Bridging & Commercial Magazine - Seven bridging professionals walk into a bar...

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ISSUE 11 SEPT/OCT 2020

+ ‘We’re becoming a bigger player’ p8

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BRIDGING PROFESSIONALS WALK INTO A PUB…


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Acknowledgments Editor-in-chief Beth Fisher beth@medianett.co.uk Creative direction Beth Fisher Caron Schreuder Contributors Neil Cumins Richard Reed Sub editor Greer McNally Sales and marketing Caron Schreuder caron@medianett.co.uk Contributing photographer Alexander Chai alexanderchai.com contact@alexanderchai.com Instagram @chaialexander +44 7908 856 688 Special thanks James Watson, Mosaic Pub & Dining Sam Watson, East Putney Tavern Steve Crosswell, Cynergy Bank Annabel Reed and Taneesha Pawar, Rostrum Daniel Maycock, Hampton Mortgage Servicing Alan Margolis, Masthaven Sky Mapson, Maslow Capital Ian Munton, Staffordshire University Charlotte Rutter, Roma Finance Paul Hunt, Crystal Specialist Finance Printing The Magazine Printing Company Design and image editing Russ Thirkettle, Carbide Finger Ltd Bridging & Commercial Magazine is published by Medianett Ltd Managing director Caron Schreuder caron@medianett.co.uk 3rd Floor, 71 Gloucester Place London W1U 8JW 0203 818 0160 Follow us:Twitter @BandCNews | Instagram @BridgingCommercialMagazine


T

he last day of the summer has passed and the next six months are going to be tough for many.With Covid-19 infections and hospital admissions climbing, and the prospect of half a year’s restrictions ahead of us, the people of the UK have no choice but to learn to adapt yet again to another new normal—and I don’t doubt that we can. Towards the end of September, chancellor Rishi Sunak revealed his Winter Economy Plan, which included the Job Support Scheme; the extension of government-backed loans to struggling businesses; and more time and flexibility when it comes to the payment of VAT. While the economic response to coronavirus was welcomed, the worry is that we are going from one costly knee-jerk reaction to another, with the need for a long-term plan—which supports all sectors—evident. This year’s environment has meant that it has become much more difficult for businesses in our sector to create and stick to their own strategies, many of which would have been drawn up pre-Covid, but I have been watching with interest the number of companies, in spite of this, that have not only been able to continue with their ideals to expand, but, in some cases, outperform their original goals. Aspen Bridging is one such company which is expecting to surpass its 2020 targets [p8] due to its quick reactions to what is happening on the ground. Funding 365’s Mike Strange and Hope Capital’s Jonathan Sealey also discussed how the nimbleness that their businesses benefit from has meant that they have been able to continue their growth trajectories, boasting record figures and entering new markets [p70]. Having spent months in the virtual world, we decided to step out of our home offices and give you some IRL moments. For this issue’s cover story [p28], we had our first industry outing at a pub with seven bridging professionals (which conveniently took place before the six-figure rule was implemented) to document our emotions, experiences, and predictions for the market. Our peers have also recommended their favourite venues [p80] that have made them feel Covid-safe while getting together with colleagues, clients, friends and family, as we all attempt to get back to some degree of normality. While the ‘faces’ of our industry normally come in the form of CEOs, MDs and BDMs, we wanted to represent the thoughts of some of the integral roles behind the scenes. For this issue’s backstory [p84], we interviewed Roma Finance’s new head of customer service and collections, Deborah Chaplain, about her views on implementing policies amid this crisis. Elsewhere, we spoke to KSEYE’s bridging head of legal, Nisha Rayvadera, about what she’s experiencing as part of her fairly unique position [p18]. We look at how family offices are helping to fill the bridging funding gap for super prime property transactions [p64], why third-party loan servicing can mitigate operational risk and attract new funding lines [p56], and the effect that long working hours could be having on the state of brokers’ mental health [p42]. One of the biggest topics I have been following over the past few months is how the education sector has had to adapt, twist and turn during the pandemic—something many parents in our sector will know all too well. Stakeholders in the PBSA market—often referred to as the ‘golden goose’ of property investments— have been holding their breath since March in anticipation of final numbers at UK universities. We spoke to multiple experts to find out why they think investment in this asset class won’t make a U-turn [p44]. However, confidence may be knocked again, as recent reports of thousands of students who have started the term already isolating as a result of Covid outbreaks cause outrage, upset, and worry across the country. As with most industries, we should aim to be positive and find new ways to solve problems, while maintaining and increasing our support of each other. “…We must, as a sector, keep confident in our assets and offering,” said one expert—and this advice can be applied to all of us.

Beth Fisher Editor-in-chief

3 Sept/Oct 2020


There is a lot of caution baked into the ‘V’ side of the LTV equation … and that’s probably stopping a lot of perfectly decent deals going ahead p8 4 Bridging & Commercial

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Exclusive

‘We’re becoming a bigger player’ At the start of this year, Aspen Bridging ambitiously hoped it would be able to grow its loan book by 50% and, like everyone else, had no idea what it would be facing a mere three months later. But, despite having to acclimatise to a new trading environment and revise its processes, the lender is of the mindset that not only is their 2020 target achievable, it is likely to smash past it Words by

BETH FISHER

8 Bridging & Commercial



Exclusive

“I

t’s an exciting time for us,” Aspen’s director, Jack Coombs, tells me on a late Friday afternoon in August. We have been catching up over Zoom on how the pandemic has affected his business and the bridging market, generally. Jack—who has recently returned to work after a two-week paternity leave following the birth of his second child and has just whipped out a chocolate cake mid-interview in an attempt to multi-task—explains how the “giant wall of ‘no’” from bank committees and certain funding lines over the past few months has led to opportunities for lenders like them. Following lockdown, Aspen has implemented a number of changes to enable remote lending. The company saw a full recovery to 100% of its 2019 lending levels in June, together with a record number of new approvals. These approvals have continued and translated into new lending, exceeding last year’s monthly levels by 80% in July and over 100% in August— the lender’s highest-ever month—with September on track to surpass those figures. This major increase in lending follows the decision to increase its maximum LTV to 75% and net loan amount to £3m at the end of May, moving its average deal size up to £770,000 from £488,000. The surge in business has meant Aspen didn’t need to furlough a single member of staff and is now kick-starting a recruitment drive, focusing on graduates. “But we’re just one fish splashing around … I don’t think that’s reflective of what’s going on,” Jack says. In Q2 2020, total gross lending in the bridging market stood at just £79.4m, according to Bridging Trends—a steep £43.46m drop on Q4 2019. “£79m is nothing,” Jack utters, describing the figure as “extraordinary”. He tells me that he can think of a few lenders which were writing that sort of business during their biggest months. “Everyone knows many of the lenders leading by

volume have had to tighten up or pause altogether. And we’ve become a bigger player, proportionally, as a result.” Despite this, he hopes that those who are currently sorting out their structuring issues will make a comeback, explaining that a lack of liquidity isn’t good for the economy. Reacting to what is happening on the ground is critical for Jack. Aspen quickly understood that if lenders were tapering down their LTVs and, at the same time, valuers were being more conservative with their reports, no one would be able to do any deals. Therefore, exactly a month after the UK entered lockdown, the lender announced it was able to lend on pre-Covid-19 property values in a bid to offer better leverage for borrowers. And, while it served a purpose for a period of time, Jack admits that other lenders then started to realise what valuers were doing and upped their LTVs as a result. “We realised that we were losing the upfront quotes because obviously it’s quite a hard thing to communicate,” he points out. “That was quite a hard sell.” He explains that if you have two quotes in front of you—one with 75% LTV on a post-Covid basis and the other with 70% LTV on a pre-Covid basis—it’s difficult to explain to the broker and borrower that you are likely to end up with more leverage with the 70% option. “…After about a month or so, we abandoned that.” Utilising physical and desktop valuations, Aspen was able to raise its maximum LTV in May. In August, UK house prices accelerated 2% month-on-month—the highest monthly rise since February 2004. “The property market is actually quite strong,” Jack says, highlighting that buyers are paying more for property than they were before the pandemic—especially since the temporary SDTL cut. However, the housing bubble is likely to burst once mortgage payment holidays and the furlough and governmentbacked loan schemes come to an end. “It’s going to be an interesting ride, the next six to eight months,” Jack predicts. I ask what Aspen is doing to pre-empt the potential drop in house prices later on. “…We think most of them will be relatively 10

Bridging & Commercial

short lived,” he says, believing that much of the reduction will even out within about a year of it happening. As a result, offering longer-term bridging loans will give borrowers more time to find alternative exit strategies if necessary, and also builds in breathing space for work delays. While it was previously providing bridging loans with average terms of between eight and nine months, they are now around the 12-month mark. “That is fundamentally in the borrower’s interest, because if the numbers don’t work with a slightly longer term, you probably shouldn’t do it.” He tells me that he has seen loans advertised that have such restrictive and caveated criteria that he questions whether anyone could qualify for them. “On one such offering I came across I was trying to imagine an inquiry that I’ve ever seen that would get through this long list of things that were not acceptable,” he states. As a result, he feels that openness to different deals—as well as the leverage Aspen is able to offer—has contributed to why it has seen such an uptick in business. Just how is Jack able to get comfortable while other lenders deem it too risky to go to this level of gearing? “I think it depends on your view on what valuers are doing,” he responds. “…There is a lot of caution baked into the ‘V’ side of the LTV equation … and that’s probably stopping a lot of perfectly decent deals going ahead.” It also depends on what assets are being lent against. “We try to be moderately diversified across the country,” Jack says, adding that the focus is also on the client. Basically, if a borrower does not have a viable plan, it will not lend. Interestingly, while Aspen has some of the highest LTVs on offer, it has recently been attracting clients with more experience, portfolio stability, and less credit-related issues. Despite providing more leverage, the lender has kept its rates the same, which has also opened more doors. “What people were offering at the beginning of this year and what people are offering now is quite different,” Jack divulges. Aspen’s approach is simply to gain better business, rather than squeezing a bit more out of


Exclusive

“There are good deals and they need placing, the brokers need to make the commission and the lenders need to build their books back up” the customer and potentially attracting the wrong deals. “…This might be a bold claim, and I might regret it, but I actually believe we’re going to see a lower level of default on the loans that we’re writing now.” He adds that although the economic environment’s going to be difficult, he thinks the people it is lending to right now are “likely to ride it out rather well”. To help speed up completion times—an area where Aspen has sought to lead, even before the crisis—Aspen has implemented various processes to make things slicker, including remote signing, which has benefited many of its international clients buying property in the UK. Another approach is something Jack calls dual rep/non-dual rep. On every deal, Aspen proposes an external, 100% independent solicitor on a fixed-fee basis, whose process is designed with that of Aspen’s solicitors in mind. It is said to give all of the benefits of independent representation,

but the same speed advantages of dual rep. Since it has increased automation, the lender’s average time from illustration to completion now stands at approximately 15 days—down from over 20 in 2019. And, if borrowers use the recommended solicitor and pay for the valuation and legal undertaking immediately, Aspen gives them a 10-working-day guarantee. Aspen has also just introduced a multiple quoting approach to its portal, which will enable brokers to select between several variations of rates (from as low as 0.49% pm), product type, and procuration. It has also created an entirely virtual payout and review process, which means that its underwriting is completely paperless and brokers will be able to see updates as they happen, making things even quicker. I am told that this, along with the use of desktop valuations, has led to a number of five-day completions, recently. With many lenders now having to lean on

technology more than ever before, I ask Jack whether the bridging industry will become more digitised. “I think, temporarily, we might actually see it go backwards,” he predicts. He is of the view that, with a market reporting a lower volume of deals and less action from the larger lenders, it implies that these companies that have big tech budgets are not going to be spending them at the rate they were before. “So … we could see bridging regress a bit,” he adds. Therefore, we could see a rise in smaller lenders which perhaps don’t have a large IT focus. Despite this, Jack is keen to heavily invest in IT in 2021—“but we’ve got to make some good money this year, first.” Looking at how the recession we have recently entered will impact the bridging market, and how lenders, brokers and borrowers will survive what is coming next, Jack expects that there will be casualties. “Working out that you’ve got a problem on a loan can sometimes take quite a bit of time … working out how bad that problem is can also take quite a long time … who knows what the market will be facing next year?” He explains that those lenders which have not been able to foreclose on cases while the market is currently strong are likely to be doing more of that in a weaker market towards the back end of this year—all while contending with a backlogged court system. Jack emphasises the significance of brokers building new partnerships—especially since bigger players have taken a step back or bowed out entirely. Interestingly, while Aspen has grown its lending—and indeed its pool of introducer partners—the brokers it has completed the most deals with have been existing ones, which Jack is somewhat surprised by. While it’s still challenging to meet people right now, he believes that phones need to be picked up and relationships need to be built. “…There are good deals and they need placing, and the brokers need to make the commission and the lenders need to build their books back up,” he adds. While it is of utmost importance that cases are going to the right homes, he makes a valid point: we are, after all, in the lending business.

11 Sept/Oct 2020


intent on disrupting the sector

Words by

caron schreuder 12 Bridging & Commercial



Feature

Named in our 35 under 35 Power List earlier this year, I had incorrectly assumed that Rochelle and Natasha Yea were just starting out. In fact, their brokerage, Next Route Finance, has been trading since 2012, making their refreshing approach to the industry far from naïve—and responsible for the repeat business they’re becoming known for

The founders of Devon-based Next Route Finance huddle together in front of one laptop for our Zoom interview and the three of us laugh a lot, throughout. Between tales of doomed office plants and our collective longing for the return of unmasked facial expressions, I find them easy going, but introspective and curious about the sector. While they have an ambition to become the go-to broker for property development finance, their story so far has not been without its trials and tribulations. “Natasha and I have always wanted to have our own business and work together; maybe it’s because we’re sisters and have the same goal of creating our own freedom from entrepreneurship,” says Rochelle, who initially trained to be a chartered accountant and later moved to work at a brokerage outside of Devon as an in-house controller. The distance from home (and Natasha) became too much, and she returned with the intent to start a broking firm, based on what she’d learned and begun to enjoy. Natasha, meanwhile, was studying architecture, a field she admits she still loves. After graduating, she obtained a job locally, however, the role came to an end due to a post-recession lack of activity. It was at this point that they finally sat down to bring Next Route to life. Having immersed herself in the construction sector, Natasha discovered that “funding is an integral part of any development but it can be a problem for many”, and that her unique understanding could set the brokerage apart—something which she says has paid dividends. “When I talk to developers, I have a different dialogue, allowing me to understand the scheme from a more in-depth perspective.” Next Route (the N and R are a discreet nod to its founders’ names) symbolises a long-term, relationship-driven business model, that acknowledges that clients are on a journey that requires direction. “We’re better together,” Natasha tells me. “We’ve always had a strong work ethic, value to add, and a passion to help others, so it’s been worth the time and

14 Bridging & Commercial


Feature

reach and increase interaction with lenders and clients. Rather than railing against the norm, they are simply challenging the model of what it takes to be successful. “We want to be a big player in the market and, even if it is for challenging the status quo, we want to be known and reputable—and that might take us 10 years,” says Rochelle. “If we just focus on the client, it will come.” Having a positive attitude to collaboration, coupled with a desire to promote doing ‘the right thing’, Next Route has established relationships with brokers whose specialisms differ to theirs. They recognise that there is enough business to go around, and that transparency about their remit, while feeling comfortable with the deal, is very important. As a result, they get “a lot” of introductions from brokers, who hand over what isn’t in their wheelhouse and get paid for it, for the sake of having it executed correctly, as all parties work in harmony to affect the best outcome for the client. “We’re very transparent and specialise in what we do. Where a case involves the exit to be refinanced on to a term product, we will liaise with the introducing broker to ensure the exit is viable, as we will revert back to them upon practical completion,” Rochelle explains. “This is normally applicable to investors-turneddevelopers who may diversify with some development projects, but their core goal is to build a portfolio,” Natasha adds. Central to Next Route’s offering is the idea of taking up a role similar to that of a bank manager (or at least what a bank manager used to be): someone who clients can rely on to listen to them and work out the best way forward—not just for a current project, but in the long term, too. “Our clients are typically repeat business, so we’re supportive of their future plans and how we can help them to leverage funds and continue to grow their business year on year,” states Rochelle. And they appreciate that each lender has their own attributes and place in the market.

commitment [put into our business].” In spite of Rochelle’s impression of a relatively low barrier to entry in the market, she confides that they started with “nothing”, and had to cut their teeth as brokers arranging business finance, which is where the demand was at that time. Lender relationships were fostered from there and they slowly grew their standing in the niche they’re most proud of, with Next Route specialising in the development and bridging finance markets for about three years now. Being sector specialists is key to Natasha and Rochelle’s approach to business. They have grown wary of the ‘super brokers’ who try to do it all, questioning whether that is really in the best interests of the client. It is this dedication—“when you are experts, you can really plough all your time and energy in”—that they say has resulted in it taking time to get to this stage. “By being laser focussed, we’re able to truly help a smaller market in a more efficient and powerful way,” Natasha shares. I get the impression that they have experienced several setbacks over the course of the business’ lifetime and display admirable patience and commitment to pursuing their ideals. When they began Next Route, Natasha was just 21 and Rochelle only a few years older, and their age and gender did present its challenges— especially in Devon where time doesn’t move as quickly as it does in the city. After a story about a farmer looking to get finance for a tractor mistaking Rochelle for ‘Fiona’ when she said she was the ‘owner’ (a story so familiar sounding it may as well be folklore at this point), we get to chatting about what it takes to be a disruptor. The pair recount that they’ve received lots of advice (some solicited, some not) around what the so-called prescribed phases are in growing a business: open an office, take on staff, expand one’s product area. But when Covid-19 arrived, a lot of the rules changed.The rise of Zoom and other online tools allowed them to expand their

15 Sept/Oct 2020


Feature

“We are true brokers in the sense that we don’t have a preference for a particular lender or product,” Natasha comments. “When someone comes through the door, so to speak, we approach lenders based on the client’s individual requirements and tailor bespoke terms where appropriate.” To further highlight their commitment to transparency and education, they are in the process of devising what they refer to as a ‘Route Report’. At enquiry stage, and after the appropriate funding channels have been explored, Next Route will produce a detailed report that contains an overview of the market and where that application sits within it. This is done in an effort to open up discussions and assist in educating the borrower in making their next move— whether the deal can be placed or not. According to Rochelle and Natasha, there are two types of client: one is transactional and only after the best ‘headline’ rate, and the other actually wants to benefit from their expertise. “We take the principle of routes, encouraging questions and clarification of what the client is trying to achieve, as there are many factors involved—it’s not always about the factual numbers in play,” Natasha emphasises. Interestingly, the report will also evidence the number of lenders searched—a level of diligence that isn’t always expected in these unregulated markets where disclosure is optional. Next Route also works with private lenders—describing them as “underwriters of their own money”—making it an extremely viable option, especially now. While the cost of funds can come in higher, looking at the bigger picture and securing the facility with funding lines that are less restrictive on covenants—compared to more well-known providers—can make for a better overall offering. “Private lenders have a more sensible approach and will be flexible where they can, because they don’t have the strict red tape that comes with the PRA-regulated banks,” Rochelle expands. This sort of knowledge and access emphasises the need for a specialist

16 Bridging & Commercial

broker, as does the current environment in relation to the pandemic. Natasha considers the importance of a broker to be heightened presently, owing to a general lack of confidence people have in their banks and the pressing need for constant information, as well as the management of borrowers’ expectations. Amid reports of record lending in the press, I ask whether they have any concerns surrounding this property mini boom. “We’ve seen an increase in firsttime developers, likely due to the planning legislation changes and the government’s ‘build, build, build’ campaign,” Natasha states. “There is a reason why the majority of lenders stipulate that the borrower must be experienced because, without the right guidance, these could potentially be the ones that get caught out—something which is worrying and detrimental both to the future growth of the housing market, and those developers.” Rochelle agrees and points out that the requirement for bridging has certainly risen, mainly due to the speed of the transaction if purchased via auction, but also if planning is required prior to development funding. Now, more than ever, the need for a strong, viable exit is paramount. As with all cases, Next Route works backwards from the exit, to ensure that there is a clear path for lender repayment at the end of the term. They’re seeing developer exit cases prevail, due to delayed projects and more time required for the sales and marketing process. As we’re winding up, Natasha mentions her surprise at how effective word of mouth and an engaged community has been for Next Route, and that, despite the website currently being updated, they’re also fairly discoverable online and have received several Google-sourced leads during lockdown. I predict that, after this interview comes out and people warm to them as much as I have, this type of exposure will only increase— getting them closer to the goal that they’ve worked so hard to achieve.


