Paragon Bank’s development finance unit has launched into the build-to-rent sector and will allocate up to £35m to support the development of institutional-grade projects.
The division says its funding “will support the lifecycle of BTR schemes in established residential locations in cities and large towns across the UK, including site acquisition, development, the letting of a completed scheme and a short-term stabilisation facility”.
It adds that its funding model supports developers because it allows them to benefit from the potential growth in the rental market through the development term by retaining the scheme after completion.
This contrasts with more traditional BTR funding models, which are either forward-funded or forward-purchase schemes and can” limit the potential upside” for developers, the firm says.
The UK’s BTR stock stands at 88,100 completed homes, with a further 53,500 homes under construction, according to second quarter data from Savills.
It adds that there are a further 111,800 homes in the planning pipeline, including those at the pre-application stage.
The amount of capital invested in the sector over the April-to-June period was a second-quarter record, coming in at £1.26bn.
The Paragon division says its move builds on its purpose-built student accommodation funding, adding that the business has a team of relationship directors, who are able to support clients to develop residential schemes for sale or letting.
Paragon Development Finance managing director Neal Moy says: “The sector has continued to enjoy strong growth and complements the buy-to-let market in offering a good quality home in the private rented sector.
“We are offering something different to the typical BTR funding model where the developer holds most of the development risk but has limited upside benefit.
“We believe that the developer can benefit by retaining the scheme post practical completion, enabling them to deliver stabilised income-producing institutional-grade mid-size BTR schemes.”
