Insight Backing SME developers through a complex market
By Neal Moy, Managing Director, Paragon Development Finance
The development finance market remained active during the first half of 2026, despite a complex operating environment for housebuilders. Global instability has continued to affect energy markets, inflation and build cost assumptions, while developers also navigate a growing regulatory burden, ranging from the incoming Building Safety Levy to evolving sustainability requirements such as the Future Homes Standard. As a result, funders are increasing diligence with a laser focus on contingency, risk and the resilience of developers and schemes. Despite these challenges, Paragon’s appetite for the market remains strong, and the division surpassed £4bn in lending earlier this year, having launched in 2018. We continue to support SME developers who can evidence a clear understanding of local demand, realistic pricing and a strong delivery track record. That discipline has maintained the resilience of our development finance portfolio, allowing us to grow in areas where we see sustained long-term demand. In the North of England, for example, the proportion of schemes financed by Paragon has increased by more than 50% year-on-year.
One of the clearest shifts we are seeing is towards schemes that respond to specific demographic and local housing needs. Family build-to-rent housing in undersupplied locations, urban regeneration projects and specialist accommodation, including later living and care homes, remain attractive where the fundamentals are strong. More than half of our loans are with repeat customers, which reflects the value we place on experience, local knowledge and proven delivery capability in the current climate. Environmental performance is also increasingly central to our lending priorities. Rising energy costs, regulation and buyer expectations mean developers are placing greater emphasis on Energy Performance Certificate ratings, modern construction methods and green technologies. Through our Green Homes Initiative, we offer a 50% reduction on loan exit fees to developers delivering schemes where at least 80% of units achieve an EPC A rating, and so far we have pledged £400 million in lending to support greener housing schemes.
Looking ahead, we expect to maintain demand from experienced developers through the rest of 2026 and into 2027. The direction of travel for planning policy reform has been positive in recent years; the challenge is implementing these measures at pace. If the new government can ease planning bottlenecks and reduce the tax and regulatory burden on SME developers, lenders will have greater confidence to commit capital for much-needed schemes. Despite ongoing external pressures, the UK’s housing shortage remains acute, and SME developers have an important role to play in helping the government achieve its housing and economic growth ambitions.
11 January - June 2026 Real Estate Funding Report
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