ISSUE 2 MAR/APR 2019
Direct Other Intermediaries Packagers Master Brokers Intermediaries Interm Intermediaries Packagers ntermediaries Intermediaries Master Brokers Inter ntermediaries Intermediaries Direct Intermediaries Distributors Direct Inte stributors Intermediaries Intermediaries Intermediaries Intermediaries Inte gers Distributors Intermediaries Direct Direct Intermediaries Intermediaries mediaries Intermediaries Direct Intermediaries Packagers Direct Other Interm okers Intermediaries Intermediaries Intermediaries Intermediaries Intermedi kers Direct Intermediaries Master Brokers Intermediaries Direct Intermediar ermediaries Intermediaries Intermediaries Intermediaries Master Brokers Int ct Intermediaries Distributors Intermediaries Distributors Intermediaries In tributors Intermediaries Intermediaries Intermediaries Direct Intermediari mediaries Direct Intermediaries Intermediaries Direct Intermediaries Interm kers Intermediaries Distributors Intermediaries Packagers Intermediaries Ma ibutors Intermediaries Intermediaries Packagers Direct Other Intermediarie mediaries Packagers Master Brokers Intermediaries Intermediaries Intermedi ermediaries Intermediaries Master Brokers Intermediaries Intermediaries Int Direct Intermediaries Distributors Direct Intermediaries Distributors Inter Intermediaries Intermediaries Intermediaries Intermediaries Packagers Dist termediaries Direct Direct Intermediaries Intermediaries Intermediaries Int ermediaries Direct Intermediaries Packagers Direct Other Intermediaries Ma mediaries Intermediaries Intermediaries Intermediaries Intermediaries Master rmediaries Master Brokers Intermediaries Direct Intermediaries Packagers In mediaries Intermediaries Intermediaries Master Brokers Intermediaries Direct Distributors Intermediaries Distributors Intermediaries Intermediaries Dist rmediaries Intermediaries Intermediaries Direct Intermediaries Packagers In rect Intermediaries Intermediaries Direct Intermediaries Intermediaries Mas mediaries Distributors Intermediaries Packagers Intermediaries Master Broke mediaries Intermediaries Packagers Direct Other Intermediaries Direct Other ackagers Master Brokers Intermediaries What’s the deal with networks? Inte Intermediaries Packagers ntermediaries Intermediaries Master Brokers Inter ntermediaries Intermediaries Direct Intermediaries Distributors Direct Inte stributors Intermediaries Intermediaries Intermediaries Intermediaries Inte gers Distributors Intermediaries Direct Direct Intermediaries Intermediaries ermediaries Direct Intermediaries Packagers Direct Other Intermediaries Ma mediaries Intermediaries Intermediaries Intermediaries Intermediaries Master rmediaries Master Brokers Intermediaries Direct Intermediaries Packagers In mediaries Intermediaries Intermediaries Master Brokers Intermediaries Direct Distributors Intermediaries Distributors Intermediaries Intermediaries Dist rmediaries Intermediaries Intermediaries Direct Intermediaries Packagers In rect Intermediaries Intermediaries Direct Intermediaries Intermediaries Mas mediaries Distributors Intermediaries Packagers Intermediaries Master Broke mediaries Intermediaries Packagers Direct Other Intermediaries Direct Interm mediaries Packagers Master Brokers Intermediaries Intermediaries Intermedi ermediaries Intermediaries Master Brokers Intermediaries Intermediaries Int Direct Intermediaries Distributors Direct Intermediaries Distributors Inter Intermediaries Intermediaries Intermediaries Intermediaries Packagers Dist termediaries Direct Direct Intermediaries Intermediaries Intermediaries Int ermediaries Direct Intermediaries Packagers Direct Other Intermediaries Ma mediaries Intermediaries Intermediaries Intermediaries Intermediaries Master rmediaries Master Brokers Intermediaries Direct Intermediaries Packagers In mediaries Intermediaries Intermediaries Master Brokers Intermediaries Direct Distributors Intermediaries Distributors Intermediaries Intermediaries Dist rmediaries Intermediaries Intermediaries Direct Intermediaries Packagers In rect Intermediaries Intermediaries Direct Intermediaries Intermediaries Mas mediaries Distributors Intermediaries Packagers Intermediaries Master Broke mediaries Intermediaries Packagers Direct Other Intermediaries Direct Other gers Master Brokers Intermediaries Intermediaries Intermediaries Packagers Master Brokers mediaries the masses p12 Intermediaries Intermediaries Intermediaries Direct + Targeting ributors Direct Intermediaries Distributors Intermediaries Intermediaries In
SPECIALIST LENDING SOLUTIONS REFURBISHMENT BUY TO LET
Maximise rental yield and increase capital value with Refurbishment Buy to Let If your customer is looking to buy a property in need of refurbishment with a bridging loan, but would like the peace of mind of an exit onto a buy to let mortgage once the work is complete, our Refurbishment Buy to Let range could help.
Contact your local BDM 0800 116 4385 precisemortgages.co.uk
FOR INTERMEDIARY USE ONLY.
Precise Mortgages is a trading name of Charter Court Financial Services Limited which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority (Financial Services Register Firm Reference Number 494549). Registered in England and Wales (company number 06749498). Registered office: 2 Charter Court, Broadlands, Wolverhampton WV10 6TD.
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With our unique approach, your customer benefits from a single valuer for both the bridge and Buy to Let Mortgage, and one conveyancer with discounted legal fees. Meanwhile, you can enjoy a single application which we key for you, a dedicated underwriter for the entire case and two procuration fee payments.
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Acknowledgments Editor-in-chief Beth Fisher beth@medianett.co.uk Creative direction Beth Fisher Caron Schreuder Senior reporter Theo Osborn theo@medianett.co.uk Reporter Martin Greenland Sub editor Geoff St Louis geoff@medianett.co.uk Sales and marketing Caron Schreuder caron@medianett.co.uk Contributing photographer Alexander Chai Special thanks Stephen Burns, Adapt Finance Alan Andrews, KIS Finance Jennifer Stevenson, Clifton Private Finance Adam Davies, Westgate Private Finance Alex Hammond, Also Communications Debbie Staveley, bClear Communications Printing Cambrian Printers 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 @BandCNews
I
t feels as though I wrote my welcome letter for our first issue about a week ago. To think that we are at the end of Q1 2019 already makes me believe we are in the throes of a fast-paced, eventful year—despite it being quite the opposite politically. Our second edition of the magazine takes a deep dive into bridging distribution and how this has changed—or hasn’t, according to our cover story [p18]—over recent years, and why certain channels, such as networks, may not be utilised enough in this market and the impact this is having. We spoke to over 30 bridging lenders to research this subject and invited thoughts from master brokers, packagers and networks to understand the bigger picture. In addition, our exclusive interview with Hampshire Trust Bank’s Alex Searle delves into an approach to distribution which is very much ‘the more, the merrier’, while our chat with new entrant Lendco considers the exclusive, invite-only model. It’s interesting to see how attitudes to distribution vary from lender to lender, from whole-of-market players to those that are ardent about providing brokers with an ‘edge’ via a limited panel. I’d be interested to hear your views on how you prefer to work as a
broker. While getting distribution right is key to originating good business, we also felt it was equally important to understand what could impact the exit of a bridging loan this year [p42] and how to mitigate against risk in a competitive and changing market [p36]. On top of this, we unpicked why there has been a rise in rebridging finance—something which is coming up in conversation more and more. And if you’re just here for the pictures and pull quotes (your prerogative), flick straight to [p56] to see this issue’s close-ups of Precise Mortgage’s Alan Cleary and MT Finance’s Gareth Lewis. The interview is pretty decent, too. There is a prize for whoever guesses what word(s) the asterisks concealed. Finally, I want to thank everyone who has contributed to the magazine so far, either to our (extensive) article research, or supporting our efforts through advertising. You are amazing. We were blown away by the kind words from our readers (you can see some of the industry’s first reactions on p67), and eagerly await your responses to The Distribution Issue. We are also pleased to announce that we have welcomed two additions to the editorial team: Simon Thompson, senior magazine reporter, and Sam Monk, editorial assistant, who will both be contributing to future issues. Medianett’s fantastic Theo Osborn has also been promoted to senior digital reporter—well done, Theo, you deserve it. Having a solid team alongside you is imperative in the specialist finance industry and it is important to recognise those that have passion, a cando attitude and a willingness to learn, even if they are new to the market. If the sector is solely looking for experience (which we understand is limited), growth is predestined to plateau. Beth Fisher Editor-in-chief
3 Mar/Apr 2019
6 10 12 18 28 30 36 48 53 66 68 It’s not just about picking the brokers that we all know p12 4 Bridging & Commercial
The cut Products Exclusive Cover story People Zeitgeist Explained View Interview Limelight Backstory
Go big or go home
What do you make of the 2.6%?
We took a peek at your phones...
Why we re-bridge bridging loans
Risky business / Stage left
No strings attached
Lendco / Alan & Gareth
Gary Bailey
Our pick of exclusive news
6 Bridging & Commercial
The cut
1,562 mortgage brokers have signed up to Lenderlink since its launch at the end of 2018. The sourcing system—run by Specialist Mortgage Group (SMG)—displays 1,300 specialist mortgage products from 35 lenders across first and second charge mortgages, BTL and bridging finance. Brokers can find a mortgage on the system, then refer it to SMG for processing and share the proc fee, or submit it directly to the lender via API integrations built into the system. Lenderlink received £7m worth of applications in its first month, of which nearly £4m are proceeding towards completion. Matt Cottle, chief executive officer at SMG, claims that only a minority of mortgage brokers have both proper access to specialist products and the knowledge to package such applications. Lenderlink brings this together in one place, with no sign-up or ongoing monthly fees. “Mortgage brokers want and need access to such a tool, but they do not want to risk capital to do so. Lenderlink makes that happen for them,” says Matt.
Roma Finance has provided a £273,000 bridging loan in five days for a new-build bungalow. The borrower was looking for the funding to help with cash flow to acquire the property in Norwich and carry out some light refurbishment. The property is expected to be valued at £420,000 on completion and sold to pay off the bridging loan. Daniel Hill, divisional sales manager at Roma Finance, says: “It was a pleasure to help a customer who needed finance, quickly. It’s a high-quality property and the customer will make a profit on the sale.” Gordon Duffy at Business Funding Expert—which introduced the case—adds: “I am pleased to say that Daniel at Roma Finance worked his socks off to make sure the bridging facility we were arranging on behalf of our mutual customer went ahead without any issues.”
After celebrating its first year in business—during which just under £60m of loans were written across 72 deals—Tuscan Capital has closed a secondary funding line with a challenger bank worth £30m. Colin Sanders, CEO at Tuscan Capital (pictured above), explains that it is a complementary facility to its existing debt line, as it will enable it to provide a wider offering. “What it will allow us to do is look at slightly larger loans,” Colin says, adding that the new funding means that Tuscan can now lend up to £5m. “But it would need to be the right deal,” he adds. It could also mean that the lender can now consider certain types of site acquisitions, such as land with planning. As a result of the new line, Tuscan’s funding capacity is now just shy of £100m.
7 Mar/Apr 2019
The cut
ThinkApp, the iOS version of Think Business Loans’ client funding platform, has nearly reached 1,000 downloads. It launched on the App Store in October 2018 and allows its clients to connect their business to Think Business’s iFundsmatching software, which enables them to access real-time funding options. The app will notify clients of their eligible options, the status of any current applications and any future funding offers based on changes to the business’s financial status. This can include time trading, turnover, credit score and affordability data pulled directly from the client’s bank accounts via Open Banking connectivity. It’s funding platform now has over 6,000 live users and is looking to add more lenders in 2019. In addition, it will be launching its in-app SME marketplace Think Business Plus. Jamie Stewart, director at Think Business Loans, says: “The ability to connect our clients directly to our lenders has reduced the time from application to offer by over 70%.”
Arc & Co has arranged more than £64m of bridging loans during Q4 2018—representing 45% of its completed loan book. This total was spread across 14 loans, with an average bridging loan amount of over £4.5m. During this period, the specialist debt advisory arranged a total of almost £142m of finance across commercial and development, residential mortgages, and marine and aviation finance. Regarding commercial and development, Arc & Co arranged more than
£101m compared with over £60m in Q3 2018. Andrew Robinson, CEO at Arc & Co (pictured above), says that Arc & Co had a very busy fourth quarter. “Our total loan completions were up from last quarter by 16.4% to £141.6m. Even though the number of loans we completed were down by 32% to 45 from 66, our average loan size increased by 41% to £3.1m. This can be explained by the spread of business across all of Arc & Co’s various specialist teams. Bridging has also become very popular with our clients using this method of financing to either sweat their deal through planning gains, asset management or to gain extra sales time after construction is completed.” 8
Bridging & Commercial
It’s still very hard to fund off-site construction as a development lender, according to Michael Dean, principal at Avamore Capital. “The way that funding has traditionally worked is that unless it’s bolted down and fits to the building, the monitoring surveyor normally won’t value the works and, therefore, the lender won’t release the funds against it.” He explains that a manufacturer wants payment upfront, but the lender wants to provide funding in arrears. “And unless you’ve got a borrower who’s got huge amounts of working capital available to them to pre-fund it, then you potentially end up [at] a bit of a funding impasse. I think that’s why off-site construction — outside of [your] multiplexes and big, mega schemes—hasn’t really taken off in that SME housebuilder space in the way that it could have done, because the funding options aren’t there.”
The cut
Relendex has appointed Paul Sonabend as its executive chairman. Paul, previously commercial director at the P2P lender, has worked as a finance director and business angel since qualifying as a chartered accountant in 1982 and has worked in a wide variety of industries and supported several successful start-ups. Paul says that he started lending on the Relendex platform when it received its FCA licence and rapidly became a fan. “From an informal position as an adviser to the board, I have become ever more involved as a lender, investor and now as executive chairman. I am tremendously excited about both the company’s future and the part P2P can play in funding the property development and bridging sector.”
Midlands Asset Finance has revealed that it is looking to grow its new property finance team by 30–40%. MAF Property Finance launched in March and currently has six employees. MAF director Dave Chapman heads up the team (pictured above) and will handle investment and development funding, alongside Andy Keal, Ian Brown and Paul Delaney. Rachel Borlace and Hayley Chapman will be responsible for commercial mortgages. The broker has launched the division after arranging in excess of £140m of property funding in 2018.
Octopus Property has announced that it’s on target to lend a record £850m in the financial year ending 30th April 2019. This marks an increase of more than 25% on the previous financial year. D’mitri Zaprzala, head of sales at Octopus Property (pictured above), commented that it would be “its biggest year by a considerable margin. We are now typically lending anywhere between £60m–100m a month. More than ever, we’ve done deals outside of London and the South East, so our regional lending volumes will be their highest [ever].” The lender recently consolidated its unregulated bridging range with the launch of a single product. It currently has a £30m tranche of funding to provide loans from £100,000–500,000, at a maximum of 70% LTV and a rate of 0.6% per month.
