Why development finance might not be the same again

By Ashley Ilsen -

Ashley Ilsen

They say the construction industry is the first to enter a recession and the last to exit.

I use the ‘R-word’ reticently in that we are nowhere near understanding the true implications of the current Covid-19 Crisis, on values and on the wider property market.

The last few weeks has seen various lenders pull product ranges, with development finance being one of the hardest hit sectors.

However, as of today government guidelines do not prohibit construction or activity on construction sites, as long as public health guidance is being followed.

In fact, across many of Magnet Capital’s development schemes that we are funding, progress is still excellent.

We are seeing a hardnosed resilience that was perhaps born out of the destitution of what many builders and construction firms went through after the 2008 crash.

In fact, just today I conducted a wonderful virtual inspection of a large site we are funding in Kent which was full of activity, with an appropriate number of tradesmen on site that are respecting the social distancing guidelines.

Naturally, we do have a handful of clients that have closed their sites and in many cases this has predominantly been down to our clients need to protect vulnerable relatives at home.

We have also seen many complaints about supply chain which the government is yet to sufficiently address and could cause further disruption beyond the Coronavirus crisis.

Beyond all the usual struggles for SME builders and developers, access to appropriate development finance will now become a serious issue.

I say appropriate because for every quality development finance lender, there seems to be a handful trying to cut corners in our market.

The landscape for development finance has changed dramatically in recent weeks but the one thing the development finance sector needs now more than ever is consistency.

Having what I call a ‘Hokey Cokey’ approach to financing, where lenders decide to be in one minute and out the next, can be hugely detrimental to our sector and reputationally damaging.

Consistency is key because it breeds confidence, which in turn trickles down from our brokers to the consumer.

The development finance sector has come a long way since the 2008 crash and indeed since I joined the market in 2012.

It’s a small world and I really enjoy sharing thoughts with competing lenders and being able to speak candidly with our broker partners.

One thing I think we can agree on is that this is very much a pull-up-your-socks moment for the development finance industry.

At Magnet Capital we have always been known as being a cautious lender and years of being conservative in our lending means that we are currently in a very strong position to serve our brokers and our clients.

Having a sudden nose-dive in liquidity in the sector will undoubtedly cause serious problems for the wider property market far beyond the Coronavirus Crisis.

Let’s keep doing what we’ve doing for years and continue to back the construction sector; they’re going to need it.