"Interest rates are now stabilising and it is clear that developers are back in the market."
FR: You are head of portfolio management for development finance at Hampshire Trust Bank. What does this entail on a day-to-day basis?
My primary role is to manage the bank’s development finance portfolio and to work with our borrowers to ensure the developments are delivered, as far as is possible, on time and within budget, thereby mitigating the bank’s risk.
I have a team of nine portfolio managers, including one experienced monitoring surveyor.
FR: You have a lot of experience in property development, valuations and development funding. How are you leveraging these skills at HTB?
Over the years I have worked as a valuer, headed up a property development company, worked in a team winding down a failed property bank and more latterly work in development funding so therefore I’ve had the benefit of seeing property development from several angles. This experience allows me to identify potential problems with developments/loans at an early stage but also allows me to understand the challenges facing our customers and work with them to find solutions.
FR: HTB has a dedicated portfolio management team. What are the benefits to the customer, broker and HTB itself?
Each of the nine portfolio managers in the team have banking and/or property experience and each looks after a dedicated portfolio of cases. They manage their cases from the point the loan completes/is initially drawn and see it through the build phase to eventual redemption via sales or refinance.
For the customer, this means they have a dedicated case manager who is always available to deal with any issues that might arise. The portfolio management team ensures drawdowns are dealt with quickly and efficiently, which is vital to maintain the customer’s cashflow. The portfolio manager will visit the site regularly to review progress and understand any issues.
For the broker, where the exit strategy is to re-finance and retain, the portfolio manager will work with the broker and borrower to facilitate a timely redemption.
For the bank, the dedicated portfolio management team delivers exceptional customer service thereby encouraging repeat business. Portfolio managers, being fully focused on the management of in live cases, will identify potential challenges at the earliest opportunity, allowing them to be resolved quickly before they escalate.
Also the portfolio managers develop close working relationships with the bank's appointed monitoring surveyors which helps to deliver a seamless offering for customers.
FR: HTB takes a regional approach to development finance. How does this help with the life cycle of a project?
The bank has lending directors and portfolio managers located across England and Wales and therefore they are easily available to visit sites and borrowers. Our team’s local knowledge is also key in understanding local property markets.
FR: HTB will lend up to £25m; what are the implications of this for portfolio management?
In general, larger loans are seen as a positive from a portfolio management point of view. Developers behind larger schemes are often more experienced and this can make the portfolio manager’s job easier, in that the customer usually has their own in-house or appointed team of construction professionals for our portfolio managers and our appointed monitoring surveys to interact with.
FR: Covid, Brexit, the war in Ukraine and the ‘mini Budget’ have all played their part in pushing up building material costs and/or restricting supply of skilled trades. What are the challenges with these issues and what advice can you give to brokers and their clients?
Building material prices have increased dramatically over the past two to three years, by as much as 25% p.a. for some items. At the same time, skilled trades have been in short supply thereby pushing up the costs of labour. This has been the single most challenging issue for developers in recent years, impacting all types of developers from SME builders to national house builders.
Thankfully building materials inflation has now slowed but developers still need to be aware of the challenges and to plan carefully.
Developers need to regularly update their construction budget and need to allow an appropriate contingency for labour and materials cost increases. Even where a developer has a ‘fixed price contract’ with a builder, we are finding that contracts are sometimes, by necessity, being renegotiated as a result of price inflation.
It is increasingly important that developers are transparent about costs and discuss them openly with their portfolio manager. This allows the bank and the customer to work together to facilitate the development.
Similarly, when brokers are presenting cases to the bank, they need to ensure the projected build costs are representative of current market conditions and are prepared to allow a contingency that properly reflects the proposed scheme in terms of type of build, location, etc.
FR: In your experience, what can be done to minimise delays in the planning system, both before planning permission is granted and post planning permission in discharging conditions?
After material and labour cost inflation, the congested planning system is the next biggest challenge for most developers.
The main issue is a lack of resource in the planning offices which has led to planning decisions being delayed and an apparent inability to make decisions over nutrient neutrality on sites. This lack of resource has also resulted in severe delays in having planning conditions discharged, approving minor amendments to planning permissions and agreeing S106 agreements.
The key for developers and their advisers is to allow plenty of ‘time contingency’ in their programmes for the above issues. This is particularly so where they are applying for what seems like a straightforward amendment to a permission, as delayed decisions can sometimes result in sites going on hold until applications are resolved.
Developers also need to ensure the planners are provided with all the information they require to make a decision at the earliest possible time. If the planners need to revert to our customer for further information, it can on occasion, re-start the clock on the planning departments timelines.
FR: Despite all the challenges in the current environment, HTB has ambitious plans for growth in development finance. How will this be achieved?
HTB Development Finance has a fantastic team of lenders and portfolio managers and the exceptional levels of customer care we provide is already resulting in significant growth in repeat and new to bank business.
The team’s experience allows us to understand customer challenges and, where possible, to tailor our facilities to help our customers to deliver great developments as effectively as possible.
Interest rates are now stabilising and it is clear that developers are back in the market. There remains a national shortage of new housing stock in the UK and therefore we see a real opportunity for great SME developers to step up and help to address this shortfall, supported by a development finance bank that understands their challenges.
Demand remains strong particularly for good quality houses and flats in the right locations and HTB expects to see enquiries increasing even further over the coming 12-18 months.