9 Mar/Apr 2019
Market Financial Solutions Smaller bridging loans • Minimum loan size now from £100,000, reduced from £200,000 • Maximum loan amount £10m • Terms of three to 18 months
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Unregulated bridging and refurb • Unregulated bridging: rate of 0.6% per month, from £100,000–500,000 with a term of 12 months and a maximum LTV of 70% • Changes to refurbishment product: up to 90% LTC, with rates from 0.8% per month
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BTL and application refer • Rates reduced by up to 0.50% • Two-year fixed rate starts at 3.14% • Five-year fixed product at 3.59% • Application refer enables an underwriter to review the case before the broker has to pay any fees
Targeting the
Exclusive
T
his time last year, Hampshire Trust Bank’s (HTB) specialist mortgages offering was likely to have been on your radar, but you may have been unsure why. In a bid to transform this perception (or lack thereof), the bank has decided to completely redefine and relaunch this particular division—with assistance and direction from a trio of industry heavyweights—and is currently embarking on a major distribution
drive. Is it paying off? In January alone, the specialist mortgages team approved over £130m worth of DIPs, up from £20m the year before. And, according to the lender, this is just the beginning. 13 Mar/Apr 2019
I
Exclusive
Words by
n April 2018, Matthew Wyles, former Castle Trust group executive director, joined HTB as CEO and was soon followed by a formidable double act: Charles McDowell (former commercial director of mortgages at fellow specialist bank Aldermore) and Alex Searle (also previously of Castle Trust as MD for mortgages), who stepped into HTB’s specialist mortgages division as MD and sales director respectively. Alex started on 2nd July and the following day was already picking out the sub-sectors of the market that the specialist mortgages division (which includes complex BTL and bridging) wanted to be known for. Over a couple of glasses of Prosecco, we discuss why the bank needed to make key changes and how specialist mortgages now has the biggest growth potential. “I think it would be fair to say that it has significantly underperformed,” Alex admits. “The feedback that I had had from brokers on HTB [the specialist mortgages side] was, ‘I don’t really know what it is they do.’” Alex explains that the first thing she did when she arrived was understand exactly where the bank was going to focus and what products it was going to specialise in. While HTB’s bread and butter is portfolio landlords, one core area it has now defined (when looking at borrower type) is expats and foreign nationals. “People say, ‘Foreign nationals is a dying market,’” she says, “but if you look at the statistics, actually, investment into the UK is still seen as a really attractive proposition, because the depreciation of sterling, for example, counteracts that level of uncertainty.” HTB looks at foreign nationals that are based abroad and doesn’t penalise them on rate or LTV. The bank will also support first-time landlords in a particular sector. “For us, we would do a semi-commercial for somebody that has never had a semicommercial before, or we would do an HMO for somebody who has never had an HMO, and, likewise, we would do a first-time landlord [deal] for somebody who is buying their first property.” On top of this, Alex tells me that the bank has just launched a ‘5-2’ product following the recent popularity of the five-year fix in the BTL market. In short, the product is fixed for five years, but is only tied in for two. “How many people know what they are going to be doing in five years’ time?” Alex asks me. “Very, very few. So, tying clients in with a big portfolio for five years, is that really the right thing to do? With this product, we can stress at five years, but you are free to leave HTB after two years, even though your fixed rate will continue for five. That is the kind of innovation we want to create within the market.” In mid-December, the bank’s bridging proposition also relaunched. “We have to establish ourselves in the bridging market,” Alex admits. “…We are not fools. We know that we are not market leaders at all, but with the rates that we have, we could be, so we want to press on in [that] market,” she adds. Alex says that redefining its bridging offering was probably the easiest relaunch she’s ever had to do. “In fact … when I came in, I looked at the bridging rates and the first thing I thought was, ‘Wow—this must be the most popular product within HTB.’” Its bridging rates start from 0.55% and are done by LTV bands. “I realised very quickly that the only reason that it hadn’t taken off as it should’ve done was down to inefficiencies in the short-term lending process.” So, while the bridging product remains the same, the division has since ring-fenced a bridging team to ensure speedier transactions. This means that its underwriters, valuations, legal system and completions are all separate from other product offerings. “I think the biggest grumble with brokers when it comes to bridging, especially when it’s banks that have gone into bridging, is that ‘term underwriters’, when they pick up a bridging deal, underwrite it as a term deal,” Alex adds. This has resulted in both the complex BTL and bridging teams expanding significantly. “We have nearly three to four times the
BETH FISHER Photography
alex chai
14 Bridging & Commercial
I’M A MASSIVE ADVOCATE OF BDMS; THEY ARE CRUCIAL, NOW MORE THAN EVER
Exclusive
“The analogy that was used then when I came in was ‘to hit the numbers that we should be able to achieve is like filling up a swimming pool through a straw’ ... you have to widen your distribution” amount of staff we had when I joined in July,” Alex explains. This means that there are now five face-to-face BDMs, five internal BDMs, and dedicated underwriters, processors and completions managers. “So, if I’m a broker, I have five people all the way through that I have direct contact with so that every stage of the process I’ve got somebody I can talk to,” Alex says. “And that has been just like gold dust to brokers.” Since redefining the specialist mortgage offering, the BDMs have been on a mission to educate its existing distribution. It has also been key—greatly assisted by the knowledge of its BDMs and Alex, Matthew and Charles—to identify brokers which specialise in their areas, as well as those that see specialist finance as a growth sector. “We are not going fully whole of market,” Alex confirms, adding, “it’s not a numbers game.” She tells me that there are lots of brokers within the mainstream market that can see the opportunity to develop into specialist finance. “We want to work with those guys,” she says, highlighting that the bank wants to assist and educate them. “It’s not just about picking the brokers that we all know,” she adds. “There’s masses of brokers out there that want to get into the specialist [market] that just need that support, and that’s what BDMs are there for. I’m a massive advocate of BDMs; they are crucial, now more than ever.” In her previous roles, Alex claims they had a very clear ‘80/20 rule’—whereby 80% of business was coming from 20% of their distribution. “I am really, really set on not having that again,” she says, adamantly. “You spend a lot of time talking to brokers, onboarding sectors, and if they’re not going to be in your areas, then that is just a lot of wasted time and energy,” she explains. When Alex joined the bank, it had a total of 35 brokers on its panel. “The analogy that was used then when I came in was ‘to 16 Bridging & Commercial
hit the numbers that we should be able to achieve is like filling up a swimming pool through a straw’ ... you have to widen your distribution.” Fast forward six months and it has grown to almost 300. It is anticipated that by the end of this year the figure could hit the 700 mark. That’s almost a 2,000% increase in brokers—and these numbers exclude networks. Currently, HTB is at contract stage with five big networks. “There’s some big AR numbers out there, but onboarding 3,000 ARs is not going to add value to anybody—the networks, the brokers or us. So, the conversations we have had with networks are, ‘Let’s identify who the brokers are that are specialising in our sectors and let’s deal with them…’” I ask Alex what the broker figure could potentially look like if she was to include the networks. “I would say from each network, there is going to be 10–20% of their AR distribution that are real specialists in these markets. And with the ones that want to step into [specialist], I would say we would take 30% of each network. So, I think we would be looking at 1,000–1,500 by the end of the year.” The specialist mortgages division expects 200% year-on-year growth as a result of all the changes. Considering that January was already 350% ahead of target, I don’t think it will be a stretch.
Specialist mortgages
Complex lending Seamless delivery I’m excited to introduce a new specialist team that provides a range of tailored yet simple solutions for your clients. We aim to give you the best of a specialist lender supported by the strength of a bank. In doing this, we don’t just commit to the deal, but the whole journey. We’ll ensure you have a dedicated case manager, underwriter, completions officer and servicing experts to keep the deal moving. This means you get the best possible end-to-end service from a specialist banking partner that thrives on a challenge. Get in touch, you might be surprised to hear what we can do.
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Innovative product range from £100k to £15m
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Up to 75% Net LTV lending (Arr. fees can be added)
Lending to
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Expats
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Trusts and offshore
HMOs
Foreign nationals
Semi-commercial
Specialist BTL
Semi-commercial
Charles McDowell, MD Specialist Mortgages Call me on 07785 576554
Bridging
T: 020 7862 6244 E: specialistmortgages@htb.co.uk FOR INTERMEDIARY USE ONLY | © 2019 Hampshire Trust Bank Plc is authorised by the Prudential Regulation Authority and regulated by the Prudential Regulation Authority and the Financial Conduct Authority. Our FRN number is 204601. We are a company registered in England and Wales, registration number 01311315. Registered office: 55 Bishopsgate, London EC2N 3AS. Hampshire Trust Bank, HTB and
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I
n the last issue of Bridging & Commercial, we explored the true growth of the bridging market and the lack of improvement in conversion rates. This time around, I examine how the lack of change in where the bridging market is getting its distribution from is possibly having an impact on these factors. If this were to shift going forward, what sort of influence could this have on the success of the sector? According to the Association of Mortgage Intermediaries (AMI), there are currently around 13,000 mortgage and protection brokers, 4,000 investment advisers (who also do mortgages), and roughly 4,000 mortgage advisers employed by lenders, either in branch or on telephone. This is said to be split roughly 50:50 between directly authorised (DA) and appointed representatives (ARs). A freedom of information request from Bridging & Commercial to the FCA also revealed that there are 13,230 introducer ARs versus 5,315 DA firms. This is a sizeable pool of AR introducers. But, are bridging lenders making use of this opportunity? To find out, I contacted 30 bridging lenders of all shapes and sizes to understand where their bridging business was originated from in the past two years. Our research found that the way that lenders’ bridging business was originated had barely changed in 2017 and 2018. Looking at the average over the two years, intermediaries stood steady at 57%, followed by packagers, master brokers and distributors at 24%. Direct and ‘other’ business tallied at 16%. Interestingly, I found that a mere 2.6% of business was derived through networks in 2018. Again, this figure has hardly moved since 2017 (2.1%), hinting that—over the past two years—the number of network ARs in the bridging space has not changed. This is despite bridging interest rates hitting record lows and the industry, according to some observers, becoming more ‘mainstream’. Is the figure representative of the industry? When I contacted a variety of mortgage networks to understand why the number was so low, I was surprised by the lack of responses to my questions. In some instances, I was told that bridging wasn’t really ‘their bag’ or simply just a subject they didn’t want to comment on. Was this a
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tell-tale sign of why networks originated the least amount of bridging business out of all other distribution channels last year? Vikki Jefferies, proposition director at mortgage network PRIMIS and PTFS, feels that this figure is likely to be a fair representation of bridging originations. “Bridging isn’t a core activity for many networks. The majority of advisers are working hard and doing a great job of managing mainstream lending business, particularly in the remortgage and purchase markets,” she explains. “That’s not to say we don’t deal with bridging cases within our network—they just tend to be in more niche cases.” This makes sense, considering the value of gross mortgage advances in the year to Q3 2018 stood at £73.5bn, a stark contrast to the annual UK bridging completions figure, which was said to be around the £4bn mark. Regardless, it’s important that ARs are still aware and able to offer bridging finance as a solution, if needed. Rory Joseph, director at JLM Mortgage Services, says that as most mortgage networks primarily deal with first charge mortgage business, he expects the figure to be low. “Many larger networks do not allow their brokers to advise on bridging at all, or restrict their ability to do so, which has a significant impact on business origination,” he claims. “Despite the MMR changes, bridging lending is often wrapped up with commercial lending in many brokers’ minds, hence is often shied away from.” Despite this, he is surprised the figures have barely changed year-onyear. “We have seen a significant increase in our own bridging business over this time period. We would question why this is not the case with other networks, given that they hold themselves up as providing whole-of-market, holistic advice.” Helen Harris, director at Julian Harris Adviser Networks, claims that regulated networks offering both regulated and unregulated bridging have comprehensive affordability and suitability procedures, meaning that business from networks is lower risk to lenders in terms of borrower defaults—particularly in times of recession—and for advisers in terms of future complaints. “Non-regulated bridging brokers are not constrained necessarily by ‘responsible lending’ and evidencing suitability and affordability,” she claims, believing that this largely explains why less bridging business originates through networks. Despite this, she feels the 2.6% figure is likely to be inaccurate as many bridging cases are originated by networks but does not get accurately recorded by lenders or their distribution partners. A spokesperson from TenetLime believes 20
Bridging & Commercial
the figure to be “very low” based on how much mortgage business goes through networks, with bridging being much more specialist and requiring advice. Despite this, when I ask how much of its AR members’ business currently goes to bridging lenders, it says it makes up circa just 0.3% of its overall business. Kevin Thomson, sales director at Connect for Intermediaries, a specialist network, says that the demand is there from its members, however, the split of its business can’t be compared to other networks as its residential mortgage business will be proportionally smaller, while its BTL, commercial and bridging will be larger. As a result, Kevin disputes the 2.6% figure. Synergy Commercial Finance, another specialist network, has also seen strong growth in enquiries, with bridging completions more than doubling from 2017 to 2018. This is supported by the growing number of commercial brokers joining the network, but is also closely linked to the work it has done with its partners to enhance knowledge and understanding of the sector. “Synergy only recruits individuals with relevant sector experience resulting in good levels of engagement across all the sectors we operate in,” says Piotr Twaits, sales director at Synergy Commercial Finance. “Other networks’ roots and recruitment policies are different to ours, which may explain lower engagement within the bridging market.” Synergy runs regular CPD events to support knowledge and understanding. “We have had strong feedback from our commercial brokers stating that bridging forms a vital part of the offering they have. Without bridging availability, they would struggle to deliver transactions.” Curiously, Vikki believes that the need for quick outcomes and short-term access to funds, which bridging loans provide, has actually lessened over time. “This is partly down to lenders going to great lengths to widen their lending criteria, product ranges and rates, making their core products much more accessible to customers,” she says, adding that efficiencies, such as speeding up the end-to-end mortgage process, have also reduced the need for bridging. “While bridging certainly has its role to play in more complex cases, there are now a huge range of products available on the market, providing customers with a range of options.” Robert Sinclair, chief executive at AMI, echoes this, saying that for residential consumers, there is “limited demand” for bridging finance. “In the areas of development and commercial finance where bridging finance provides a vital component, there are a wide range of specialist firms and advisers who deliver great solutions.
“MANY LARGER NETWORKS DO NOT ALLOW THEIR BROKERS TO ADVISE ON BRIDGING AT ALL, OR RESTRICT THEIR ABILITY TO DO SO, WHICH HAS A SIGNIFICANT IMPACT ON BUSINESS ORIGINATION”
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Most regulated networks prefer partnerships with these specialists who take responsibility for the advice and packaging of cases, while sharing the income generated. This is a better result for all involved in the transaction.” In fact, the latest lending survey from the ASTL showed that bridging lenders increased their lending by nearly 15% in 2018 compared with 2017, highlighting a healthy and growing demand for bridging finance. “Processes may have sped up, but a mortgage still takes longer than bridging and, in any case, speed is usually not the main factor in choosing a bridging loan,” argues Benson Hersch, CEO at the ASTL. “Bridging by its very nature is an interim solution, often the property or the customer’s business are not yet ready for long-term lending criteria.” Adam Tyler, chairman at the Financial Intermediary & Broker Association, believes there is a difference between the need for a mortgage on a property and the reason why a bridging loan is the best option. “While there will be a need for quick finance to secure the property, this is a small percentage in comparison to the real demand for a bridging loan, whether it is for development, refurbishment, development exit, auction purchase [or] any other number of reasons that fast, short-term finance is needed.” However, Adam explains that if the legal process takes as long for a bridging loan than it does for a mortgage, as long as the property is mortgageable he can see how this would affect the figures. A lack of distribution from networks could be due to a number of reasons, where I found that one network’s ARs could do bridging, but it wasn’t something that was ‘promoted’. Benson tells me that some ARs are “woefully ignorant” of
the uses of bridging, and knowledge of how to go about getting a bridging loan and what the costs are is not widespread. A recent poll by Bridging & Commercial found that 92% of industry professional respondents did not think that mortgage networks sufficiently educated their ARs on bridging finance. But why would a network not actively educate their members on this product? It could be down to regulatory complexity. Gemma Harle, managing director at Intrinsic’s mortgage network, says that it is “challenging” for most mortgage advisers to stay up to date and competent and, for this reason, it refers to specialists when it comes to bridging. Is the majority of AR business going through Specialists? Specialists can include master brokers, packagers and distributers—a powerful channel which both historically and continually supports the bridging market. Keeping up to date with the criteria of a growing number of providers can be a chore—and completely off-putting to those who are not experts in the field. Steph Charman, specialist relationship manager at major network Sesame Bankhall Group, says that mortgage networks will have master brokers or specialist distributors within their proposition, where advisers can refer their bridging enquiries. This means that the amount of business originated through networks could be much higher. “Although only a small percentage would have been written directly by network members, a large percentage of bridging finance completions via the master broker sector would have initially started as a network member enquiry and referral,” Steph claims. Understanding the true volume of 22
Bridging & Commercial
A large percentage of bridging finance completions via the master broker sector would have initially started as a network member enquiry and referral