The Platform for Development Finance and Bridging Lenders Aurius DF from Apak Group, a Sopra Banking Software Company, is the only platform targeted specifically at the UK Development Finance and Bridging Market. Lending for Development Finance presents unique challenges: •

The flexibility demanded by the highly changeable nature of the projects being funded

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The requirement for close management of the relationship with the developer

The difficulty of producing clear, consolidated business information in order to be able to manage risk and predict cash flow

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Loan Schedule Modelling (both preapproved and in-Life)

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On top of the Development Finance specific functionality, Aurius-DF clients benefit from access to all the underlying Aurius platform capabilities: •

Open API access through the Aurius connectivity suite

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Delivered using a cloud-based Software as a Service model, unlike traditional software delivery models, lenders have a low cost of entry and pay based on the amount of business handled by the solution.

Want further info? Continue the conversation and contact us at apak.info.team@soprabanking.com


ALL ARM US WITH

KSEYE Capital surpassed £300m in lending in August, encouraging us to get to know the specialist lender a little better. Having spent the last year investing in its team and software solutions, the bridging finance provider—which is backed by several institutional funding lines—was quick to adapt to the challenges presented by the pandemic, allowing it to continue to lend throughout. We chat with Nisha Rayvadera, KSEYE’s head of legal, to discover more about what the lender wants to represent in the market, as well as what her role entails and how it has been impacted as of late. Nisha shares information on the trends she’s experiencing as part of her fairly unique position, and dives into some prudent advice for brokers that may result in speeding up transaction times.


Interview

OF THE INFORMATION Tell us a bit about your career history and how you ended up in this role?

KSEYE has multiple funding sources; how do these function in relation to one another?

I started out as a paralegal at a niche property firm back in 2006, subsequently qualifying as a solicitor three years later. I joined the world of bridging in 2015 and, to date, I have about 14 years’ experience in property and lending. Funnily enough, KSEYE started off as a client of mine in private practice; the directors were quite impressed with how I handled the matter, so they asked me to join them in-house, creating the position of head of legal.

We have three separate institutional funding lines—the first is a listed bond facility with an EU fund (with the bonds listed on the International Stock Exchange), the second is a UK bank, and the third is the securitisation facility mentioned before. We also have a handful of HNW funders, which is how the business started out. The institutional funders do not co-fund loans, however, due to the nature of it, the securitisation SPV can only acquire loans that have already completed, and so they need to be funded by one of our alternative funding sources pending securitisation.

What does KSEYE stand for as a lender, and where does it position itself in such a competitive market?

What happens on a typical day in the life of a bridging lender’s head of legal?

Put simply, KSEYE stands for speed, flexibility and transparency. We pride ourselves on our efficient turnaround times, our ability to create bespoke lending solutions for our borrowers, and our transparent lending processes. With years of experience under our belt, we know that a one-size-fits-all approach doesn’t work, instead we support our borrowers in finding pragmatic, commercially focused solutions that suit them—and us, too.

A lot! The bulk of my time is spent assessing files prior to authorising completion, which includes a review of the valuation, report on title, legal pack, and any planning documentation. In addition to this, I might work on the facility documents for our institutional funding lines, oversee reporting and audit preparation, or deal with cases that require recovery action. As the business was expanding at such a quick pace, we hired another lawyer at the end of last year to support the internal legal function. Together, we also oversee the underwriters and collections department.

We’re still a small fish in a big sea, but we are working on changing that every day. At the end of last year, we completed a securitisation facility with a tier 1 global investment bank and this has been a game-changer for us—the increased funding has really helped us grow our loan book. The bridging market is fiercely competitive, but we believe that our service and reliability differentiates us from many others.

What has surprised you about 2020 and the way in which the pandemic has impacted bridging? I was initially surprised to see that so many lenders had a knee-jerk reaction to lockdown measures and just stopped lending across all asset classes in the UK. We also reacted quickly, but with a more measured approach, adjusting our LTVs to reflect the risk of market fluctuations, particularly for commercial assets. I was pleasantly surprised to see that so many of our borrowers were still able to find lucrative opportunities, which we were keen to work with them on.

Where does the name come from? One of the directors, Nikes Khagram, is a Maths graduate, so he’s quite familiar with the Greek alphabet. The name KSEYE is a slight spin on the 14th letter of the Greek alphabet, Xi—pronounced ksi—and our logo also stems from this letter. The directors were looking for something unique and this seems to have achieved that. 19

Sept/Oct 2020


Interview

“IF WE CAN ASCERTAIN THE HISTORY OF THE TRANSACTION AT THE OUTSET, THIS WILL RESULT IN FAR FEWER QUESTIONS LATER ON” For example, we’ve seen our borrowers pick up some good residential deals in and around London at auction—there’s usually some value to be added to the properties, whether through works or potential development, and this is what our clients find attractive. With their experience, they are confident that they can realise the full potential. Commercial assets, particularly retail, have been affected the most. We recently helped a borrower purchase a shopping centre in Durham from receivers; the reason the site remained attractive, despite market conditions for retail, was due to the covenant strength of many of the tenants. We still maintained a conservative LTV due to the asset class, but this worked for the borrower and we were able to help them secure the property quickly. In times of uncertainty, there is generally increased demand for bridging loans, which is exactly what we have seen post-March. We have fortunately had the full support of our funding partners throughout this period, so our business has been largely unaffected.

What sort of advice do you have for brokers, based on how quickly things are evolving? What can all parties do to encourage a smoother process, given how different the landscape has become? My advice is to be open with us at the outset as it’s much easier for us to tackle complex transactions at speed when we are armed with all of the information. We always manage to get to the bottom of things, but it will save us all a lot of time and effort if we have the details at the initial underwriting stage.

We hear this a lot; do you have some common examples of information that tends to get omitted or withheld that can adversely impact a deal’s outcome? Are there any trends? One issue that comes up quite a lot is planning. We’re often told that a property has planning permission for a certain use but, when it comes to the due diligence, it transpires that a planning application has been made but not yet determined, or a retrospective planning application needs to be made to regularise the current use. This sometimes means that we have to reassess the whole case, obtain revised valuations, and so on.

Another one is undervalued transactions. We come across borrowers that invest time and money into properties between exchange and completion (eg on refurbishment/ planning applications), which increases the property value. If we are not made aware of this, our underwriters will suspect a transaction at an undervalue and therefore ask more questions in order to understand what has gone on. If we can ascertain the history of the transaction at the outset, this will result in far fewer questions later on.

We’ve heard a lot about the myriad workarounds that were used by solicitors during lockdown; how many of these measures do you think are here to stay, and what are the benefits of that forced evolution? Do you foresee any downsides or things to be wary of in the coming months as a result of these new methods? We’ve certainly seen a lot of workarounds since lockdown measures were introduced and we’ve had to implement some of these with our own external solicitors, such as more reliance on undertakings; changes to the execution formalities for documents; lawyers accepting post at their home addresses; and the provision of legal advice over video call rather than face to face. We noticed that a lot of solicitors were happy to rely on electronic AML checks without meeting their clients, but we are still struggling to get comfortable with this way of working as we feel that there is an increased risk (eg fraud) in such cases. However, with access to several different verification systems and multiple sources of information, there are ways and means to mitigate these risks. I think a lot of these measures are here to stay, especially with HM Land Registry updating its guidance on the execution of deeds, and these changes will certainly help the inevitable move towards digital lending.

At KSEYE, how did you deal with these checks and verifications in a way that satisfied your risk requirements? We satisfied ourselves by asking for more documentation, from more people. For example, we asked the borrowers’ solicitors to share their own electronic ID verification results with us; FCAregistered brokers to provide certified copies of documents; solicitors that had previously acted for borrowers and met them face to face to certify documents and/or provide advice; and we even arranged for local solicitors known to us that were still working from their offices to meet borrowers/guarantors in order to verify ID, provide advice, and witness documents. We also carried out our own electronic verification checks across multiple systems (eg Lexis Nexis, as well as Creditsafe), as part of our belt-and-braces approach to minimise risk.

From a legal perspective, are there inherent new challenges that have been created as a result of Covid-19, and how can these be managed? Besides the lack of in-person contact, one of the biggest challenges we’ve faced due to the pandemic is the various restrictions on enforcement and possession proceedings. We always try to work with our borrowers instead of resorting to enforcement action and we’ve continued to do this, agreeing extensions and variations where appropriate. 20

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The process is generally as follows:

Sometimes, however, it just can’t be avoided, so we’ve had to work around the restrictions of the legislation to explore avenues that have remained open to us. Our lawyers advised us quite early on that the courts were taking a dim view of statutory demands being used as an enforcement method, even against individuals/corporates that did not appear to have been affected by Covid-19. In light of this, we focused on other methods, including the appointment of receivers/administrators.

• underwriter instructs solicitor • KSEYE’s solicitor requests undertaking for costs from borrower’s solicitor • borrower’s solicitor provides undertaking for costs • KSEYE’s solicitor sends out preliminary enquiries • borrower’s solicitor provides replies to preliminary enquiries • KSEYE’s solicitor prepares the loan documents. KSEYE’s legal team reviews and approves them • KSEYE’s solicitor reviews information provided and raises further, more specific, enquiries • back and forth correspondence continues regarding any points that can/cannot be resolved. My input will be sought on issues that do not meet our standard lending requirements, how these can be overcome, what we are/aren’t prepared to take a view on, and what can be dealt with post-completion etc • KSEYE’s solicitor provides report on title. I will review this and raise any further questions/concerns • once all outstanding points have been addressed, I will authorise completion.

Coronavirus aside, in which ways would you like to see change manifest in bridging? What sort of progression would you like to happen to make either your role, or the system as a whole, more efficient? Historically, bridging has been seen as a last resort for funding, for those with poor credit or inadequate security who cannot get a mainstream loan. It’s also commonly associated with high interest rates and hidden fees. Our lending is actually nothing like this; our typical borrowers are HNW property investors with good credit, good security, and good relationships with mainstream lenders—but they choose to come to us primarily due to our speed and efficiency, usually as their first port of call. Furthermore, our interest rates have reduced significantly over time and the fees we charge are completely transparent.

Can you highlight a case or two where you were able to overcome significant challenges, or perhaps ones that stand out in your mind as memorable?

I’d like to see a change in attitudes towards bridging with a move away from the previous negative connotations and more of a focus on the positives. Increased reliance on technology will continue to improve efficiency and we are ready to embrace this at KSEYE—we’ve already invested a lot of time and resources into developing a bespoke software solution for our business, which will provide a user-friendly interface for borrowers, brokers, solicitors, and valuers.

We’ve had some weird and wonderful cases over the years. One particular deal that stands out is a £3.5m loan that we completed in just 48 hours for an UHNW borrower purchasing a prominent site in Middlesex for circa £9m. The client had been let down by a mainstream lender and the contractual notice to complete was expiring, so we had to work around the clock to complete our due diligence prior to drawdown—the hard work was definitely worth it to keep our borrower and broker happy.

Can you tell us a bit more about this tech solution and the benefits it might bring? We’ve always been conscious of the fact that the loan application process can be quite off-putting for borrowers and brokers, so we’ve tried to make our online application as easy and as quick as possible. It’s mobile friendly and borrowers can sign electronically in seconds via our DocuSign platform.

What do you think allowed you and the team to achieve this turnaround and outcome, where others may have struggled? Besides burning the midnight oil, I think we were able to turn this around so quickly because we took a commercial and pragmatic approach to the deal. The property was in a sought after area, which we are very familiar with and were quite comfortable with the background of the borrower and the proposed exit strategy with the mainstream lender. This made it a lot easier for us to take a view on some of the things that we couldn’t get within the timeframe. The broker that introduced the transaction is also someone we have worked with for years and with whom we have a great rapport—it really helped that he understood the way we work and why we do/don’t need certain things.

In bridging, speed is key, so a lot of time is spent chasing people to ensure they have done their bit and the transaction is progressing in a timely manner. Our system will allow all parties to see exactly where things stand at any given time, which means that we can spend more time working on cases instead of chasing/providing updates. This will allow us to originate and service more loans, without needing to substantially increase the size of our close-knit team.

What difference do you think having an in-house legal adviser makes? For all of our lending transactions, we do still have external solicitors acting for us, however, the fact that KSEYE has a dedicated in-house legal adviser makes their job a lot easier.They can pick up the phone to me and resolve complex legal points very quickly, because I already have an in-depth understanding of the issues and the possible implications for us. I’ve often been told that my position is quite unique; it provides the checks and balances for other departments and third-party service providers (be it solicitors or valuers) and facilitates swift in-house decision making, which helps to set us apart from other bridging lenders. 21

Sept/Oct 2020



DEVELOPMENT PROJECTS:

WHAT LENDERS ARE LOOKING FOR NOW Words by

neil cumins


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A

fter the unprecedented events of the last seven months, it’s easy to forget that the first quarter of 2020 was seen by many observers as an exceptionally successful period for the UK construction industry. Despite ongoing concerns over Brexit, almost £23bn of new contract awards were registered between the New Year and Boris Johnson’s televised announcement of a national lockdown. Housebuilders were among the first allowed to resume a degree of normal trading and the continuing shortage of available housing has led to rising property prices in the months since estate agents and developers were permitted to begin marketing homes again. Throughout the country, lenders and developers are still adapting to a radically changed world. A short, sharp shock “Initially, the development finance market died,” says Wesley Davidson, property finance consultant at Fox Davidson. “It died for several reasons: a lack of materials, contractors shutting down temporarily, and lenders reducing LTVs or losing their funding lines altogether. We also saw surveyors refusing to provide valuations, or down-valuing schemes by around 10% and adding clauses about not relying on GDV figures. All the while, developers remained desperate to build and were left frustrated by these external factors.” According to Ashley Ilsen, CEO at Magnet Capital, lockdown highlighted issues which have been endemic in the industry for some time. He strongly believes that if lenders can’t withstand the bad times and continue to offer development finance, they don’t deserve a place when the market is faring well. “I found there to be a high level of frustration among brokers unable to place deals … the deal flow was still there, but some of the lenders weren’t.” The market is recovering quickly from the earlier economic paralysis, but uncertainty lingers. From the rise in local lockdowns to the start of what could be a deep recession, lenders understandably remain cautious. Indeed, Matthew Dailly, managing director at Tiger Financial, believes that some are being extremely cautious.“When lending tentatively started again in June, we found that appetite had contracted, both in terms of leverage and general risk aversion.” Matthew reports that higher pricing and less of a willingness to participate in the larger, more challenging transactions emerged, resulting in the increased use of mezzanine finance, “as well as conversations on splitting up developments into smaller phases where possible, in order to facilitate early sales and reduce the lender’s peak cash exposure.” These factors culminated in affecting the project’s

overall viability, due to the now increased costs, especially for those schemes where margins were already stretched. “There’s a general reduction in tolerance of adverse credit, and a stronger focus on mainstream and liquid assets,” he adds. “We’re seeing higher pricing, which can have an effect on loanto-cost percentages, restricted LTV/LTGDV, and more weight given to experienced borrowers with strong background assets. The net result is we have to carefully manage client expectations from the outset, and be honest if we think they’re biting off more than they can chew in the current economic environment.” Local lockdowns may alarm the public, but lenders seem sanguine about the risks. Simon Knowles, director at Shawbrook Bank, regards the likely impact of regional restrictions on a development’s profitability as marginal. “When we look at new development finance proposals, we are looking ahead to what the market is likely to be doing in 18-24 months,” he explains.“However, localised lockdowns are intended to be targeted and temporary. On the supply side, we’ve seen some disruption with swings in commodity prices, the availability of materials, and the impact of site access during lockdown. Simon’s sentiments are echoed by Nick Oakley, head of lending at CapitalRise, who acknowledges that, however unpredictable the virus is, its team has plans in place for these outcomes. “Naturally, if we did fund a project in an area with localised lockdowns, this would be picked up in our ongoing loan monitoring, and we have ways to support the project and keep it on track.” CapitalRise uses independent project monitor surveyors (PMS), alongside in-house analysts, to impartially assess proposed builds. Monthly site visits determine recommendations for drawdown, as well as providing an opportunity to discuss mitigations for any time delays or cost overruns. “The PMS summarises their findings within their initial report,” Nick says, explaining that the level of risk is indicated using a traffic light methodology. “The report then forms one of the cornerstones of ensuring that the projects we fund stay on track.” Taking care of business Ashurst Homes, a Kent-based SME developer, was midway through its second residential project when lockdown struck. The suspension of construction was mercifully short-lived, but the economic ramifications subsequently led CEO Kirstie Ashton to apply for finance through the government’s Coronavirus Business Interruption Loan Scheme (CBILS). “I knew the project we were getting involved with and the land value stacked up really well,” Kirstie says of her pursuit of garage units in the Kent countryside with 24

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“We have to carefully manage client expectations from the outset, and be honest if we think they’re biting off more than they can chew in the current economic environment” permitted development for a six-unit mews-style terrace. “I did a search of brokers to see what the best deals were, but didn’t come across CBILS at first. It’s really helpful for small businesses, and it gives us confidence that, for the next 12 months, we don’t need to repay the interest, which [makes] a huge difference.” Despite the higher interest rate than many other loan options, payable after the first year, the sums still added up for Kirstie: “When we did the numbers on a 15-month project, even though the interest rates in the last couple of months may be relatively hefty, it balances out and makes the whole project much cheaper.” Ashurst Homes’ CBILS loan was arranged by Matthew and it was the first time he’d used a scheme he now considers to be crucial in today’s unsettled climate. “CBILS has allowed those developers whose experience and projects meet the criteria to potentially save hundreds of thousands of pounds in loan interest. This has been extremely helpful in preserving deal flow and construction activity.” He also acknowledges widespread insecurity among developers, who he says are inclined to hold onto what they have. “…Some developers seem to be reticent about starting new and speculative development until the medium-term outlook is clearer. I believe some of the larger developers, who would normally undertake schemes of 25plus units, will be sitting on their land bank, preserving their cashflow and protecting the balance sheet for the next year.” Future perfect? CBILS apart, what lessons can the industry learn from the events of 2020? Ashley argues that flexibility will be key going forward. Magnet responded to a spike in supply costs by increasing loans to support the affected sites. In other instances, interest relief and loan extensions were provided to give the borrower some room to breathe or finish the build. “Just as every development project is different, every solution needed is different.” Simon expects development finance to pivot towards homes with the resources to help families endure future restrictions. “We are looking at the types of schemes being proposed in light of the impact lockdown has had on behaviours and customer demand. For example, outside space is now high on many purchasers’ must- have lists, and some apartment schemes that don’t offer this may not have the appeal they once did. Similarly, people working from home want some form of workspace when buying a property—a study or an additional bedroom.” At the same time, the decline in commuting means people are willing to live further outside cities. “As a provider of development finance, it’s our job to

remain alert to these things, but also to continue working closely with developers and assessing every new proposal fairly and on its own merits,” he states. “Moving forward, it will be more important than ever for brokers and borrowers to be very selective on where they source funding, ensuring their preferred lender is committed to funding the project through to completion, while working in partnership to help navigate whatever issues arise along the way—Covid or otherwise.” For Nick, Covid-19 underlines the importance of a rigorous assessment process for new loans. “During the last six months, we have continued to challenge the true costs and demand for projects, given their location and demographic, together with the validity of comparable evidence. All the [schemes] we fund have built-in contingencies, both in terms of cost and time overruns. Before Covid-19, we were factoring in the potential impact of a hard Brexit on possible labour shortages and difficulties obtaining materials from overseas, ultimately resulting in higher costs and time delays. When materials like plaster were in short supply during lockdown, industry contacts knew of suppliers who had adequate stocks. Sharing information among developers and contractors proved beneficial during what was a very difficult period for everyone.” Wesley agrees that project costs are receiving unprecedented attention post-lockdown, and that lenders’ scrutiny on valuations has heightened, now often including an internal assessment before instructing a formal third-party report. Their analysis covers comparable developments, sales performance, build costs, the availability of materials, and contingency for any future lockdowns. Even so, he is positive about the market’s short-term prospects. “All the developers I work with are continuing to build, and all of them are looking for new sites. The only developers that have put a hold on activity are those building out commercial [offices]—for obvious reasons, they’re waiting to see how the market plays out.” He does, however, add a note of caution: “Currently, the residential sector is in a very nice bubble with sky-high demand and money freely available to those that want it, both for property development and as long-term mortgage debt. The question is, when will the bubble burst?” Kirstie attempts to answer that question. “Next year might be more challenging than the next six months when people may still be relatively free with their money. I think we might be in a different scenario when the recession winds its way through the system in 12-18 months’ time. However … we need more housing in this country, and hopefully we can ensure [that] what we build is of good quality. We just need to keep our fingers crossed that [there will still be] liquidity in the market.” 25 Sept/Oct 2020




Clockwise from top left: Dawn Trustam, Gavin Diamond, Pippa Betts, Samantha Pettit, Magnus Duke Dadzie, Anthony Rose, Kim McGinley


BRIDGING PROFESSIONALS WALK INTO A PUB… Words by

caron schreuder

Photography

alexANDER chai


Cover story

admit that I’m a little nervous ahead of meeting a group of industry folk in person for the first time in months; so much has changed and we’re still feeling out both the social nuances themselves and how each person is approaching them. What hasn’t changed, I discover, is the excited chatter that abounds in a gathering of bridging professionals. It’s the first week of September, and I’ve chosen the lovely, secluded pub garden at the East Putney Tavern for our meeting, and welcome Dawn Trustam, joint managing director at The Bridging Group; Magnus Duke Dadzie, BDM at Ortus Secured Finance; Kim McGinley, director at VIBE Finance; Pippa Betts, bridging underwriter at Masthaven; Gavin Diamond, commercial director of bridging at United Trust Bank; Samantha Pettit, BDM at Crystal Specialist Finance; and Anthony Rose, director at LDNfinance, with (metaphorically) open arms. The premise of the discussion is to chart the conversation now that the industry is finally getting back together: what we’re experiencing, what’s surprised us, and the opportunities we’re seeing. By inviting both lenders and brokers to the table, I also envisage some excellent, IRL discourse around how that relationship has fared during lockdown and the best way forward to ensure it remains a bedrock of the market’s success.

