Knowing how a lender is funded is key, says investment manager
Brokers should ‘do their homework’ to check lenders’ funding lines and be aware of any potential risks in closing a deal, suggests an industry expert.
“Whilst delivering best pricing to your clients is of importance, this is only one piece of the puzzle,” said Doug Bowley (pictured), investment manager at Downing Property Finance.
“In an ever-changing market, you could make a strong case that certainty of transacting is just as important, if not more. Therefore I encourage brokers to do their homework on how a lender is funded as this generally gives you an idea of the true process involved as well as helping to identify any external funder risks in closing the financing.“
Downing offers senior funding to SME developers across England, Scotland and Wales, and has lent over £500m in the sector.
What challenges have the housing market faced?
“Over the past five years, market participants have faced a myriad of impactful events from the aftermath of Brexit, to global supply issues, and rampant interest rate rises to name a few,” Bowley told Mortgage Introducer.
“For developers, 2023 was a year of managing out projects which were less financially viability in tandem with handling a critically high rate of construction sector insolvencies. As a result of the increased risk of contractor insolvencies, some developers decided to bring the construction risk in-house by controlling the procurement route under a construction management basis.
“Whichever procurement route is adopted, developers must continue to carry out their own due diligence on key construction partners and ensure the plan and costings are realistic and deliverable in an inflationary environment.
“Whilst we have seen some lenders come and go, on the whole, the property lending industry has grown from strength to strength with challenger and non-bank lenders demonstrating how dynamic and resilient they are in spite of market conditions.”
He noted: “The general feedback I hear from my intermediary connections is that the deals are taking longer to complete due to slower moving parts within the execution process. An experienced finance broker doesn’t just add value to the borrower but also helps to smooth out the execution process and take considerable weight off the lender’s shoulders. Our intermediary partnerships are the bedrock of the business and we absolutely appreciate the key relationships we have built over the years.”
In business for almost 40 years, Downing recently launched sustainability linked loans which promote construction of sustainable buildings through incentives. For example, a margin rebate of up to 1% is available, subject to the project’s sustainability score once practical completion is achieved.
What improvements are needed in the housing market?
In Bowley’s view, planning reform and reducing stamp duty, could boost the housing market and help growing families afford housing.
“There are many areas of improvement needed, such as planning reform, which requires a colossal amount of time and energy to make meaningful changes,” he said. “Some form of tax reduction for the right part of the home buyer market would be an action point that will benefit many families from an affordability perspective and in turn potentially promote house building.
“The property market is very much driven by politics and policies. With the next general election within 12 months, I expect the industry to keep a beady eye on the result in anticipation for the sentiment expected and how it likely impacts the industry. Whilst I am not one to speculate, I believe the lead up to the general election will be widely watched because the consensus of many developers I speak with is that big changes are required.”
Bowley is enjoying a fresh focus as the firm’s newly appointed investment manager.
“I wear several hats and the role involves a combination of origination, client relationship management, deal structuring and ultimately case management to get deals over the line,” he explained. “In short, I am the first port of call for guidance on new enquiries as well as the deal lead for the entire loan lifecycle.
“One part of the industry I enjoy most is the collaborative approach shared across all parties of a transaction. Problem solving is a team effort and this industry breeds cross-company collaboration with the mutual objective of getting things done.”
Having spent 12 years working in financial services, seven of which have been focused on origination of short-term real estate lending opportunities, Bowley has a wealth of experience to drawn upon.
“One piece of advice I received very early on in my career and has stuck with me is to focus on doing the basics very well,” he shared. “Sticking to the fundamentals is often overlooked in all walks of life and can make all the difference because people value consistency.”