business originated through networks could therefore be difficult as the client may be advised by the AR or through a packager, begging the question: is this network or packager business? It transpires that not all bridging lenders have the systems to recognise the network in the process and transaction. With advisers already busy looking after their existing customer base, when a potentially ‘out-of-thenorm’ case appears, referring the case to a business which is an expert in that area is said to be a common solution. “What would be interesting to see would be whether master brokers have seen an increase in the bridging referrals received from mortgage networks,” Steph says. “One bridging partner Sesame works with has seen a 40% increase from 2017 to 2018 in the number of bridging enquiries being referred to them by our members.” The true measure Specialist packagers Crystal Specialist Finance, Clever Lending, Impact Specialist Finance and TFC Homeloans saw a year-on-year increase in bridging from ARs last year (with one growing as much as 15%), implying that referrals from ARs to packagers and master brokers may be more popular than going directly to lenders. The proportion of bridging business the packagers I spoke to receive from ARs ranges between 30% and 75%—a notable amount. Clever Lending reveals that previously the bias towards DA was more pronounced, however, it saw a “definite swing” towards ARs last year. This growth could also continue due to the fact that Clever recently secured one of the larger mortgage networks as a partner and is also now offering regulated bridging advice as a service. Paul Day, sales development
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director at Clever Lending, said that its in-house regulated bridging advice gives the networks reassurance that all representatives are able to deal with bridging cases appropriately and Clever takes responsibility for the advice. “Networks carry the responsibility of all their advisers and have to put sales processes in place to help protect everyone within the advice chain, including themselves, advisers and clients. Plus, they need to make sure all brokers, including those who may be less experienced in specific areas, such as bridging, are able to provide sound and compliant advice.” Impact Specialist Finance expects its bridging enquiries derived from ARs to further increase as networks become “less excited” about their ARs’ involvement in the bridging sector. “A number of these no longer grant permissions and their members need to outsource this business totally,” claims Dale Jannels, managing director at Impact Specialist Finance. On top of this, the legal requirements of a bridging loan are often seen as more complicated than a normal conveyance and can be frustrating if the client’s lawyer is not in tune with bridging requirements. “The incidence rate of client dissatisfaction and fall-outs can also mean much unrewarding work is undertaken,” says Dale, adding, “we expect the level of enquiries and deals passed to us to increase as ARs are both limited by their network permissions and, where they have permission, the frustration of not being certain that the urgent workload will bring rewards.” Roughly 75% of Thistle Finance’s business comes through network ARs, however, it doesn’t expect this to change materially in the near future. Mark Dyason, managing director at Thistle Finance, says that as network ARs tend to focus on highvolume mortgage and general protection transactions, they’re therefore far less likely to have the time, or feel the need, to venture into new areas where they will not necessarily have the right contacts, knowledge and experience. “For them, quite rightly, bridging and other areas of specialist finance can be a time-consuming and
unnecessary distraction. They can boost their revenues simply through referring clients on.” Brightstar Financial and Thistle Finance’s business from ARs remained fairly consistent over the past two years, however, Rob Jupp, CEO at Brightstar Financial, tells me that the volume of enquiries has increased. “As landlords have seen their margins squeezed by increased tax and regulation, more traditional BTL investors are looking to alternative opportunities, such as refurbishment or HMOs, and bridging lending provides an excellent stepping stone for investors to move into these areas.” Success rates Wayne Smethurst, managing director and head of specialist at TFC Homeloans, says that despite its surge of enquiries from ARs last year, there seems to be an increase in the quality of DA enquiries with a better conversion rate, resulting in a higher percentage of overall completions, even with a lower proportion of enquiries. “This may have been a result of the large number of new entrants in the bridging space in 2017 and lenders promoting themselves more aggressively to DA intermediaries,” he suggests. “It would be quite typical for a DA broker to use a packager to help assess a case as part of their research, but ultimately decide to approach a lender directly. The more accessible and numerous lenders are the more this happens.” Wayne explains that the alternative to using a packager with a whole-of-market representative panel is to send the proposal to multiple lenders—a costly and time-consuming exercise for all parties. “Network ARs are usually mindful of their network restrictions when researching the market and very often require their packaging partner to become more involved in the advice process, whereas a DA can simply make a choice to advise the client themselves or hand off at quotation stage.” If networks do have certain restrictions when it comes to bridging finance, could we see more ARs working with lenders directly? If so, it is important to understand what impact this could have on ARs’ involvement in the bridging market and their conversion
rates. Daniel Hill, divisional sales manager at Roma Finance, says that working with networks could mean receiving a more “varied quality” of application, as not everyone fully understands the bridging market or process. “Sometimes there can be a level of education required if the enquiry comes directly from [an AR] broker as they generally do not deal with many bridging enquiries,” adds Richard Deacon, sales director at Masthaven. “These are more complex in nature, but this isn’t an issue and we are more than happy to knowledge share. If the enquiry is from an approved packager, it is generally of very good quality.” Adam Davies, CEO at Westgate—who acted as a broker for over 20 years—said that his brokerage MPI had transitioned from AR status to DA, and he did not experience much difference in accessing and understanding the bridging market. As it rarely did any regulated bridging, the bridging it did do was unregulated and, as a result, fell outside the scope of the compliance requirements of the network it was under. “I would consider we do more bridging now as a company than before as it’s becoming more of a funding factor for clients looking to buy and complete quickly on properties with tight deadlines more so now than in years previous.” While networks can help educate its members on bridging finance and the vast numbers of lenders that operate within the market, the onus isn’t just on the former. Both sides of the equation need to work together to ensure more brokers are aware of and understand the bridging market. One thing I found interesting was the differences in the number of bridging lenders that each network I spoke to worked with. A few worked with as little as nine or 10 lenders, whereas some were working with 20 up to whole of market. Considering there are roughly 50 well-known bridging lenders in the market, should all networks have more lenders on their panels to ensure all the ground is covered? Are 10 lenders enough? The amount of regulated vs unregulated business that filters through networks could be a reason as to why some networks only
23 Mar/Apr 2019
“A network educating their members on the fundamentals of bridging finance would in turn translate to larger lending opportunities to support their clients and could help them to achieve the best customer outcome�
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have a limited number of bridging partners on their panel. If networks have relatively little unregulated bridging business, lenders offering solely unregulated bridging are less likely to be an attractive partner. It has been claimed that networks have used their scale and membership numbers to negotiate “exceptional” commercial deals with lenders which are happy to buy volume and distribution for little profit. Colin Sanders, CEO at Tuscan Capital, tells me that this approach may work in a mainstream market where the processes and systems can be automated and the lender can enjoy the benefit of these volume efficiencies, but the model is “far more challenging in a specialist lending market where the costs of funds are higher and risk assessment cannot be easily automated”. Michael Strange, director at Funding 365, feels that some networks rely on a computer-assisted decisioning model which simply refers a lead to a specific lender given an advertised rate and LTV. “This approach does not take into consideration elements which underlie many bridging loan enquiries, such as refurbishment plans, defects with the property structure or title which may need to be resolved, or a simple matter of a rapid completion timetable. It is my suspicion that many (particularly more complex) bridging enquiries die in these scenarios given the fact that the lender chosen by the network’s system is not necessarily the correct lender for the specific enquiry.” Are bridging lenders actively reaching out to work with networks? Lenders will be thinking about the costs involved and the possible impact on their other distribution channels. Avamore Capital reveals that, historically, it wasn’t “appropriate” for networks as its cost of capital made it prohibitive to pay the necessary procurement fee. “We have a little [bit] more flexibility now and so may be able to work with more networks,” says Michael Dean, principal at Avamore Capital, following a recent diversification of funding. Ian Broadbent,
director at HFBS, claims that networks are typically looking for “exclusives” and enhanced procurations to make the prospect viable. “We have a significant and very loyal introducer base and do not wish to exclude any of our introducers from products or to provide preferential procurations to one over another.” It also seems that, as networks take a share of the fees, lenders need to consider that margins may be further tightened, and profits limited in return for volume business. “I have always viewed the lendernetwork relationship as a double-edged sword, with the balance in the relationship often weighing far heavier in favour of the network,” says Colin. “The lender often finds itself financially squeezed by the network and with much of the burden of administration resting with the lender too. So, in my experience, wearing my lender hat, these relationships can end up being something of a lose-lose in the chase for volume.” The upside, however, is that the lower profit per transaction could potentially be offset by the fact that there are a lot more transactions. I was told that networks haven’t historically actively sought relationships directly with bridging lenders, but that is starting to change. A number of them are said to be putting in place direct-to-lender options for bridging—handled via internal compliance teams and mortgage desks or via the AR themselves—and lenders are viewing this as an opportunity. So much so, that Gavin Diamond, commercial director of bridging at United Trust Bank, tells me that it recently appointed a national distribution manager to assist in developing the bank’s activity in this area. The directto-lender proposition can also complement networks’ existing packager relationships and offer more choice to their ARs. “As part of our roll out, we’ve engaged with all network partners to discuss options and opportunities, and we’re working with a number who are actively encouraging and supporting members who are currently writing bridging loans or wish to enter this sector,” says John Truswell, head of national
accounts at Together. That attraction is clear. Major, established networks account for a significant number of ARs, which could materially support the growth of lenders, and the bridging finance sector as a a whole. This is also a time-efficient way to gain a larger market share compared with having to market to individual brokers. “A network educating their members on the fundamentals of bridging finance would in turn translate to larger lending opportunities to support their clients and could help them to achieve the best customer outcome,” says Gareth Lewis, commercial director at MT Finance. Lenders are also keen on educating network members themselves. “We would like to work more closely with networks and provide them with any required training sessions on how bridging can help their clients and the factors that lenders consider when evaluating new loan enquiries,” reports Josh Pedder, BDM at Pivot Finance. Reviewing the numbers While there is a growing appetite from lenders to pursue network partnerships and a marked uplift in AR business from master brokers and packagers in the last year, why don’t the figures add up? Some networks, especially the specialist ones, dispute the figures due to how lenders are recording them. It does seem that if there are fewer ‘restrictions’ on allowing network members to deal with bridging finance and further educational support from all parties, not only could this help increase conversion rates in the market, but could also open up thousands more brokers to the sector. One thing that is important is to ensure that if we do see a rise in the use of the network distribution model, other channels which have loyally supported and strengthened the sector are not excluded from products as a result, as this won’t help to grow the market—and could end up being a wasted effort.
25 Mar/Apr 2019
BRIDGE
“There is an app for phones, tablets and browser plug-ins as well as the web-based app meaning that everything is once again synchronised across all devices and, importantly, across all participants.”
“You can share documents and updates and work together on items very efficiently. I picked this app up from my work in the software sector, but it is readily transferable to any environment.
“When that works, you essentially have a shared list of everybody’s activities and priorities making oversight and support easy for all.
How it helps brokers: “Trello comes into its own when you share boards or cards with teams or individuals, but that does require their opt in,” says Matthew Arena, managing director at Brilliant Solutions.
You can prioritise, drag and drop, schedule, allocate responsibilities, create checklists, upload files, keep an audit trail of activity and much more.
It is an organisational and planning tool that is based on teams, boards, lists and cards.
What does it do? Trello allows users to manage projects and organise any business activity.
TRELLO
“With the Pocket app, I can now bookmark everything I want to read, and find the important industry news quickly and easily when I have a moment to catch up.”
“Trying to find those articles hours later used to be really frustrating.
“With busy days of seeing clients, meeting lenders, supporting my team and the general day to day, I can’t always read something there and then.
How it helps brokers: “Keeping up to date with industry news is really important to me, but we live in a fast-paced world and news comes from lots of different sources—emails, online, social media etc,” comments Lucy Barrett, managing director at Vantage Finance.
The software has an easy-on-the eye reader, which transforms content as diverse as a PDF or cluttered blog page into simple text. You can store and tag items, too, for easy recall.
It synchronises the browser plugin and website with the phone and tablet, which all work seamlessly. It also works offline so you can catch up on your content wherever you are and whenever works for you.
What does it do? Pocket allows users to save interesting articles, videos and more from the web to use later.
To find out what we should all be downloading to our devices, Bridging & Commercial asked a selection of industry brokers about the apps they can’t live without in their professional lives.
Streamlining business is of prime importance to brokers in the specialist finance market due to the speedy nature of the sector. Luckily, there are a number of helpful apps that can assist with day-to-day tasks.
Can you be more efficient?
“I have shared it with some of my team that also have multiple responsibilities, and the app allows us to collaborate on projects with joint tasks.”
She adds that if she can think of something that would be good to share at the next team meeting, she will scratch pad the idea ready to add to the agenda. She can also add full notes, add attachments and set alarms.
“I can also use it as a scratch pad for ideas, as I don’t need to set a follow-up date for every entry.
Liz adds that the tool also links with her Gmail, so when she receives an email that requires action, but not immediately, after one click it is sent straight to Todoist to the relevant category and she sets the date for when she plans to follow it up.
“One minute I am involved in marketing, the next I am launching new initiatives to the business and the next I am talking with prospective new network members about how we can help them grow their business.”
How it helps brokers: “As the CEO, I am involved in so many different areas of the business,” says Liz Syms, CEO at Connect for Intermediaries.
Users can also set priorities for those tasks and set dates for when the tasks need to be followed up.
The app allows users to set tasks into different categories depending on the area of the business they are working on.
It syncs across all the user’s devices and integrates with all their favourite apps.
What does it do? Todoist keeps track of all the user’s tasks, projects and goals in one simple place.
TODOIST
“We file them for each introducer and can help assess who is giving us the most deals etc.”
How it helps brokers: “We can recall any deal that a client or broker may call back on months after the initial chat,” says Andre Bartlett, director at Capital B Property Finance.
It also reduces paper used and wasted.
The notes transfer into the file electronically, meaning the notes taken are accurate from the initial meeting and nothing is forgotten.
What does it do? Penultimate is a free-to-use app which allows users to handwrite meeting notes and business ideas and save them to their iPad.
PENULTIMATE
The app also provides invoice tracking, payment reminders and time tracking to ensure users don’t miss billable moments.
Invoice2go also has expense tracking, whereby users can take a photo of receipts and safely store it within the app.
Users can also easily upload their own business logo, or create one in minutes using its logo designer.
The app allows users to create a customised invoice with its range of templates.
What does it do? Invoice2go aims to provide all the tools you need to run your business by spending less time creating invoices.
INVOICE2GO
Meanwhile, its API enables embedding and connecting DocuSign with customers’ websites, mobile apps and custom workflows.
DocuSign’s platform has over 350 pre-built integrations with popular business apps.
Services range from preparing agreements to signing them, enacting and managing them from across the world on any device.
The app’s e-signature technology allows companies of all sizes and across all industries to quickly modernise and digitise the entire agreement.
What does it do? DocuSign is a free-to-use app which aims to accelerate business and simplify life for companies around the world.
DOCUSIGN
Waze is also home to a community of online map editors who ensure that the data in their areas is as up to date as possible.
After typing in their destination address, users can drive with the app open on their phone to contribute traffic and other road data.
The app helps drivers to avoid traffic jams or reduce the journey time of their regular commute by showing new routes.
What does it do? Waze provides traffic info and directions to users—perfect for brokers who are often on the road to visit clients or attend industry events.
WAZE
The service’s simplicity and utility—no frustration, no cost, no plug-ins, and near-instantaneous sharing of screens— has attracted millions of loyal users.
LogMeIn has connected over 300 million devices worldwide and its services are used by more than 15 million people to quickly, simply and securely collaborate, manage and engage with each other and the world around them.
Users can access different tiered subscriptions which allow different numbers of participants to be in each meeting.
Whiteboarding allows everyone to use the same page with a mobile whiteboard, whether on a desktop, tablet or mobile device.
What does it do? Powered by LogMeIn, Join.me provides a range of meeting-style services to individuals, businesses and IT organisations, including video and audio conferencing, screen sharing and whiteboarding.
JOIN.ME
Its segmentation feature allows users to drill down into subsets of their contacts to find specific people to take actions, such as sending group email messages.
The app delivers sales intelligence by enriching company details, including industry, company size, location, employee count, revenue and more to help target the right companies.
Nimble works by building itself from the data around a user’s business, from their Google or Office 365 contacts, calendar activities and social and email conversations.
The app helps users to identify the right people for their business to reach out and connect with and turn conversations into measurable outcomes.
What does it do? Nimble aims to make it easier for users to be more productive and successful by providing them with a social sales and marketing CRM that is simple to use.
NIMBLE
“It also enables us to set tasks across the team and liaise internally.”
How it helps brokers: “Capsule allows us to keep on top of cases, gives an overview of the team’s pipeline and allows us to stay on top of our targets,” explains Catherine Lidgley, marketing and engagement manager at Pilot Fish.
You can also create, complete or assign tasks to your co-workers.
It allows you to display tasks, cases and opportunities for all users, so you can see the latest activity from your co-workers.
Available on both iOS and Android, users can view tasks for the day and update them easily through the mobile app.
What does it do? Capsule Mobile is a management app which allows users to view messages, start calls, send emails and manage meetings from their phone.