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this time, we began to talk to principals of brokerages, who we probably hadn’t spoken to for years, because their staff are now on furlough.

Set against the backdrop of reported record months and the stimulus of the tax changes, what does the group make of their shared and individual experiences in today’s bridging market and it’s future prospects?

MD: Cool, great. Is it anti-clockwise? I don’t know…

Kim McGinley: What was surprising for me was, for two or three weeks, we knew lockdown was coming but then, overnight, the [life-changing] dynamic of being in our house… It was just that realisation that everything had changed. And then what I found really difficult was, and it’s quite interesting hearing you guys talk about this, I had to furlough my staff. So, when I hear people talk about quality time with family, I didn’t really get that. I love that people got that time and being on furlough must’ve been tough for so many, but I felt like the actual owners of the businesses that were working their best to make sure that people had a business to come back to kind of went unnoticed.

CS: It’s been a long year.

AR: It was a huge amount of pressure.

[laughter]

DT: We did furlough a couple of our salespeople just for a month. And that left Jag [Jagtar Sethi] and I running around like headless chickens trying to do the calls. Obviously, we had people asking for extensions on loans, because they didn’t know what was going on. And then there were the redemptions for the lucky people that were able to pay us back. And we were doing that anyway, but it was three-fold. So, we took them off furlough and discovered—from a small lender that’s new—that that was the best thing to do. Then they were able to talk to brokers that they hadn’t had the opportunity to talk to before because, unfortunately, some of the other lenders had furloughed a lot of their staff.

Caron Schreuder: Let’s talk about what has surprised you about lockdown, although I expect everything because none of us have been through this before. What you have disliked or secretly loved? Magnus, you look like you’re dying to go first… Magnus Dadzie: Well, I suppose I’m on your right-hand side, so let’s just go clockwise, yeah…? CS: Cool.

MD: It’s been a long, long year [laughter]. For me, it has been more the shock of the number of deaths in the UK, and how the pandemic has affected local businesses as well—they’re struggling to get back. And, of course, this is where we come in to try and help them… Dawn Trustam: When it all started off, I watched the news every morning … but, in the end, I think I actually turned it off because it was ridiculously sad … I just found it was scaring people more than we needed to be scared. Don’t get me wrong, we needed to be scared, but it was taking it beyond that.

KM: From a broker’s perspective (and I don’t speak for everyone here), we literally saw our pipeline fall off pretty much overnight. But it gave me a chance to work on the business. Not that we’ve been in a pandemic before, but you want to come out of it stronger than when you went into it.

Gavin Diamond: The one thing that I’ve found positively surprising was how resilient, in general, people were. Virtually overnight, people went from travelling into an office to working from home. Where maybe IT systems previously could cope with three or four people working remotely, in our situation, they had to deal with 250. And there was always this sense of, if someone was working from home, were they actually working? Or were they doing the bare minimum to get by? But, in fact, people have been putting in massive amounts of effort and working longer hours than they would’ve in the office, because they’re working during their commuting time and things like that.

GD: When you said that your pipeline fell off a cliff—was that across the board, different product sets…? KM: Yeah. It was cases that were due to complete the next day. They literally just said, ‘We’re going to hold off and see’. It all came back quite quickly when valuers could go back out. CS: On one hand, in the industry that you’re all in, you simultaneously had stuff dropping off a cliff while having to manage existing clients and the book—which is so important because people were freaking out about any debt that they had. Everyone just wanted to know, ‘How are you going to treat me? How are you going to handle this sort of scenario?’ So, you’ve got those two responsibilities, in addition to your own business—it’s a minefield.

Anthony Rose: I think it’s a big testament to technology… if this had happened 15, 20 years ago, it would’ve been an absolute nightmare. People using paper files, not having internet, [or] even a computer-based system at home, or cloud-based storage. MD: Fax. [laughs] DT: I’m quite new to this whole employer thing, so it was very hard at the start, like Gavin said, to trust. Technically, our BDMs are out on the road anyway, but they weren’t out on the road; they were at home because they couldn’t drive anywhere. And we didn’t want to check on their laptops to make sure they’d signed in—that’s pointless. If you can’t trust them, then why are you employing them…?

DT: And a family. [laughter] KM: Exactly—and children at home … and home-schooling. My daughter is literally like teaching Dory—she’s four, she forgets, it’s hard.

GD: And there’s a huge amount of goodwill; people haven’t been forced to go back into an office necessarily, just yet. The other thing that we’ve seen is, like most lenders around this table, we’re almost 100% intermediary led and, throughout

[laughter]

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Samantha Pettit: Initially, I was I was surprised by how quickly things turned. I know now with hindsight that our office management already had the ball rolling well in advance … I think having already been through an extremely tough experience like 2008, it meant that they were prepared for an eventuality of something of this size. CS: It seems like, once again, experience—which is always important—is now important from the point of view of running a business, because then you have the ability and the wherewithal to pivot really quickly. Some people and businesses—of all sizes—really struggled. Pippa Betts: I think the good thing, of course, is that everyone is in the same boat; brokers and lenders have really come together. They have all been really understanding of the situation. If we are getting chased up for our pay, for example, brokers have been understanding that it may take a little bit longer than normal. Everyone is trying to adjust to the same working situations: working from home and that little bit differently. CS: September is supposed to be one of those really nice times for the market; post summer, we normally see an uplift in business. September 2020, however… Where are we at? What’s the shape of things right now? MD: Typically, there’s always been that trend where people shut off and go on holidays and then, of course, by August or September, anybody wanting to have moved house would’ve done that because of the schools and all that. And then the search begins again for pre-Christmas… So, it’s been quite busy; you must’ve read in the press that we’ve had a 300% surge in enquiries. And brokers are now thinking slightly differently; they would rather use a lender that still lent through Covid— knowing that the funds are going to be there when they say it’s going to be there. We’re in a good position in the sense that we’re more of a balance sheet lender, with funds under management as well. Bearing in mind that I started at Ortus at the beginning of July, I am already seeing the difference in broker loyalty as we never fail to complete on deals that we provide quotes on.

year is going to be quite different because I think we had a very, very large pipeline that built up since April … so, actually, September will be an extremely good month for drawdowns when, historically, that hasn’t been the case. It’s interesting based on what Kim said earlier about pipelines falling by the wayside because, yes, we had a lot of deals in our pipeline that maybe were put on hold … and, now, over the last few months, they’ve actually started to move … I wouldn’t have said that we have had a larger fallout rate of deals than we would’ve ordinarily had. DT: As a new lender—we just had our two-year anniversary in July— AR: Happy birthday. DT: Thank you. Strangely enough, we didn’t have a party… [laughter] But lockdown opened doors for us that we probably would never have had the access to. We were still around and we were still lending. Yes, our LTVs changed; our criteria, not so much. SP: For us, in terms of pipeline, it didn’t die a death, it just stagnated. Development finance, however, was definitely put on hold—with the loss of maybe a few cases. But that’s where bridging came into its element; we were getting cases through on that side. We didn’t shut our doors and we kept on going to support our brokers. And what was great to see was those lenders that were there also supporting us—we couldn’t have appreciated that more. And it’ll be those lenders that will see that appreciation and support from us even more so going forward. July was our best month, a record for applications … it’s certainly no time to sit and twiddle your thumbs. So, for September, it’s onwards and upwards and, bridging in particular, across our enquiries and applications through to completions, equates to circa 30% of our business. PB: We’re seeing a lot more brokers that we haven’t dealt with much before and we’re managing to build relationships with them as an outcome of that. KM: And that’s where you’re going to earn more…

GD: Good timing.

PB: And come out really well from it.

[laughter]

CS: We often see relationships that are long-standing between brokers and lenders and it’s tough to disrupt those—I think sometimes to the detriment of the customer. This has shaken things up and not necessarily broken those relationships, but caused brokers to perhaps reassess who they’re working with and why. I want to expand on these relationships and how those have felt during the period. Pippa, as an underwriter, how have you navigated communication during such a strange time?

CS: I just want to pick up on that point about brokers’ lender selection processes. Would you agree, Anthony, that brokers are perhaps looking at lenders who’ve lent throughout more automatically than others? AR: Yeah, I think so. Especially in a climate like this, the most important thing is having confidence that the deal is going to go through. So, someone who has been there throughout, or as much as possible, gives you that confidence. GD: Well, that’s music to my ears… [laughs] Traditionally, what we’ve seen in normal operating conditions is that August tends to be a month where, certainly in my experience, it’s quite good for drawdowns because of stuff that’s already in your pipeline. But, actually, your new enquiries in August typically take a little bit of a dip, which means your September’s normally not great in terms of drawdowns, but very good for new enquiries coming back up, resulting in a very good end to the year. This

PB: If anything, surprisingly, it’s improved a lot of relationships. Of course, all of our communication is pretty much over telephone and email anyway, but with all the changes in the last six months, I think it’s been even more important than ever to pick up the phone with regard to changes in products and how we are doing our underwriting. CS: With people being on furlough, have you always been able to get to the person you want?

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PB: As mentioned earlier, there has been a lot more communication with the directors of brokers that you would never have spoken to before. I had an instance recently where it was just constantly changing as people were being furloughed, so that has made it a little bit difficult in having to get them up to speed with what’s going on, but, all in all, everyone’s come together and it hasn’t been affected too much.

[laughter]

GD: It must’ve been incredibly difficult for brokers to try to navigate what was actually going on because you would’ve had lenders changing criteria, or leaving the market… We took the view that communication out to the broker community was massively important.

MD: I’m going to ask a very blunt question now, based on what you just said. Would you rather a lender use a credit-backed decision in principle or just terms? The difference I see is that anybody can send out terms and things will come out in the wash at some point. So, when the broker’s given those terms to the borrower, in their mind it’s going to happen. If every lender was to do the credit side of things quickly and do all of the checks … would that be better for you?

KM: It has been really hard … I think some lenders are not as transparent as others—about their business volumes, turnaround times, and timescales. If we’re not on board with all of that, we can quickly lose clients from not knowing what’s going on. An example of this during lockdown when we tried to stay on top of everything as much as we could—it did change all the time, so logistically it was a nightmare—was when we found out from a client that one of the lenders had completely shut their doors to a certain type of lending. It had not been communicated to us… And it just looked so bad … our biggest relationships are with those that communicate with us on a regular basis and are honest about where they stand.

And, also, there is a new understanding that lenders are slow. So, whereas before you’d put something in and you might find out two or three days later that it’s a no, now, if it takes three weeks to get a no, it can put you in a really difficult situation that might be hard to overcome.

AR: Well, I think the more assurance you get as early as possible, the better. This whole period has shown that you want to get to the decision—whatever it is, good or bad—as quickly and with as much guarantee as possible. So, the answer would be yes. MD: Yeah, that is what we do. DT: Yeah, we’re fully credit backed…

GD: People don’t like to put out bad news, I mean, that’s the thing, right? But the reality is that you have to find that balance as a lender, and we took the view that this is the time to be transparent. It’s an environment where you’re not alone; everyone understands what’s happening out there. And if you had a broker who couldn’t understand why you were cutting back your LTVs, well, are they a broker that you want to work with…?

GD: But the key to that, of course, is that it is based on the information that you are provided with… You might do this sort of deal all day long but, ultimately, if it turns out to be something quite different, well, it’s no longer credit backed.

AR: As a broker, you would probably be seeking out reassurances that we normally wouldn’t have needed to seek out; you couldn’t take anything for granted … there’s no such thing now as a vanilla case, is there? Before, you’d be like, ‘I know that lender will do that, I don’t even need to speak to them about it’. Now, you’re probably thinking, ‘What’s the riskiest three or four things about this deal?’

SP: Absolutely. Naturally, there are those extra few hoops to jump through. In terms of relationships with our brokers and communicating that, you have to set the expectation upfront and make sure they’re aware that, yes, we’re going to get you from A to B, but it might be that little bit trickier. It’s something that Crystal has really focused on … not just towards getting those deals through, but on our relationships with brokers and

CS: Sam, have you noticed an increase in diligence from your point of view in providing information packs through to lenders?

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their wellbeing as well. So, off the back of this, we formed our wellbeing campaign, #CrystalSolvesStress.

right, they’re physically seeing something, but they’re still only giving an opinion based on the best information that’s available.

CS: This brings us nicely on to the acceleration of positive change. Despite all the negativity, are there any other things that you consider good outcomes as a result of everything that’s going on?

AR: …We had an example where the property was deemed unsuitable for an AVM and the client lived with an elderly relative who was shielding. So, they allowed the client to sketch out his own floor plan and walk round and take photos of the building, combined with doing the best attempt at an AVM— and the lender ran with it. Hopefully, if that mindset stays, we’ll see a big shift in how we interact. Yes, you want to see a borrower and the whites of their eyes to get an opinion of them, but that can be done over Zoom, can’t it?

GD: Massively. There were things that you’d spoken about doing for years, but because they weren’t seen as business critical, you didn’t do them. But, you [found yourself] in a situation where, unless you physically changed something virtually overnight, you couldn’t operate anymore … maybe [in the past] you’d thought about using AVMs, but you’d never actually done it. All of sudden, unless you were prepared to use an AVM, you couldn’t lend, or you had to wait. Positive changes that people had to make overnight will remain—you don’t really go backwards. If you’ve incorporated an AVM or some other procedural change, that’s now embedded. And I think what’s happening is that you’ll continue to look for other changes, largely technological, to assist with making the underwriting process that much easier. Thankfully, we launched with Nivo, the electronic facial recognition software, at the start of the year. CS: Masthaven famously (we covered it in an earlier issue of the mag) unveiled a tech system at the beginning of the year which worked out really well, didn’t it?

GD: Absolutely. But I think that’s why people have historically come to the specialist market, where you can make those sorts of decisions, and you can take that risk-based approach. In the more mainstream space, it’s too voluminous. AR: Also, doing it in a way that you hopefully get to better outcomes, rather than through gritted teeth, thinking, ‘Oh God, we’ve got no choice, we have to do it.’ MD: If you’re carrying out an AVM on a property which is on a street with similar properties then there’s no major issue. But

PB: Our new system was ready for our brokers in perfect timing. It allows them to do quick quotes and terms directly through the new portal, which is a lot more efficient than how we did things in the past. It also enables intermediaries to go back to their customer straight away, rather than having to wait for us before they present a quote. It’s accelerated a lot of changes that have been there, sitting on the backburner. And this has just made it all go ahead and fall into place very quickly— which is what we needed. We’ve introduced new products allowing desktop valuations up to 60% LTV, which is another really big game changer for us and has been welcomed by our brokers, because it’s something that has been discussed and requested for a very long time. So, hopefully that’s something that will continue once things do start to get back to normal. CS: On AVMs, does everyone think that this, and other valuation methods, are going to continue as an option? PB: I don’t see why it wouldn’t. If we can continue to lend properly and responsibly and we know what we’re doing to assess LTVs and so on, I don’t see why we couldn’t continue to use such tools. MD: Yeah, I suppose it works on the lower LTVs because there’s so much skin in the game, after all. If it’s a high LTV, that’s different waters… GD: The key to all these things is how you utilise them … if you’re going to close your eyes and ears and believe what a computer tells you as a value of a property in isolation, at some point you’re going to come a cropper. Because it’s just tool based on a large dataset that’s going to tell you approximately what the value of that property is. You need to corroborate that with all the other information that you know; anything else that’s available online; marketing details; whether it’s recent or more historic … in the same way that a valuer goes out and, all 35 Sept/Oct 2020


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to specialist finance, such as bridging? Are there any trends right now that we can possibly identify around the table? PB: We’re surprisingly seeing a lot of very nice, straightforward cases coming in. [Kim looks incredulous] CS: Kim’s like, ‘Where and who are these coming from?!’ [laughter] MD: Is that on the regulated side? PB: On the regulated side, straightforward purchase before sale, possibly fuelled by the recent stamp duty changes… But it’s been very welcomed, considering how busy we are and how much bigger our pipelines have been than usual. SP: I think there’s been a positive uplift on the regulated side. Obviously, the housing market did close and, all of a sudden, there’s a mini boom of people wanting to move. It’s also very, very quick on offers; they’re not wanting to lose their onward purchase. And when you’ve got rates like 0.48% … they’re absolutely doing it, whereas, before, it was a question of being a bit expensive for a borrower who wasn’t expecting to come across those kinds of costs. CS: Everyone appears to be reporting record lending numbers at the moment and we understand that regulated bridging is going up. Is that up because there’s a lack of mainstream products? Are people going into bridges just because there are fewer other options? And how’s that going to reflect in 12 months’ time? SP: No, I don’t believe so. There needs to be the exit there for us to arrange a bridge in the first place… CS: How do you manage refinance at the moment, though, without knowing what the situation’s going to be like in nine or 12 months? where, in certain areas, each property is so different, then of course you need physical attendance. AR: But if the number of properties that can be automatically valued increases dramatically, if it’s accepted, then it makes it more efficient timescale wise for the properties which you can’t visit… MD: Yeah, spot on. DT: I like the fact that the pandemic has helped lenders and brokers actually realise that there are alternatives. KM: From a legal aspect, some of the conveyancers are happy to certify documents over Zoom now … things like that make it easier for the clients. And that’s ultimately what our job as a broker is: to make the process easier. CS: All of these things have come up time and time again and it’s taken this undoubtedly horrendous thing to push us into this new era, which I hope means that we come out leaner and stronger. In terms of cases, what’s coming through at the moment? What are the main borrower demands when it comes

SP: I would say that the majority of regulated deals we have coming through are for sale and at lower LTVs. However, where they would require refinance, if their client profile and income position doesn’t fit with the current market offering, then you’ll struggle to find a lender that will be able to get comfortable with the deal. GD: When you say that there’s an increase in regulated lending, is that an increase quarter on quarter, or you talking about as an overall proportion of the market? As an overall proportion of the market, I can understand it. [We ascertain that the increase, as published in the latest Bridging Trends Report, is as a proportion of the market, going from 44.4% to 55.6% in Q2 2020] GD: It might just be that there’s less non-reg business going on and therefore the overall percentage is higher. AR: I think the challenge for brokers is that we’re now talking to clients about bridging who would never have thought that it was an option for them … if lenders are understandably curtailing their criteria and being more nervous, then there are 36

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people are dealing with. One of the hardest things for us is when someone else may have spoken to other brokers—

clients that might be so far down the track that their only option is bridging. But sometimes it can be a very difficult conversation to go from a residential mortgage rate or lower, to a bridging rate and, as a broker, there’s a skill to developing that with a client. Then it comes down to their situation: do they want to wait and tough it out, or not do the transaction? So, I think that’s why you’ll see a lot of sales being the exit. It’s more a necessity type situation, isn’t it?

