here has never been anything straightforward about property development. Even the best-planned scheme can change considerably between acquiring a site and handing over the keys, but SME developers are currently having to contend with an unusually long list of pressures.
\nTop of the list remains planning. Recent research from the Home Builders Federation found that nine in 10 local authority planning departments across England and Wales are understaffed, with teams operating at around 80% of the capacity they say they need. This is translating into substantial delays in getting decisions, with only around one in five major applications being determined within the statutory 13-week period.
\nBut the problem is not simply that decisions take too long. It is that developers cannot always predict how long they will take, whether requirements will change or whether similar schemes will receive consistent treatment from one authority to another. For SME developers, that uncertainty makes committing capital and planning ahead particularly difficult.
\nAt the same time, viability remains under pressure. Build costs have risen substantially over recent years, while Section 106, CIL, BNG, building safety requirements and now the Building Safety Levy all sit within the same development appraisal. These costs cannot be looked at in isolation. They accumulate and, on schemes where margins are already tight, each additional cost can affect whether the numbers still work. Separate HBF research found that 91% of SME housebuilders surveyed believe the Building Safety Levy will make some developments financially unviable.
\nNone of this means developers have stopped wanting to build. Far from it. But it is making experienced developers more selective about the sites they pursue and where they commit capital. When planning is difficult to predict and viability is already tight, there is simply less room for error.
\nThat environment also makes the quality and proximity of a developer’s funding relationships more important. When there is less room for error, understanding the individual scheme and the market it sits within becomes increasingly valuable.
\nDevelopment happens locally
\nWe talk a great deal about the housing market as though it were one national market, but in reality, development does not work like that.
\nWhen we work with a developer in Birmingham, they will face a different set of circumstances and challenges from one in Bristol, Yorkshire or the South East.
\nWhether it’s land values, achievable sales prices, planning authority priorities or even buyer behaviour, it can all change by the postcode.
\nSME developers understand this particularly well because they are often rooted in their markets. Many have spent years building within the same handful of local authorities, providing them with a clear insight into where demand is, what buyers want and which sites have potential.
\nBut if development is to grow, then we can’t just rely on the developers themselves to have that local knowledge. The lenders funding their schemes need that same boots-on-the-ground experience too.
\nLooking at the numbers will always be fundamental to development finance, but numbers need context. A spreadsheet can’t tell you everything about the local market or the developer’s ability to deliver within it, which is why it’s crucial for lenders to build teams with the experience and judgement to look beyond the figures.
\nTwo schemes can look very similar on paper but carry quite different risks. Local sales rates, achievable prices and the time it takes to work through planning conditions can all affect whether the original appraisal still stacks up. A lender who understands those differences is better placed to distinguish between a problem with an individual scheme and something happening across the wider local market, ask the right questions and respond sensibly when circumstances change.
\nWhen the plan changes
\nMike Tyson famously said that everyone has a plan until they get punched in the mouth. Development has a habit of proving the point. No plan progresses exactly as it was set out. There are always challenges to deal with, from shifting costs to sales-than-expected slower or issues with contractors. The question is not only how the developer deals with those challenges, but how the lender responds too.
\nFor me, this is one of the most important distinctions in development finance. Agreeing a facility is not the end of the lender’s involvement. In my experience, it is often when the relationship starts to matter most. When circumstances change, the developer and broker need to be able to speak to somebody who already understands the scheme, knows why the deal was structured in a particular way, understands the local market and can make a sensible judgement about what happens next.
\nAnd when margins are under pressure, as they are now, those conversations become even more important. A relatively small delay or unexpected cost can have a much greater impact on viability than it might have done several years ago. The earlier everyone understands the issue, the more options there tend to be. It means staying close to a scheme throughout, not waiting until a manageable problem has become a serious one.
\nA lender is only as good as its people
\nDevelopment lives and dies by the people involved in a scheme, which is why having the right, experienced people on hand is so crucial for a lender.
\nThat is one of the reasons we have continued to invest in our regional lending presence, bringing experienced lending directors closer to the developers and brokers operating in those markets. We have also developed people already within the business into more senior lending roles, building greater depth across the team.
\nWe’ve deliberately recruited people with experience across different parts of development, from origination and underwriting through to portfolio and relationship management. That breadth is important because the challenges don’t stop once the loan completes.
\nBut regional presence on its own isn’t enough. What matters is whether the people involved understand their markets, can challenge assumptions, exercise judgement and have the authority to respond when a scheme needs to adapt.
\nAs an industry, we often talk about national housebuilding targets, but the truth is that homes are delivered one development at a time. Getting those schemes off the ground and through to completion requires people who understand the local market, the developer and the realities of the scheme in front of them.
\nA lender cannot remove planning delays or make rising costs disappear. But it can understand the area, know the scheme, spot issues early and work with the developer and broker when circumstances change. When margins are tighter and there is less room for error, that can make a very real difference to whether a viable development progresses and homes ultimately get built.
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