Neal Moy, Paragon Bank Development Finance Managing Director, explains why we have entered the Build-to-Rent sector and how Paragon’s proposition differs from the rest.

Innovation has always been central to our approach. Two recent examples include becoming one of the first development funders to launch a green product aimed at improving the energy performance of new build homes, whilst we also pioneered the funding of the lifecycle of Purpose Built Student Accommodation, rather than just specific elements.

Build-to-Rent is a natural extension of our product offering and a further example of our innovative approach, building on the significant experience we have garnered in the PBSA sector in recent years.

Demand for BTR schemes has grown significantly over the past decade and, today, British Property Federation data shows us over 90,000 BTR units have been delivered, with 50,000 units in current development. Many more are in the planning stage.

We believe that BTR complements the good work of the millions of private landlords providing homes for the private rented sector (PRS). BTR accounts for less than 1% of privately rented homes, although that will undoubtedly grow.

Whilst it certainly won’t replace landlords, BTR has a role to play in differentiating the type of home offered in the PRS, especially at a time when tenant demand significantly exceeds supply and more rented homes are needed.

Regional growth

The BPF’s data, supplied by Savills, also shows that BTR is becoming more popular regionally. London proved the concept could work and that is now being applied in towns and cities across the UK. By the second quarter of this year, 46,067 units had been completed in regional markets accumulatively, compared to 42,033 in the capital.

And it’s not just in our major cities. The BPF’s BTR map shows clusters of schemes around the major economic hubs of Birmingham, Liverpool, Manchester and Leeds, but also in smaller towns and cities, including the likes of Norwich, Southampton, Leicester and Peterborough.

Stock is also evolving. Once the domain of the 25 to 34-year-old young professional, the target demographic for BTR homes is widening. The Single Family Housing sector continues to expand strongly, for example, and there are now nearly 28,000 SFR homes in the planning pipeline, making up 12% of all BTR homes. Of these, 9,600 are complete, 9,100 units under construction, and 9,200 in the planning pipeline.

Whilst the majority of schemes so far have been delivered by major construction companies, typically on a forward-funded or forward-purchase basis through funding from large insurance companies or institutional investors, there is growing demand from medium-sized property developers to deliver stabilised income producing institutional-grade mid-size BTR schemes.

Lifecycle

Our proposition will support the lifecycle of BTR schemes in established residential locations in cities and large towns across the UK, including site acquisition, development, the letting of a completed scheme and a short-term stabilisation facility.

We aim to support the developer in taking the opportunity to benefit from the potential growth in the rental market through the development term, enabling them to manage and operate the scheme post-completion, rather than just build-to-order for a fixed price. As in the PBSA market, this enables the developer to prove a scheme’s viability to investors. 

Many developers and housebuilders are considering BTR as an alternative tenure for their schemes, either in its entirety or as a parcel of units within a broader scheme. Institutional investment for BTR is strong, as well as tenant demand for the homes, and transaction volumes are increasing.

We look forward to working with our clients as they bring BTR schemes to market. 

Visit our Build-to-Rent webpage to find out more.