KM: Which we’re finding a lot. AR: And they come to you, probably to see if you can get them a better deal, but they’ve been taken down a blind alley as to what they can do, and what’s realistic. Sometimes you’re fighting against that. The client is so focused on their immediate need, that they’re not even thinking 12 months ahead. You can say, ‘Yes, someone may get that done but that’s probably not the best outcome for you’. You’re sort of telling them they can’t have what they want now, which is always a bit of a tricky situation, isn’t it?

GD: Why is there regulated bridging? Or, why is there the amount of regulated bridging that there is? In my experience, and in terms of the deals that we see, most of them tend to be life-event driven. They may need to downsize or upsize. It could be a divorce, there could be a death… Those sorts of things, in any market, still happen and therefore the requirements to move, buy, or sell are always going to be there. To get back to your earlier question, are we seeing deals that maybe shouldn’t be done in a regulated market? I can honestly say, hand on heart, that we aren’t. It’s not treating customers fairly, or lending responsibly—whether it’s from the broker’s perspective or the lender’s. There has to be a viable exit strategy there. DT: We’re seeing a lot more second charges on clients’ own homes for business use. It’s a very thin line, to be honest with you. When we get a second charge for business purposes sitting on our desk, we obviously ask the reasons why. Is the business looking to improve in this current climate? Great. Or are you actually using it because your business is in trouble? That’s obviously a concern. What is going to be the exit? …We always go and see and speak to those clients … and we say to the broker, ‘Look, this is your client but, as a lender, we want to make sure that they are fully aware of what they’re going into’. CS: It’s just this interesting cocktail of certain lenders having funding requirements and demands that sit behind them which equates to an urgency to lend, broker and lender businesses which need to operate to survive, and desperate borrowers who don’t have any other options—it could make for an uncomfortable mix. DT: There needs to be collaboration between brokers, lenders, surveyors, legals, etc to make sure that we fully understand the whole picture and … this is going to sound really harsh, but if I’ve got a broker that is not going to tell me the full story, then I won’t deal with them again … I’m not prepared to put that client or our business in jeopardy.

CS: Kim, judging from your reaction earlier, I take it you’re not seeing the bog-standard deals?

PB: On what you were saying earlier about providing all the information, it’s important that the broker does a really good fact find and puts all of the information on the table from day one. There might be things in there that are a little bit frightening and may require a bit more work, which sometimes results in brokers fearing to divulge that information as it may make us back off. But, actually, if I’m given all of the details on day one, you find a way to manage it and make it work, rather than being presented with it in the final stages.

KM: The thing is, what would’ve been standard five months ago, is no longer standard. We do a mixture of bridging and term loans, but we’re seeing far more bridging at the minute—a lot of refurbs and conversions to HMOs. The exit’s one of the biggest things as a broker … and it’s very hard; while we can gauge what it is now, what is the market going to be in six to 12 months? The whole appetite aspect … where I could have quoted a lender that I knew hands down would be the most competitive, now I’m having to go to maybe four or five.

AR: With exits in mind, a broker needs to focus, not just on this transaction, but whatever the next transaction and outcome is going to be. That understanding of the client’s situation is so crucial because if a broker doesn’t get that now, the exit that they have in mind may not be there, as a result of not digging deep enough. So, I think there will be a big disparity now between outcomes based on the quality of the brokers that

GD: Once again, the challenge from a lending perspective is, when you’re underwriting a bridging deal, you’re underwriting the exit … if that exit is questionable at best now, in an environment that’s pretty opaque going forward, you’re going to walk away from that deal. Or, certainly, we’re going walk away from that deal, because we don’t want to put anybody into something that they don’t have a realistic chance of getting

[laughter]

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out of. If someone says they’re going to refinance, well, what’s their income and what does that look like in the future? What industry do they work in? MD: We’re getting cases that have been around other lenders and have come back to us. GD: Do you mean rebridges or…? MD: Cases being shopped around, where, I think some of the brokers, no disrespect, come back thinking, ‘Ok, so lenders are now more keen to lend … if I push this lender now they’ll be more likely to do it.’ And then we say, ‘Hang on, we saw this case in November last year— CS: It wasn’t nice then, it’s not nice now. MD: [laughing] It’s worse now! If it wasn’t for us then, it definitely isn’t for us now. KM: Can I ask a very quick question, just to the lenders? Are you finding throughout this that the exits that were guaranteed as sale far more people are trying to refinance? GD: What I’ve been surprised about, particularly over the last two months, is the number of deals that we’re exiting, where people are getting the sales away—ones that weren’t even agreed when we did the loan. Sometimes you do a dev exit and there’s X number already under offer or some that have already exchanged, but we are seeing, in a very short space of time, that people are now getting sales away. That’s massively encouraging for us as a lender when you’re in a market which, particularly

at the moment, is quite uncertain. What’s going to happen in six months’ time? Are people still going to be buying property? Is there going to be a second wave? Are people going to be able to raise mortgages? Are people going to lose their jobs? Who knows? And maybe there’s a little bit of pent-up demand in there… There was a very interesting report that Savills put out where they looked at how many people were planning to move home in Q1 versus now—there are far more now. The pandemic has meant that people are reviewing their work-life balance and where they want to live… AR: I think what’s happened, undoubtedly, is that the pandemic has made someone’s home a much more important thing in their life, hasn’t it? It’s more multifaceted, you’re probably working from there as well, and I think what people want from it has definitely changed. CS: Perhaps we can talk about opportunities coming up that you might be identifying? Kim, you mentioned HMOs; are we due to see maybe another landlord boom out of this as an alternative income stream? KM: It was popular before, anyway, but I think, yes, it’s what we’re seeing most of for refurb projects at the moment. MD: According to a lot of reports, rents are also up, so it’s an opportunity for property investors. AR: We’ve seen a massive change in the number of enquiries in relation to holiday lets. So, people wanting to even sell what is a traditional BTL to free up the equity for a holiday let purchase. With the holiday let being a combination of living there and 38

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renting it out, there’s the opportunity to use it much more if you only need to be in the office a couple of days a week, if at all. We’re seeing a big shift towards that, and clients buying stuff in holiday-let locations that need bridging or development finance because they’re purchasing something that has got opportunity and advancement.

CS: Equally, those that have had a hiatus are considering that on their side. I’m so interested to see what they come back with as an offering; you’d have to come out with something pretty good to return and try and recoup those relationships that have been forged elsewhere. That could be a game changer, depending on what products lie in wait from those lenders.

CS: Because we’ve always celebrated and somewhat revered competition in this market, if a new lender were to enter now, what sort of gaps are there? Is there something that you’d really like to see from an offering point of view so that new entrants don’t just clutter up the space, but actually provide something of value?

GD: I saw some lenders who have been in the market all the way through coming out with 70-75% LTV products. In my personal view, I, as a lender, would steer very clear of those LTVs in a market that’s quite uncertain. But there’s obviously people looking for market share, trying to do things differently… CS: We’re back to a headline rate environment … aspirational LTVs, interest rates, and terms. And that must make your jobs so much harder as brokers.

SP: I think we can probably touch on AVMs again a little bit. They do feature very heavily in the bridging space for us, purely down to timescales—which is a massive reason for people to approach bridging in the first place. To be fair, a lot of lenders did get on to that very quickly and started altering their criteria to make that a little bit more accessible, but maybe that could be developed more? We’re also finding at the moment a lot of conversations around the conversion of commercial properties. The permitted development rules have changed with regard to commercial properties that are unused, untenanted or empty. A lot of people are interested, so having lenders that are very experienced in that sector and having the knowledge to get that moving straight away would be good.

DT: It’s also frustrating from a lender’s perspective, because you will get some brokers that will ring you and say, ‘Well, I’ve got 75%’. And I’ll say, ‘Congratulations— MD: Take it and run. [laughter] DT: Well done, that’s brilliant. GD: Grab it if you can. AR: And then you have a slight smile when they call you back a week later… [laughter]

KM: …For us, it just comes down to speed. So, if more of them that can offer dual representation on legals … it’s not that common in the bridging sector. AR: I think there are very few parts of the market across all segments that are completely unfulfilled. I think it’s probably quite hard in fairness for a new lender to have that many USPs at the moment—without taking on much more risk. You wouldn’t tell them not to do it, because it obviously could fulfil a need [laughter], but you would probably question their business plan if they come in and really try to rewrite the rulebook … more competition is always a good thing, but I think we wouldn’t really expect anyone to open up a new market as it were. GD: Ourselves and the likes of Masthaven, during this period, have been massive beneficiaries of certain other lenders (who shall remain nameless) not being in the market at the moment. It’s allowed us to make relationships with other brokers who had established ones with those lenders and where it was virtually impossible to get a look in. Now, we’ve had the opportunity to not only have those conversations, but actually get deals done and over the line. The challenge for us is, when those lenders come back, how does that dynamic look going forward? Do brokers have short memories and go back..? AR: I think you’re right. Rather than new lenders, it’s probably returning lenders that are more interesting, isn’t it? How are they going to come back? GD: And obviously that’s something that we’re watching extremely closely, and we’re trying to do whatever we reasonably can to make sure that our house is in order to be able to withstand some increasing competition when it comes back. Because let’s face it, competition makes you better.

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Average hours worked each week Less than 45 hours - 38% 45-60 hours - 50% 60-75 hours – 8% More than 75 hours – 4%

How brokers are rating their overall level of mental wellbeing Amazing – 12% Good – 53% Satisfactory – 28% Of concern – 7%

The top three most important factors connected with health and wellbeing Happy relationship with partner – 69% Financial independence – 49% Fitness and diet – 43%

With 12% of specialist finance brokers working over 60 hours on average a week, could the state of the industry’s mental health take a turn for the worse as our work-life balance is thrown further out of kilter?

Are long working hours affecting our mental health?


Working 60-plus hours each week is undoubtedly too much. As our sector continues to satisfy consumer demands, and maybe replenish lost income, I really fear brokers will drive themselves too hard and become increasingly stressed. Of course, everybody works very differently, but my

With 12% of industry professionals working over 60 hours on average per week, what impact could this have on the mental health and wellbeing of our sector?

The 62% figure is likely to be higher than pre-Covid as there is huge pressure (and opportunity) to service the current pent-up demand for home moves. Indeed, we have a number of relationships where the brokers are currently working seven-day weeks. It appears that the market is in the midst of a perfect storm, as this demand, along with the window of opportunity that the stamp duty holiday offers, is fuelling activity across mainstream and specialist markets. However, the whole enquiry-to-completion process is undoubtedly taking much longer. With lenders increasing their underwriting requirements, surveyor backlogs worsening, and solicitors still returning staff from furlough, it’s no wonder that brokers are having to work harder to process each case. Somewhat inevitably, this will result in longer overall working hours but may not necessarily mean increased revenue for brokers—so, for many, the increased effort may not be commensurate to the reward.

Some 62% of industry professionals are working over 45 hours on average per week. Do you believe this is higher than pre-Covid and what, in your opinion, has contributed to this?

In mid-August, Crystal Specialist Finance (CSF) launched a long-term health and wellbeing campaign for the intermediary sector to help individuals identify and overcome stress, illness and loneliness. CSF kicked it off with a survey of over 100 specialist finance intermediaries to probe their current feelings. We interview Jason Berry, group sales and marketing director at CSF, on the results.

At CSF, we very much believe that it is the work you do in the hours rather than the hours you work. This means that we like to be as flexible with our work patterns as possible. Many of our team have young families and, as a family business, we know how important it is to be able to do things like school drop-offs or pick-ups. We also create flexible time so these parents can see teachers for parent evenings—which now tend to be between 3.30pm and 6pm—plus, during festive periods, we encourage those with younger children not to miss nativities or any other school plays. Many of us older parents have missed parts of our children’s growing up and we recognise it is something you can’t get back. As the team has been working from home for some time now, we have proved that not only is it possible, but it brings many benefits to overall staff wellbeing. As much as we would like to return to normality within our office environment, we are currently conducting a survey so we can collaborate with our staff in gaining meaningful understanding around how they would like to operate in the future. Based on the results, we will look at how we can develop a fair approach for all, without compromising on the high expectations we place on delivering excellent customer outcomes.

Find time to exercise and eat well; create date nights with your partner; and plan fun time with your kids.

What advice would you give to intermediaries who are struggling to get a healthy work-life balance?

worry is that too few brokers are taking advantage of available resources. Technology can certainly be better embraced … while partnering with sectorspecific experts like CSF in areas such as bridging can also be extremely timesaving for brokers. There should be a tremendous amount of pride in being a broker; helping clients navigate through the property maze is a huge responsibility which carries enormous goodwill when executed properly. Seeking help, support and guidance from any outside source (technology, another firm, or individual) should not be seen as anything but smart.

The campaign will be expanded into a series of in-person and online round-table events in the coming months, where attendees will be able to discuss the issues affecting their lives.

There is certainly an education piece required to ensure that the industry better understands the key signs of deterioration which should be looked for. Separately, virtual (or in-person) events can be delivered in partnership with subject matter experts like national charity Mind, during which useful mental health hints and tips can be shared. Additionally, I do believe we have some very impressive and pragmatic industry stalwarts who would be delighted to act as personal mentors to help those brokers in greatest need. Creating a sustainable programme which facilitates these connections is a personal aim of mine.

How can the industry collaborate and help boost awareness for mental health and better wellbeing?

I actually believed the ‘concern’ figure would be higher, so I was pleasantly surprised. However, I am worried that the post-Covid demands will lead to a huge number of ‘satisfactory’ respondents slipping during the next six months.

Were you surprised by the figure of respondents who rated their overall level of wellbeing as a ‘concern’? What help can professionals get during these challenging times?


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WHY INVESTMENT IN PBSA WON’T MAKE A U-TURN Words by

BETH FISHER

45 Sept/Oct 2020


Zeitgeist

F

or most of 2020, developers, lenders, brokers and operators in the purposebuilt student accommodation (PBSA) sector have been holding their breath in anticipation of finding out the extent to which the crisis will impact final student numbers on campuses and, consequently, the uptake of student beds this academic year. You would be accused of living under a rock if you were unaware of the PBSA market’s boom in recent years—often referred to as the ‘golden goose’ of investments. According to JLL’s UK Student Housing Report for 2019, there were over 650,500 PBSA beds in the UK, with university owned accommodation accounting for less than 50% of all supply in the UK for the first time. It estimated that investors planned a startling £8.8bn additional flow of capital into the living sectors over the next two years, with 31% of that aimed at student housing. On a national level, from 2014/15 to 2018/19, there were 1.4 full-time students for every new PBSA bed—a clear demand. With construction volumes of beds dropping by 25% over the past three years due to pressure from rising build costs, the amount of new supply has been limited. As a result, the anticipated surge in demand, combined with a falling development pipeline, meant that JLL expected the student-to-new-bed ratio to surpass 3:1 by the time we reach 2030. Covid, however, has caused a blip in this year’s forecast. 2020 was set to be a record-breaking year for the PBSA market, and it did indeed start off strong. We saw Blackstone purchase iQ Student Accommodation for a colossal £4.66bn—said to be the largest private property transaction in the UK—setting a new pricing benchmark for the sector. Nevertheless, when the UK was put in lockdown, an unprecedented degree of disruption knocked stakeholder confidence across the market.

HOW THE PBSA SECTOR HAS CHANGED SINCE 23RD MARCH Over the past six months, the industry has grappled with the start of a deep, global recession, uncertainty around term dates and application procedures, and the strategy (or lack thereof) of delivering A-level results—and its U-turn. There was also the worry about whether students still wanted to attend what Brian Welsh, CEO at student accommodation provider, Nido Student, described as “the social opportunity of a lifetime” during this new, socially distanced era. Earlier this year, universities were forced to close for the final semester, which meant that student accommodation operators and landlords were faced with severe disruption to rental income. A number of accommodation providers chose to surrender remaining rents from students who vacated early to endure lockdown elsewhere. Nido Student, for example, allowed contract releases for over 3,000 people this year. It also decided not to let out any of its accommodation to nonstudents to help safeguard the residents who elected to remain in its buildings. These sorts of decisions have rippled vertically. For some operators and landlords, long-term/investment lenders may have decided to waive covenant breaches in terms of a fall in rent, or place pressure on borrowers to inject further equity. “We have seen rent guarantees become the norm on investment sales now,” claims Steve Grant, CEO at specialist lender Kinetic Capital. PBSA rent structures could become more malleable for students, however. Nido Student has implemented a booking policy that allows students to return according to university schedules (which includes flexible start dates); the ability to arrive up to 90 days late with no charge; and, if a visa or place at university doesn’t come to fruition, there’s no need to pay at all. “Ultimately, all we want to do [is] make the lives of our students easier,” says Brian. When lockdown hit, developers in the middle of PBSA projects were forced to leave sites for weeks, meaning that some were not able to deliver their schemes in time for the 2020 academic 46

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year. Sky Mapson, deal origination at development lender Maslow Capital— which provides over £100m of PBSA debt per year—divulges that a few of its borrowers were presented with that very problem, and it had to work with them to understand their position. Developers have also been concerned about securing building supplies, which has pushed costs up. Sky tells me that a lot of borrowers had asked Maslow for advance payments for materials so that they could store them onsite for a future date. “We worked quite proactively with borrowers on that, just to make sure that they had materials as and when they needed them,” he says. Plasterboard, for example, was one that proved difficult to source. One expert highlights that contractors have procured plaster from as far as Turkey to meet deadlines, which could pose a problem with performance due to the mixes being designed for different climates. Andrew Southern, chairman of PBSA specialist, Future Generation—the student accommodation arm of property developer Southern Grove—tells me that it has made extra efforts, with the help of its contractors, to overcome the increase in procurement risk for materials by sourcing them locally where possible. “Materials shortages are slowly being corrected and suppliers are undertaking measures to ensure this gets resolved without relapse, with many introducing more intuitive stock management systems,” adds Rob Simpson, director and head of fund monitoring at ARTAL. The main issue impacting build programmes, however, is around the reduced numbers of subcontractors allowed on site and delays in sourcing labour. “Let’s say a contractor had 100 people on site pre-coronavirus; because of social distancing measures right now, they might only be at 60-70 people,” explains Sky. “Simply, you can’t get enough people on site to build fast enough.” Anthony Laville, founder of PBSA developer, Volume.Property, confirms that social distancing is a “big issue” on site. However, extended working hours are said to have helped combat these restrictions and, in some cases, teams are working more thoughtfully and thoroughly, which is having benefits in terms of efficiency


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and production. “We’re in a situation now where construction is taking place at the same pace as before,” states Andrew. “We are back on target to deliver all 1,500plus units in July/August next year.” Nevertheless, as a precaution, lenders are building in more headroom. Kinetic Capital—which employs a team of people that have been developers and operators themselves for more than 20 years—are now typically providing three-year facilities, rather than the standard two, in order to allow more breathing space. “Our borrowers will still have the option to refinance after two years, but they can also take up this third year without penalty,” says Steve. Mark Quigley, managing director of UK real estate finance at Beaufort Capital—who has been in the industry for over two decades—declares that the sector is known for building ‘just in time’. “Therefore, there’s always had to be a fallback in case the start of the academic year cannot be met,” he says. “Covid-19 has exacerbated this.” Even pre-pandemic, developers occasionally missed deadlines due to unforeseen circumstances and project programmes being notoriously tight—but options have always been available. The traditional workaround is to temporarily re-house students in local hotels, subsidising additional travel and food expenses. “This approach is problematic in that it impacts what is arguably the most important weeks in any student’s life, making it difficult for them to form early relationships,” notes Rob. “Given the proliferation of social media as a public venting space for grievances, this can quickly damage the provider’s brand.”

“The decadelong reduction in the number of 18-yearolds is now at an end”

This is particularly concerning for international students who may not have an established social group and are therefore vulnerable to becoming isolated. It can, however, be partially mitigated in some circumstances by retrospectively zoning the works to provide access that is restricted to core living spaces while the parts being finished late are completed. Rob adds that the impact on user experience can be compensated somewhat via sponsorship of local products and services, such as meal vouchers and recreational ice-breaking activities. 47 Sept/Oct 2020


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“Funds are still available— if you know where to look”

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There is also an option for borrowers to provide either a rent guarantee (rental income guaranteed by the management company, whether the room is taken or not) to would-be purchasers, or an interest shortfall guarantee (to ensure the lender receives interest, even if the rental income is insufficient to service the loan) to funders offering a refinance. Some developers may also look at shortterm change of use to C3 residential to open it up to non-student renters until they can fill it with university goers. There is also a lettings market in January which developers can work towards— something Sky explains is normally for certain postgraduate courses and language schools which run a “quirky” term schedule. Despite this back-up option, Sky warns that you wouldn’t want to “hang your hat on that to fill a scheme”, considering it is only suitable for a small percentage of the student population.

