking at the whole piece, making sure that it works for the lender, and that the exit works as well.”

Ultimately, the panellists believe there is a future for MMC if the finance provider has control and security over the deal. “This is the sort of thing I’d expect a broker to look at, and the good ones do—they present the method of construction, how it will be funded, and how the developer will exit the deal, including evidence of the top lenders that will accept this method of construction. This is where your brokers come in,” notes Bloom.

9. Lenders should upgrade their tech—and before they really need to Mark claims the industry can be reluctant to adopt technology, which he says can be detrimental for lenders. “The industry as a whole is not great at using the technology that's available to increase efficiency in the processing of deals, get new cases through the door, and process the release of tranches during the life of a loan. Technology can definitely help with that.”

When identifying the right solutions for a firm, Mark states technology must do one of two things and, ideally, both: control risk and improve efficiency. “A good loan management or customer relationship management system will allow you to do both of those things and should enable the process to be much smoother than it often is,” he states. “Communicating with solicitors and brokers can be aided and made much slicker through the use of technology.”

One example where fintech can aid all parties involved in a development finance deal is cashflow management, which, according to the panellists, developers are struggling with. “For example, if you can provide your cashflow modelling tool to your broker, that can help with the onboarding process, and the developer will understand what their cashflow will look like,” states Mark. He also advises people to look ahead and consider researching and investing in technology in preparation for tougher, volatile times that will require fintech support. “When it’s all easy and the sun is shining, think about your software, because you’ll need it when things start to go wrong. It's at times like this when you need the risk management, the control, and the visibility that good software can give you.”

10. Lack of good-quality information and using inexperienced solicitors delay deals

When talking about the main causes for delays in completing development finance loans, Bloom says these are frequently from borrowers using solicitors who don’t understand what’s needed to complete the deal. “You’re often up against a solicitor who really doesn't know what they're doing because they're not a commercial solicitor. That is the biggest single problem in the industry and has been since forever.”

Another issue causing delays is the lack of information given by a borrower when applying for finance. “The initial information sharing from a client to the broker or lender is often not very good, and you can only work with what is in front of you; it’s very difficult for a lender, broker, or solicitor to do anything unless the information is there in the first place. If it takes weeks just to collate basic details, such as comparables and bill costs, that slows the process down,” comments Mole.

Bloom agrees, adding that the quality of submissions can leave a lot to be desired. “I had a case in from someone who wanted to borrow £250,000 for the purchase of a commercial building, with no address, no client name, no description of the property, no value, and no exit plan. We get that all the time. It’s unbelievable,” he states. “The difference between getting a well-packaged case and one with holes in it is chalk and cheese, and it does make all the difference to starting a transaction off on the right foot.”