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SME property developers: What’s in store for 2022? 

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Paragon Development Finance enjoyed a very strong 2021, increasing its lending activity, supporting clients across the country. We speak to Managing Director Robert Orr about what 2022 has in store for SME developers, Paragon's growth plans and how housebuilders have adapted to the pandemic.

Paragon Development Finance posted a 33% increase in lending during its last financial year to £510.4 million. What do you attribute that growth to?

It was a very strong year in challenging conditions and demonstrates how we are delivering on the strategy we established just over three years ago when Paragon acquired the Titlestone business.

That was to focus on our products, our processes and, most importantly, our people. We have grown the team significantly, bringing in additional experienced Relationship Directors, as well as bolstering our Credit team and Portfolio Management support.

Combined with an attractive product offering, a consistent approach to lending and the knowledge that we are backed by a well-capitalised bank, this investment in people is driving our growth.

What are your plans for 2022?

Clearly, we want to continue to support our clients and grow our lending further in a sensible way. That is our overarching aim.

There are areas of the country where we have a smaller presence than some of our competitors and we see that as an area of opportunity, plus there are market segments, such as the student sector, where we feel there is growth potential.

What key themes will define 2022 for SME developers?

In terms of opportunities, there remains latent consumer demand for housing, despite the increased transaction levels in the housing market over the past two years. Mortgage finance remains relatively cheap, and demand continues to significantly outweigh supply for housing, with lifestyle decisions and the race for space still dominant.

I would expect house price growth to temper during 2022, which will lead to a more sustainable market.

Conditions remain challenging, however. Cost inflation and delays in the supply chain persist, with added issues now around Covid isolation rules impacting the workforce, as well as planning officials, utilities and building inspections. These are real challenges for SME developers.

Do you expect to see any major regulatory developments this year?

It will be interesting to see how Michael Gove implements his agenda and what changes he will make to the Planning Bill. We hope to see the Government's response to the planning white paper in the early part of this year and it is widely mooted there will be significant amendments from the early proposals.

On the green agenda, the Government announced details just before Christmas about how new build homes must produce 30% fewer CO2 emissions than current standards. These new regulations come into force in June and are a route on the path to the Future Homes and Buildings Standard in 2025, which will mean all future homes are net zero ready and will not need retrofitting.

Fortunately, most developers are building homes to high energy performance standards, but it's an area the whole sector will have to focus on in the coming years.

Have developers responded to changing consumer demand caused by the pandemic, such as the race for space?

Clearly SME developers must adapt their schemes to changing buyer demands and I believe the pandemic has simply accelerated some of the trends we have seen in more recent years, which is a move towards the construction of more semi-detached and detached homes.

However, strong demand remains for all types of properties - from starter flats to high end family homes - so we continue to support a wide range of proposals for all development types.

Can we expect any innovation in your product offering this year?

As you saw in 2021, we launched several product innovations, such as our Green Homes Initiative, and that will continue this year. We are always looking at ways we can better serve our clients and make our proposition more compelling, so yes there will be innovation in our product range during the year.

I can't give details just yet, but we are looking at something interesting in the purpose built student accommodation space. This is a market segment that is set for strong growth in the coming years, and we are looking to build on our already impressive client base in this area. We also expect to add some completely new areas to our product range during 2022.  

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Paragon Bank PLC is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registered in England number 05390593. Registered office 51 Homer Road, Solihull, West Midlands B91 3QJ. Paragon Bank PLC is registered on the Financial Services Register under the firm reference number 604551