WHAT DOES STUDENT DEMAND LOOK LIKE FOR THIS ACADEMIC YEAR? The population of 18-year-olds has been dropping significantly since 2009—but is projected to rise again throughout the 2020s. “The decade-long reduction in the number of 18-year-olds is now at an end,” says Steve, “and, despite this reduction, there have never been more domestic students applying for and studying at university.” The number of this age group in the UK who applied for university by the June 2020 deadline—three months into the crisis—reached a record high of 40.5% for this point in the cycle. The figure for applicants outside of the EU is currently up by 10%, with only EU applicants lower than in 2019—by just 2%. However, the fiasco of this year’s A-level results in August caused nothing short of widespread panic. Education secretary Gavin Williamson was forced to apologise to students following national outrage and, within days, they were upwardly revised. At the time of writing [Ed: early September], UCAS revealed that more than 89% of students who received a higher grade when the revised results were issued have successfully secured a place at one

of their preferred choices, or have used Clearing to find a comparable alternative. Despite this, there appeared to be no post-A level bounce in rentals (both PBSA and off-street) in September, according to Unipol, which provides help and assistance to students renting in the private sector in Leeds, Nottingham and Bradford. This could be because of considerable student movement between institutions once grades were reconsidered. In early September, the student housing charity claimed that there were still a significant number of students going through Clearing and universities were still reporting no real idea of their final first-year numbers. “…When there are universities which still have not allocated their spaces, countries where results have been pushed back, and the inevitable drop in international students, this has meant a dip in occupancy across the entire sector,” Brian tells me at the time. During September, Ian Munton, director of library and student services at Staffordshire University, saw less students coming through, which he says was not helped by the A-level debacle. “I think there’s potential for lots of universities, particularly like Stafforshire, to suffer as [a] consequence of that.” Regardless, Ian says that the number of first-year students wishing to live in halls of residence remains “buoyant”. The emergence of hybrid learning from universities—a mix of face-to-face and online lectures—for the new and existing cohort will have resulted in some students deciding to live at home and commute due to much lower contact teaching times. Rob says that if PBSA buildings do not reach peak occupation, this will undoubtedly affect the user experience and erode the unique offering that this asset class provides, causing some to look for alternative solutions. “In the long term, this could potentially lead to challenger products, but this is unlikely to impact the existing stock.” We could also see a fundamental shift in how tertiary courses are administered in future. “Could this lead to proliferation in part-time courses and a leaning towards co-living? This would certainly diversify networking opportunities and reduce the

level of student debt, while providing the essential experience employers look for from graduates,” suggests Rob. “Innovation is born from necessity and this would most certainly be a good example.” Andrew agrees that the disruption and uncertainty created by coronavirus has meant that its lettings cycle was running slightly behind. However, he insists that students still want to move out of home and become “part of a community” that is new and exciting to them. “The need to live in university cities is also going to continue to be absolutely essential for those doing courses that involve some sort of practical element, such as medicine, engineering and others,” he points out. “In some areas, the demand for PBSA has even been boosted as social distancing rules limit the occupancy of cluster apartments to 50%,” states Marcus Higgins, director at Naismiths, who is currently engaged in eight PBSA schemes across the UK. “As a result, rents may increase accordingly.” He also believes that the ‘bubble’ policy which is being adopted by many universities means that student accommodation will remain attractive. “While PBSA units have similar levels of comfort to a luxury hotel room, the convenience of a single monthly payment and the chance to socialise safely with a bubble of fellow students mean that they will continue to appeal to both students and those most likely to be paying the rent—their parents.” New international student numbers— which are a key demographic of PBSA and I am told account for around 20% of UK university intake every year— have also been hindered due to travel restrictions, significant visa delays, and moves in postgraduate teaching programmes until later in the year. “Their potential absence is of course a worry for investors and operators alike and there will be an impact,” says Brian. For PBSA which relies on the international student market—generally more expensive, newer, amenity-driven accommodation—a slump could mean that these existing and new developments will be significantly affected. Many of these students are also said to pay for a year’s accommodation upfront, a loss which will be keenly felt by PBSA operators.

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“The need to live in university cities is also going to continue to be absolutely essential for those doing “…Let’s be clear that international students not being able to arrive will impact occupancy. How much is really the question,” Sky affirms. He tells me that some locations have a higher intake of international students, highlighting Coventry as an example. “…[It has] an incredibly high percentage of international students,” Sky claims, “so [it] will be interesting to see what happens there.” I ask whether there will be more caution from lenders who fund these higherend schemes as a result. “I think there should just be that caution generally,” Sky answers, explaining that you wouldn’t want to rely on a small percentage of the student population to let your scheme. Lenders have been able to monitor the situation throughout by having regular dialogue with valuers and their developer clients, as well as looking at updated UCAS figures. In early September, Beaufort was observing the numbers with interest, and the early signs were encouraging. “The reality is that the drop-off of overseas students would appear to be made up by the increase in domestic students,” Mark asserts, adding that the market saw this during the GFC when there was a limited supply of jobs and, as a consequence, more school-leavers went into higher education. This change could also open up the arena for domestic students from less

advantaged backgrounds to enrol; for the first time ever, over a quarter of these young people have applied to university. Brian believes this could benefit domestic students who are typically excluded from higher education due to social and financial barriers. This could, in turn, help ease the potential void left from any international fallout. The number of students taking up places at universities where there is typically high demand is expected to stay robust. However, more saturated areas where occupancy levels were suffering before the crisis are likely to continue on that trajectory, with further polarisation between the weaker and stronger universities, as students become more discerning around value for money in terms of the qualification they receive and the experience they have.

ARE LENDERS FUNDING NEW PBSA SCHEMES? While it was more difficult to secure finance at the start of the crisis, with lenders pausing or reducing leverage significantly, funding options are now starting to improve. “Funds are still available—if you know where to look,” Anthony tells me in August—although there will be a slight premium to pay. “It certainly is a different landscape compared to the start of 2020.” 50

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This is mainly due to nervousness surrounding how the Covid-19 situation will develop, final occupancy levels, foreign students’ ability to travel, and whether or not domestic students will even be able to attend in the face of potential local and wider lockdowns. “Project risk is also assumed to be higher in Scotland than in England, as the Scottish government has shown itself to be much tougher than Westminster in its lockdown policy,” adds Marcus. “Projects under construction in Scotland lost an average of 12 weeks’ work during the initial lockdown period, and cost overruns and delays are now a serious threat north of the border.” Harry Hodell, director at Pure Structured Finance, tells me that lenders are “doubling down” on their core products and the schemes they take on—“and rightly so,” he adds. “During economic uncertainty, fluctuations in property values occur and sensible lending requires solid foundations and understanding of projects that lenders expose themselves to.” “It certainly has not been a breeze,” Anthony admits. Yet, now that confidence is starting to return, he predicts more lenders will re-enter towards the end of the year—providing the second wave doesn’t cause another national lockdown. While more options may return, Harry expects a continuing increase in due diligence.


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“It is at times like this that it pays to have a solid, long-term relationship with funders,” says Andrew. “Suddenly, the relationship, track record and trust get you halfway there, and solid business plans get you the rest of the way.” He gives me an example of this: just four days before lockdown, the PBSA specialist managed to secure a £55m development facility from Maslow Capital—“even as the rest of the world thought the sky was falling”. James Wyllie, director at Montpelier Private Finance, has seen a number of lenders tentatively returning to the

The lender will, however, be slightly more selective in terms of the locations and sponsors it is willing to support, and therefore the presentation of a developer’s funding requirements and securing help from a specialist broker during this time are critical. By having an acute knowledge of a lender’s requirements and appetite “at any given point”, Harry says Pure is able to compile and provide all the necessary information in full. “Submitting clearly presented cases allows the lender to read [it] over in a timely fashion and provide

“For securing funding, it will be more important than ever for developers to look at projects in regions where educational institutions are less affected and [there is a shortage of PBSA],” Harry adds. If planning amendments for alternative uses can be granted, then funders are likely to feel more secure in terms of the wider potential for refinance. Market sentiment dictates that leverage points have come in by circa 5-10%—and pricing is said to have increased by up to 200 bps, depending on the deal and its risk. Simply put, if a developer only

courses that involve some sort of practical element, such as medicine and engineering” market with increasingly competitive offerings. Those that remain wary of the sector are said to be the ones that haven’t historically targeted this asset class and are more easily swayed by some of the sensational headlines that have emerged over the past few months—such as the story that Cambridge University was making all lectures online only (they are in fact providing blended teaching). The current caution from the funding community hasn’t put Anthony off. “We are still very much in growth mode and are hungry for more deals across the co-living, PRS and student sectors. In that vein, we are finding vendors more amenable to doing deals in this climate.” Sky confirms that Maslow’s appetite also hasn’t changed. “We understand the sector, the right locations to be in [and] the developers to back,” he says.

absolute clarity on further requirements.” In order to fully engage potential funding partners, Montpelier effectively acts as the underwriter prior to submitting enquiries, and James says that “now, more than ever, the quality and completeness of a funding proposal is paramount.” “Lenders want to make easy decisions right now,” Sky adds. Understanding the geography, location, microlocation (which students tend to put above price), sponsor’s track record, contractor, and professional team are of the utmost importance. “So, the more boxes a broker or borrower can tick in that sense, the easier it will be to find something for their scheme.” Developers willing to put cash equity into the project and provide guarantees where necessary is also essential.

wants to borrow from one lender, they will need to put more ‘skin in the game’. However, there are other options. Over the past few years, many developers have undertaken forward funding and, while that market has slowed down, there is still some activity. Developers can also consider a joint venture with an equity source, selling the site to realise any potential gain, or—less advised—sitting tight and waiting for market conditions to improve. It is also claimed that more senior lenders are working with mezzanine finance providers to offer a funding package similar to that which a borrower might have achieved pre-Covid, with prices only considered to have risen marginally. Again, this is a trend seen during the GFC. “With so many stretched senior debt funders pausing or reviewing their lending offerings, the mezzanine lending market

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“Let’s be clear that international students not being able to arrive will impact occupancy. How much is really the question” 52 Bridging & Commercial

has really stepped up and, as a result, we are still achieving heads of terms at 90% LTC (gross),” confirms James. Therefore, if extra equity is out of the question, mezzanine finance providers can prove the difference between a development being built, or not at all. “Developers will have a certain access to equity, but if that can’t stretch far enough, then mezzanine finance providing the gap funding is the best way forward,” says Mark.

IS THE INVESTMENT MARKET DIMINISHING? I am told that mainstream lenders which exit PBSA development loans onto longerterm finance initially reacted by pausing lending on new schemes of this kind, and instead focused on existing clients and CBILS applications. Now, as they assess the new academic year’s intake, we could start to see them considering new propositions. Until then, it has put pressure on development lenders in this space. “As with all lending, the exit is a priority and, with uncertainty over the ability to refinance after completion, lenders are becoming more selective [about] which schemes they choose to fund,” explains Harry. Interestingly, even before Covid, there were other factors impacting the investment market which could continue. In the past, universities would often enter into nominations agreements (whereby they get access to accommodation for their students each year or an agreed period in return for a level of control on rents and some operational matters) allowing a developer to utilise this and gain competitive development finance to build out the scheme—which would either be followed by sale to an institution, or refinanced onto a longerterm investment loan. “We are now seeing the universities building out their own schemes and accommodation on the basis that they gain control of [these] and the long-term capital growth in these investments,” says Tom Clark, director at NapeX Finance. He explains that the brokerage has worked with universities and colleges looking to harness these assets to support their own income targets— something which could become more popular in the recessionary climate.


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Tom divulges that it’s less attractive for private developers to speculatively build out PBSA schemes without a nominations agreement or a full repairing and insuring lease. “That being said, smart operators are still building out accommodation for students, however [this is] without the C2 spec, which means that these schemes are instead C3 and are targeted to second-year students, or students who want their own private accommodation. The benefit to the developer is that you can let to all types of tenants, which arguably gives more flexibility to these investments.” Developers building out C3 schemes are said to have access to a much wider finance market, as opposed to a traditional C2 asset without a nominations agreement in place. Living in HMOs is the normal trend for second and third-year students and, with some local planning authorities having put Article 4 directions in place to control the amount of new HMO conversions—which would previously have been able to change use through permitted development rights—Tom believes it makes these units a more “credible investment” that can meet many lenders’ securitisation requirements. While the exit is currently less certain for development lenders, if they were to look at a new scheme now, the earliest it would be delivered would be 2022—after taking into account the average 15-24 months it takes to build a larger PBSA scheme. Market uncertainty and the consequential lack of funding and risk appetite of some developers is predicted to lead to a marked reduction in the number of developments being undertaken over the next two years. “We therefore believe that 2022/23 could be an excellent time to bring new products to the market, as the amount of competing supply is likely to be significantly lower than we have seen in recent years,” states Steve.

outside space are expected to feature in future PBSA development plans. “The 31 buildings we have across the UK and Europe offer unrivalled amenities and communal spaces that have all been designed so students won’t be forced to work isolated in their rooms, without lectures or the library to break up the day,” states Brian. “From a mental health and wellness point of view, these inhouse amenities are highly attractive.” Nido Student has increased the frequency of thorough daily and weekend cleaning (including all high footfall areas and highcontact surfaces), made all of its events virtual until further notice, implemented social distancing procedures for common areas, ensured PPE is worn by all staff and installed perspex screens where appropriate, and offered all students access to help with their mental and physical wellbeing. “These students are our responsibility during their time at their Nido Student home and we’re committed to doing absolutely everything to ensure their safety and wellbeing.” Future Generation has responded to the pandemic by adapting all of its room layouts to offer more open living space. “We have also changed all our air conditioning units to those with more effective filters, and taken steps to ensure that air from one room is not circulated in [others] within the building,” adds Andrew. I am told that, previously, clusters were generally more desirable than studios, due to the opportunity to enhance the investment value. “Put simply, you could squeeze in more beds,” explains James. However, studios could now become the preferable option. In addition, the typical clientele is said to be more inclined to remain a resident for the duration of their course in that studio.

MORE COLLABORATION— AND A BETTER OUTCOME FOR STUDENTS One thing that would be extremely positive to see is better alliances between developers, operators and universities to ensure that the ongoing expansion of new PBSA stock is suitable for students and the areas they are built in—something which has been contested by local communities over the years. Ian tells me that they have been hosting online forums for PBSA operators and landlords to ensure that there is consistency in approaches within the local area. He admits that, in the past, there hasn’t been enough dialogue between stakeholders, which is why you see the over-development of properties— particularly in big cities—“because you’ve got five or six developers and two or three universities who have not spoken with one another”. As an example, he explains that Staffordshire University has a significant number of commuting and mature students compared to Keel University (located just down the road). “…If you don’t do your homework, and really think through who the demographic is or how it’s shifted over the last three to four years, then, yes, you run the risk of a bit of a business issue down the line.”

“Developers would be remiss not to factor

Positively, he believes that conversations have improved as a result of the crisis. “…It’s helpful, because we can talk very openly about what our strategic plans are for the future, and whether their aspirations to build 500 rooms with bedsits, or whatever it might be, could be significantly hampered based upon what we’re going to be doing.”

I have seen partially built schemes repurposed into communal living and hotel projects, with varying levels of success.” Even so, this requires buy in from the planning department, and it is said that this can become an issue when the funder does not support other asset classes.

Moving away from the structural element of PBSA development, communication can also aid progress within student culture and behaviour—information incredibly useful for the longevity of schemes. His advice for developers is to actually spend time at the university. “Don’t just come and have a meeting in a boardroom; come and understand what the market is,” he urges.

HOW PBSA DEVELOPMENTS versatile design into their schemes, with consideration towards repurposing,” says ARE CHANGING AS A Rob. “In response to market demand, RESULT OF COVID-19 While Covid-specific measures—such as restricted capacity in communal areas and dedicated sanitisation points— might be temporary, if there isn’t a significant recovery in the next 12 months, changes such as larger flow spaces, enhanced air circulation and more

Overall, providing a safe environment and fast WiFi are set to be high on the priority lists for student accommodation.

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Setting student accommodation apart will be evermore essential going forward, and this can be done through how they cater to residents in terms of socialising and wellbeing. “…If the student is struggling with social anxiety or doesn’t have a sense of belonging or community, they will leave the accommodation,” Ian states. He explains that the majority of callouts last year within its housing were related to risky situations, mental health issues, or students feeling isolated or disconnected. During a pandemic, this is likely to only intensify. He compares a PBSA scheme with amenities like a gym and cinema room to showing prospectors around campus on a beautiful day. “All those things are important but, if you really want to be successful, I think it is [increasingly vital to] focus on the individual.” “…We have a relationship with a provider and have 150 beds there and, routinely, what makes the students feedback positively and stay, is that there are three or four staff there that invest the time to have a really positive relationship with students.” He believes that student support within PBSA is an area that is “too often missed” because it looks like an upfront cost, or the cherry on top of the cake—“whereas, actually, I think it’s the foundation of how the building’s meant to work.”

IS PBSA STILL AN INVESTMENT GOLDEN GOOSE? While the rate of growth for the PBSA market in 2020 is yet unknown (although from conversations I have had it seems likely to be relatively flat or slightly contracted, and not as catastrophic as envisaged earlier in the year), I am reminded that the inflation-linked student accommodation market has been a resilient asset class over the past 10 years. It has prospered in spite of a global financial crisis, the trebling of tuition fees, a decline in 18-year-olds—and now a pandemic. “If the economic situation worsens, we are confident that the PBSA sector’s counter-cyclical nature will serve us well,” says Andrew. “In the last recession, the university sector expanded, so

PBSA should outperform other asset classes, even in that scenario.”

attendance will continue to be sought after by students, home and abroad.”

Fortunately, valuers are not applying any changes to rental yields on student accommodation blocks, according to Sky. “The one quirk I have heard is that some valuers are not including rental growth in their appraisals.” Typically, a valuer will index rent upward by inflation annually, but may now assume that rents are flatter for a longer period of time, which could result in a downward marginal change. Nevertheless, Sky says there has been no “fundamental shift” in terms of values on PBSA schemes compared to pre Covid-19 expectations. In addition, the material uncertainty clause for institutional-grade student housing (which is professionally managed) was deemed no longer appropriate as far back as July, showing confidence from RICS in valuing this type of asset.

In September, almost 700,000 people had left UK payrolls since March, and many of them were young, which means more people are likely to look to upskill and go to university. “I think what you’re going to see is people being slightly pickier about where they’re willing to go to university. So, in that sense, as a lender, we just want to make sure that we’re backing universities that are on an upward trajectory in terms of their reputation,” mentions Sky. In a nutshell, the opportunity could be near top-tier universities, such as Oxford, Cambridge, LSE, Bristol, Bath, York and Edinburgh, in addition to locations where there hasn’t been a huge amount of supply in recent years.

While Pure is still seeing new PBSA schemes, Harry admits the level of enquiries from developers has dropped due to the cumulative effects of the crisis. Sky, on the other hand, says enquiries have been “relatively steady” at Maslow—possibly a result of having fewer lenders in the space, and not wholly representative of overall demand. “There are definitely less developments overall being progressed at present, but many of those that are progressing are speaking to us and our direct competitors (given the banks’ appetite for development finance has slowed down significantly), so we are seeing a good number of opportunities,” adds Steve. James is also seeing a healthy level of enquiries—if not more. “Despite the media attention [around] the impact of Covid, this asset class is actually resistant to normal macroeconomic factors because demand is supported by the reputation of the UK higher education sector and not the economy,” James dissects. “Fundamentally, I don’t see the student accommodation market being in a permanent state of uncertainty,” Harry says. “Eventually, over the coming years, one might expect to see an increase [in] lending in the PBSA market as normal travel resumes, especially for the universities which top table rankings, where physical 54

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There is also a good opportunity for modular construction—which is still largely untapped by developers—to become more widely adopted in this space, with manufacturers less curtailed by Covid-19 restrictions. “There can be a reduction in costs for developers through time savings and reduced snagging,” says James. By way of having the majority of the build constructed off site in a controlled environment, there is far less risk to a timely practical completion. While there are some lenders that support this form of construction, he believes there remains a “long way to go” before there is full market acceptance. Overall, it seems that the prominent experts in this arena are here to stay and believe in PBSA’s adaptability. “I remain bullish [about] the sector as a whole for the foreseeable future,” Mark confirms optimistically. Brian agrees, expecting that the PBSA market will not only stay strong during this crisis, but will “thrive in its aftermath”. Due to the increased safety, convenience and security of these highspec developments, students and parents alike are expected to value them over traditional university halls or HMOs. “…The opportunity for investors, developers and operators still remains huge, but we must—as a sector—keep confident in our assets and offering.”


