Why Transparency is key to a Successful Development Finance Offering

I sometimes find it a bit of a cliché when lenders chant the mantra of ‘the devil being in the detail’.

This is of course completely true when it comes to underwriting a new loan, but this is also easier said than done. Is there something us as lenders can be doing to help a property developer client be as profitable as possible?

When we first look at a new development finance proposal, one thing that’s for certain is that the costs we are presented with on day one are unlikely to be completely accurate. Some expenses will be missed, delays will happen and ultimately a developer’s costs at the end of the project will often be some way away from the initial appraisal received. With the full effects of Brexit on building costs not fully known at this point, it’s more important than ever for developers to make sure that their costs are as accurate as they can be. One area I find that is often overlooked is the cost of development finance, and I believe that lenders should be doing more to be completely transparent about what the cost of funding will be to a developer client from day one, and what this means for their bottom line. This includes being completely clear about hidden costs, such as extension fees, admin charges or any other unfortunate ‘extras’ that I’ve seen pop up in some loan agreements.

The beauty of development finance is that there is more than one way to skin a cat. Every lender approaches development funding differently and more choice can only be a good thing for our market. I do, however, find it slightly disconcerting when a client chooses to go with another lender on the basis that their offering is ‘cheaper’ despite the lender not being fully open about other charges that may not initially be declared. Sadly, it happens all too often.

Our industry has come a long way over the last decade. Reputationally we are wonderfully positioned compared to where we were when I joined the industry in 2012.

It is though, essential that we continue to improve our standards, which includes being completely honest, open and transparent about the way we charge our customers.

At Magnet Capital we thrive on repeat business, with both our broker partners and developer clients. One of the reasons this is the case is because by being transparent on day one, our clients can pinpoint as accurately as possible where their profit will sit come the end of their project. Fewer nasty surprises for a client at the end of a facility term means a much more likely chance of developing a genuine and successful long-term relationship. Trying to predict where the market will be in 12 months, along with fluctuating costs, is making property developer’s jobs harder than ever, and it is therefore our role as lenders to help them as much as we can.