CAPSULE
Zeitgeist
( R e ) considering re-bridging
Words by
caron schreuder ith just a few lenders consistently offering the option to take out an existing bridging loan as part of their product suite, rebridging, it can be said, has carried a certain stigma within a market that has come a long way reputationally speaking. However, with re-bridging on the rise, it poses the question: what is causing this surge? As a loan purpose (a term contested by some who see this type of lending more as a result of unforeseen circumstances than a ‘purpose’), re-bridging has increased steadily since 2015, from an average of 8% to 14.75% in 2018, according to figures compiled by Bridging Trends—overtaking both auction purchase and business purposes. It reached a peak of 17% in the Q4 2018 data results, making it the fourth most popular reason for taking out a bridging loan for that period. Conscious of the fact that Bridging Trends—while a well put-together and widely accepted barometer of
the market—is only determined by a relatively small data set, we went about gauging what the market thinks of this pattern and the reasons behind it. Lenders and brokers alike are largely aligned in the view that levels of re-bridging enquiries are up. Gareth Lewis, commercial director at MT Finance, says that it has seen an increase in the number of applicants seeking a bridge to take out an existing bridging loan. “There are multiple reasons as to why these circumstances present themselves. In some instances, the applicants themselves were unrealistic about the time that would be required to execute their exit strategy. In some, it appears applicants were not well informed as to the availability of longer terms. What’s more, transactional delays have meant an increase in the number of loans reaching maturity before the exit has been realised, ie development projects over running due to unforeseen circumstances. We’ve also seen a stagnating 30
Bridging & Commercial
sales market impact the average time to sell.” Gareth introduces three common reasons why a borrower may want to move consecutively from one bridging loan to another: weaker than desired exit strategies, or those that are not sufficiently scrutinised; gaps in advice, particularly related to the term of the loan; and a current property market which does not guarantee or support timely sales. Most of the people we spoke to conceded that ‘hope value’, a slowing transaction cycle and restricted refinancing options were significant contributing factors. Robert Sterling Surveyors, while not a lender, is very much at the front end of the re-bridging process and tends to see many of the cases come back to them for re-evaluation. “Applicants wishing to re-bridge are consistently being caught out by their own estimate as to value,” says Gary Feast, its finance director. “It is rare that a property that was valued over a year ago will reach the same level of value in the current market.” Gary adds that, on this basis, the margin for both the applicant and the prospective new lender, with regard to LTV, is squeezed. In these circumstances, he claims that re-bridging may not even be achievable and if a case can be placed, it will inevitably be eating into the equity in the property. Here, re-bridging seems to be a consequence of the applicant not securing a sensible and realistic exit before the original bridge. Addressing the apparent reluctance of some lenders to provide the finance to exit an existing bridge, Gareth says: “In part, we assume this is due to a perception that the exit risk is higher. However, taking a broadbrush approach to discounting applications on this basis threatens to prejudice applicants who may have been either ill-informed when taking the original loan or who just genuinely require additional time.” We asked whether lenders’ attitudes to rebridging had in fact changed and responses were mixed. Edward Horn-Smith, managing director at brokerage Arc & Co, doesn’t think they have. “[Bridging] lenders are a lot less likely to re-bridge a bridge. This is because [usually] the borrower has not
Zeitgeist
fulfilled the purpose of the original bridging loan. The fact that someone is looking for a re-bridge is typically because they haven’t sold the property or gained the planning consent they hoped to achieve or were unable to refinance onto a longer-term loan. If they were unable to achieve this with their existing bridge, why would a further bridge loan benefit?” However, Wesley Davidson, director at Fox Davidson, maintains that he has found lenders to be much more receptive to re-bridging of late, and believes that rebridging does work in the right scenario. Although, Wesley outlines that in two such cases, the clients have taken out bridging finance at the highest possible LTVs and their original exit was the sale of the properties. “These clients have not been able to sell, mainly because of their unwillingness to take an offer below which they feel the properties are worth. They are now looking at re-bridging and these clients, I am afraid, will not be able to get lending as the new loan plus interest will take them way above 75% LTV. That also doesn’t factor in valuations at 90/180 days, which could see the overall LTV rise even further.” But what is ‘the right scenario’? Extensions for planning, where one cannot be granted by the existing lender; time to account for delays in labour, materials and rising construction costs; and moving with the natural “lifecycle” of the transaction came up as examples. The hugely increased availability of competitive rates casts a different light on re-bridging, according to Chris Whitney, head of specialist lending at Enness Global Mortgages. Bridging lenders have extended their remit and funding capabilities which enables them to provide finance at more junctions in the duration of the loan. “There is a perception that re-bridging is a bad thing, which I don’t agree with. Quite often it is just borrowers changing lenders as a transaction goes through its expected lifecycle. For example, a bridging loan taken for six months to get planning permission, then another loan taken out with another bridging lender. With bridging lenders
reducing cost of funds, they can often be more efficient to use than, say, a more traditional development loan from a high street bank,” says Chris. On this note, brokers may want to consider taking a longer-term view on the transaction and work with lenders that have the appetite and ability to offer solutions further than simply the bridge they’re in. Edward’s mention of the “benefit” of rebridging hints at the appropriateness of the product. A theme in our research centred on the necessity—and willingness—for revisions to be made to a client’s proposal to justify the re-bridge. These changes could include a reviewed sales and marketing strategy and approach to exit. When it comes to doing what’s right for the customer, and given current market conditions, Jon Salisbury, managing director at Ortus Secured Finance, suggests that being diligent when selecting a lender is vital. “It is more important than ever that brokers choose lenders with long-term committed funding lines which they genuinely control. This means sensible discussions can be held if extensions are necessary rather than forcing a borrower into an expensive and uncertain re-bridging excuse.” While the exact cost of a re-bridge— alone or in relation to a standard bridging loan—is usually assessed on an individual basis, chatting to several industry experts revealed that working with and being supported by the existing lender, often through a renewal of the bridging loan, will work out best for the client. Renewals are generally subject to a fee, but little to no legal and valuation costs. Much of the ability to go down this route is dependent on the broker’s skill in re-presenting the case to the lender. Thereafter, should things still not go according to plan, default interest fees are likely to kick in. One broker did highlight the fact that introducers will not typically get a procuration fee for renewing a loan, and it was also pointed out that taking a borrower from one lender to another may result in the loan not in fact going head, and the
“It is really important for us to be able to see how our clients will manage the re-bridge and guide them away from a decision that could be detrimental for both parties”
31 Mar/Apr 2019
Zeitgeist
Despite re-bridging being increasingly plausible to more lenders, it is in most cases an inherently higher-risk loan. Something, somewhere along the line has resulted in the loan failing to redeem and this means that the ‘story’ is likely to have a twist or two.
application of legal and other charges. However, if you are dealing with a lender who is known to apply default interest from day one of the loan term expiring, taking the opportunity to move them on to a new lender may be the best option. Despite re-bridging being increasingly plausible to more lenders, it is in most cases an inherently higher-risk loan. Something, somewhere along the line has resulted in the loan failing to redeem and this means that the ‘story’ is likely to have a twist or two. Mark Dyason, managing director at Thistle Finance, says: “…Two years ago a re-bridge probably wouldn’t be required as the chances are the property would have sold. But when looking at re-bridges in the current market, lenders are going to underwrite them far more strictly and want to see a viable exit strategy.” He states that a re-bridge by its very nature comes with a bit of baggage attached to it and, in today’s environment, it’s baggage that some lenders could do without. “Re-bridges are certainly not right for the borrower if they have not found an alternative way to exit the loan,” he explains. “For example, by lowering the sale price of a property.” Natalie Jones, business analyst at Bridge Invest, also claims that it is seeing more enquiries of this kind. “As we are seeing a greater number of these cases, we are
keeping our wits about us, but our overall attitude has not changed. Our methods of due diligence remain focused on the security itself and the exit strategy of the borrower, which protects our interests comfortably. Given that we require a current valuation and we perceive less downside risk in London, due to the recent correction in the market, our approach to re-bridging remains rational.” From a broker’s perspective, Edward states that he is looking out for his clients’ interests and needs to see that the lender will get their money back. “The big factor here is sales risk. It is really important for us to be able to see how our clients will manage the re-bridge and guide them away from a decision that could be detrimental for both parties,” he explains. It transpires that a rise in re-bridging could also be a direct result of other lenders exiting the market. Michael Strange, managing director at Funding 365, claims that it saw a small surge of re-bridging enquiries when Amicus [Finance PLC] went into administration. “Aside from that—and unlike development exit bridging, for which we see many enquiries each day—we’ve not noticed a particular increase in bridging exit enquiries at Funding 365.” This could be, according to Michael, that Funding 365’s “sweet spot” is relatively low-risk bridging 32
Bridging & Commercial
and it’s possibly not the go-to for re-bridging applications. Andrew Lazare, managing director at Mint Bridging, claims that, while it has always seen a steady stream of re-bridging enquiries, there is no doubt that in the last three months, the number has increased. Like many lenders, Mint looks at each loan on a case-by-case basis. “Many of these opportunities we’ve seen are a result of lenders either closing down or running out of funds part-way through a project,” says Andrew. “Ultimately, they can’t release the balance of the monies on retention, to complete the works. This has left borrowers in a dire predicament needing to look elsewhere for fresh funding to complete projects.” Indeed, some commentators place the responsibility for the increase in this type of lending squarely with the original provider’s underwriting. But, is it the duty of other lenders to take out a bridge—and potentially take on more risk—in order to ‘save’ a customer from becoming a potential ‘loan prisoner’? Daniel Hill, divisional sales manager at Roma Finance, comments: “The main reasons for [the increase in re-bridging enquiries] are previous lenders not structuring the loan correctly from the outset and problems arising due to poor
Zeitgeist
underwriting processes. Another common reason is when the bridging company runs out of money and hasn’t got the funds to complete the development or renovation. In these cases, the whole bridge is refinanced with additional funds to the borrower to finish the works on the property.” Clint White, director at Fiduciam, voices the opinion that in the current environment where sales and refinancing seem to be taking longer, lenders should adapt to this. “So, if loan terms have not increased, it is reasonable to expect more people will need to refinance their bridging loans. Additionally, there seems to be a trend of ‘book-churning’, whereby lenders do not allow loan renewals or extensions.” He adds that bridging lenders need to look at extending loan terms— as well as having the correct term at the outset—to ensure there is sufficient time for the borrower to refinance, sell or obtain planning on their property. Clint believes that it is also important for lenders to ensure there is robust postcompletion monitoring in place to ensure that the borrower’s exit is on track. Gary Bailey, managing director at Hope Capital, claims that there is more funding and more lenders that are coming into the market who may not be able to get the distribution they want, so are pushing
the envelope. “There is certainly more confidence in the market, which will also have an impact. It is also the case that the initial lender may not have provided the borrower with enough time in the first place, especially as it is getting harder to get materials and labour for developments, which is prolonging project times.” Looking to the future, Chris Oatway, owner and director at LDNfinance, thinks mortgage delays and refurbishment bridging loans are likely to remain the top two spots for bridging purposes. He also thinks that re-bridging is likely to remain at 15-20% of market share. Whitney believes that this is probably because more deals have been retained within the bridging industry rather than being refinanced out on to the high street. “Cost of funds has come down and all the flexibility of a short-term loan retained, which is attractive to borrowers. I would also imagine that some of the deals listed as a ‘re-bridge’ are ultimately for business purposes anyway, ie development, for example. With the trend on cost of funds still being downward, I think we will see this trend increase this year and quite possibly become one of the leading purposes.” Brian West, director at Central Bridging, claims that we might start to see these trends being reversed, as recent months
have highlighted the dangers of excessively high LTV lending in the bridging sector with lenders falling victim to unsustainable default levels and, in some cases, failing completely. “There is most definitely a place in the market for re-bridging, but it is vital that lenders, old and new, always remember that a re-bridge is only ever required because of the failure of the original bridge to redeem as planned. In recent [times], the danger of lenders offering superficially low rates at unsustainably high LTVs has become all too clear to the considerable detriment of many borrowers.” Brian goes on to say that going forward it has to be incumbent upon all lenders to ensure that their clients have a plausible and achievable exit strategy and that pinning one’s hopes on a rising property market and another lender being prepared to take them out in 12 months’ time is not a prudent or sustainable way to lend.
Mar/Apr 2019
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Explained
are at the lowest point of their value management teams with local knowledge in Is competition altering lenders’ attitudes to risk? trajectory with the sole purpose of assisting other areas isn’t an easy (or cheap) task and, James Bloom, managing director of the borrower to buy, improve and create an therefore, it is not surprising that very few short-term lending at Masthaven, thinks asset with an enhanced value. It will provide bridging lenders offer this. Ortus Secured Finance recently opened an emphasis on the importance of risk up to 100% of the renovation costs of the management will come to the fore as bridging property in advance stages, subject to a max an office in Belfast to serve the Northern loans increasingly become a solution for a LTV of 80% on day one. It can offer this higher Ireland market. Jon Salisbury, managing whole range of uses. He says that based on LTV product due to the enhanced value and director, says risk management was one of today’s lending conditions, now is the time higher interest rates. Adam Davies, CEO at several motivators for this strategy because it to be slightly more cautious while looking for Westgate, explains that as the renovation has given them local expertise. Jon mentions progresses, the value of a property will rise that it took its time getting to know the sensible longer-term growth. Recent research by Masthaven found and its ‘LTV glide’ will diminish to a level market before deciding to open an office. It that nearly one in five specialist lending of around 55–60% LTV once the project is appointed Shane Donnelly as a director to intermediaries (18%) saw short-term finance nearing completion or completed. This glide head up the team. Shane joined from Bank of as the fastest-growing area in this sector. will make the scheme less risky and more cost Ireland with the requisite local knowledge for setting up shop However, a in a new area. larger and more Meanwhile, competitive Fiduciam— market could which offers result in inter national lenders moving bridging— up the risk claims that curve. One way WORDS BY THEO OSBORN having a multiof doing this is national team by increasing that can speak LTVs. But how The bridging climate in 2019 is hotter than ever before. Record levels of the languages can the dangers transactions are taking place, according to the latest ASTL figures, and of the countries of higher LTVs it lends in can be managed? an already saturated market is becoming ever more competitive as more mitigate risks. Aspen Bridging names continue to enter. As the market grows, it is inevitable that lenders For example, lends up to it has people will start to tinker with rates, LTVs, speed of delivery, asset types and 80% LTV, and who know and its director explore niche product areas to grab more market share, which could lead understand Jack Coombs to some lenders moving up the risk curve. each region it says that by lends in and uses using historic inter national analysis it can solicitors and determine generic property risk. It can manage specific friendly. Despite the competitive market, valuers based in each country, so all lending risk by using expert partners, visiting every Adam doesn’t believe any lender should take is based on local knowledge. property and meeting every customer. These risks above the plausibility of the deal within partners consist of a number of third parties, their comfort zone. He asserts that lenders Can lenders cope with including audit services, panel managers, who offer high LTVs on properties which are moving up the risk curve? Some lenders are actively expanding their close to their peak value are taking a risk. He credit agencies and anti-fraud systems. However, Stephen Brennan, director of states that Westgate’s type of lending is less of risk management teams in line with growth. credit at ActivTrades, believes that lenders a hazard, although it is a factor it considers in For example, Hope Capital has increased its underwriting division by 40% in the past year, shouldn’t be sucked into the ever-increasing its underwriting process. Octane Capital launched in 2017 as a lender during the same period it revealed it was on vacuum of raising LTVs to levels which are “ridiculously risky” just to get the deal. He which structures non-standard loans that are target to double lending volumes. Fiduciam’s claims it’s “better to shave the price than beyond the comfort zone of other lenders. risk management unit is also growing rapidly, enhance the risk profile”. Ian Broadbent, Mark Posniak, managing director, claims it adding four new hires in 2018, with 10 more director at HFBS, agrees, stating that the can provide these solutions as it has woven set to be added this year. It is making these biggest risk today is the overstretching of strong risk management into its DNA from changes while monitoring the current political the offset. It can offer these unusual loans situation. The key word for risk management LTVs at the top of a property cycle. Jack counters this by stating that Aspen by pricing according to risk rather than LTV, teams in bridging is ‘experience’. Fiduciam Bridging’s customers that have borrowed meaning each loan is uniquely constructed. It says that senior, experienced employees at 80% LTV have continually exited these has handpicked a team which has completed are constantly employed in these roles. LendInvest notes that it has strengthened its loans as expected. He adds that it undertakes thousands of complex transactions between volatility analysis to identify those least them, and Mark asserts that risk management risk division over the past six months, which already has 100-plus years of combined prone to fluctuation. “This means we have a is “hardwired, not an afterthought”. With a crowded UK bridging market, experience. Roy Armitage, head of credit, better understanding of the asset and we are not prevented from lending by some higher lenders may look at other, untapped areas states that it is doing this to ensure the to remain competitive. One such option management of post-completion loans is at lending authority.” Westgate Private Finance funds the would be to look beyond England, Wales and the highest level of client-centric service. renovation of dilapidated properties which Scotland. However, building experienced risk However, Roy says it has maintained a
Getting a handle on risk
36 Bridging & Commercial
Explained
consistent approach to risk management despite the additional attention the current market and political conditions require. He says it will quickly identify when a case has limited asset liquidity, or the client has not made enough provision for exiting a loan. Kuflink has made additions to its underwriting and collections team earlier this year. It claims it has always approached risk cautiously but, in today’s market, it has to approach deals with an open mind and structure packages creatively. Its staff has decades of experience under its belt, although it is keen to train new starters. Stephen mentions that ActivTrades’ new credit recruits—including a new junior underwriter set to join in Q2—will be heavily supported by him and his head of credit. They have combined property lending experience of more than 60 years. Stephen believes that now is not the time to spread more autonomy within an underwriting discipline, but instead the time to ensure the experienced members of the team step up and take more responsibility in decision making rather than tick-box lending. He adds that the best at this will continue to grow, while others who chase deals are likely to fail. Is there enough risk management talent in the market to go around? “Almost certainly not,” says Ian. He adds that bridging is still a relatively new industry and individuals with these skills are thin on the ground. Ian names two key avenues that can be pursued for those looking to expand. Lenders can either simplify the proposition they offer to enable a greater degree of “computeraided risk management” or employ some element of third-party risk management. Titlesolv offers title insurance and helps institutional lenders, investors and solicitors to reduce risk and enhance their processes. Chris Taylor, its CEO, believes that much of the original talent came from the subprime market before the 2008 crash, and the industry is still struggling to meet the massive demand for talent and experience to keep up with the rate of growth. Chris claimes that in some cases, players are coming into the market with no experience in lending whatsoever. He thinks this has led to an oversupply of funding for bridging loans. “The result has been fierce competition on criteria and growing pressure to relax the conditions for lending in order to compete. There are plenty of funding lines out there, mostly from investment banks or private equity funds, but finding people to lend the money responsibly remains a challenge.” BrianWest, director at Central Bridging, says that with a succession of new lenders entering the market, it is clear that there is an increasing premium on experienced personnel. He adds
Third-party risk management
How it works
Benefits
Collections process
Loans are outsourced to a loan servicing business which will take responsibility for servicing all loans originated by a lender.
Investors can be comforted in knowing that loans are serviced by a regulated operator which is also experienced in getting the job done effectively. This makes it easier for institutions to invest in whole portfolios of loans.
Site agent
A site agent has national coverage and will meet all clients prior to completion of a loan. They are experienced professionals and interview the client to confirm their requirements.
The company is independent and has its own professional indemnity insurance, which is important to prevent fraud if they are collecting ID from clients.
Audit services
These offer live and retrospective valuation auditing to reduce property-specific lending risks.
Panel managers, valuers and surveyors
Valuers are an integral part of the process which underpins many subsequent decisions. Their role includes gathering systems and processing verification, insurance verification and qualification checks and regulatory conformance.
