Guest blog: Introducing a truly alternative lending model

Guest blog by Mark Williams, COO & Director of Risk at NEXA Finance and Simon Taylor, CEO of Melton Building Society. This article was first published in Society Matters magazine.

Guest blog by Mark Williams, COO & Director of Risk at NEXA Finance and Simon Taylor, CEO of Melton Building Society.

This article was first published in the summer edition of Society Matters magazine.

NEXA Finance was founded by Melton Building Society to provide funding to SME property developers and builders who are looking to either build new homes, refurbish existing residential properties, or convert commercial buildings into homes.

In this Q&A, Mark Williams COO & Director of Risk at NEXA Finance and Simon Taylor, CEO of Melton Building Society, explain how they’re working together to fund developments, encourage entrepreneurialism and put roofs over people’s heads, all through an alternative lending model that challenges overcomplicated and commercial models.

Mark, what is NEXA and what makes it different?

NEXA is a professional property financier that knows the marketplace and provides a personal service to borrowers. At NEXA we embrace traditional banking values, where the funder really gets to know the borrower, taking the time to understand their strategy and what makes them tick. We take a real interest in what they are wanting to create, visiting the site, not just once but throughout the development.

It's the acknowledgment that no scheme is the same and therefore they do not fit comfortably in one box or another that makes NEXA different, we have the skills to assess the risk and decide whether a deal is fit for purpose.

We have funded the creation of over 100 completed dwellings in the last 2½ years.

What factors do NEXA consider before approving a loan?  

We remain cautious, conservative and conventional in our approach to lending. We do use some quantitative analysis, but predominantly we are about qualitative analysis.  No black box, we prefer a more personal touch to assess whether they are good custodians of the investors’ money, or not.

We are concerned with what they are building, taking a genuine interest in the project and considering whether it is the right product in the right location.

At NEXA we are passionate about the green agenda and want to help our borrowers on this journey to developing more sustainable homes. Things that get us particularly excited are projects that include ground source heat pumps, solar panels, brown water collection and sedum roofing, which futureproof homes on the path to efficiency and carbon neutrality”.

Simon, why did the Melton start up NEXA and continue to partner with them today?

NEXA provides access to new markets and customers, which through traditional lending we would not be able to service, broadening the relevance for the Society to more customers and to help start their journey onto the property ladder.

NEXA also provides a new source of income delivered in a cost-effective manner, without deviating significantly from the core focus of the Society.

Mark, what makes NEXA an attractive prospect for investors?

NEXA are a 100% subsidiary of the Melton Building Society and therefore we come from a building society ethos of helping to create more homes for people.

NEXA is a natural extension of the type of funding that building societies provide, funding the creation and ownership of homes. It is not such a big step from providing self-build mortgages, to funding property developers.

We do all the hard work for our investors, sourcing the deal and undertaking all the due diligence, whilst assessing and understanding the risk. We then package it together and offer the proposal to our investors. But it does not stop there, we act as security and investor agent closely monitoring the project and ensuring the investors funds only flow to where it should, working together in a real partnership.

NEXA has a strong team with seasoned bankers who provide decades of experience and knowledge, which we use to match the investors lending appetite with the prospective borrower. But it is the investor who has the final decision of whether to invest in a scheme or not.

Lending money is easy, the skill is getting it back! We understand the ups and downs of the property finance world to ensure that our investors achieve their expected return on capital and strive to provide a great return on their investment.

For building societies, we enable them to have a more diversified portfolio of property assets therefore spreading the risk of their lending.

Simon, how does the NEXA proposition fit with a mutual building societies key purpose?

Melton Building Society has a clear purpose to ‘put roofs over people’s heads and build thriving communities’ and so being part of a partnership that sees us start the journey from the very beginning of a development is key. 

What makes NEXA an exciting prospect for a building society is that by being an investor, you can choose both the type of lending and where to lend geographically to align to the societies own requirements.  For example, this can be lending just in the society heartland or on a national basis – the choice can be for each investing society to choose.

At the heart of NEXA sits values which are aligned to that of Melton Building Society and all building societies - putting the customer first and committing to excellent service standards.

Mark, what areas of the UK does NEXA cover and what are your plans for getting more funding for homes in the future?

We started funding in the East Midlands, concentrating on Leicestershire and Nottinghamshire. However, as we have grown and attracted new investors, our geographical reach has widened.  We have now funded schemes in Lincolnshire, Yorkshire, West Midlands, Birmingham, Northamptonshire and are currently looking at schemes as far afield as Essex.

We do want to continue to lend more money and expand our geographical reach and with new investors we can provide this funding in their heartland, assisting them to fund house creation in their locality. How nice it would be to have a marketing board on a new property development that said, funded by ‘X’ Building Society, powered by NEXA.

As we attract new investors, who may themselves bring a slightly different risk appetite, we could open up new business opportunities for both NEXA and the investor, such as larger scheme sizes and more complexity. We grow as our investors grow.

Next Steps: Contact hello@nexafinance.co.uk or visit www.nexafinance.co.uk

The views, opinions and positions expressed within guest blogs are those of the authors and do not necessarily represent those of the BSA.