We’re likely to see more acquisitions of specialist development lenders in the near future – accordingly to a leading solicitor. The development finance market is beginning to become an attractive proposition for challenger banks to enter into.

Speaking about the subject and highlighting the recent announcement that Paragon Banking Group were in early stage discussions for considering the acquisition of lender Titlestone, Joint Head of Real Estate Commercial at JMW Solicitors Ruth McCarthy said: ”When you look at the rationale behind Paragon’s approach for Titlestone, the thinking there is clear to see: development finance is an attractive market and acquisition is a fast route in. The big lenders who are still heavily involved in the buy-to-let market will be looking to reduce their exposure following taxation changes that have made it a less attractive option – it’s all about de-risking and diversifying.”

She added: ”Given the fact that development finance is a very active, lucrative market, we’re likely to see more acquisitions of specialist development lenders as banks look to ingratiate themselves within the sector and benefit from the current strength in the marketplace.”

Acquisitions of this type could give specialist banks a competitive advantage among other banks, as long as the benefits offered by the lending functionality were retained.

Alexander Moss, Operations Director at Zorin Finance – who’ll be speaking at our Birmingham Development Plans Conference today, believes that the benefits of a challenger or specialist bank taking over an alternative lender depends on the details. He said: ”The key feature which has enabled the substantial growth of alternative lenders since the financial crisis is their exemption from capital controls and other regulations, which continue to inhibit the appetite and ability of the banking sector to provide development finance. This has enabled alternative lenders to entertain more possible development types and provide funding at high leverage more quickly than banks. The one thing that the banks possess is scale and ability to fund larger schemes.”

Nathan Ellis-Calcott, Director at Thistle Finance, claimed the potential takeover of Titlestone by the Paragon Banking Group was a clear reflection of challenger banks seeking to diversify into different areas where there could be potential for growth. He thinks it a ‘much more seamless way into the market’ than creating a whole new division, which can come with a lot of costs, recruitment challenges, time to embed the company as well as the lack of credibility when entering into the marketplace. On the other hand acquiring a company who already has that credibility and trust within the market can hit the ground running with their team already in place.