Anti-fraud restrictions
Anti-fraud systems can block any changes to your register when a restriction is registered with the Land Registry.
Planning consultancies
These can provide full planning applications, pre-planning services, advising and handling planning appeals, local plan representations and planning objections.
Title insurance
Title insurance protects against threats such as fraud, forgery, undue influence and negligence.
International solicitors
When offering bridging loans abroad, it may be necessary to have solicitors who understand the market and the regulation in the area.
World-Check
The World-Check Risk Intelligence database collates information such as watch lists, government records and media searches to simplify customer and third-party screening processes.
National Hunter is concerned with the prevention of application fraud National Hunter within the banking, finance and insurance industry.
Valuations will be made in line with the national and local market conditions, while adding an important level of protection for both lenders and valuers with regard to risk management. All of these are key risk mitigation steps which should be taken in advance of supplying the details of a property on which you wish to obtain a value. A valuation panel manager acts to mitigate risks in sourcing a service from a range of industry professionals. Fraudsters may attempt to acquire ownership of a property through forged documents or by impersonating the registered owner. This anti-fraud restriction can prevent sale or mortgage on a property unless a solicitor or conveyancer certifies the application was made by you. A planning consultancy will give advice, offering lenders peace of mind to make the best decision in realising the potential of an investment. This can protect investors and guarantee that the quality of their assets is as high as possible. It reduces time and due diligence costs. This adds the benefit of having a lawyer who understands the laws and regulations in the country you’re lending in, allowing lenders to take a foothold in another market without a physical presence. This allows lenders to identify potential criminal activity and fulfil due diligence obligations with information from reputable public domain sources. It ensures that all key stakeholders are working together to share data fairly, accurately and effectively. Lenders can use the service to determine whether the information contained within an application form is accurate.
37 Mar/Apr 2019
Explained
that some of the new lenders have actually eschewed the need for wizened underwriters and risk managers, preferring to place their faith in mathematical algorithms to guide their lending decisions. He claims that in a market where many loans are complex, and solutions have to be uniquely tailored, the shortcomings of an algorithm-based approach are already being reflected in the unsustainable default rates of certain lenders. Marios Theophanous, credit manager at London Credit, says that in every aspect of its work, specialisation and expertise is always helpful. “A third-party risk management firm with experience and thorough knowledge of the market would definitely add value to a lender’s risk management procedures.” How third parties can help Third parties can be particularly useful to lenders who are finding it difficult to recruit experienced senior risk staff and they can also spot trends in the industry. For example, Jonathan Newman, senior partner at Brightstone Law, believes we are seeing a loosening of lending criteria, and while this will disrupt the market, it is deeply concerning. “While some lenders have applied greater caution in underwriting, others have seized the opportunity to gain a foothold.” He claims that some of the new lenders lack experience and so have the potential of being exposed to poor, non-performing customers, or unsuitable security. He continues by stating that these new players may be unable to identify future problems. He does, however, believe this can be reduced by tapping into the experience of professional partners. Chris says that claims relating to mental capacity, which historically have only been seen in relation to equity release mortgages, have more than doubled in the last year. He claims that more are relating to anxiety and depression, which can be classified as vulnerable customers in the eyes of the court. He believes that title insurance is one of the first lines of defence against such claims. Harry Peradigou, partner at Brightstone Law, asserts that fraudulent sellers remain an issue that is unlikely to change any time soon. He adds that most lenders now have inhouse risk and compliance departments that are alert to risks, with procedures improving quite drastically within the last three years. Harry believes that the industry has seen a positive, resourced and enthusiastic approach to risk management. He feels that this makes business sense for the lender in satisfying regulatory discipline and benefits the consumer by avoiding loans that should have never been written. Chris also cites fraud as an issue that is becoming more pertinent. Borrowers stealing identities or pretending to own houses that
they don’t is said to have always been an issue in the lending market. Titlesolv will make further enhancements to its policies to respond to these risks, with a focus on areas of bridging that are growing but haven’t yet got a risk solution—such as the use of automated valuation models. Stephen Todd, managing director at VAS Group—which provides valuation panel management and audit services as part of its offering—claims that as the bridging sector has become more sophisticated in terms of borrowers and the different properties to be valued, there has been an ever-greater priority in appointing the correct valuation firms to provide the most accurate reports possible for lenders. He believes that as most lenders are different in terms of their risk appetite, an area to look out for is more unique, bespoke properties as the level of uncertainty regarding values is higher. He adds that lenders need to review sales periods closely, and if they want to sell a property in a timely manner, they’ll need to really analyse values based on a restricted sales period. This is due to the fact that the full market value might only be achievable after a marketing period of 12–18 months and, therefore, makes LTV very important when taking into account cost of funds. What does this all mean for risk management in the bridging industry? We could see lenders spend more time and money on bolstering and supporting their credit and underwriting teams to combat the competition and uncertainty in the market. While senior talent with the required risk management experience may be hard (or expensive) to come by, the abundance of third-party risk management businesses available should mean no excuse for poor risk management in 2019.
What? A title insurance policy will protect mortgage lenders against transactional defects such as fraud, forgery (borrower and solicitor), duress, mental incapacity, negligence (solicitor and search agents), search covers, lack of warranties and planning breaches. It also protects against unknown or latent defects in title, such as land ownership, lack of rights, overriding interests, document accuracy and priority, allowing mortgage lenders and their solicitors to avoid time-consuming due diligence. Why? Title insurance is designed to help mortgage lenders to speed up the process, while originating a mortgage that is more secure than that offered by the traditional process and certainly offers greater protection than a usual certificate of title—a true risk assignment tool for mortgage lenders. Some policies offer a cast-iron guarantee that will provide protection within a fixed timescale even when the loan continues to perform, and others are mere indemnity policies that only payout when a financial loss is crystallised. When? Title insurance is usually put in place on day one when a loan completes, but can be put in place retrospectively. Result? In the event of a claim, title insurance will meet all legal expenses, the unpaid principal balance, unpaid but accrued interest and most fees accrued in an effort to mitigate losses. Mortgage lenders do not suffer from contributory negligence when making a claim. In most cases where recovery is sought against a solicitor’s PII policy, contributory negligence will be a key consideration for the insurer. Anything else? A title insurance policy must be fully assignable as most secured lenders sell their loans, securitise them or assign them to SPVs.
38 Bridging & Commercial
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Explained
Exits under threat
As the industry knows, it’s easy to lend money—the hardest part is getting it back
Words by
theo osborn
42 Bridging & Commercial
S
ince 23rd June 2016, it has been almost impossible to read a comment about the bridging market that doesn’t include the word ‘uncertainty’. Even now, in March, we still don’t truly know what the future holds. In Q4 2018, it was revealed that 42% of property and asset finance brokers had no plans in place for Brexit. Regardless, one thing we do know, is that the bridging industry relies on exit strategies. An exit route provides the lender with the comfort of knowing that the borrower can repay the loan on time and is fundamental to responsible lending. It has been referred to as the basis for a bridging loan and a key pillar in the underwriting process. In light of this, we delved further into the subject to find out what is most likely to affect the exit of a bridging loan in the near future. Valuations Chris Whitney, head of specialist lending at Enness, claims that, in London, brokers are now having to assume that valuations carried out within the past 12 months or so might be at least 10% lower than they were previously. Amit Majithia, principal at Avamore, adds that valuers have started to reflect current political and economic uncertainties in their valuations. More comparables are available at prices that have factored in reduced sales prices and this can potentially affect refinance options. Chris claims that in some cases falls of up to 15% have been witnessed over a short period of time. He explains that this can be problematic when, for instance, implementing the exit to a bridge six months after the last valuation. “I have no doubt that in reality this isn’t indicative of where the true market is actually at. However, right now most people feel that they won’t get top dollar for an asset so are holding fire, or definitely not looking to offer any significant discount.” He adds that these lower valuations could leave the only people selling being those that are forced to do so. Tom Rowlands, specialist property finance adviser at Pure Commercial Finance, believes there is a well-documented slowdown in the housing market, with sales taking longer to complete due to uncertain conditions. He states that surveyors cautiously valuing property is a big threat which may negatively impact the loan available on a property. Nonetheless, Sean Mansfield, director at Capital Value Surveyors, counters Chris’s statement. Sean doesn’t agree that valuations
Explained
advice possible. “Certain locations will be have dropped by 10% across the board. affected more than others. Everyone is Instead, he argues that valuers generally get aware [that] the London residential market a bad press because of the ones who apply has contracted, especially the £1m-plus ‘blanket discounts’ to protect themselves properties that relied on international from future claims. purchasers. However, the fundamentals “…This isn’t valuing in my book and it still exist: there is a lack of stock to meet does not help lenders, brokers, borrowers demand in the UK, so values should be or even other valuers.” He says that this relatively resistant to significant drops.” will inevitably have a knock-on effect on values and saleability, although it does not High LTVs apply to the whole market. He continues In December, Nationwide’s HPI showed by stating that the industry might not exist that average house prices fell by 0.7%, if everyone bought at market value and, compared with the previous month. Houses therefore, valuers need to be alert to this in the Outer Metropolitan area suffered a fact. “It can’t all be doom and gloom when 1.4% price decrease over the year. Prices in there is plenty of below market value the capital also fell, while prices across the activity taking place, however, we must be careful not to create our own fate by making rest of the UK rose. But with the potential of more areas being hit by property price below market value the [actual] value.” dips, would this threaten the exit of high Arwel Griffith, partner at Robert Sterling Surveyors, believes that valuers should abide LTV bridging loans? Chris Oatway, owner and director of by the RICS definition of market value, LDNfinance, believes so. He says that the which is to value “prudently, knowledgably fall-back options of refinancing elsewhere and without compulsion”. However, he have been threatened by high LTV bridging explains that valuers build their own loans where the market has seen property ‘judgement’ into where the value should be values decrease. Nevertheless, Jack Coombs, due to comparable evidence on a database director at Aspen, believes that most of likely to be out of date to some degree. Valuers may also quite often look beyond the the downward pressure on prices, driven by the anticipation of Brexit, has already valuation date and try to assess what might been absorbed. The lender is fully confident happen in the next few months. about the prospects for UK property. Given the aforementioned current Gavin Diamond, commercial director of uncertainties, this sometimes means they bridging at United Trust Bank, suggests that want to build in a safety margin in case when assessing their valuations are bridging loan subsequently tested, “DOWN VALUATIONS aproposal, the perhaps in a negligence scenario. Arwel adds HAVE LED TO maximum LTV can never be an that less confident SECONDARY SHORT- absolute number. valuers might build in higher margins than TERM LOANS He asserts that it is instead experienced valuers as BEING TAKEN OUT a function of a protective measure factors, which could result in RATHER THAN THE various including the exit valuations being as much as 10% lower. “From a PLANNED TERM strategy, and, the definition perspective, LOANS, FORCING therefore, LTV is just one they shouldn’t be doing that because they THE BORROWER TO part of a bigger picture where should be valuing as at CHANGE STRATEGY everything needs the day of inspection. I be looked at. suppose, however, it’s FOR THAT ASSET OR to “Of course, loans human nature to try to PORTFOLIO” with higher LTVs defend oneself, even where a sale is against only a perceived the primary exit will come under closer threat, some valuers are doing,” he claims. scrutiny in a market where there’s greater Stephen Todd, co-founder and managing risk of property prices remaining static or director at VAS Group, claims that the falling. Lenders who have perhaps offered current unchartered waters make life even loans with higher LTVs, but didn’t pay close more difficult for valuers as valuations enough attention to other factors in play, are underpinned by transactional sales may come unstuck.” evidence. He states that the lack of sales means valuers have to rely on historical data and their expertise to make the necessary adjustments to provide the most accurate 43 Mar/Apr 2019
Explained
“LENDERS WHO HAVE PERHAPS OFFERED LOANS WITH HIGHER LTVS, BUT DIDN’T PAY CLOSE ENOUGH ATTENTION TO OTHER FACTORS IN PLAY, MAY COME UNSTUCK”
Interest rates The Bank of England base rate increased in August 2018 from 0.5% to 0.75%, having previously increased from 0.25% to 0.5% in November 2017. Some 46% of brokers expect this to increase to 1% by the end of 2019. However, 68% of brokers believe that the two most recent base rate rises have had no impact on business. Could further increases in the base rate push up refinancing costs? Oatway states that any potential rise in interest rates could put serious pressure on exits for bridging lenders where refinance is the repayment strategy. He adds that this could put a higher stress on the interest coverage ratios leading to a potential reduction on the leverage available. A risingrate environment will naturally put upward pressure on mortgage rates, which could make it more expensive for investors to exit their bridging loan. Barry Searle, managing director of mortgages at Castle Trust, says that while this should be a consideration during the advice process when thinking about suitable exit strategies, he believes that in reality it is unlikely to present a significant hurdle to many clients. With rates still historically low, Barry believes that any further increases will be managed carefully. Laura Carr, head of underwriting at Hope Capital, feels that the biggest threats to exits are always property prices falling or interest rates and unemployment levels rising. However, she believes none of these are very likely this year.
Development land values Gavin Eustace, head of residential development at Octopus Property, claims it is dealing with many developers that are sitting on sites that have planning granted, while using expensive bridging facilities. A lot of these developers are looking to get projects moving to realise the end value sooner rather than later. However, it is also seeing some developers holding off commitment to new projects and instead adopting a ‘watch-and-wait’ strategy, hoping for more certainty before committing to the development. Holly Andrews, managing director at KIS Finance, adds that if there is a no-deal Brexit, this could be disastrous as people could hold on to land longer. Despite this, Roxana Mohammadian-Molina, chief strategy officer at Blend Network, says that, in the current climate, it is not experiencing a sharp rise or fall in development land values, but a minor correction. Although, in areas of particular demand for housing without a strong supply pipeline, she has seen instances of these values increasing. The policy of holding on to land and extending a bridging loan may well make sense in London and the South East, but Frazer Fearnhead, CEO at the House Crowd, argues that land values in other regions have been less affected by Brexit.
44 Bridging & Commercial
Lenders leaving the market Secure Trust Bank left the mortgage market earlier this year, while Amicus Property Finance—which included Amicus Commercial Mortgages— entered administration. Will more lenders leaving the mortgage market result in less choice with regard to refinancing on to a long-term solution? Whitney asserts that as the intended exit for many bridging loans is to refinance on to a long-term mortgage or buy-tolet, many bridging loans are geared to a level where refinance works comfortably. However, political uncertainty and the knock-on effect on the property market is making some mortgage lenders look to ratchet back gearing or indeed look to cease lending altogether. He adds that this could potentially leave some of the highest-geared bridging loans without a viable refinance option. “Thankfully, thus far we have seen very few forced sales as the UK finance arena benefits from such an active specialist finance market. However, down valuations have led to secondary short-term loans being taken out rather than the planned term loans, forcing the borrower to change strategy for that asset or portfolio.” Wesley Davidson, director at Fox Davidson, believes that clients wishing to finance onto long-term debt could see their planned exits fall apart due to lenders leaving the market. Brennan claims that it is likely that there will be more to follow, which could affect the refinance market generally attributed to taking out short-term bridging loans. Although there is no obvious pattern of a
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reduction in the number of lenders in the buy-to-let market at this stage, the demand for buy-to-let loans could continue to reduce in the coming months. “Investors have already adjusted their expectations for return on investment, with the change in the tax treatment of rental income, but further pressure is likely if the proposed Tenant Fees Bill is implemented in parliament in the coming months,” says Jeremy Robinson, asset finance adviser of structured finance at Arc & Co. He adds that while some may depart, others are eager to expand their offering into buy-to-let, with many shortterm funders in the market recognising the appeal of providing a longer-term financing solution, such as a buy-to-let loan, alongside their existing short-term offering. This can help to diversify a lender’s exposure in the market. However, he believes that this could cause an upward pressure on rates, as new entrants to the market are generally those seeking higher returns. “Over the last year, we have seen greater willingness for flexibility in underwriting. We see any individual issues with lenders as being met with solutions from others.” Funding issues Multiple lenders have run out of funding recently, with the likes of Fleet Mortgages having to pull its entire product range in January, while Octopus filled its allocated budget for term funding ahead of schedule last November. Laura believes that if longer-term lenders become more cautious, or have their funding pulled, then it may become more challenging to exit a bridging loan onto a mortgage. She thinks that credit lines may be tightened as there are definite signs that private equity houses are keeping a close watch on how Brexit unfolds until they understand what the final deal will look like. However, funding issues may not be widespread, particularly as many lenders in the market have diversified their sources of funding over the last 12 months or so. Jeremy claims that lenders are doing so by not relying on a single funding line and ensuring they can lend from more than one funding ‘pot’. “A number of lenders have available funds to be able to pick up any slack through others dropping away. Some would positively relish the opportunities that any major market dislocation, such as the continued Brexit uncertainty, would bring. It is fair to suggest that much of the short-term funding market view this ongoing uncertainty as an opportunity to grow their loan books by refinancing loans from development funders and other short-term funders.”
“OVER THE LAST YEAR, WE HAVE SEEN GREATER WILLINGNESS FOR FLEXIBILITY IN UNDERWRITING. WE SEE ANY INDIVIDUAL ISSUES WITH LENDERS AS BEING MET WITH SOLUTIONS FROM OTHERS”
46 Bridging & Commercial
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Is flexible, workable?
