Moy

Neal Moy, Paragon Bank’s new managing director of development finance, appreciates the human interaction within residential lending. While he took over just as his department had recorded a huge increase in advances, he recognises a lot can be learnt from turbulence

Words by BETH FISHER

Paragon Bank’s managing director of development finance Neal Moy stepped into the shoes of former MD Robert Orr in October last year, having worked as deputy managing director for the previous 12 months.

Before that, his 35-year career in real estate and investment included founding RateSetter Development Finance—where he was also MD— and holding positions at RBS, Lloyds and Deutsche Postbank.

His first rung on the career ladder was on the retail side at Australian bank Western Pacific.

“Quite bizarrely, I served the head of real estate as a customer, because he was going away on holiday,” he remembers. “I clearly struck a chord with him and, on his return, he asked to speak to me because he liked the way I operated. I got into development finance as a result of that.”

Neal’s fondness for residential development has meant he has spent the past 13 years in this ever-changing market.

“You deal with human beings face to face,” he says. “It sounds a bit strange, but it’s about real people doing real things and delivering real products—I enjoy that.”

He found positives during tough times in the 1980s and early 1990s—“you learn so much more during downturns than you do in the upsides”.

I ask him what it was like working with Robert. “We always had very similar ideas and thought processes. We’ve got different styles but, at the end of the day, we think alike. He always reminded me of how resilient developers can be, and he’s right on that front,” he divulges.

They recognised lending is about more than doing deals: “As a lender, we always look to try to help our clients. It’s not about just doing a transaction— it’s about being there, driving the relationship and making sure that everybody comes out successful.”

Staggering loan book rise

Neal’s opportunity to take the wheel and drive the business forward has come at a pivotal moment: the group’s development finance arm recorded a 23.9% surge in new lending to £632.2m for the year ending 30th September 2022.

With the residential development market coming back to life after Covid-19 more quickly than the lender had anticipated, it was able to quickly leverage up to 70% LTGDV, inviting a surge of business.

Since then, the company has announced a series of promotions and senior appointments across the division (including someone relocating to Scotland) to build a team of around 40 employees, and the launch of several products—including its expansion in the PBSA market—to help drive new business across the country.

“While we had historically just done the development piece [of student accommodation], we then moved that forward and allowed some of our developers to have what we call an estate mobilisation period, where they develop the property, get it to full occupancy, and let it season for two or three academic years. Previously, they would have refinanced during that seasoning period, but the stabilisation facility enables them to stay with Paragon,” explains Neal.

The housing market

In addition to expanding its geographical footprint, Paragon will continually eye gaps for new products to help developers build the muchneeded houses the country needs.

When I press Neal on the gaps he is seeing right now, he points to the buildto-rent sector and the undersupplied specialist accommodation market, such as later living—which could suggest areas where the lender is looking to cater for.

At the end of 2021, Paragon introduced its Green Homes Initiative to escalate the delivery of top-rated energyefficient properties. As part of the scheme, developers creating homes with an A-rated EPC will receive a 50% reduction on loan exit fees.

In the six months to the end of March 2022, the lender agreed £23.5m of new facilities under the initiative, which Neal attributes to the rising cost of living and changing building regulations—such as last year’s revision to part L, which forced developers to plan for building more efficiently.

Looking ahead, the development finance provider aims to continue to grow its loan book—but in a realistic way, considering the period of uncertainty we find ourselves in and the thinning of new-build transactions.

“I think the challenges remain the difficult planning regime that we have in this country. I don’t think that’s going to change for a long time. Getting planning consents on sites has always been tricky for developers, and I can see that continuing for quite some time,” Neal predicts.

Sale price rumours

“Naturally, we’re in a period of high inflation, so keeping costs under control is also quite tricky. There’s lots of market talk about sales prices falling away at various different rates.”

There could be effects on the number of development lenders and brokers in the market: “I suspect there will be some consolidation. I’ve got first-hand evidence of how funding lines can dry up pretty quickly, and I think there’ll be one or two lenders out there at the moment that are feeling that heat.”

Where clients want certainty, Neal believes they will seek out traditional banks with good access to deposits and lines of finance, rather than taking what are often described as riskier routes with some of the P2P or private equity-based funders.

When asked how developers can improve their odds of getting the green light on their loan applications, Neal advises them to ensure they have adequate contingencies for increased costs and the time it will take to deliver and sell the completed units.

“We’re going into an uncertain time when sales values might come off by X% but, even if they were to stay static, I think sales may well take longer, given the macroeconomics that we’re seeing with mortgage affordability,” he states.

He advises developers to talk to their lenders and give them full information on any problems that arise as soon as possible: “We’re not there to panic, kneejerk. We’re a relationship lender at the end of the day. We want to work with them to make sure the scheme is successful, completed and sold.”