Paragon Bank’s Managing Director of Development Finance discusses SME developer demand, the Budget and the new sub £1 million lending proposition.

We talked to Paragon Bank Managing Director of Development Finance Robert Orr about SME developer demand, the Budget and the new sub £1 million lending proposition.  

How is the market currently and what level of demand are you seeing from SME developers?  

Our business pipeline is really strong. Developers want to work with a bank that is consistent, financially robust and has the experience and expertise to support their business. We have remained active throughout the coronavirus pandemic and our clients appreciate that commitment to the market.

We’re seeing good quality proposals across our desks and we’re supporting customers on a wide range of developments across the country. We added new Relationship Directors in more regions last year to build our profile in those local markets and we’re experiencing increased business from those locations.

How has the pandemic impacted consumer demand? 

There is no doubt that the lockdowns have made people reassess their housing needs and those who are in a position to do so seem to have accelerated their plans for a change.  

The Stamp Duty holiday, alongside cheaper mortgage rates, have created extra incentives, which has led to increased demand. With only limited stock available, estate agents are really busy. It seems likely that momentum will slow a bit towards the second half of the year as the various Government support packages unwind, but it’s a far better position for the housing market than most commentators predicted 12 months ago.   

Are you witnessing any shift in the types of scheme being proposed?  

We have always received a good mix of proposals and that’s no different. We have not seen a fundamental change caused by the pandemic. Buyers will pay more attention to aspects such as outside space, flexible accommodation and broadband speeds, so our developers will have to reflect that in their designs.  

There is strong demand for three-to-four bedroom family homes, which has been a trend over the past decade, but the market for smaller properties and flats is also buoyant. If you consider the life journey of an average homebuyer, they tend to buy small and move to larger properties as they get a bit older and their wealth grows. We don’t envisage the pandemic to have any long-term impact on that.  

Why have you launched a sub £1 million loan product? Are you seeing an increase in demand from that segment of the market?  

The sub £1 million product enables us to provide more tailored support to smaller housebuilders, whilst aiding the growth of their business. Even our larger customers started small, so this helps those businesses during the earlier stages of their business growth, and we will be there as they mature to larger-scale projects.  

The new proposition complements our existing residential development product range of loans from £1m to £30m. It also provides exciting career opportunities for Paragon as a place to work, with added roles and progression opportunities as part of the enhanced team and product range.  

What’s your view on some of the measures announced in the Budget?  

There were some interesting elements to Rishi Sunak’s Budget. I’m sure the industry welcomed the extension of the Stamp Duty holiday to the end of June and then the tapering to the end of September. That should ensure people in the buying process today are able to complete and benefit from the saving, keeping the existing chains in place.  

I also welcome the 95% mortgage guarantee scheme, which should help first-time buyers, as well as those people buying in more affordable parts of the country. However, affordability will remain an issue in London and southern regions, where the average price can be 10 times average salaries. The 95% mortgage will help, but banks can only lend on a multiple of a salary, so it remains difficult in those more expensive regions, particularly for those getting on the ladder.  

There is a lot of talk of conversion of high street retail units to housing, what’s your view on that? 

It’s an interesting area and one I’m sure some of our customers are looking at closely. The idea of mixed-use town centres, combining retail, living and leisure, is appealing and this could breathe fresh life into urban areas. Nobody likes to see boarded up shops and closed shutters but these have proliferated as retail shifts online.  

There will be certain empty retail units that will be of great interest to developers, but not all empty spaces lend themselves to conversion and sometimes it may be more appealing to demolish and use the space the building occupies to develop something fresh. There are often a wide range of tenancies and freeholders which makes wider site assembly challenging.  

So, some radical thinking is needed in this area, most probably with central and local Government support. It’s a long-term project but it would be good to see some momentum starting in 2021.