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T
theo osborn
The flexible workspace market is set to grow by up to 30% per year over the next five years. Could we see this office model, and the benefits that come with it, become popular with the specialist finance industry?
he flexible workspace market grew by 30% in the 20 largest markets globally in 2017. Over seven million square metres of stock is set to be added in Europe by 2023, bringing the total market size to 10 million square metres. JLL has also claimed that flexible workspace could represent up to 30% of some corporate portfolios by 2030, while in London it now represents around one-fifth of all take-up. The structure is becoming ever present in the cities of today. Recently, many specialist finance companies have expanded their teams and opened new regional offices. In Birmingham alone, ArchOver, ThinCats and Secure Trust Bank Commercial Finance have all opened new offices over the past year. Could flexible workspace be the way forward for businesses that are hoping to grow quickly? As it’s ideal for rapid expansion without long contracts, it may be a possible way for companies to dip their toe into new product sets and markets. Despite this, there are those who believe that financial
services companies aren’t suited to these types of offices due to the strict confidential data they have at hand. We spoke to flexible workspace providers, as well as brokers and lenders in the industry, to hear their thoughts. What is flexible workspace? Flexible workspace encompasses a range of office types. This broad group includes co-working, serviced offices and incubators, to name a few. Serviced offices fit under this umbrella due to their flexible leases, which remove long-term commitments, while managed workspaces are areas where organisations can take a flexible space that has facilities managed on an on-going basis. BE Offices is a serviced office provider which offers the full spectrum of flexible space solutions. It has acquired co-working specialist Headspace Group and also formed a division offering corporate occupiers an all-encompassing one-stop shop. Simon Rusk, finance director at BE Offices, grouped flexible workspaces into the
48 Bridging & Commercial
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Accelerator and incubator space
Can be a co-working or serviced office often where the operator takes a stake in the occupier’s business in return for space or services (and sometimes money).
Co-working
Multiple occupiers in one communal space normally with seating on a first come, first serviced basis, although occasionally with a dedicated space. Typically used by one person or small start-ups.
Serviced office
Occupiers have a specific office in a building with the provision of various services. Often the building also has communal space. Ideal for small- to medium-sized companies, although can be used for larger companies seeking overflow or project space.
Managed workspace
Larger space sometimes designed for a particular client with their own branding and communal areas. Services can be provided if required. Ideal for larger corporates seeking flexible space with perhaps their own branding for 12 months or more.
categories above, although it could also include hybrids of these. Simon claims that occupiers have different definitions of the space they have, and, in a sense, some terms are becoming obsolete as the consumer doesn’t really care how their space is categorised. The lines between the types of office are also becoming blurred. “What the client wants is space delivered in the right way, in an acceptable timeframe, with terms which meet with their specifications. Many co-working companies categorise themselves as such, but in reality, the majority of their space is actually serviced offices.” This hybrid model, which can consist of different combinations of set-ups, has become the fastest-growing form of flexible workspace. It now makes up 34% of total flexible workspace across the top 20 European markets, according to JLL, with 80% of growth in 2017 attributed to this model.
What are the perks of flexible workspace? Simon suggests that the main perks of a flexible workspace are the all-inclusive pricing, flexible contracts and no deposits for moving in. According to research by JLL, 45 desks in a 1,500 sq ft WeWork office will cost £405,000 in its first year. However, 30 desks in a 3,000 sq ft leasehold will cost £634,177 for the first year. So, while the leasehold may have more space, the flexible workspace office makes the most out of a smaller area, which may suit the needs of an expanding team. BE Offices offers contracts starting at one month for a serviced office space, with a managed space for a minimum of 12 months. Simon adds that speed of entry, no upfront capital, superior levels of service, data connectivity, turnkey solutions, more agility and the benefits of joining a ready-made business centre community are among its key benefits. “It’s a plug-and-play scenario in which the client gets on with running their business, while the flexible space operator takes care of the facilities management, security, cleaning, IT, call-handling and reception.” Blockchain-enabled co-working space Primalbase offers a system whereby users can buy a token online and gain access to all of its offices for the duration of their token possession. Once completed, tokens can be sold. Token holders can also lease their token when they are not using it to gain an additional income and possessing four tokens allows customers to access a private office. For those who do not want to buy a token, a desk can also be leased—from several days to several weeks. If it is a larger company, it can also rent bigger offices in the traditional way. Ralph Manheim, CEO at Primalbase, claims that the start-ups that tend to be in every day have not moved on because they can easily scale their company. Instead, they move from one or two desks to a private office. One of its largest sectors for clients is financial services and it believes that where financial companies can be more exposed to market volatility, long leases on traditional offices can be a risk for smaller companies. HubHub—a co-working company that offers flexible desks, fixed desks and office space—states that for an increasing number of employees, the office space is an important aspect of the company they work for. Lukas Kiral, business development and partnership manager at HubHub, believes that employees will treat the workplace as an extension of their personal and professional lives if they are provided with a well-designed, considerate space populated by other companies. He adds that these benefits of a flexible workspace could lead to higher employee engagement, retention and job commitment. Historically, companies have had to estimate how much office space they would need in the mid- and long-term future when taking on commercial leases, according to Amol Sarva, founder and CEO at Knotel—which has more than 10 buildings in London offering tailored spaces for brands on flexible terms. He believes that such guesswork can potentially be money down the drain. “For example, if a successful young company is forecasting 10–15% annual growth for the next five to 10 years, they would need to plan for that and then lease a lot more space than they currently need or pay for an expansion option that they may never need. But suppose they experience even faster growth? They need to relocate early and buy their way out of their remaining lease term or take additional space that is available, but may not be optimal for their needs.” He explains that by taking a flexible office, businesses can instead scale as their commercial situation requires.
49 Mar/Apr 2019
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lender’s data should remain protected in a private environment. “Moreover, many businesses—and bridging lenders offer an excellent example of this—require strict confidentiality and discretion. The likes of WeWork and RocketSpace do provide state-of-the-art and trendy working conditions suitable for arty marketing agencies and start-up tech businesses, but this isn’t conducive to a financial services business.” He did admit that there were advantages to flexible workspace. “There is clearly some value in start-up businesses hedging their bets by not committing to long-term and inflexible office accommodation arrangements. Using cheaper co-working space might offer a sensible alternative, particularly for firms with smaller teams able to adjust to flexible working conditions.” A solution to this could be the use of a private office inside of a flexible workspace building. Funding 365 operates out of a private office in a WeWork building on the South Bank, central London. Fully enclosed and lockable, it is able to maintain the security of confidential information. Nevertheless, the company
is the idealism of short contracts, added facilities and no deposits suitable for the specialist finance industry? Specialist lender The Bridging Group claims that flexible workspace has given it the ability to move quickly. The provider it uses gives it the ability to use any other office under the brand throughout the UK, and Dawn Trustam, head of sales at The Bridging Group, believes this is great as it allows her to have some flexible space she can just pop into between meetings. She claims the positives include less outlay as a company from the start, the ability to work in locations which when looking to lease would be more expensive, and the ability to start off small and expand as and when needed without breaching a lease. Broker Clifton Private Finance has had head office premises on a commercial lease in Bristol for the past 14 years. In addition, it has flexible workspace offices in both London and Cardiff. Its London office is based in the WeWork at Waterhouse Square,
“THERE IS CLEARLY SOME VALUE IN STARTUP BUSINESSES HEDGING THEIR BETS BY NOT COMMITTING TO LONG-TERM AND INFLEXIBLE OFFICE ACCOMMODATION ARRANGEMENTS” while its Cardiff office has been set up in a Space2B building. James Caldwell, director at Clifton, says that as a company in the property industry, it understands the importance of location. Its central London office is close to Holborn tube station, and James believes this location is convenient for staff and also provides a lively workplace that clients are interested in visiting. As for attracting talent, he claims that Clifton isn’t going to get the best people working for it if it’s on a trading estate. He cites the premises as being extremely useful as it can spread the company wider with workspaces in separate cities, whereas a long-term commercial lease would be too big a risk for a young business. However, he does believe that the company is probably paying for facilities that its associates don’t need or use, such as ping-pong tables and yoga classes. It opened its Cardiff office to save its senior finance broker Sam O’Neill around three hours a day that he would’ve otherwise spent commuting. Asset finance provider Simply Asset Finance is also based in a co-working space in London. Its CEO, Mike Randall, believes that working in this environment creates a diverse, village-like feel whereby people in different organisations can collaborate and become friends, which is important from a social perspective. In the past two years, the company has been able to take more space in the same building to accommodate its increasing employee numbers. It can make use of the different-sized meeting rooms and claims it’s easier to attract talent to a central location. “We also don’t want the headache of insurance or maintenance costs so have opted very much for a ‘plug-and-play’ package, which allows us to focus on building our own business and concentrate on our customers’ needs.” However, a number of lenders believe that pure flexible workspaces wouldn’t be suitable for a specialist lender due to the need to keep client data confidential and protected. Guy Harrington, CEO at Glenhawk, holds such a view: “The data a lender has access to is so sensitive that it shouldn’t be available in a shared space. We are essentially a bank (well, more of a challenger lender) and clients’/brokers’ data will be treated with the same security and procedures a bank has—in a private space.” Colin Sanders, CEO at Tuscan Capital, agrees that a bridging
does make use of the meeting rooms and break-out areas. It says that the working environment is an important factor in attracting and retaining the best talent, with the workspace being useful for the company to expand geographically into new markets. It is certainly important for lenders and brokers to have a private office to protect data, however, the benefits of a larger flexible office environment can allow for dynamic expansion and talent attraction. New businesses can scale at a pace applicable to them, and older businesses can quickly enter new markets with local talent on the ground. The added amenities and facilities may be unnecessary for a specialist lending company, but the accessibility of not signing a long-term commercial lease is an opportunity for much-needed adaptability.
50 Bridging & Commercial
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Interview
M
eeting at Lendco’s offices, which it currently shares with SPF Private Clients at 55 Basinghall Street in central London, Alex King, the lender’s executive director—who worked at SPF for over 21 years—and Simon Chapman, relationship director—who joined in January this year from Amicus Property Finance—explain the reasoning behind and the benefits of being an exclusive outfit in a highly competitive market. Simon was brought in to focus on shaping its bridging and distribution strategy and is expected to onboard some of the broker contacts he has amassed in the past, but does not feel that Lendco will change its philosophy of keeping its introducers among friends, family and people they know. “We don’t want to have hundreds and hundreds of brokers on the panel,” admits Simon, adding that it doesn’t have the resources or time to manage that volume. “We want to be able to have relationships with introducers that we devote time to on a day-to-day basis.” “I get contacted by brokers daily [who ask], ‘My client’s been offered one of your products, how do I get access to it?’ And we have to tell them, ‘We’re not widening distribution at the moment,’” says Alex. “We are very happy with the level of origination that is coming from our very carefully selected panel of brokers,” he mentions, adding that it is important that it gives whoever it invites to the panel a “distribution edge” over their competitors. “We didn’t see the value in bringing on board a bunch of distributors who were operating in the same space in similar geographic areas to one another, we wanted brokers who could give us different things in different areas and who wouldn’t be consistently stepping over each other.” Lendco currently has no more than 20 distribution partners. These include some packagers, boutique brokerage firms and one small specialist network. While Lendco sits as a standalone legal entity and is independent from SPF Private Clients, I ask whether brokers question if SPF could unfairly put business through Lendco. “SPF is FCA regulated,” answers Alex. “Even though Lendco products are non-regulated, SPF is a regulated firm and is bound by that overarching regulatory
by invitation In June last year, Lendco was born. Created by the group behind SPF Private Clients after landing investment from Cabot Square Capital, it’s no surprise the buy-to-let and bridging provider hit its £50m originations target in December.While many lenders are looking at ways to further increase their distribution, Lendco currently has no plans to go whole of market—and with over £200m already in the pipeline for this year via its narrow introducer panel, it clearly doesn’t need to. Words by
BETH FISHER
53 Mar/Apr 2019
Interview
“You just cannot manage 100 introducers. You manage the ones that give you volume� 54 Bridging & Commercial
Interview
requirement to offer best advice to its customers. From a Lendco perspective, SPF is just one of our preferred distributors. They’re on our panel.” Alex highlights that Lendco’s offering has to stand up to scrutiny for SPF in the same way it has to for any of the other distribution partners. “We will not get business from any of our partners if it isn’t justifiable for them to place business with us. We do have the benefit, I suppose, of being able to leverage their market intelligence in terms of where there is opportunity and where we need to price ourselves.” The invite-only nature of Lendco’s panel is likely to have been constructed from Alex’s two decades’ of experience as a broker. When I ask what his preference was in that guise, he replies that working with lenders that had limited distribution always gave a broker an advantage if they had access to a product that wasn’t available to the whole of the market. “Some of us have rich experience of the broker market, so we know what brokers like and don’t like.” I ask what his experience was like with whole-of-market lenders. Alex pauses. “It was fine.” He adds that as a broker, you are potentially offering what your ‘oppo’ down the road is selling your potential customer, as new clients to any broking business tend to shop around. “You’ve got to come up with more innovative, cheaper and better solutions if you’re going to win that client for now and for the future.” On top of offering brokers a competitive edge to keep them coming back for more, limited distribution can also mean investing the additional time you will have in fostering stronger relationships. A better, mutual understanding of what both parties offer can also result in a more certain outcome for brokers’ customers. Simon confirms that this means the volumes and conversion rates are generally higher. Across the portfolio, which includes BTL as well as bridging, Lendco’s conversion rates are “a lot higher” than it had originally modelled. “More often than not, familiarity breeds success. It works,” Alex says. “The wider your distribution, the more difficult it is to control your volumes and your service.” The narrow distribution panel has also given Lendco the time to investigate the development of alternative product lines. While it can currently offer commercial bridging, it is now looking at mixed-use BTL and commercial term loans. “There’s a whole multitude of opportunities that we are exploring to help us broaden our asset reach and we’re seriously looking at other asset classes and types of lending where diversification potential exists,” Alex tells me. So, instead of widening distribution to help increase the size of a loan book, an alternative way is taking a closer look at the products on offer. Simon adds that, as a bridging lender, you’re clearly focused on exit and therefore
if you can source that exit yourself, it can only be beneficial. “So, if you can deal with the new types of lending, such as the commercial, longer-term product, that gives you another avenue for exit of your own … it gives you an element of comfort. If you want to grow a book, you need to retain your loans for longer, and that’s a good way of doing it.” Has distribution in the market really changed? Possibly not. However, it is evident that lenders’ approach to it has. For example, there are some lenders arming themselves with a veritable army of BDMs to actively go out and build distribution with new introducers, while others have set up regional hubs to attract business in specific areas with the necessary local knowledge. Elsewhere, there is the more personal, selective approach. With regard to this last option, Simon doesn’t think it is much different to other lenders in the market who have wider distribution. He explains that lenders where he has previously worked had distribution panels which could consist of 100 introducers, but despite this, they still had a top 10 and 20 that they had more of a relationship with than those that only made one or two introductions a year. “You kind of have a limited distribution anyway,” he tells me, “because you just cannot manage 100 introducers.You manage the ones that give you volume.” While the temptation to expand distribution to increase enquiries by the bucketload is a natural route to help build the loan book, the benefits of this need to be balanced against the additional staff that will be required (and their rising costs), resources and time needed to deal with a whole-of-market response. Having much wider distribution means having much bigger scale and, therefore, less control. “You have to be prepared for it,” Alex tells me. “If you enter any market, however big or small, or however wide or narrow your offering, you have to properly plan and prepare. I think those lenders that are attacking the whole of the market, whether it be bridging or BTL, would have done their homework.” But what if they haven’t? It’s important to keep in mind that brokers have long memories, and with the market never having had so much choice for funding solutions, one oversight from a lender could easily result in the end of a relationship with an introducer—or multiple, if this becomes the conversation of the day. People like to talk about good or bad impressions, the inbetween tends to be forgotten. To survive and grow in a competitive market, lenders will need their distribution partners to only experience the best. Nailing that while growing the loan book can only mean success.
55 Mar/Apr 2019
&
Alan
Words by
caron schreuder Photography
alex chai
&
Gareth in conversation
Interview
P
recise Mortgages’ entry into the bridging sector marked a sea change in terms of the ways in which a more mainstream lender can adapt to and process this specialist product—and Gareth was part of the founding team.
Alan, MD at Precise, and Gareth, now commercial director at MT Finance, worked together from 2011 until 2018, the year that Precise reported a bridging book of over ÂŁ200m, and fresh from the late 2017 announcement that its parent company Charter Court Financial Services Group had listed on the London Stock Exchange. Meanwhile, MT Finance, an award-winning bridging lender known for its outstanding service proposition, celebrated 10 years in business in 2018 and a multi-million-pound partnership with a global institutional investment manager the year before. Gareth joined the team in May, coinciding with a big office move to Holborn. While Precise employ some 700 people (and counting), and MT Finance are somewhat smaller with a headcount of 29, both Alan and Gareth share similar outlooks as leaders and their approaches have a sense a symmetry to them, perhaps as a result of working together for so long. This time around, our photoshoot was invaded by self-styled guest star Bryant, our office pup, and both Gareth and Alan discovered the difficulty in trying to fake walking casually side-by-side for the camera. Our conversation meandered from timing a launch into bridging and people getting it wrong in a thriving market, to the importance of fire drilling every possible scenario in this part of the cycle.
