Last week, Funding Circle revealed it would be stopping all property development lending by mid-2018 as it looked to focus its resources on its core small business lending products.

The announcement has led professionals to question whether we will see other peer-to-peer platforms exiting the property finance lending market altogether. 

Speaking to Bridging & Commercial, Neal Moy, head of property finance at RateSetter, felt that there was an excellent opportunity for platforms in property finance.

“Over the past three years, we have built up a strong track record providing more than £140m of property funding in 2015 and 2016 alone. 

“However, I do think that it’s important to have experienced people in place – the platforms that will do well are those with people who know the industry inside out, and our team has been working in the property industry for three decades.”

‘We would expect other platforms to pull out’

However, Stuart Law, CEO of Assetz Capital, said property development loans were the most difficult types of loans for platforms to successfully facilitate.

"We would expect other platforms to pull out of the property development lending market over the coming months and years for a number of reasons.

Development lenders need to keep in regular contact with developers

“[The loans] tend to have [a] higher number of risks needing to be managed and a specialist team is required to successfully mitigate these risks as well as to know when to avoid lending on a project altogether. 

“This makes property development loans near impossible to automate as they require human experience and skill.”

Stuart added that platforms also need local representatives on the ground to visit projects.

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“At Assetz Capital, we have the central specialist team and also a UK-wide network of experienced regional relationship directors for these very reasons, but very few other platforms have this skill set and are likely to see substantial challenges ahead in their property development loan books. 

“It is an important area to provide funding to, but not to be taken lightly."

‘Development finance is not a natural fit for peer-to-peer lenders’

Michael Dean, principal at bridging and development finance lender Avamore Capital, felt that the key issue for peer-to-peer lenders on development finance was the subsequent drawdowns required by the developer.

“Peer-to-peer lenders either have to hold all the commitment from the lenders from day one (which will be dilutive to their investor's internal rate of return) or run the risk of failing to fund subsequently when required, which can be potentially ruinous.

Some lenders aren't set up to deal with the intricacies of property development finance

“Managing development drawdowns can be a laborious process and requires substantial human capital and experience, something that many peer-to-peer lenders neither want or have (especially as there is no additional capital compensation for doing so).

“As development finance is not a natural fit for peer-to-peer lenders, we expect that many of the peer-to-peer lenders active in the development finance space will start to reduce or shut down their activity.”

'I do not see a flood of lenders leaving the market, in fact I see the opposite'

Sam Howard, COO of Regentsmead, didn’t think it was a huge surprise to see Funding Circle announce its withdrawal from the property development lending market due to its focus on SME lending, but did not expect a large number of lenders to leave the market.

“I don’t see more peer-to-peer platforms leaving the development finance market because of the point we are in the cycle, where there is so much liquidity chasing yield. 

Development finance has become more popular as demand for housing grows

“Therefore, the pressure exists for lenders to be in the development finance market even if they don’t have the requisite expertise.

“So, while I would caution those lenders where development finance is not their core competency, I do not see a flood of lenders leaving the market, in fact I see the opposite.”