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mitigate

What are you doing to


Words by

caron schreuder

operational risk? We got together with Hampton Mortgage Servicing (HMS) heads Daniel Maycock and Daryl Gorham, to produce a guide to loan servicing in bridging and look at why this third-party option, aimed at bolstering lenders’ infrastructures and streamlining operations, deserves a closer look


Explained

WHAT ARE THE VARIOUS ROLES WITHIN A LOAN SERVICING TEAM?

WHY IS BRIDGING NOW SEEN AS A PARTICULAR AREA OF OPPORTUNITY FOR THIS TYPE OF SERVICE?

The role of an outsourced servicer is to ensure the smooth running of customer management and back-office operations following the completion of a loan. Within servicing, the functions can broadly be divided into three distinct teams:

primary servicing: this covers day-to-day operations, dealing with customer enquiries or communications, processing interest payments (depending on the type of loan) and redemptions. Essentially, these are administrative roles that are business critical and fundamental to the success of the routine management of the company special servicing: liaising with borrowers to work out delinquent loans and arrears management. Typically, this is where loan servicers can add significant value to lenders by utilising their experience and expertise to achieve the best outcome and possible performance of the loans loan administration: this includes tasks such as statement production (including redemption documentation) and updating customer details.

The loan admin team also ensures the validity of the data put into HMS’ proprietary portfolio analytics platform. This tool produces in-depth data visualisation to lenders’ funding partners and is an area that is receiving increasing interest as funders are eager to consume data to manage their risk exposures.

HMS was launched in 2014 to provide servicing for other types of specialist loans, and the bridging business grew organically from client referrals. Although it does already work with a handful of bridging providers, it is an area that HMS has only recently started to actively look at, because of the sector’s maturing infrastructure requirements. The decision to specifically focus on bridging at present stems from the view that the market is reaching an inflection point in its development, as institutional investors enter the sector. With the base rate at an historic low and other more mature real estate credit markets having a glut of credit available, distorting valuations, bridging offers near double-digit yields. As more move in to the ‘safer’ end of private debt, the market becomes more competitive and yields Most lenders are likely to mention a servicer’s involvement decrease, meaning that those with the management of the loan—which begins once it investors seeking higher returns has been underwritten and funds released—at an early with a higher risk tolerance will stage. At this point, compliance checks are undertaken to naturally begin to move into ensure that the lender has completed all relevant AML/ riskier markets, such as bridging. KYC requirements and that the associated documents are While the returns could be very completed. Following that, HMS works with the lender to attractive, institutional investors obtain client information, utilising technology to reduce will naturally have concerns any potential margin for error, before setting them up in around credit risk, but operational its loan management system. Welcome letters are then risk also represents a key hurdle issued to clients to confirm that it is the lender’s approved to overcome prior to deploying servicer and, depending on what level of service has capital for those who are been agreed, sets out the process for collecting interest naturally risk averse. What HMS payments, redemptions, and document requests. has observed in discussions with various market participants (both direct potential clients, as well as many of their advisers) is that, as an industry, much of the loan servicing done by smaller lenders is extremely manual and, in many cases, run on Excel spreadsheets—with little in the way of oversight and implementation of controls, policies and procedures. Establishing a sound operational framework can act as a distinguishing factor between competing lenders and prove attractive to prospective funders. A system like HMS’ can provide the comfort that controls and procedures are in place and being followed, mitigating risk for investors who have full visibility of this through comprehensive and transparent reports.

WHAT HAPPENS AND WHEN

58 Bridging & Commercial


Explained

INCREASING TRANSPARENCY FOR FUNDERS HMS’ administration system gives funders the ability to understand the composition of the lender’s loan portfolio and review key underlying metrics in a dynamic dashboard format. This additional transparency of data means that funders are able to better manage their risk and compliance exposures but, equally, bridging lenders are able to demonstrate the quality of their deal origination and underwriting processes to secure further credit. Exposure+, an analytics platform that overlays the core version, is based on the latest SaaS technology and is fully customisable to meet the needs of lenders. Along with the standard set of reports that a lender would want to see The purpose of a loan servicer is to remove as much (exposures by geography, sector etc), it operational burden as possible from the lender, allowing has the ability to cater to lenders with them to focus on their primary business objectives. One multiple funding lines whose books way in which servicing demonstrates its value is when can be analysed in different ways and it comes to receivership and debt collection, aspects reported upwards. that can either be white-labelled or fully outsourced. By efficiently pre-packing evidence ahead of possession orders, utilising existing relationships and preferential rates with legal firms, and dealing with the borrowers directly, distance is created between lender and client— and reputational damage can be limited. Proactivity in this area has undoubtedly assisted during the past few months, as servicers are often aware of problems and can address them with the lender before they come to a head, resulting in forbearance. HMS adopts a partnership approach to borrower management, ensuring that it extends the same due care and attention that the borrower would experience if dealing with the lender directly. During the onboarding process with new lenders, it spends a lot of time with the principals to really understand the company’s culture and embed this within its own standards and best practices for managing customer relationships. This exercise is key to really understanding the lender’s client base and thresholds of tolerance when loans go into default and capital balances are at risk. HMS believes that its experienced specialist debt collections team has consistently demonstrated its ability to improve the performance of delinquent loan books on behalf of lenders.

INTERSECTION WITH PROPERTY RECEIVERSHIP

59 Sept/Oct 2020


Explained

THE UPSIDES Whether in the pre-launch phase or early stages of development, the choice for any aspiring lender is whether to keep servicing operations in-house or to outsource. In the mainstream lending markets, it doesn’t necessarily make sense to outsource operations, given the sheer volume of business lines and system integrations required. However, in the world of specialist lending, and bridging in particular, it adds value. Regardless of size and the length of time the business has been operating, lenders working with HMS, for example, benefit from institutional-grade infrastructure: sophisticated proprietary loan management systems, an experienced team with specialist knowledge, and Traditionally, outsourcing servicing in the bridging space robust compliance policies and procedures from an FCAcould have been seen as only applicable to the select regulated servicer. few lenders with sizeable balance sheets to withstand In addition, there is support for when lenders want to the associated cost of going through the exercise. This scale up, with resources deployed accordingly to ensure was possibly connected to significant consolidation maximum efficiency. Perhaps most importantly, it is said to about a decade ago—owing to changes in regulation be much more cost efficient when compared to building and technology—that left only a handful of very large an in-house servicing function. outsourcing players who were deemed unsuitable for SME It is HMS’ opinion that bridging lenders should focus on lenders. what they’re good at: originating and executing bridging HMS wants to turn that model on its head and is loan transactions, and that their recruitment should reflect intentionally looking to partner with lenders at the early those priorities. Hiring support staff, such as experienced stage of their development cycle, or those that have been loan administrators and case managers, means that those running for some time but are now ready to take the next salaries are fixed balance-sheet costs. That, coupled with step and begin to attract institutional levels of capital. It the prospect of further recruitment as the business grows believes that this segment is chronically underserved by and significant investment in the incumbent outsourcers; many software, makes it start to look lenders it has spoken to have like a model that is difficult for a never considered outsourcing as nascent lender to sustain. Through a possibility for loan books of less a servicer, a lean approach can be than £100m in size. followed, combining experience, HMS considers that ‘old school lenders’—those with a regulation, systems, and staffing handful of established client/broker relationships and for a single cost. a small team of experienced senior professionals who are very comfortable without having a major growth trajectory—may not seek out the help of a loan servicer. Most bridging lenders HMS has engaged with thus far have a strong desire to grow their loan book and partner with a provider that is flexible as the business scales and increases in sophistication, providing support through the various stages of its lifecycle.

MAINSTREAM POSSIBILITIES

FOR WHOM WILL THIS NOT WORK?

60 Bridging & Commercial


Explained

THE ‘CREEP’ OF REGULATION Working with a regulated specialist servicer works towards future-proofing a lender against the inevitable regulatory scrutiny that is widely considered to be on the horizon. In bridging, you have the somewhat unusual setup in which some loans are caught under current consumer credit regulations, while others are not. In addition, there is the unfortunate negativity surrounding unregulated lending businesses in the mini-bond and P2P markets, further piquing the FCA’s interest in the sector. Whether a lender offers regulated and/or unregulated loans has no impact on the way In many cases, the pandemic has presented businesses HMS services them; it is duty-bound to ensure with the opportunity to take stock and assess their models that it applies the same standards of servicing, in order to become more efficient wherever possible. and having these in place can prove to be a Reports of record lending may also spur lenders on to significant value-add for unregulated lenders consider third-party providers. when speaking to prospective funders. HMS believes that, with the extensive nature of the As a broker, a significant amount of comfort can initiatives introduced by the government, it’s very possible be gained from knowing that an FCA-regulated that we are yet to see the true recessionary impact of entity is involved in their client’s processing, Covid-19 and, where lenders have been flexible and ensuring compliance and acting as a third party patient with borrowers during these unprecedented times, in a governance capacity. there will come a moment when this forbearance will end. The skill and experience of a regulated, established servicing partner will yield significant benefits to lenders in generating results on delinquent loans.

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Explained

P

rime central London real estate has always had a certain cachet, and the influx of wealthy overseas buyers over the past two decades has taken that aura of exclusivity to new levels. That lure hasn’t dimmed because of Covid—if anything, demand for the most prestigious addresses has increased, with hedge funds and other speculators snapping up some star buys. But HNWIs from Russia, the Middle East and the Far East often can’t move funds out of their countries quickly, making bridging essential. With many of the mainstream bridging lenders currently cautious about taking on highvalue single assets, family offices funded by UHNWIs are helping to fill the funding gap at the higher end of the market. At the lower end of the prime market—those fashionable addresses that aren’t quite Belgravia or Mayfair—pricing has softened over the past few years due to the introduction of capital gains tax for nondoms in 2015, the three-year logjam over Brexit, and the announcement in this year’s Budget of a 2% stamp duty surcharge for overseas buyers from April 2021. All the brokers and lenders we talked to reported a flying start to the year in January and February, with the election of a strong government and the supposed ending of the Brexit stalemate. However, the lockdown in March caused many bridging

WHY FAMILY OFFICES ARE FILLING THE SUPER PRIME SPACE Words by

richard reed

64

Bridging & Commercial


Explained

lenders to be reassess their risk and “take a collective pause for breath”, according to one broker. In general, we saw LTVs drop and pricing go up, with underwriting taking on even more significance than usual. Since, leverage has started to return to some normality. But, have bridging lenders returned to the higher end of the market, an area which spells opportunity? “With stock markets a bit crazy at the moment, commercial real estate empty, retail dying, [and] hotels [and] student accommodation suffering a lot, residential remains a core part of a lot of HNW portfolios. There is a strong demand for high-value properties in good schemes or nicely finished properties because this is what will survive any crisis—a good level of finish at a good address,” says David Hodara, associate at lender Brydg Capital. Hugh Wade-Jones, founder of specialist broker Enness, specialises in sourcing finance for properties in both the prime and super prime sectors. “Historically there have been a few pools of money you could dip into,” he says. “You have the standard [branded] bridging lenders—they do a lot of mass market bridging. “But, increasingly, the market has become less liquid, particularly at the top end. A lot of those more standard lenders have become nervous to get involved in true trophy asset stuff, properties of

£15m-20m-plus. Regardless of their ability to fund it, it’s simply the nervousness of being stuck with such a large asset. Three to four years ago, these types of assets were still relatively liquid.” Enness sources funding for of these types of transactions— especially post-Covid— through UHNWIs or their family offices. “Firstly, they have the firepower to lend on these assets, [and], secondly, there is less nervousness around what happens if they end up holding the asset at the end of it all,” he explains. “Typically, they will be assets they understand, probably comparable to what they would own themselves already, and it would be more a personal decision to lend rather than a corporate ‘does it tick enough boxes’ type of situation. “Increasingly, those kinds of institutions can provide flexibility in terms of how they structure a deal to make it happen. Sometimes, if, for whatever reason, the asset alone doesn’t sit well enough, they are able to take a view on other global assets [the client has], whereas sometimes a branded UK lender can only look at the house in Knightsbridge in isolation.” Hugh says that some bridging lenders will work with cofunders such as HNWIs who come in on a deal-by-deal basis. He adds that capital is also coming from private equity houses or US hedge funds. “At the moment, we see those US

Increasingly, the market has become less liquid, particularly at the top end. A lot of those more standard lenders have become nervous to get involved in true trophy asset stuff

hedge funds as considerably more aggressive than some of the UK lenders we are dealing with. Typically, on big ticket stuff, UK lenders will probably cap out at about 50-55% LTV now, whereas these guys will push to 65% or 70% LTV if they know and like the asset.” Pricing is said to vary from 7.5% to 12%. Despite Covid, Hugh says there is still huge demand for super-prime property in London and has seen no dramatic drop in interest. “The blinkers have come off and everyone is back to the races and there doesn’t seem to have been much impact on house prices at the top end thus far. For investment class property, there is always going to be a buyer; these properties have seen such a colossal uptick in the last decade or two.” Andrew Robinson, CEO at broker Arc & Co, says the super-prime market is “quite buoyant” at the moment, though in the early days of the crisis, the market definitely slowed. “People fly to stabilised assets in volatile times,” he points out. “A lot of HNW family offices will look to store money in bricks and mortar because they have got to put [it] somewhere. The normal route is high-end property. “On the other side of that, the international side, is currencies. HNWs are usually in US dollars, so the dollar being very strong against sterling is a very attractive time for them to [put] cash into those assets … the other

65 Sept/Oct 2020


Explained

thing is … you can’t just [invest] with one bank, and if you put it in a European bank you are on negative base rates, so you are losing money.” Andrew agrees that most of the money for bridging in high-end prime and superprime is coming from family offices. “Not only do they ‘get’ that asset class, but they are more adaptable than institutions. Bridging lenders that have credit lines from family offices that are non-institutionallylinked have actually gained an advantage in this market.” He says LTVs are down, but coming back up slowly, while pricing has hardened by about 0.15%. Terms have lengthened, both due to concerns over Covid and Brexit. “Lenders are looking at it and thinking, ‘We could have a second outbreak, we’ve got Brexit coming up, let’s buy ourselves more time. Why would [we] want a loan maturing at those times? Instead of doing the six months or four, I’m going to do a 12-month deal because I want to make sure [it] goes through.’” He says that wealthy foreign buyers often look for bridging finance because their money is tied up, in addition to national restrictions on large sums of cash being moved quickly. It’s a theme echoed by Ronak Ruparell, co-founder of Bridge Invest, a specialist lender that sources its funds through HNWIs and family offices, and was consequently able to continue lending without

pause during lockdown. He says that stricter tax rules about bringing money into the UK, and caps on the amount you can take out of some countries, have made bridging a necessity. “Overseas buyers is where we see all our prime loans,” he explains. “A lot of them use private banks out of Asia, Middle East, [and] offshore

complete. The developers gave him some leeway but he needed a bridging loan to give him [time] to get his money out of Dubai into the UK.” Ronak agrees with Hugh that family offices have been less concerned about lending during the crisis because they don’t have the same issues about being left with a costly asset on their hands in

Not only do they ‘get’ that asset class, but they are more adaptable than institutions. Bridging lenders that have credit lines from family offices that are non-institutionallylinked have actually gained an advantage in this market

like Mauritius [and] Jersey, so for them to buy something in cash is possible but takes a lot longer.” He gives the example of a loan the firm is currently looking at on a property in a new development in Regent’s Park. “The borrower exchanged a year ago, Covid hit, and he wasn’t able to

the event of default. While a conventional lender would consider it a liability, a family office would see it as an asset within its property portfolio. Bridge Invest actually saw a rise in demand in prime London during the lockdown from buyers who had transactions lined up with other lenders, but who were

66 Bridging & Commercial

let down when offers were withdrawn. Pricing increased immediately afterwards, but has now normalised as other lenders return to the fray. Prime central London values have been little affected by the pandemic, says Ronak. “After lockdown eased, we found transactions came back quite sharply. A lot of that was a backlog from February and March, but also a lot of foreign buyers saw an opportunity with the pound around the mid $1.20s, and the market softening, and thought they could come in and get a discount.” He describes an initial lack of activity but, once people decided to offload their properties, buyers have had access to 5-10% off the price. David believes there has been a rise in interest because banks have either stopped lending altogether or been much more measured about taking on risk. “People looking to close the deal quite fast were looking for regulated bridging, or unregulated for BTLs, because banks were taking too long to provide their financing.” He says that prices have softened by as much as 20% at the lower end of the prime central London market, with Covid restricting the ability of foreign buyers to fly in to view properties. “I would say, at the moment, all buyers are looking for good opportunities, as current owners could be affected by Covid-19 and looking to sell at a discount. That’s why they come to us because we can act fast and complete in two to


Explained

three weeks. That’s primordial if you find a good deal, to be able to have the financial partner that can finance you within a short time frame, because those deals don’t last for long.” He says that lending criteria haven’t changed much, with LTVs at 50-60% and pricing at 8-10%, sometimes 11%. Steven Oliver, chief operating officer at Peritus Corporate Finance, says one of the biggest challenges lenders have faced is the restriction on valuations, with some re-assessing their position in the bridging space. “Several bridgers have taken either a pause for breath or have downsized where they [want] to be in the marketplace. Instead of having lots of big exposures, they might be having lower levels of exposure or lower facilities.” He adds: “If you’re going to tip your toe back in the water, you’re going to do it with a degree of caution.” In the current climate, mainstream lenders don’t want the risk of having large single assets on their books. “There are probably a small number of lenders who are comfortable with those assets,” he says. “It’s a much, much harder proposition, and where they do, their valuation methodology would probably be based on either a 30- or 90day sale period, so you’ve got a restricted valuation. “There are some specialist lenders out there who like the super-prime market and they might be slightly more aggressive because they have a

better feel for it, but also they might be thinking, ‘If this goes wrong, I can acquire something off a distressed valuation; the worst-case scenario is I own a really nice house’.” Andy Pelley, director at The Loan Partnership, states that, at the start of the Covid crisis, some bridging lenders stopped taking on new prime business, depending on how they were funded. “I think it’s fair to say that lenders, as they have to be in that space, were being particularly careful about the situation, because if you are lending on a 12-month bridge, at the start of this— March, April, May—no-one really knew what was going to happen and how long it was going to go on for.” Meanwhile, Adam Brand, head of sales and operations at Life Financial Solutions, believes that there was a lot of uncertainty during lockdown. “Clearly there was a lot of caution around, naturally, and you either had lenders not lending, certainly in the bridging space, or you had lenders stopping lending completely. “From the conversations I’m having at the moment, the £1.5m-2m mortgage valuations, where people are borrowing £800,000, £900,000, £1m, it’s quite buoyant … and obviously stamp duty has had an impact on that.” He adds that some private banks are keen to lend where some retail banks aren’t and has also seen interest from

Several bridgers have taken either a pause for breath or have downsized where they [want] to be in the marketplace

family offices. “We have had some discussion with some family office lenders and their main thought is, ‘We are dealing with a property here that we like and that is our interest’, almost to the point where the borrower is of second interest; the asset is the key factor here.” Adam confirms that mainstream bridging lenders are less keen where properties go over the £3m mark, with LTVs restricted to 60-65% and pricing at maybe 0.75%, though below that loan size, the availability of finance is returning to levels seen at the start of the year. A Covid second wave notwithstanding, the bridging market is returning to normal. But if brokers need to finance anything north of £3m, it’s probably best to talk to experienced brokers who can source at least some of the required finance from family offices, as they appear to be approaching this market with more of an open mind.

