The Intermediary –- May 2026 - Flipbook - Page 75
SPECIALIST FINANCE
Opinion
Underwriting risk
in a more complex
landscape
D
espite current
headwinds,
the long-term
fundamentals
of property
development remain
compelling. Structural undersupply
across multiple asset classes continues
to underpin demand, and the need for
new homes is well established.
Yet despite this demand, many
schemes are struggling to progress at
pace. The reason lies less in funding
appetite and more in complexity.
Planning delays, environmental
requirements, elevated build costs
and flatlining – or in some cases
decreasing – values have lengthened
programmes and narrowed margins.
Macro volatility, and continued
economic uncertainty across the
globe, hasn’t helped.
For lenders, these pressures
have reshaped how risk is assessed
compared to operating in more
benign conditions. For brokers and
developers, understanding that shi
has become essential.
Planning risk, once treated as a
discrete hurdle to be cleared before
construction, has moved to the centre
of underwriting. Major applications
are taking longer to determine;
the Gateway process, reserved
maers and conditions introduce
further uncertainty, and developers
increasingly face prolonged periods of
funded inactivity.
Even on smaller and simpler
schemes, it can now take
months longer than it used to for
straightforward planning maers,
such as approval of non-material
amendments and discharge of
planning conditions.
In response, lenders now place far
greater weight on realistic programme
assumptions. Optimistic timelines
that might once have been accepted
are now closely scrutinised, with
sensitivity analysis built into credit
decisions. Time risk is no longer
peripheral; it directly impacts returns,
funding costs and exit viability.
Alongside this, scheme economics
have become more finely balanced.
While headline inflation has eased
for now, it is likely to increase again
over the coming months. Labour
constraints, compliance requirements
and sustainability standards continue
to exert pressure on costs. At the
same time, exit values are being
underwrien more conservatively.
The result is less margin for error.
Adapting to change
Lenders have adapted by becoming
more forensic. Build cost
contingencies, levels of developer
equity, the ability for developers to
cure cost overruns and downside
scenarios are examined in greater
depth. Transactions are increasingly
structured around how they perform
under stress, rather than how they
look on a best-case scenario.
This has shied the conversation
away from maximising leverage
toward protecting sustainability.
Exit strategy has taken on
greater importance as part of that
assessment. Where sales once relied
on momentum, lenders now expect
clear evidence of demand, realistic
absorption rates and flexible exit
routes. For schemes dependent on
refinancing, factors such as tenant
demand and regulatory direction are
playing a larger role in decisions.
For brokers, these changes elevate
the importance of submission quality.
Strong cases now address complexity
head-on. They acknowledge planning
uncertainty, build in time and cost
contingencies and demonstrate
PARIK CHANDRA
is partner and head of
private credit at Downing
how viability has been tested.
For developers, it requires earlier
alignment between ambition
and structure.
Schemes with thinner margins
or higher planning risk may still be
fundable, but oen with different
capital stacks, higher equity
contributions or phased approaches
that reflect the risks involved.
Lender selection has also become
more critical. One of the great
things about our market is the sheer
number of players who operate in the
development lending space, but it’s
important to realise not all lenders are
the same.
It’s also worth noting that not all
lenders approach complexity in the
same way. Those with deep experience
across cycles, in-house technical
expertise and patient capital are
generally beer placed to support
schemes through evolving conditions.
This does not represent a retreat
from development finance. Rather,
it reflects a more risk-aware market.
Lenders are not avoiding complexity;
they are underwriting it explicitly
and selecting partners who recognise
it. Over the last 15 years development
finance has moved towards
commoditisation, but the complexities
faced by the market now mean that
approach is no longer viable. In some
ways, it is simply back to basics from
an underwriting perspective.
For brokers and developers who
engage with that reality, opportunity
remains. But progress now depends
less on pushing assumptions and
more on structuring schemes that can
withstand the environment they are
delivered into. ●
May 2026 | The Intermediary
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