Interview
Gareth Lewis: So, it was [in] Wolverhampton when we first met. It would’ve been at the interview stage, wouldn’t it? Alan Cleary: Was that our first date? GL: That was our first date, yeah. I think I was wearing the red flower. It probably was. It must have been. I think possibly we met before, briefly, but it would’ve been back in 2004? No, not 2004, 2013. 2013? [Gareth and Alan question the date when they first met] Caron Schreuder: Did you know of each other before you met to discuss opportunities at Precise? AC: We moved in different circles, didn’t we? GL: Yeah. AC: We weren’t in bridging until May 2011, when we launched.You quickly learn that you have to be a bit different in the way you approach bridging than you do buy-to-let, because BTL is very automated, with superquick decisioning. We then said we needed some people to help us get into the space as quickly as possible—because it’s quicker than building from ground up—so hence, I would imagine we would have got Pete Gwilliam [founder of specialist recruiter Virtus Search], our guy that does quite a lot of my recruiting from back when I was in HBOS. We would’ve said, “Go and get some guys that know about the bridging market, senior guys.” So, that’s probably how it was triggered. GL: Yeah, it was. Pete rang me up and we had a couple of conversations and obviously [Alan and I] met through the process. It would have been around 2011 give or take, while I was in my brief stint at Tiuta. CS: How did you feel about the industry at that time? Precise was coming into bridging for the first time and you, Gareth, had been doing bridging for a number of years. GL: I guess it was a little bit like its rebirth because it was all starting to become a little bit more mainstream in its thought processing. When I first came into the bridging space, interest rates were 1.45% (first charge), 2% (second charge) and no one was playing anything with regard to interest rates. Everybody had the same interest rates; it was all built on relationships. When Dragonfly (or Drawbridge, as it was then known) came
into the marketplace, they were the first people to bring in a pricing below, sort of, 1%. I’m pretty certain they were. Other than the back-to-back transactions in the BTL space. So, Precise’s foray into this space was then one of the true signs that other people were looking at it as a proper route of funding and finance. It was getting its big boy pants on. And that’s probably how you [Alan] looked at it when you were doing fact finding—it was an area ripe for sophistication. AC: Yeah. We did quite a bit of investigation before we moved into the market, but it looked like your typical niche market. The margins were very high, there was good credit risk—not all of it was good credit risk, but there was quite a lot of good cases we liked the look of, lending we liked the look of—and dominated by quite a small number of players. So, we thought, yeah, we can take all of those on. As I further looked at it, I could see it was the Wild West. It was an old boys’ network, all working together to keep prices artificially high, all a bit cosy. It looked like fun to be honest with you. We thought, let’s get in there and shake it up a bit—and that’s what we did. CS: Is there anything that has happened now, eight years later, that you thought at that time might be on the cards? AC: For me, you can’t look that far forward. In a business context, looking eight years in advance is futile, it’s just too uncertain. So, you tend to look at a five-year strategic plan that is very high level and then you look at two-year chunks as to what you think is going to happen.You try to predict the way the consumer is going to go or the way the market is going to go, what is going to happen with house prices and you take action on that basis. I don’t recall, when we launched into bridging, ever thinking, “What is it to be like in 10 years’ time?” or “Wouldn’t this be great…” I just don’t think it really works like that. GL: Bridging per se always had a subtle evolutionary thought process to it anyway.You can’t drastically change the fundamentals of what is a bridging loan because, ultimately, it’s a commonsense approach to a lending situation, isn’t it? AC: Yeah. GL: In reality, you’re never going to turn around and say, well, the whole product landscape is going to look drastically different in 10 years’ time because it will just suit the consumers’ needs as months go on. If demand for a different product
at that moment in time is higher … [Take] refurbishments and renovations—if you go back 10 or 15 years, everything was about purchase under value, it was about speedorientated purchases or auction, repairing credit, that kind of stuff. As time has gone on, the evolution of that piece has been subtly going towards property investors, refurbishments and renovations. What the liquidity in the mainstream mortgage market isn’t supporting, the bridging space and the specialist mortgage space accommodates for that. AC: [Back to the appointment of Gareth] So, we met up, and offered him a job to come in and be head of bridging, was it? GL: Yeah. AC: Which was basically running the sales side of it. GL: We just had a couple of conversations and it seemed like a very natural fit in terms of personalities and in terms of [the way we thought} as well. It was such a good opportunity at that moment in time within the space [to] really disrupt it and take it to another level yet again. CS: How big was the team at Precise at that point? GL: From a sales perspective, [it was just] me for a long period of time. AC: We had Roger [Morris, sales director at Precise] doing more of the long-term stuff. We would have been writing a fraction of the lending that we are today. CS: Precise has become quite vast and Alan, you’ve always worked for businesses that were quite sizeable, while Gareth, you were coming from more niche businesses. How did you feel about the transition moving into something the size of Precise? GL and AC: We were around 70–80 people back then, so quite small. AC: We’re at 650 now. GL: But don’t forget, although you’re moving to what would be, in most people’s eyes, considered a bigger beast in terms of corporate structure and what they were trying to do, Alan and I would talk on a daily, if not hourly, basis and say, “What do we want to do here? What can we do with this transaction? Can we do something with this deal?” And, effectively, then try to move everything forward to support the market. It certainly wasn’t, and didn’t ever feel, [like]
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we were going in to turn around and change the market drastically; it was a case of saying, “This is what we feel needs to be done,” and then seeing what the market needed from a product position.
deal on proc fees to make the price better. All of that stuff you wouldn’t do in buy-tolet, we actually said we’re going to act more entrepreneurial in bridging because that’s the way that market works. I think we were
“I GENERALLY TAKE NO NOTICE OF [COMPETITION] UNTIL SOME OF MY DISTRIBUTION OR NETWORKS SAY, ‘HEY, THESE GUYS ARE GETTING TRACTION.’ UP UNTIL THAT POINT, I COULDN’T CARE LESS. WHAT DOES ANNOY ME IS WHEN YOU LOOK AT SOME OF THE LENDERS THAT HAVE GONE BUST IN DECENT MARKETS” successful at doing that. All the lenders, their antidote to us was, “This is bridging, you can’t do that in bridging,” and I just sat there and thought, “Yes, we can,” and the more they said it, the more we went out and proved that, yes, you could. A bridging loan is the same as any other mortgage loan, except you’ve got to think about the exit. It’s a shorter-term loan, that’s it.
On broker perceptions in the bridging market at this time GL: I think that brokers now still need perceptions changed. Ever since I’ve been in the bridging space, there are brokers out there who still see it as a secondary tool, who don’t like it and see it as a grey area. I think that forevermore you’re going to have an opportunity to educate these people further.
CS: In terms of inspiration, where do you draw knowledge from as two people prominent in the business? What gets you up in the morning and what keeps you going in a market that is very competitive?
AC: You’ve got to put this market into context. It is a niche market. The UK mortgage market is £270bn, this is £3bn or, depending on whose stats you read, £4bn. It’s tiny in the scheme of residential mortgage lending. So, it is still niche and, for lots of brokers, they still think, ‘I don’t do bridging, I’ll give that to someone else,’ or just ignore it. Educating brokers and changing perceptions is on-going, it never stops.
GL: If you’re a competitive person, then that wakes you up in the morning anyway and I think everybody wants to be successful. Certainly, I don’t think anybody who works in an industry like this doesn’t want to be successful, otherwise you wouldn’t bother, would you? AC: So, I’ve got nobody who inspires me [everyone laughs]. If you say that, someone should pop into your mind, shouldn’t they? Certainly, industry wise, or mortgage market wise, I don’t draw on, “Oh that person does it particularly well, I’m going to copy that person.” We do say, “I love what that lender is doing, let’s go and have a look at that and maybe draw something out of it.” Inspiration for me comes from [the fact that] we do something very fundamental for society: we lend money to people to buy houses and create houses, and build houses and turn shops into houses and pubs into houses. That’s shelter. Human beings, ... they need air. Got no air? They die. Then they need water, then food and then after that comes shelter, which is what we do. That’s pretty good, right? I always look at what we’re doing as good for society, as a generality, so that gets you out of bed in the
GL: As you said earlier, there weren’t many lenders about. If you look at the lenders that are in today’s market, how many of them are actually 10 years, seven years or five years old? A handful, maybe? AC: One of the things that I feel is quite pertinent to say is that when we set up Precise, it might have been seen as quite corporate because we were all corporate guys who came from Birmingham Midshires or GMAC at the time, which were big beasts—that was the core management team. But what we did with the bridging bit, we said, “Be entrepreneurial.” That’s what we got Gareth in for. We’re going to go in and act like the bridging lenders do; we’re going to horse trade on the price of each individual deal. Not the credit—the credit is sacrosanct—but the price … maybe do a 61
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morning. Like Gareth said, every morning I get up is a competition. I need to go and beat someone doing something because, you’re right, it’s a tough market and a lot of us have that inbuilt mentality. And then you look at your own individual business and say, “Is what we’re doing as a business good? Is it good for society? Can I look in the mirror in the morning and think we’ve done something good here, rather than something bad?” That’s what drives me. CS: Are there any other businesses you admire, specifically in bridging, or look at and think, “They’re onto something’? GL: That’s a hard one, isn’t it? Because I think you admire anybody that goes and does something like build a business or does something different.You’re always going to have an element of admiration for people wanting to do something to a certain degree, but is the admiration for what people are doing a key thing in the fundamental thought process? No, not really. AC: I’ll look at a lender and go, “I like what they’re doing,” but the industry? No, there is no godfather of the industry. GL: I think you listen to what people say and you take what is worthwhile listening to and take on board their ideas, but the reality is, I think it would be foolish to put somebody on a pedestal and say that you have to strive to be that person. AC: Don’t mix that up with arrogance; I listen to loads of people and think, “Oh, that’s a good idea.” It doesn’t matter if they’re a bridging lender or some other lender, or someone not in the industry. But that doesn’t make you want to be like that person or see them as a role model. It’s just they have a good idea and I’m going to explore that. We’ve done that several times. We’ve launched stuff recently that we’ve copied off another lender—that’s competition, right? You’ve got to beat the other guy or girl, so you’ve got to closely watch what they are doing. CS: Where do you get your information from on a daily basis about politics, the industry, the economy, etc? GL: Instagram influencers [everybody laughs]. AC: **** [everybody laughs harder]. AC: We get a lot of data … and buy some data from companies such as BDRC [BVA BDRC, a research agency], who poll brokers and tell us what brokers are thinking, so we
can do more of what they like and less of what they don’t like. And that goes across bridging as well, they look at bridging lenders and all sorts of lenders. UK Finance, we’re a member, we can get all the industry stats. Except bridging, because nobody knows what is going on in bridging. And then you just read a lot; Financial Times, quality press, Bridging & Commercial. GL: I do think that is probably one of the biggest fundamentals of this space: the actual data, because it’s not properly tangible. Hence why we try to do the Bridging Trends [survey] and try to broaden where we get that data from as well, and the sources we get it from. [We’re] improving the sources and getting a good broad-brush of who’s doing it from a distribution point of view, so you haven’t got it pigeonholed into somebody who only does regulated bridging, or people who only do development. If you get a nice broad array of distributors passing that information across, then it hopefully gives you a better understanding of the market. I sort of echo what Alan said, you try to glean as much information through decent sources.You know, reading the papers, reading the Financial Times … Looking at Bricks & Mortar [property supplement] in The Times. Some of the information coming out of there makes things seem a bit rosier at times or more doom and gloom, depending on which one you’re reading. On threats to the market GL: The biggest threat at this moment in time is Brexit and the ramifications of that because you don’t know what knock-on effect it will have on the property market. I think anybody that says Brexit isn’t the biggest thing, is probably masking the truth. AC: Brexit is the conduit; what you’re thinking about is what happens post-Brexit in certain scenarios. One scenario: a crashing out of Europe with no deal. [This] leads you to believe that sterling [could well go] down, so therefore imported inflation goes up, meaning everything we buy in— remember we are a net importer, we don’t produce enough food to feed the nation, for example, so we import it all in—[you’ll have to] pay more, resulting in imported inflation. If you get imported inflation, one of [the Bank of England’s] only levers to manage a spike in inflation is to put interest rates up. If you then see interest rates going up and consumer confidence starting to come under pressure, you can see scenarios that would start to bring house prices down— and we’ve seen that in London, which is a 62
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lightning rod for Brexit. Then you could see a scenario where unemployment starts to kick up at the same time. So, you can see that coming in the background; the global economy is slowing down. Then Trump has a trade war with China, that’s going to kill corporate earnings or hurt them, which will then lead to stock markets softening and you can just see lots of things going into a perfect storm. I’m not saying that’s what will happen, I’m saying that is what we’re paid to think about. We have then got to come up with scenarios as to how we manage that. We have all different scenarios. We actually fire drill some of these things. GL: I think that is a sensible thing, because as Alan says, you have to look at what is your worst-case scenario. What happens if house prices are affected? What happens if then that has a ripple effect on your loan book? That’s why people talk about LTVs being an issue with some of the new entrants in the market. If you are prepared to go to 80% LTV and you are prepared to turn a little bit of a blind eye towards the quality of your applicant, you’re going to get hurt if any of these scenarios happen. AC: Guaranteed. It’s not the averages you need to look at, it’s the extremes. We’re at the end of the cycle; the cycle normally lasts about 10 years. CS: Even with Brexit involved, do you believe that it will stick to the same cyclical pattern? AC: Remember, for most of the global economy, Brexit is a non-issue. For the US, Brexit is not on the agenda; for China, Brexit is not on the agenda. Even for Europe, Brexit is not their top priority—they’ve got bigger fish to fry. Brexit is just, in our world, very important because it impacts us directly, but for everyone else it isn’t. So, we’re at the latter part of the cycle and this is where things go wrong for lenders. Unless you’re particularly dumb and go bust when its good—we have seen three [lenders] do that. What they [were] doing is dumb and three of them went bust in a market that, theoretically, you can’t go bust in. And what goes wrong in bridging is house prices start to tail off—if that happens, this is a loan that needs to be repaid in the next six months. It’s not like a residential loan, where as long as the customer can keep making their payments and they’ve got a job, they’ve got the loan for 25 years. We don’t really care about the generalities of the market in the middle, because it’s not a problem, but with a bridging loan that needs to be repaid in the next six months, if house prices even start to soften, then lenders are going to be thinking,
Interview
“Okay, what about the exit?” You’re now going to have lenders pulling back on their LTVs—mainstream lenders, the guys that are going to take us out of a loan—so you’ve got to sit there and go, “Jeez, that loan can’t get away now, because when we lent them money six months ago, that property was worth X, it’s now worth X minus 10%.” The LTV has actually gone up in the period that you’re holding the loan. Does that mean we’ve changed anything? At this stage, we’re not changing things because we believe that there are other outcomes that could equally happen, but certainly we’ve got our eye on it and we’re thinking about what we would do in certain scenarios.
is minus brain cells. It’s nuts. Now is not the time.You know what they say? Buy low, sell high. In general, what do most people do? They buy high and they sell low.You should get in at the bottom of the cycle, the start of the cycle, when house prices are already deflated, and you know what you’re lending into. But you don’t launch up here [motions high up]—and I have bitter experience, we’ve done it up here, and it doesn’t last very long—you should launch there [motions lower].
On opportunities as a result of Brexit
AC: I doubt anyone is clever enough.You can’t predict it. I don’t know where the end of the cycle is, nobody does. It could be now, it could be three years away.
AC: Every cloud has a silver lining as they say, but you’ve got be alive to take it. You’ve got to keep your powder dry and don’t follow the crowd. The guy or girl who is doing 80% LTV, let him or her do that. Don’t follow it. Just wait, because [depending on the scenario] you can actually spot an opportunity. GL: It’s experience as well, isn’t it? We’ve made reference to the number of lenders that are in this space at this moment in time, but a lot of those lenders haven’t got the years of experience to understand what’s happened before and where we’ve all come from, and what were the actual touchpoints towards that. So, you’re sitting there going, “Well, this is great, I want to get into that market to make a margin on my money,” without having actually ever experienced any problems or squeezes in the market. If you go in too bullish, because you don’t understand the ramifications of being too bullish, you’re on a hiding to nothing, because you haven’t safeguarded yourself through experience. We talk about all these new entrants coming into the market, with everybody going, “Oh, there’s another new lender coming in now.” From my perspective, I look at that as actually a worry from a broking perspective, because if a broker doesn’t safeguard themselves around who they use, and they put their client in a position where they go to a new lender who isn’t tried and tested—what are they doing for their client? They’re actually giving them bad advice. That part does worry me. CS: When is the best time to launch a bridging lender? AC: The day after the crash—not now. We’re in the latter part of the cycle. Any lender that launches a bridging lender now
CS: Do you think there are going to be a number of lenders who have been thinking about bridging and are waiting for that and we will see them come in at that point?
