Arbuthnot Latham: Developing the proposition


Matthew Anderson Tony Eden Arbuthnot Latham

Arbuthnot Latham is strengthening its presence in the world of property development and investment as it helps clients tackle the volatile UK economy.

The bank offers developers and investors, hit by higher costs and interest rates, a wide range of products and services from its Real Estate Finance team and short-term property lending subsidiary Arbuthnot Specialist Finance (ASFL).

The Real Estate team, led by Head of Specialist Commercial Banking & Real Estate Finance, Tony Eden, covers asset classes within residential and commercial, investment and development.

A key focus is on buy-to-let property investments offering commercial buy-to-let mortgages for individuals and businesses. Opportunities include residential investment portfolios/buy-to-let in own name or SPVs and licensed good quality Houses of Multiple Occupation (HMOs). The loans are typically up to 65% Loan-to-Value and have a typical 5-year committed term.

To secure development, finance developers need a clearly defined development programme and budget, potential future income/value and detail whether they intend to retain the development after completion or sell it.

Development finance covers purpose-built student accommodation, office space, ground-up residential property, HMOs to build-to-rent and build-to-sell projects.

Build to rent projects are more of a long-term investment where valuers look at rental income over time rather than capital appreciation or depreciation of bricks and mortar.

“We can do anything from two to three house development schemes with £1 million exits and £3 million GDV, to much larger projects – for example, a current 300 bed co-living scheme with a £55million GDV,” explains Eden. “So, we cover small and large development schemes. With a preference on holding the asset afterwards”.

Eden says whatever the size of the project, developers are currently experiencing large rises in costs as inflation takes hold and supply chain squeezes continue post pandemic and Brexit.

“We all are seeing utility prices getting higher and higher, but it is also coming through in terms of steel and labour costs,” he states. “That squeezes the margin for developers because land costs have remained the same. It means that more developers are keen to hold on to the asset after completion. As a result, there is more demand for our development flip loan into investment. It gives clients the confidence of exit and the chance to benefit from the yield as a result of their investments in build to rent, or HMOs.”

ASFL’s main business is residential finance where it offers maximum LTVs of up to 75% including interest but little to no fees on loans from £30,000 and an interest rate per month from 0.6%. Other core areas are light refurbishment with a maximum LTV of up to 75%, loans from £30,000 and a monthly interest rate from 0.65%. Development Finance offers a maximum LTV of up to 70% and maximum GDV of up to 70%. As explained by Matthew Anderson, Head of Sales at ASFL, the bigger commercial developments go through to the Real Estate team.

“Instead, we see people at the start of their property journey. They are less experienced but enthusiastic developers,” Anderson explains. “We are also picking up bridging and short-term lending business from decent sized developers who are buying land with full planning. We don’t touch land without planning. Either we go on to fund that development or the clients move on to another development lender.”

ASFL’s development loan sweet-spot is up to £3million. “We are seeing a lot of demand for HMOs at present with people moving to that from buy-to-let,” explains Anderson. “That suits us as the straight bridge single advanced loan is a very competitive market, and to be fair, some of our rivals can provide a buy-to-let loan within a week or two which actually negates the need for a bridge. We are also seeing demand for bridging loans where a property needs work doing to it such as a heavy or a light refurbishment. Anything really which enhances its value or eventual sale”.

Eden believes the rise in demand for co-living and HMOs is being driven by the return to normality post-pandemic.

“A lot of young professionals moved out of London and other big cities to live with their parents during the pandemic rather than living in a flat,” he says. “But now we are seeing a return to work and the office. Organisations, from a mental health perspective and for training and development, are bringing their people back in. That means there is a need for more housing supply as there is a shortage of beds in UK cities. Large co-living schemes are providing a solution. We can help developers with build to rent loans and then investment out of the back end.”

Developers are also being tasked with delivering more exciting office developments.

“There is a demand for A Grade office space,” Eden adds. “It is no good just putting a fruit bowl on a desk in this new environment. Employees want their employers to provide showers, bicycle racks and creches to tempt them back in. You need a lot of capex in the form of loans to do that. In addition, we are also seeing more demand for bigger warehouses in the logistics sector as a result of continued e-commerce growth. The commercial market is still moving, and we are here to help fund it.”

Another growing area of demand for Arbuthnot Latham is that of ESG development. One recent example of the group’s work in this field is a partnership with innovative eco home builder Project Etopia on its Priors Hall Park development in Northamptonshire. It combines energy, construction, and intelligent technology to build the smart homes of the future.

“This was a great development with technologies such as solar panels and battery storage,” says Eden. “We try and support clients by waiving or halving arrangement fees for Capex loans. We are also looking at reduced interest rates for clients. Of course, they need to be making some meaningful sustainable changes. We are looking at helping more developments boasting solar panels, ground source heat pumps, rainwater harvesting and modular construction.”

Also, looking to the future, Anderson expects ASFL to begin looking at and offering more regulated bridging loans. “We will see if we can develop a product that can cover that. It is probably the most obvious of areas we can move into,” he states.

Both Eden and Anderson recognise that it is not just existing or future products which will set them apart in the months ahead. Given the economic climate, the need for closer partnership and relationships with developers and investors is greater than ever.

“In a time of rising interest rates, which many developers and investors have not seen for years, and higher inflation, we need to get through this together,” says Eden.

Anderson says Arbuthnot Latham offers the perfect ‘one stop shop’ to turn this aim into reality.

Some developers and brokers think banks can’t do bridging because there is too much formality and we can’t react quickly enough,” he says. “We are beginning to overcome that idea, but we need to do more to get greater recognition not just of our specialist bridging arm but what we can offer in commercial banking and real estate. With these strings to our bow, it puts us in a strong position.”

If you want to find out how Arbuthnot Latham and/or Arbuthnot Specialist Finance can help you or your client achieve their real estate goals using the financing they provide, please do get in touch.

Arbuthnot Specialist Finance  or submit an enquiry.

Arbuthnot Latham – Real Estate finance