67 Sept/Oct 2020



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Interview

Jonathan Words by

beth fisher


Interview

Michael

in conversation


A

t the beginning of this year, we were keen to discuss the differences between the northern and southern bridging markets and how the expansion of regional lending in recent years has blurred these geographical lines. Now that working from home has been proven on a grand scale, we question whether it’s easier for lenders to confidently enter areas further afield, with the talent pool much more accessible and regional offices potentially no longer needed. This is why we decided to speak with the founders of two bridging lenders situated at opposite ends of the country: Jonathan Sealey, CEO at Liverpool-based Hope Capital, and Mike Strange, managing director at London-born Funding 365. After originally planning to meet in person back in March, we finally get to sit down in early September—albeit still over Zoom. Having launched their companies within a couple of years of each other, they have both grown nationally over a similar stretch of the market’s evolution. In 2020, the agility that both lenders benefit from has meant they have been able to continue their growth trajectories amid a global pandemic, boasting record figures in terms of loans and broker enquiries. Jonathan—who originally qualified as a chartered surveyor before launching Hope Capital in 2011—is extremely vocal on how a lender’s people are its biggest USP.While others have reduced in size, Hope has recently made several hires and is not looking to stop, having recently introduced an apprenticeship scheme to help boost the number of skilled workers in our market. Mike, whose background is in investment banking and funding lenders, started his business in early 2013. His conservative ideology over the years has paid dividends during the crisis and has meant that Funding 365 has been in a good position to continue lending and even enter a new market. Despite his cautious approach, he doesn’t necessarily think it’s a bad time to take some risk—as long as you’re backing the right people and projects. Jonathan and Mike agree on a lot, including treating every broker the same, especially when it comes to commission fees. They categorically do not believe in exclusive distribution panels and consider it positive news that the landscape is shifting away from this, even if it is slowly. The last time I saw the pair was at our annual Director’s Lunch in late February—when everyone was talking about coronavirus and how unlikely it was to be a ‘thing’, and they joke how obtuse that was. Now, seven months later, we discuss a very different market, including how PDR is expected to save the bridging sector for a second time; why brokers may not have had access to a full market until now; and why Dwayne ‘The Rock’ Johnson is Mike’s biggest inspiration.


Interview

Jonathan Sealey: It was a bit of a different route into the industry for me. Prior to starting Hope Capital in 2011, I was a qualified chartered surveyor in planning and development, but wasn’t actually in property at the time—I was working with my dad at his venture capital firm in Manchester. So, I’d left a job in property development in 2009 after the crash, and always wanted to go back into property at some point … but it was only after speaking to a solicitor friend of mine that I found there was a real need for bridging finance. He’d been let down by a mainstream lender on a property deal that needed quick funds to complete—it fell away. He actually said, ‘We need a good bridging finance company, do you know any?’ And, at that moment in time, I didn’t, so I did my own research and looked into the bridging market as a whole over the next six months, formulated a business plan, and then Hope Capital was born from there. We initially started funding deals through family [money] from a very small office with just me, a phone, a desk, and a chair. I think I sent our very first e-shot through Bridging & Commercial, actually, which, looking back, was very amateur-looking, but it did the job and the phone started ringing. I think about three or four months later, our first deal was done—a £60,000 mixed-use property in East Yorkshire. We went over there, saw the property, met the borrower, and we grew very organically over the next nine years to the team and infrastructure that we have today. Mike Strange: Mine was a little bit different; I was in investment banking. We funded and financed lenders, so a lot of mortgage companies, but also credit card lenders, auto loan providers— any industry where there was lending involved, you had an investment bank in the background doing the structuring and the financing. I spent a lot of my life walking around doing due diligence on lenders and going through their underwriting and fraud teams and collection departments—and you get a pretty good sense of all of that. Like Jonathan, after the crash, I wanted to do my own thing, and I set up a company and we started doing unsecured corporate lending and invoice financing. And the brokers that we were dealing with, they gave me some secured bridging deals. I didn’t know it was even called bridging at the time… The returns were great and you were secured … I mean, I was probably hopelessly naïve compared to today, but you have

to start somewhere. We did a host of bridging deals, which worked well, and so I teamed up with my current business partners at Funding 365. They were guys I knew from investment banking—in securitisation—through the years, and we set up Funding 365 to expand on what I’d been doing in my other company, and we left everything else behind and just focused 100% on bridging. And, like Jonathan, it started small and we’ve grown over the years, and you want to keep doing that. So, it’s a similar history, but just from a different starting point. Beth Fisher: How have your thoughts and opinions on the bridging industry changed since those starting points? MS: I mean, clearly, it’s chalk and cheese compared to where we were. It’s so professional these days, compared to 2012 when I started in the industry, or 2013 when Funding 365 got set up. I mean, the interest rates available these days are probably half of what they were as standard. Service levels are so much higher. The lawyers are much more educated as well, and I think brokers obviously are too—they see bridging as a proper tool to have in their toolbox. Any broker worth their salt these days knows about bridging and development products, and it’s become really mainstream. JS: I 100% agree. I’ll be honest, I think professionalism in the industry has grown since we started in 2011. The fact is, it’s probably more of a sophisticated financial product now. With the lower rates and the better service, I 100% agree with you—it’s chalk and cheese from where we were 10 years ago. I think it’s a marketplace which is continually growing, not in size, but also in… What’s the word I’m looking for? [everyone silently ponders]. It’s just a proper financial product now, isn’t it? It’s not seen as the black sheep of the finance family. It’s evolved into something much better and bigger. BF: When you both started, I think there were two quite clear markets in the UK. Obviously, the London, or Southernbased bridging lending space, and then you had quite a big bridging contingent in Manchester and the North West. How have these markets evolved over the past 10 years or so, in terms of offering, competition, reputation and size?

JS: In terms of reputation, I think myths have been [busted] in terms of northern lenders only lending in the North, or locally, for example. Obviously, we’ve lent all the way across mainland UK—England, Scotland and Wales. We’ve always been proud to be a northern lender but, at the same time, we’ve always pushed and been very vocal about the fact that we do lend all over mainland UK. I think our loan book currently stands at about 58% south of Birmingham, and that’s for both figures—pounds and number of deals. But, for me, I do see lenders in the North happier to lend across the whole of the UK, however I think southern lenders probably have a little bit more of a focus on the South. Maybe Mike can debunk that one? MS: I mean, certainly. Just because of the property values in the South, you end up with a lot of your book there—even you guys, I imagine, have a pretty high proportion of your book in the South East, because one terraced house in London can be £1.5m—just to get started. We got set up in London because that’s where we lived. We also offer across all of England and Wales, and I don’t know that we’ve ever internally had a North-South divide. Regional lenders—if that’s the right description—like Jonathan, for example, up in Liverpool, [are] going to have a massive advantage on any deal in Liverpool over us, because he knows the area better than we do.This probably just allows him to be more aggressive on certain deals because he knows the area, or maybe knows the builder, or that a site’s been earmarked for decades for a project like this that’s going to work well. We would just not know that. So, he’s going to win that deal over us. But … that doesn’t mean he wins 100% of the deals in Liverpool, because for lots of them, you don’t really need that knowledge, if it’s for a very generic terraced house that any valuer worth their salt is going to get right. I think you do have an advantage being regional, but it’s not the be all and end all these days. JS: There are certainly other lenders though, aren’t there, that don’t really like the North. BF: Why do you think that would be the case? Is it a lack of knowledge? MS: It could be. And certainly one of our institutional funders … they don’t restrict us in any capacity at all—they’re

73 Sept/Oct 2020


great—but they do focus on liquidity, and the one thing that you have in London is you will sell a property at the right price. Whereas their concern is if a property’s worth £300,000, but it’s in the middle of Yorkshire, the next bid for that might be £150,000. So, it’s not like the price is going to fall 5%—it might fall 50% if you’re having to sell it quickly. So, that, I think is maybe why some people are a little nervous outside London—certainly major conurbations, rather than outside of the South East… BF: We have seen a big rise in regional lending and expansion for bridging lenders across the UK—do you think that this will continue? With the emergence of the pandemic and people being able to work from home and therefore based anywhere, do you think that regional lenders will still have a USP?

In convo

JS: [thinking] What’s the biggest USP any lender has? It’s probably the people within the company … I don’t think there’s any [difference in offering] between a northern and southern lender, personally. The talent pool is probably bigger in London, but I would have said that maybe six months ago. That could have, potentially, completely changed now as remote working has increased with some firms working solely from home. But, if you recruit the right people with the right attitude and they believe in the company, it’s ethos, and the journey, then I don’t believe you can go far wrong. We’ve got a very low turnover of staff for that exact reason. It’s all about finding the right people for the right role and, yes, we are looking to further recruit going forward, it’s always been part of our growth strategy for 2020 … I think the USP of any lender or company is the people that they work with and employ. MS: Yes. BF: Before, a lot of lenders might have opened an office to lend more in Wales or Northern Ireland or Manchester or wherever, and they would have hired some BDMs to work in that office. Now, do you think that they would just hire people based on skills from across the UK, but wouldn’t necessarily need to open an office? JS: I don’t think you need an office. I think that’s one thing that’s come [about] since March, since lockdown. I think you probably don’t need regional offices. I think you need a head office. We’ve got our head office here [gestures around him,


Interview

at his Liverpool base] and, thankfully, it’s out of town. We’ve got big open space here that everyone’s able to work socially distanced, with screens and everything else that goes with it. We’ve got car parking for everyone, so nobody needs to take public transport. I think that’s one plus that northern lenders will have—if they’re not in a city centre, they’re able to do what we can do now. If you’re in the city centre—Manchester, Liverpool, London, certainly, that’s very different. MS: Yes, I agree with Jonathan. Ultimately, your people are your asset. For example, some of our underwriters—one’s from Birmingham, one’s from Essex, one’s from Sheffield— they know each area really well … that does give you a little bit of an advantage in that area, for the marginal deals. As Jonathan says, maybe you don’t need a Welsh office, but if you have a few Welsh BDMs or underwriters who know that area, it puts you at a bit of an advantage, for sure. But I think we’re talking around the margins. I don’t think it’s such a fundamental advantage that it puts you head and shoulders above the other lenders. It just allows you to be a little bit more aggressive, potentially, on the odd deal that comes in. I don’t think it’s going to transform your business, fundamentally. BF: Moving on to what both of your businesses have done throughout lockdown—how have they been able to adapt now that we’re in this uncharted territory? And what were the main obstacles and challenges you faced and overcame? MS: I think anyone would be lying if they didn’t say it was pretty scary at the start of all of this. Early in the crisis, we survived, adapted and thrived, quite honestly, because we started off from a pretty well capitalised position with very supportive funding partners and a very strong loan book. As you guys probably both know, we’ve been fairly conservative through the years, and I’ve always been a little bit worried about a market crash coming from somewhere. And you never know where it could come from. Even in the last crash, everyone in hindsight could say it was obvious it was coming but, at the time, nobody saw it coming. Nobody saw the hurricane coming in 1987, and no one saw the Japanese earthquake that took down Barings Bank. You just never know. JS: Yes.

MS: So, we’ve always been a little bit conservative, with that in mind. At the start of the crisis, the first thing was to talk to our customers and see if any of them had any issues. Because, at the end of the day, if building sites are shut down or development projects are shut, these guys are going to need more time. It’s just as simple as that. It’s not their fault, but it is a problem that needs to be fixed. So, pretty quickly, we went through all of our customers. We worked with those guys that needed an extension to de-risk us a bit and give them the time, or money, that they needed to finish off what they had to do. So, the first month of the crisis and the lockdown was pretty frenetic. It was a worrying time, there’s no two ways about it. But, at the end of that month, I think we sat back and were pleased with where we ended up. Our book wasn’t particularly risky at that point—given what our customers did and the way [it] was underwritten initially—and that allowed us to take a deep breath and frankly just go about the development plans we had lined up anyway. We’ve launched a light development product to take our first step into that market— and that’s one step in a larger move into full-scale development funding. We had the capital [and] the funding partners to support that, so we’ve just pushed ahead with the plans that we already had in place. In any crisis like this, there are going to be people who come out stronger, and there are going to be those that come out weaker… or some that vanish. And luckily—although it’s not all luck—this has been years in the planning [and] I think we’re going to come out of the other side of this and thrive. JS: I’d agree. Sensible lending’s key to this market … I think you alluded to it there, Mike, as Covid’s shown, you just can’t predict the future. But what you can do is mitigate risks to the business via your previous lending decisions. The main focus for us after those first weeks and months was communication with all parties, whether it be borrowers, funders, or stakeholders. Once things had settled, the focus was to capitalise on the opportunities for when we were able to come out of the lockdown situation. I think this can be seen with the number of new products we’ve brought to market since lockdown was lifted. In terms of adapting, it still comes down to sensible, common-sense lending. Fortunately, we had good cash reserves around us, as a business; we managed cash flow daily during the height of the lockdown.

We’ve always been very proactive with our borrowers and had constant communication about extensions and ways in which we can help them, because we all knew at that point there was just no way of redeeming loans, whether it was for sale or refinance. It just wasn’t going to happen. Obviously, that had to be communicated to our funders, stakeholders, and everybody who’s involved, so there was lots of [that]—Teams, Zoom, whatever else there was available. I don’t think I was off Zoom and Teams for 10 hours a day for a good few weeks. It was pretty draining, I have to say. The focus was always on growth when we came out of it. We [launched] six new products straight out of lockdown called the Custom Collection, and we’ve just come out with a new set of products now. I do believe [it is] probably the most flexible set of products in bridging at the moment—catering for borrowers’ needs and their affordabilities. The biggest lesson? I think you’ve just got to maintain responsible, prudent lending at all times. Communication is paramount—whether that’s internal or external. Education never stops. You grow, you thrive, you adapt, you evolve. Now, we’re able to accept automated valuations and drive-by valuations, some of which we were never able to before. Talking about mitigating risk, if we should go into lockdown part two, which, fingers crossed, we will never have to do, we’ve mitigated that risk. We will still be able to prudently lend during that period. BF: That’s a great message to put out to brokers. Are the new products something which you collaborated on with your funding lines? JS: Yes. Effectively, everything we lend [on] is. Unless we lend our own cash, which we’re able to do, most of it will have to go to our funding lines [to] make sure that they’re comfortable with parameters and criteria. So, yes, it was … daily conversations with stakeholders and funders to make sure when we come out of this … this is the set of products we’re going to hit the market with. We need to capitalise on any opportunities we see and, being a smaller lender … we had that ability to adapt and evolve a lot quicker, and really come out all guns blazing to start afresh, albeit in a whole new world. BF: Exactly. We’ve seen larger lenders retract from the market throughout lockdown—what does this mean for

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nimbler, smaller lenders like Hope Capital and Funding 365? What shifts have you noticed in terms of market share during all of this? MS: Since March, we’ve seen a huge uplift in the amount of incoming phone calls from brokers that we’ve never heard of—and we’ve been around for seven years. We’ve done deals with something like, I don’t know, 125 different brokers, but I was astonished at the number [who] got in touch that we’d never heard of, never mind done business with. Our products are available to everybody; there’s no specialist panel … we’ll deal with any broker and pay them the same fee as anyone else. Once they had seen that message, a lot of them have come back to us time and time again. At the end of the day, brokers are what drive our business, so if we can add a 25% increase in the number dealing with us, it’s huge. It’s also increasing because some of the other lenders in the industry are having some issues; some of these brokers must have just been going to one or two lenders previously, so it’s interesting to see the landscape getting shifted a little bit … [they] haven’t had access to a full market before—they can’t have. If we haven’t talked to them, they haven’t potentially seen the best deals that are out there. Lots of these brokers will have to go and talk to a lot of new lenders, or certainly lenders they haven’t talked to before—and long may it continue. JS: Definitely. We’re seeing exactly the same. During the lockdown … we had a big push on marketing (whether it was supporting various charities, such as Sir Tom Moore or the new products coming out). We’ve seen a dramatic increase in distribution from packagers, individual brokers, and people we’ve never dealt with before who are contacting us—it is usually the other way round, to be perfectly honest. So, that was great. At the end of the day, brokers rely on the service that we all offer, and if they can’t get that service somewhere else which they’ve been heavily reliant on, then they need to find different channels when it comes to their lending panel. BF: Just following on from what Mike said about not operating an exclusive broker panel—do you do that, Jonathan? JS: No, the same as Mike, 100%. We will deal with individual property developers, property investors, brokers, packagers… anyone who wants to offer

us a deal, we will certainly speak to, and we will look to see if we can help them. BF: What benefits do you think this will offer the wider bridging market if more smaller lenders are taking business, like you are, and are not operating an exclusive broker panel, like some of the larger lenders have done? MS: I think, ultimately, it’s going to just end up in a better place for the end borrower—which is what should be happening anyway, if you were to live in a perfect world. I mean, if brokers are pushed to get more quotes from a larger number of lenders, and then they have to pick the one that fits their client the best, or is the cheapest, or whatever the criteria may be, that’s ultimately the best thing for the borrower [and] for the market. JS: I can’t disagree with that. BF: Out of interest, what’s the level of experience and knowledge in bridging in terms of the brokers that you are building new relationships with? And, also, the business that they’re bringing your way—does it fit really well with the products that you have? Is it good business? MS: It’s a mixture of all of the above. There’s obviously lots of it we say no to, [such as] land with or without planning—it’s just not something we’ve ever offered. So, there’s a lot of that. But I think the quality of the enquiry, if that’s what you’re asking, is high. I don’t think they’re new brokers. They’re just new to us. So, they seem to bring us high quality enquiries … some of which we love and want to do, and some are just not for us. JS: I think every broker is very different, [such as in] how they look to present or package a deal with us. Like you say, it’s relationship-led, so you find out who likes to be heavily involved in all areas … and who really just wants to pass on the introduction to the borrower to us, and we’ll do all the work. Everyone is very different; we’re happy to cater for all. On utilising technology MS: We’ve moved to implement lots of remote verification processes which we didn’t have pre-lockdown. So, for example, we implemented a system called Thirdfort. Instead of having to go to your lawyer with your passport and bank statements in your hand to 76

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get it certified, the Thirdfort app has facial recognition. So, you can take a photo of your passport—it’s machine learning, so it can track whether it’s a fake passport, a real passport, make sure you’re real—and check your address. It does all the KYC and AML stuff that previously you would really have had to do in a very paper-heavy way, and have had to go and see your lawyer. So, there’s little things like that. We’ve had to bring the brokers on that journey with us. We had put Thirdfort in place as a kind of trial, I suppose, when Covid hit, so it was great timing, in many respects, because it just meant we could move to a new kind of remote process. JS: The biggest [change] I’ve seen is solicitors wanting to move into modern technology … they love a wet signature, those guys. Suddenly, they don’t have the ability to get one, and they have to come into the 21st century. It’s good to see. BF: About time, I think. [laughing] You both touched upon this a bit earlier, with Hope Capital launching new products, and Funding 365 entering into development finance very recently. So, instead of reducing your market presence like some other lenders have done, both of your companies are expanding at quite a large rate—whether that is in terms of recruitment, new ventures or lending markets. What is giving you optimism? MS: …Once we’d stabilised our book, made sure we and our borrowers were comfortable, it allowed us to take a deep breath, amid home-schooling, and focus on what’s next for the business. We worked pretty hard on getting that product right and we didn’t really talk about it too much. I think one of the things that particularly London and the South East is going to really benefit from is the new PDR legislation, which not only allows an extra couple of stories to be built on a house, but the conversion of shops and commercial property into residential property—whereas previously it had to be offices. We haven’t seen that starting to come through yet, if I’m honest—but it will. And it’s going to come through in a very, very large way. So, our new light development product is perfectly tailored for that kind of activity, and I think that’s going to be huge. But, yet again, it all just came from the opportunity that was there, and we’d always intended to capitalise on it. I’m sure most lenders were looking at this but, again, as we talked about earlier, Hope and ourselves have