GL: [You’ll] just wait and wait and wait… AC: Nobody waits. They are like a cocked gun; they are going off. [laugher] And that’s why you see people entering at the wrong part of the cycle … Look, nobody knows where the top is, nobody knows where the bottom is; trying to time the market is futile. Unless you’ve got so much money that you don’t care about losing stuff—no one that I know has got that luxury. So, you’ve got to do your best guess.You’ll probably get it wrong, but you don’t want to get it wrong by a lot, you want to get it wrong [with] a window. We haven’t seen any destruction, really, to asset values other than in central London, which is driven by taxation. GL: That’s probably been going since 2014. AC: Yeah. We’ve known about that since 2015—we spotted it retrospectively. I would say the bottom of the market is likely to occur in the next six months to two years. Even that’s a guess, right? So, if I was sitting here going, “I’m going to launch a new bridging lender,” I would be saying, “Not now—[in] two years.” GL: We as lenders have to mitigate our risk and you have to make sure that what you’ve got is all your ducks in a row to know that what you’re doing at this moment in time is sensible ... you’re looking at at all your options, and that you’re getting the right expert advice when you need it from valuations, solicitors ... to make sure you are then in a position that you can actually weather any slight problems. AC: What happens in this part of the cycle, I’ve seen it so many times, [is] the only
way new entrants can get traction against the incumbents is to beat us in some way. They can only beat us by charging less— well, that’s pretty difficult, right?—or taking more risk. So, what you normally see is new entrants taking risk and that’s where they start to go wrong. 80% LTV now… If you get a repossession, and it’s London and you’ve lent at 80% LTV, well you’re probably going to struggle to exit that property now, and it’s probably gone down by 2–5%.You’re going to have 5% repossession costs, marketing it and selling it; you’re charging 1% per month, you’re paying 1% a month to somebody who’s funding that loan, [with] average London property now on the market for considerably longer than it was before—one year is not inconceivable, at all. So, there is another 10% gone. Boom, I’m now in a loss zone on a loan that I lent 80% LTV on yesterday. 80% LTV is hugely risky in this space and what you don’t want to do when you’re a new lender is get your first few loans wrong. If you get two of your first loans wrong, you’re out. GL: It’s greed as well, isn’t it? CS: What do you think drives people to make these decisions? GL: A book that is built up quickly is potentially a very poor book, because has it had its credit risk underwritten properly? AC: Sometimes you’re not in control of the timings.You may be running a business [and] you’ve managed to get some funding and if you don’t use the funding, it’s going to disappear. So, you know, it’s not always people being stupid or naïve. Sometimes it’s just, “We’ve got to launch, we’ve got to do something otherwise I’ll lose this opportunity that I have got right now.” You do see people, who probably know that it’s not the best time to launch, just going for it anyway and hoping … Because they could be right, this might not be the bottom of the cycle at all.You know, that could be five years away, so they’re willing to take that punt ... And that’s an okay view to take because I don’t know if we’re right. Who knows who’s right? You figure that out in reverse, in the rear-view mirror. CS: Is there enough business to go around if people continue to enter the market at the rate that they are? GL: I think that the lenders entering the market are going to struggle to get any amount of traction. If you’re a sensible broker or client, and you were looking to borrow money, are you going to borrow
Interview
money off someone that you don’t know, who hasn’t got a proven track record? No.
AC: It’s a struggle, isn’t it? I hope I’ve got something better than that.
AC: Unless you get that case that nobody else wants to do. So, they’ve tried me, they’ve tried you, they’ve tried Octane and this broker has got this loan that nobody wants to do. Where do [they] go then? [They’ll] go to one of these schmucks who has never done it before and maybe they will do it. And that’s the cases that they will get.
GL: Well you sort of sit there and go, “That was good, but then that was good for a different reason.” I’m still relatively young.
CS: But what if they’re not schmucks, though? New lenders are cropping up with good people behind them. Can the size of the market sustain all this liquidity? AC: Liquidity isn’t a problem. There is loads of it. CS: That’s what I mean. Is there enough demand and borrowing potential for all of this money that is out there right now? AC: The market figures it out. If there isn’t enough, some will go bust. The market will right-size itself. Lenders can’t exist with more money than people are willing to borrow, because they will go bust, because they’re not lending money, or they’ll say, “I’m going to another market, I’ll go to commercial, or I’ll go somewhere else.” There is no such thing, in my view, that there are too many lenders for the size of the market, because that will only exist for a short period of time—they just get found out. GL: There are people who are looking at it as a lifestyle [business], who will just go, “It’s not worth it,” or they’ll [see] an opportunity to snap up another business here or consolidate from that perspective. The market isn’t inherently growing 25–40% every year because you can only do what is put in front of you. On career highlights GL: It has got to be that photoshoot [everyone laughs—these pictures take some time…] AC: Too many to name. Obviously, the day we recruited Gareth was a good day. But if I look at our business, probably the highlight was floating on the stock market. Quite difficult to beat that one. It’s looking like that was the big one, because it was the first time we did that. GL: I don’t think you can actually say what your highlight is until you have reached the end, can you, really?
CS: Do you set yourselves professional milestones? GL: Just to get another year older, that’s about it. I think setting yourself milestones means that you’re, in a sense, checking your life. I think you set your milestones after you reach retirement and go, “Actually, that was a milestone for me because I did this.” You know what, when Alan and I are grey and old and retired, and you sit there and go, “What was our career highlight?” I think you can actually only truly say it then. Hopefully mine is still yet to come. AC: We’re both saying, hopefully there’s good things to come in the future. Certainly, I think we have the ability to innovate new products and obviously come up with new ideas and hopefully compete to benefit the customer and our own businesses. CS: You both seem optimistic about the future of the market. AC: Yeah, because you can make money in any market, as long as you know what market you are in in the first place, and you don’t do dumb stuff at the wrong time. So, like you said earlier, there’s going to be opportunities. If a lender goes bust, well where does all that business go? You get a slab of it.You don’t even need to do anything to get some of the opportunities, you just need to be there, alive, breathing. GL: As long as you’re not silly, you make your own luck, don’t you? Your luck is what you take from the opportunities that get put in front of you, from a lending and a life perspective. AC: The thing that annoys me really with some of them ... I’m not even talking about new entrants now, because I don’t know who the new entrants are. I take no notice— CS: You are in your own orbit. AC: I have new entrants in all of the markets that I operate in and I generally take no notice of them until some of my distribution or networks say, “Hey, these guys are getting traction.” I go, “All right, okay, let me have a look.” Up until that point, I couldn’t care less. What does annoy me—when you look at some of the lenders that have gone bust in decent markets, of which there are a 64
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number—is that some management are actually willing to play fast and loose with their employees’ futures. And I used to say it to [Gareth] quite a lot: we don’t bet the farm all on one deal. That was a regular statement.You know, when you get that deal that says, “Hey, do you want to do this £10m deal? It’s amazing.” I used to say, “I don’t bet the farm, I don’t bet your job on one deal”. These businesses that go bust, there’s always multiple people that have lost their jobs.” GL: It goes back to what we were saying earlier about greed, because that’s a greed factor, that’s somebody wanting to do something without taking the thought and care about the other people. AC: When you’re leading a business, you have responsibility to customers, to shareholders, but also to employees. They’re sitting there going, “Please don’t screw up this strategy, because I pay my bills and I bring my family up in the belief that you, as a leader, are not leading us into a cul-de-sac.” And that’s where the horror stories come from. In all those lenders that have gone bust, has there ever been anything said about the 20, 30, 50, 80 people that worked for those businesses and were scattered to the wind when they went into administration? There’s no sort of human side to that story. It gets overlooked.
“IF A BROKER DOESN’T SAFEGUARD THEMSELVES AROUND WHO THEY USE, AND THEY PUT THEIR CLIENT IN A POSITION WHERE THEY GO TO A NEW LENDER WHO ISN’T TRIED AND TESTED—WHAT ARE THEY DOING FOR THEIR CLIENT? THEY’RE ACTUALLY GIVING THEM BAD ADVICE. THAT PART DOES WORRY ME.”
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Limelight a glimpse into our ever-busy schedule 1
Who: Clare Jupp of Brightstar Where: Afternoon Tea at Ham Yard Hotel, Soho What: 2019 being the year of the individual, women in finance directory planning and why five bottles of champagne during the day is never a good idea 2
Who: Aspen Bridging Where: Aspen’s Berkeley Square office, Mayfair What: Why paying north of 2% for broker proc fees is just ‘buying the business’
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Who: Market Financial Solutions Where: The Hurlingham Club, Fulham What: Atlantis-themed B&C Awards 2019 brainstorming 4
Who: Kuflink Where: Home House, Marylebone What: The changing state of the bridging market, office pets and recruitment woes 5
Who: Pilot Fish Where: The Euston Flyer, Euston Road What: The reappearance of ‘hope value’ in the market 6
Who: Masthaven sales team Where: Masthaven HQ, Soho Square What: A roundtable discussion on educating brokers in the industry
6
5
7
Who: Blend Network Where: The Diner, Soho What: The opportunity P2P presents for SME developers across the country 8
Who: EY Where: Roka, Canary Wharf What: The rise of forward flow funding, whether distribution can ever be controlled and how to live your best life in Vegas
7 8
66 Bridging & Commercial
It’s here
At the end of January, Medianett hosted its annual Directors’ Lunch for the eighth consecutive year. The event was held in association with Brightstone Law, which is celebrating its 10th year in business, and brought together 65 industry heavyweights from the short-term finance industry, including lenders, brokers and surveyors. It was the perfect opportunity to promote the first issue of the Bridging & Commercial Magazine, where all attendees were handed a personalised edition of the magazine as part of an exclusive, limited print run a week before it landed on our subscribers’ desks. Jonathan Newman, senior partner at Brightstone Law, says that this year’s Directors’ Lunch was a very special one for both Brightstone Law and Medianett. “The feedback on this year’s Directors’ Lunch has been wholly positive. That’s no surprise—it usually is,” he says, adding that there are good reasons why this event stands out in the calendar. “First, it is scheduled postChristmas, when diaries are relatively clear. With just a little festivity, it is a welcome light in the darkness of a cold, wet January, which
seems to drag on forever. Second, there is no education piece; no preaching preaching, no sales drive, no motive other than for Brightstone Law and Medianett wanting to say thank you to clients and customers for their continuing support. Third, the venue and arrangements are top notch—just as you would expect from a Medianett-designed event. Great environment, superb food and drink—and lots of it!” Caron Schreuder, managing director at Medianett, says: “We were extremely pleased to launch the magazine exclusively with those who have supported us so unwaveringly over the years. This industry is resilient and constantly evolving—and we’re proud to [have been] out there for many of the pivotal moments.” Jonathan Sealey, CEO at Hope Capital, adds that, as always, the Directors’ Lunch lived up to its billing as one of the most enjoyable industry events of the year. “This year’s coupling with the launch of the Bridging & Commercial Magazine and the 10th anniversary of Brightstone Law made it all the more special.” Bridging & Commercial Magazine — the first reactions Michael Dean, principal at Avamore Capital: “[The] Bridging & Commercial Magazine looks incredibly slick. In addition, the quality of the editorial content is extremely high, as you would expect from Medianett. We are honoured to be associated with the magazine.
My favourite article was the funding story. It is always interesting to learn about sources of finance and it is one of my core responsibilities at Avamore.” Debbie Staveley, managing director at bClear Communications: “I think the new magazine is fabulous and loved that each one was personalised. Nice touch!” Stephen Burns at Adapt Finance: “The magazine looks really exciting and I personally really enjoyed the Q&A session with Mark Posniak and Gavin Diamond. I want to be in the next issue!” Colin Sanders, CEO at Tuscan Capital: “I have read it cover to cover this evening on the train back out to Warwick and it is a wellconstructed, intelligent and interesting read. I’m sure it will go down very well with it’s audience. There’s [nothing] like it.” Alex Searle, sales director at Hampshire Trust Bank: “[I] have just read your magazine cover to cover! You must be so proud— absolutely amazing.” Chris Fleetwood: “Congratulations on the new magazine. I am looking forward to a proper read over a cup of tea and some digestives. It is just what the sector needed—a high quality publication with good articles. Although I would not like to be that close up to Gavin and Mark in real life!” Paul McFadyen, managing director at Glenhawk: “I think you have done a fabulous job with the magazine, I know I have a vested interest with our article but I think everything about it exudes quality and well informed journalism.”
67 Mar/Apr 2019
Backstory
“I had no intention of returning to the industry in a permanent role’’ Hope Capital’s new managing director discusses spending over two decades at one lender, what he got up to during his 12-month hiatus from the industry and his ambition to double business at his new post After serving for more than 20 years at Together as sales director, Gary spent some time out of the industry spotlight, which involved setting up some of his own businesses and working as a consultant. In early January, Gary graced the industry with his presence once more—this time as Hope’s first managing director. Now responsible for managing the dayto-day operations of the business, Gary’s goals will be to enhance all aspects of the company, including distribution, products, marketing, service and systems, while delivering the sales targets for 2019 and beyond. What has been your biggest achievement to date while working in the specialist finance market? I feel like I’ve had many achievements in my career spanning over 25 years, so it’s hard to pin it down to one. Helping to create one of the largest specialist lenders in the UK, building some great relationships with brokers and colleagues, and helping to develop some of the best-known and renowned names in the industry are just a few of my key achievements. My current one is obviously joining Hope Capital as MD. Before joining Hope, you had been out of the industry for a year–what were you up to? In [this period], I set up some of my own businesses, which I’d long had ambitions to do and was a consultant for a number of lenders, brokers and valuers. So, although I may have appeared to [have been] out of the industry’s eye, I was still involved as I was consulting across all aspects of the regulated and unregulated specialist industry, including regulated and unregulated mortgages, both consumer and unregulated buy-to-let, second charge mortgages, development finance and, of course, bridging finance. How did Hope approach you and why did you make the move? The board members at Hope Capital and I kept in touch after I left Together, discussing the market, the industry and Hope Capital’s plans.Through these discussions, I realised Hope Capital had great expansion plans, which progressed to me joining them as MD. Due to outside interests, I had no intention of returning to the industry in a permanent role, although I had many offers ranging from new lenders to challenger banks. However, the company values, ethos, aspirations and commitment of Jonathan [Sealey] and his fellow board members at Hope Capital was too much for me to resist. What one thing would surprise the industry about Hope Capital? The progress that Hope Capital has made over the past seven years from a regional to a nationwide
lender, being competitive in its selected areas of the market and yet still being able to maintain that personal and responsive service. How does your role differ to the one you had at Together? Over the years at Together, I helped to build the foundations of the business and touched, led and influenced the improvement of many areas of the business, with a focus on sales and distribution, of course. At Hope Capital, as MD, my remit is much broader, with all divisions of the business reporting directly to me, which suits my wider experience and knowledge. What’s been the biggest culture change for you, joining from a much larger lender? Obviously,Together grew from a relatively small lender into a hugely successful business. Many of the values at Together and Hope Capital remain common.The team ethics, support, respect for colleagues and passion for the business at Hope Capital reflect those enjoyed at Together as we travelled on the growth journey. What is the first thing you are looking to implement as MD? As we speak, I’m still settling into the role. Collaboration, communication and education for all stakeholders are fundamental values at Hope, which I am looking to embed both internally and externally. My aim is to enhance all aspects of the business, which is in great shape, and build mutually successful relationships with brokers as true partners. How is Hope positioned for its ambitious plans? I join Hope Capital at an exciting time in its history, with great ideas for expansion. It has already built the infrastructure and last year moved to offices four times the size of the previous one, successfully raised funding and further fundraising is underway.This is in addition to the private capital which it has used to grow this far. Hope Capital is, therefore, well positioned to help support the growth of its partners and stakeholders. If you could only reach one of your aims for 2019, what would it be? To double business in the next 12 months. What do you expect will be the biggest challenges in your new role in 2019? Brexit.
68 Bridging & Commercial
What did you spend your very first pay cheque on? My first pay packet—when I was three years old—was for carrying turkeys, and I got the same rate as the adults.They were almost as big as I was and I had to carry each one on my back. I’ve no idea what I spent the money on, though, probably toys! What is your favourite venue for lunch/dinner/drinks meetings? I enjoy eating out and all cuisines, so I don’t really have a favourite; I rarely eat at places more than once as variety is the spice of life. I just hate salad tomatoes! Dream job if you weren’t doing what you do? It would have to involve my other passion, which is rugby league. I’d thoroughly enjoy the challenge of coaching my beloved Wigan Warriors.
Specialist mortgages
Complex bridging Seamless delivery People are often surprised to find that as a bank, we provide genuinely specialist bridging solutions. Our specialist expertise runs deep, and we provide tailored solutions to a wide range of property financing challenges. And because we give you a dedicated case manager, underwriter, completions officer and servicing experts as well as dual legal representation, you can always be assured of our full attention.
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Paul Mansell understands that you are looking to work with an approachable, adaptable and dependable partner who will look for reasons to say 'Yes' to your proposals. That’s why in uncertain times our book stays open. • Responsive decisions at attractive rates • Flexible funding tailored to individual needs • Loans from the everyday to the extraordinary Paul is one of UTB's Business Development Managers just one of our growing team of Bridging specialists working closely with broker partners across the UK to help them deliver flexible short term loans. T: 020 3862 1002 E: bridging@utbank.co.uk
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