Interview

both come out of this with the ability to plan for things in the future, rather than having to manage our loan books and funding lines and trying to fire-fight existing issues. We can both look forward and try to get on with new things. BF: What’s the contingency plan if there is a second peak and people can’t continue with any development? MS: If a borrower came to us and said, ‘I want a three-month loan,’ we would have always refused that. We give them a six-month minimum, basically. Interest is rebated by the day, so it wouldn’t matter, but, at this point in time, we’re just making the loans longer to give people more time. MS: I think the British public would have a hard time swallowing a new severe lockdown because, yes, there are a lot of cases of Covid being registered, but very few people are in hospital, and very, very few people are dying. So you’re going to have to have a very, very brave government that tries to lockdown with that being the backdrop. If things change, then fine, but I can’t see it being worse. And with the best will in the world, we were locked down for three or four months, so, if we build that length of time into a new loan product going forward, it should be fine. It really should. BF: That’s a really good point. JS: I agree. I don’t think there’ll be another severe lockdown. I think we know how to mitigate and handle the spread of the virus now, with masks and social distancing. I mean, if you just look at everything, look at your whole life and just … queuing, wherever you are, queuing. You always make sure that you’re that 2m away from each other… You do it in your own head without thinking about it… Now, when we first went into lockdown, no one was doing that. No one had that social ability to look at a situation and say, ‘I’m too close to them.’ It’s completely changed everything that we do. MS: I suspect there’ll be a vaccine at some point mid-next year, early mid-next year as well, so— BF: —You’d hope so, yeah. JS: [realising he hadn’t answered the original question] Sorry… In terms of increase in market presence for us,

it was always in our plan to grow the team [and] the infrastructure in 2020. Only this week we’ve started our apprentice scheme. So, we’ve got two new apprentices working in the office with us … we’ve got a new member of staff coming in next week to bolster our underwriting team … and we’re always looking to continue to recruit talented, hungry and driven [people] … who add value … so, in terms of growth, we’re not looking to stop now. BF: What, in your opinion, has been the most significant change in the bridging industry since 23rd March? And what do you expect the lending landscape to look like for the rest of this year and into 2021? JS: In terms of going into the rest of 2020 and 2021, it will continue to evolve and improve. You look at the Bridging & Commercial alerts—LTVs are changing daily. We don’t really know where we are as an industry at the moment. I don’t think the mainstream market knows where it is quite yet but, in terms of the dynamics in the market, they’ve completely shifted. Some lenders have stopped lending altogether, some are lending partially what they used to lend, rates and LTVs are constantly changing and evolving—obviously the payment holidays and moratorium are going to affect our borrowers’ exits with mainstream lenders significantly. You’ve just got to take a pre-emptive approach that we did pre-Covid to make sure that it carries us through the difficult times. We’ll continue to do that, but… I don’t have a crystal ball as to what’s going to happen at the end of this year and the start of next, because I don’t know. All we can do is prepare best the way that we know, and that’s to do things as we’ve always done—sensibly. MS: The market has been trying to just find its feet again and the surprising thing is, pricing still hasn’t [risen] too much. I mean, there’s still bridging loans available at pretty reasonable rates that aren’t that much higher than where they were pre-lockdown. So, I think there’s definitely some lenders that still have the support of their funding partners. Libor has fallen from, I don’t know, 0.7 to less than 0.1 today [ed: at time of interview], so funding’s actually got cheaper for us. If your funding partners are supportive, you can maintain the interest rates you’re charging. So, I think credit has changed a lot, [as have LTVs]. Some lenders and some funding

partners, frankly, don’t want to touch commercial or semi-commercial, for very obvious reasons. That’s definitely changed a lot. But, I think for those lenders that are still active, the product offering isn’t that dissimilar to where it was pre-Covid. I mean, maybe it’s a touch more expensive and maybe the LTVs aren’t quite as aggressive, but it’s very, very close. Then, on the other end of the spectrum, you have some lenders that have basically vanished. But I do wonder, come the end of the year, if the more dramatic changes are yet to come … if some lenders’ funding partners aren’t supportive and they’re just pulling the plug, you could see a lot of big casualties. There are obviously some lenders that are hurting at this point in time, but that might get an awful lot worse, for many. It’s possible. JS: Yes, I’d agree. I’d like to say we were lucky with the funding partners we have, but I think that comes with the partnership that we have … we work very well in collaboration. They understood the issues within the industry and the economy as a whole. Let’s be honest, it wasn’t just our industry, and it wasn’t just the finance industry—I’m sure there were a few lenders in the market who were probably dictated to and were told, ‘No, we want our money back.’ That is very difficult to do in a time when you can’t redeem loans. MS: Yes. BF: Have you seen, as a result of that, a rise in re-bridging cases? JS: I’d have to look at the figures. We still do see some re-bridges, yes. We will not say no to a re-bridge. We’d need to know the reasoning behind [it] and the history of the loan … I suppose Covid is one of the worst examples, because everyone will need to refinance at some point, and they’ve just lost, potentially, four, five months on a loan term … if they’re going to be hit with a high extension fee from another lender, and it’s actually going to be a lot cheaper for them to re-bridge … basically, if it makes sense for all parties, [mainly] the borrower, then it would be something we would look at. It’s when you’re at the higher LTV and in need of a re-bridge and they’ve had three in the past—that’s when the red flags start to [wave]. MS: We’ve seen a fair amount of rebridging requests. I think, as often as not though, people will come to us and ask

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to use our three-year product. Because a three-year is for longer-term projects for the most part, and sometimes these longer-term projects have a planning element to [them], and they just take more time. Like I said earlier, sometimes borrowers are very optimistic about what they can achieve in a short period of time, and I think Covid has brought it home that not only do you maybe need more time than you thought you did, other things can happen in the world which are completely out of your hands that will force you to take a longer time to do your project. So, people have asked, ‘Can I go onto a three-year?’ It’s pretty cheap and it gives them all the peace of mind in the world. We’ve had a few examples of people going from a bridge to a longer-term proposition. But, as Jonathan said, you can only do that at an LTV that’s sensible and with a project that’s sensible as well. I don’t think anyone’s racing to go back to 85% LTV anytime soon, you know? JS: No, not us. But I do believe we may see something like that soon. Some lenders may try to get a head of steam against some of the competition. I do believe that. MS: I mean … we’re offering 75% LTV—we’ve got a load of 75% LTV deals progressing at the minute. JS: Yes, same. MS: But the truth is, I would rather have a valuer’s valuation today than preCovid. I think everyone’s being a little bit more conservative—the froth has been blown off the market a little bit and, as Warren Buffett said, ‘Be fearful when others are greedy and greedy when others are fearful.’ This is not necessarily a bad time to take some more risk, if you get paid for it and you’re backing the right investor. We have a lot of very high-net-worth investors. Am I happy to lend to them 75% LTV? Sure. If it’s your last penny and you’ve never done a development before, probably not. But you have to back the right people for the right projects, and I don’t see this as a bad time to take some risk. JS: I think 75% works with a clear exit strategy. Also, a lot of the stuff that we’re looking at the moment, 75% has an exit of a sale, and they have to be saleable properties. You’re not going to lend on a farmhouse in the middle of nowhere which has got a 12-month sale period, and you’re not going to lend

to them at six months at 75%, because it will not work. So, it’s a case-by-case basis. You’ve got to look at everything individually. I think that’s the crux of what we do as an industry really, in bridging… Everything needs to be looked at on its own merits … it has to be. Every deal is completely different. MS: Yes. BF: Finally, what one key thing do you think will contribute the most towards the recovery of the bridging market, post Covid-19? And what would you personally like to see change in the industry? MS: My biggest bugbear, and it has been for some years, is stamp duty. Because, in London, I think since 2014, if the property was worth £1.5m or more, you’re paying 12% stamp duty. And, if you’re a developer or it’s your second home or a BTL property, you’re paying another 3% on top of that. And £1.5m in London is not that much. What that does, if you’ve got a 15% stamp duty cost, is kill the buy-refurb-flip market. When this happened back in 2014, and then in 2016 with the extra 3% … I thought that might really crush the bridging market. And I think, in the South, the only thing that really saved it was the changes to PDR, where you could start changing offices to resi … because the transaction costs are just massive. Personally, I think developers—when buying, refurbing and flipping a property—should just pay zero stamp duty. I mean, it’s doing a public service, in my opinion. You’re taking old, rubbish, Victorian housing stock and you’re making it into something that somebody wants to buy. How’s that not a good thing? Why are you having to pay 15% transaction fees? That really should be changed. That’s crazy. So, the stamp duty holiday, if they could just make that permanent, at least that’s slightly helpful. That would probably be one of the biggest changes. And, like I said earlier, I’m quite excited about the new PDR legislation. Once people get their arms around that, I think that could really help the bridging industry. BF: Saved by PDR, again. JS: Yes, but it’s massive … as Mike said, it has the ability to be a game-changer. I’d like to see greater collaboration between our trade bodies [towards] a common goal for everybody in the industry. I think it’s a bit disjointed at times. I’d like 78

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to see them coming together a little bit more and acting for the greater good. BF: Do you feel, as a bridging lender, that you’ve been supported by the associations in the market throughout this? JS: [sighs] I think they’ve tried their best. Whether [we] as a company feel supported, I don’t think we’ve relied on the support, personally. I think we just had to do our own thing, and I think everyone had to do their own thing during that time, during lockdown, and manage their own business, their own cash flow, everything. You spin a lot of plates. I think they did their best but I think there could be better collaboration between all. BF: Quick last question—what or who has really inspired you during the past few months and helped motivate you and your business through such difficult times? This could be anything or anyone. JS: Oh… BF: …Industry or non-industry related. JS: …Industry-wise, I do think it was great how the whole of our industry came together in the hardest of times on online platforms such as LinkedIn … I thought that was fantastic. I’m not great on social media, but it was good to see. Personal motivation for me was just looking to the future, planning how Hope Capital’s business comes out stronger and focusing on the optimism. There were so many hard days during lockdown, everyone’s had really hard days, but you’ve got to keep focused. Everything we do we want to do well and continue to improve. It doesn’t matter how well we do things, we must constantly evolve, and that inspired us to adapt during lockdown for when we were able to come back to the office. So that’s business-wise, but, personally, it was great to see everyone in the industry come together. And for Liverpool to win the Premier League—that helped, too. BF: [laughs] Big celebrations for you. MS: Here, frankly, it was just the team that we worked with. So, Paul Weitzkorn Funding 365’s sales director, who I’ve worked with for years, and Laura Kendall—just a team of really positive people. The whole team, all of our underwriters, are just incredibly positive. And, like I said earlier, once


we got through the first month of just making sure that we were on top of the risk and that, no matter how bad things got we were going to be okay, once we got through that, I think the whole team was just great, because everybody was pushing, ‘What’s next? What can we plan? How do we set ourselves up to take advantage of this?’ It was just a very positive mindset from the team here. And, when everyone around you is positive and looking to take the next step and so on, it’s great, it really gives you a kick forward. I don’t know… I’d love to say Dwayne ‘The Rock’ Johnson or something, but I have nothing like that… BF: I’m going to just put down Dwayne ‘The Rock’ Johnson. [laughter] JS: Yes, I like that. MS: …There are some guys, actually. If you ever listen to a Joe Rogan podcast, [Beth pulls a face] some of the guys there—Jocko Willink or David Goggins—these guys are just incredibly mentally tough and focused—they’re inspirational guys. You take from it where you can, but there’s lots of times where they’ll say things like, ‘If you’re in a bad mood, the only person that can get you out of a bad mood is yourself.’ And it’s just a mindset. I think podcasts have changed what people can get in terms of inspiration and where you can get it … I’m sure The Rock has said a tonne of inspirational things, but it seems to me he’s just selling his tequila these days. BF: Which is also inspirational. MS: Exactly.


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Limelight The who, where and why of dining out post-lockdown

1 Who: Laura Kendall, marketing director at Funding 365 Where: The Ivy Chelsea Garden, 195-197 King’s Road, Chelsea, London SW3 5EQ Why: Tables are socially distanced, with lots of options for seating, including a garden and terrace. Temperatures are checked discreetly upon arrival, and branded hand sanitisers are on the tables. Safety is clearly well thought out, but the implementation of it is very subtle, so it has the overall ambience of the good old days. 2 Who: Anna Bennett, marketing director at Catalyst Property Finance Where: The Pig, Beaulieu Road, Brockenhurst, The New Forest, Hampshire SO42 7QL Why: This was our first return to eating out after lockdown—a very chilled and beautiful country venue with fab food all grown within a few miles of the restaurant. Everything felt clean and safe, and they offered us inside or outside seating, where tables were well spread out; our nearest dining neighbours were a few metres away and the room was very airy with open windows. They provided gorgeous little bottles of hand sanitiser on each table, too. 3 Who: Chris Fairfax, CEO at Catalyst Property Finance Where: Boston Tea Party, 15 The Furlong, Ringwood, Hampshire BH24 1AT Why: Each table (and the back of the chairs) were wiped before seating and it had a QR code menu with table service. There were lots of other business meet-ups when we were there for our Catalyst team coffee catch-up in the sun. We sat in the courtyard which had heaps of outdoor seating with tables set apart. The menu is more limited than usual, but the coffee and breakfast/brunch options are good, and it’s handy for coffee meetings just off the A31 on the Hampshire/Dorset border. 4 Who: Kim McGinley, director at VIBE Finance Where: The Bat & Ball, Hyden Farm Lane, Hambledon, Hampshire PO8 0UB Why: When I went with my husband and two children on a spontaneous lunch out, procedures were in place without it feeling overbearing or too much. The place had a one-way system for entering/exiting, hand sanitiser stations were available, and the staff were super friendly. It has gorgeous views over the countryside, great food, and lovely owners—with the added bonus that they are totally dog friendly (we get our new puppy soon and this will be the first place we go!) 5 Who: Ranjeev Kumar, partner at Watson Farley & Williams Where: Sketch, 9 Conduit Street, Mayfair, London W1S 2XG Why: They had temperature scans on arrival, an automated process for leaving personal details (QR scan on mobile phone), QR scan-readable digital menus, and tables that were spaced apart. Areas were regularly and promptly cleaned, the cutlery was delivered on a tray to avoid excessive handling, and they only accepted card payments to avoid dealing with cash. 6 Who: Matt McCullough, national sales manager for intermediary mortgage distribution at Aldermore Where: Piccolino, 207 Moss Lane, Bramhall, Stockport SK7 1BA Why: I dined with my wife and it’s a venue that will be first to mind when the time comes to take my team out for a face-to-face meeting. They have a great veranda to eat, drink and meet at, and lots of outdoor space. Indoors, all the tables are spaced properly and there are plenty of them, too. All service is table-based, so you don’t have to queue at the bar or tills to order, and it’s just a really relaxed atmosphere.

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7 Who: Alex Hammond, managing director at Also Communications Where: The Crown, 64-66 All Saints Street, Hastings TN34 3BN Why: Prior to Covid-19, it was first come, first served, and the pub was perpetually packed. Now you have to make a reservation to secure a table for food, which actually makes it easier to eat here. It’s a smallish pub, but tables are separated nicely, without being too sparse, and measures like a one-way system and single-use menus are reassuring. Most recently, we came here for an Also Communications directors’ lunch and planning session, but I have brought journalists here in the past as it’s conducive to relaxed conversation. 8 Who: Andreea Dulgheru, reporter at Bridging & Commercial Where: 200 Degrees, The Metquarter, 35 Whitechapel, Liverpool L1 6DA Why: I was greeted by a giant hand sanitiser upon entry, the staff all wear face masks, tables are cleaned regularly, and have enough distance between them. The coffee shop has a very rustic, hipster feel to it, and they serve amazing coffee (I totally recommend the Spanish iced latte— it’s incredible.) 9 Who: Roxana Mohammadian-Molina, chief strategy officer at Blend Network Where: Cecconi’s Mayfair, 5a Burlington Gardens, Mayfair, London W1S 3EP Why: I recently had a lunch meeting here and took advantage of the ‘Eat Out to Help Out’ scheme. They have hand sanitiser on arrival and throughout the restaurant, and tables have been moved in order to provide further space between them. All staff wear masks and there is a shield screen at reception. 10 Who: Riana Azam, regional sales director at Nucleus Commercial Finance Where: 20 Stories, No.1 Spinningfields, 1 Hardman Square, Manchester M3 3EB Why: Everyone queues outside until they’ve had their temperature checked and provided track-and-trace details. Then, there is a limit to the number of people who can enter the lift and safely social distance, which is monitored by the staff. The venue ensures that there is enough space between everyone due to the table layout. They also have an open roof terrace, which has tables dotted around where you can safely have private meetings and coffee. 11 Who: Paul Hunt, owner of Paul Hunt Marketing Where: La Famiglia, 7 Langton Street, Chelsea, London SW10 0JL Why: This old-school Italian restaurant in the heart of Chelsea is always great for a cosy dinner or lunch for two. There’s always such a great atmosphere, with the experienced team attentive, but not stifling. To cope with Covid, they’ve created much more space between the tables and do a temperature check on arrival. At the table, cutlery is provided in a sealed paper envelope, menus are scanned on QR codes and, thankfully, none of this has affected the buzz.


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Backstory

‘Everyone wants to do work that has an impact’ Roma Finance’s new head of customer service and collections talks about utilising her knowledge of the last downturn—and how the industry dealt with it—to put in place new policies for today’s crisis, the true value of complete autonomy over your responsibilities and, intriguingly, how Roma got its name Deborah has built her career in customer services within the financial services sector, having spent a staggering 29 years at Cheadle-based specialist lending giant, Together. There, she was accountable for the strategic direction, leadership, operational oversight, and delivery of on-target performance in both commercial and personal finance areas. When she left in August 2019, she extended her deep knowledge and experience in collections as a consultant for private student lender, Future Finance. She offered the same consultancy services to Roma and, after just three months, decided to join them permanently in June. In her position— created partly due to the Covid-19 pandemic—she is tasked with implementing a strategy to help customers successfully exit their bridging and development loans during an unparalleled time for both the industry and economy. How did you get the role at Roma and why did you decide to join? After leaving Together, I took up a series of shortterm consultancies. An ex-colleague, Scott Marshall [Roma’s MD], came to hear of this and invited me for a coffee and a chat. We struck up a good relationship and I realised I could add value to Roma’s current strategies. Notwithstanding the current crisis, we were able to enhance the servicing team, during which time I was impressed with the passion and energy of the company. I relished a new challenge to join such a dynamic organisation and was delighted to be offered the role as head of collections and servicing. What has been your biggest achievement to date while working in the specialist finance market? During the 2008-9 recession, I needed to make some urgent decisions on how we managed our customers’ accounts by using a balanced commercial focus, while also wanting to provide extraordinary assistance to our borrowers. A more creative and flexible approach was introduced which changed the tone of our customer communication. I set up a large, specialist hardship team who were expertly trained, working flexible shifts and offered customers a free phone number.This area of support was the main catalyst for our success of minimal repossessions and very low delinquency, and resulted in us having the ability to navigate their difficult paths of mortgage arrears with dignity, respect, and the appropriate solutions—giving us the confidence to continue to lend to customers still requiring finance. At the time, we were one of the only lenders actually lending. You spent 29 years at Together—what are the key differences now working at a smaller lender? Everyone wants to do work that has an impact. This, coupled with an increased level of control and responsibility, in turn, amounts to more opportunities. My vast years of knowledge and experience allows

me the platform to share best practices and, working closely with colleagues, we are able to grow as a team. I therefore have the opportunity to play a major part in Roma’s growth plans, reach ambitious goals, and be part of the success. How will you be evolving Roma’s customer service and collections processes, and what will you be executing first? Understanding how the industry dealt with the last crisis is important, as is thinking about today’s risks. It is clear that interactions with customers that address issues ahead of time is one of the most effective strategies.Therefore, we have introduced a formal contact plan [with] a focus on three main areas: MI requirements have been enhanced to identify customers that are more vulnerable, early; to work with them to mitigate any issues; and provide both parties with a positive outcome. What one thing does the industry not know about Roma? Roma Finance is a family business and is named after Scott’s late grandparents, Rose and Max. Scott recently commented that he has never been more excited about the future of Roma Finance. What are you most enthusiastic about for the rest of this year? Since my first encounter with Roma, I have felt a genuine spirit of cooperation and shared goals around helping the customer—this truly creates a collaborative, family environment. Roma has given me absolute autonomy over my responsibilities; I select the strategy, the processes and the team, and Roma supplies the goals—life has never felt so exciting!

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How did you spend your very first pay cheque? I bought my first pair of high heels, which were stilettos (in peach). I loved them so much I bought the same pair in black patent—I still couldn’t walk in them days later. Most memorable moment from your time in the industry? A 25 years’ service awards party, with the present being an amazing family holiday of a lifetime to Hong Kong and Bali—all expenses paid! What new hobby have you picked up during lockdown? Lockdown days were long, so it inspired a surge of garden design activity (believe me, I am no Alan Titchmarsh). I channelled my inner zen, and it’s now complete with dry river bed, bamboo poles, tiki torches, and a summerhouse. Dream job—if you weren’t doing this, what would you do? My dream job would be one that would allow me to express my creativity and have some fun, too—so either an interior designer or party planner. Both jobs have the surprise element, and are able to impress, amuse and make people happy, all while getting paid.


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