ISSUE 3 MAY/JUNE 2019
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Acknowledgments Editor-in-chief Beth Fisher beth@medianett.co.uk Creative direction Beth Fisher Caron Schreuder Senior reporters Simon Thompson simon@medianett.co.uk Theo Osborn theo@medianett.co.uk Editorial assistant Sam Monk sam@medianett.co.uk Sub editor Geoff St Louis geoff@medianett.co.uk Sales and marketing Caron Schreuder caron@medianett.co.uk Contributing photographers & artist Alexander Chai Maciek Wojciechowski Josie Willey Special thanks Nick Wilcox, Search, Skills & Match Ltd Ranjeev Kumar and Stephen Parker, Watson Farley & Williams James Warburton, J2 Recruitment Emily Cullen, Smithfield Consultants Maisy Szabó, Rostrum Matt Wells, M Public Relations Gemma Wright, Castlehaven Finance Printing Cambrian Printers Design and image editing Russ Thirkettle, Carbide Finger Ltd
W
e have successfully managed to get through two issues of Bridging & Commercial without exploring the real impact (if any) of the ‘B’ word on our specialist market—and I’ve been thankful. It’s on the front pages of the national press day in and day out, and regularly creeps into trade publications through commentary from our own industry experts. The topic of discussion has been so overplayed that I wouldn’t have blinked twice if the Oxford Word of the Year for the past few years turned out to be ‘uncertainty’. (Incidentally, last year’s word was ‘toxic’, which is how I feel every time someone claims to have had enough of the uncertainty.) Away from all the noise, we realised that the veil of political turmoil has been masking real challenges and transformations in the bridging sector in recent times, and we were intrigued to find out if there was indeed a link between the two. So, the Monday morning after the UK originally planned to leave the EU (which was then delayed and, unsurprisingly, rescheduled again), we broke bread with professionals from all perspectives in the transaction chain to hash out the subject once and for all [p32]. While the group was unanimous that our country is resilient, everyone in the bridging market is feeling the pressure—regardless of Brexit. So, instead of discussing the ‘what ifs’ of the UK government, we decided to explore some of the pressure points in more detail. We assessed [p74] the current state of the industry’s talent pool and why we need to take a long-term approach to recruiting staff. We also investigated a subject which is normally shrouded in mystery: what happens when a lender enters administration? Over seven pages [p18] we take you step by step through the process. In addition, Bridging & Commercial asked under what circumstances a lender would push typical term boundaries [p52] and—behind the frequent headlines boasting record months and deal volumes—how the sector really defines success [p58]. Spoiler alert: 98% of the industry didn’t think it was about loan book size. And, despite the current elevated levels of competition and margin compression, we examined the possibilities for further growth—namely in Ireland [p49] and via investment in Open Banking technology [p26]. When the first edition of Bridging & Commercial landed, one prominent industry figure asked me if we would have enough content moving forward to match the calibre of the journalism that was on display in our debut issue. And the answer, simply, is: yes. The magazine has grown by 16 pages since the first issue—a fitting correlation with how much the market is growing and changing, irrespective of the political headwinds. Whether or not we do exit the EU on Halloween, there could very well be big opportunities to be seized ahead. And those that are preparing and investing in readiness for that, are likely to fare much better than others. Beth Fisher Editor-in-chief
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
3 May/Jun 2019
6 The cut 12 Products 14 Data 18 Zeitgeist 26 Exclusive 32 Cover story 49 Explained 58 View 60 Interview 74 People 78 Limelight 80 Backstory The valuation gap
Administration: everything you need to know
The five-day mortgage
Unrest and volatility a ‘great opportunity’ for our industry
Beyond our shores / Redefining short term
180 people define success
Rob & Andrew
The minute you stop making money—but you still have that higher element of risk—the balance goes p32 4 Bridging & Commercial
Talent pool deep dive
Harriet Smith
The cut
Roma Finance has revealed that it will utilise Open Banking for its new term product. The lender integrated Open Banking into its processes in September 2018 and will now use the technology to allow top slicing on its buy-to-let products. Top slicing allows a lender to take a borrower’s income into account towards stress-testing calculations. Scott Marshall, managing director at Roma Finance, says that Open Banking assists a lender with three things: “It helps to confirm the identity of a customer, allows lenders to assess affordability and provides real-time access to customers’ bank accounts, enabling lenders to spot when circumstances change following [an] application. So, there are lots of really good positives that come out of Open Banking which have added value to what we do and how we do it.”
Our pick of exclusive news
6 Bridging & Commercial
Avamore Capital has revealed that it has secured its second institutional funding line, which allows the lender to offer 6.5% pa on conversion schemes. It has already completed a number of transactions at the new rate. The first was closed in April for the conversion of a two-storey detached building in Wembley Park into eight self-contained flats. The circa £1.7m loan had an LTGDV of 65%. Zuhair Mirza, principal at Avamore (pictured above), says he is proud to have secured the new funding line. “It is important to us that we remain true to our initial values and so we continue to be transparent, responsive and predictable, providing the service expected of a small specialist lender, but now we have market-leading rates to accompany that. We wanted to pilot the new conversion product in the market before announcing the lower rate. We are excited to now make this public announcement and look forward to supporting brokers and borrowers in their conversion projects.”
Brightstar Private Finance has completed a £1m facility for a client who wanted to purchase a property, knock it down and build a new one. Brightstar’s issue was that planning permission had not been secured for the proposed new build, however Saffron Building Society agreed a standard purchase on the property to allow time for the planning to be obtained. It then converted the standard mortgage back to a self-build at 70% LTV, allowing the client’s plans to continue. The whole process took six months, but this was due to various planning consents and guarantees being required. Rob Jupp, CEO at the Brightstar Group, claims it was an unprecedented display of flexibility from the lender that made it possible for this case to be placed.
7 May/Jun 2019
The cut
The Bridging Group (TBG) is currently looking to recruit someone to support the operational side of the business. “While we are growing and coping with the level of business we are getting at the moment, it would be good to bring in someone with no experience in the industry to train, support and upskill them,” says Dawn Trustam, joint managing director at TBG. “Between all of us at TBG we have different skill sets and believe we have a great foundation to help any new entrant to come in and grow.” Once the lender has this hire in place, it will be looking for additional staff before the year is through to assist with the growth of the sales and operational elements of the business. Lender Stretton Capital is recruiting for deal originators and processing personnel. It has very aggressive growth aspirations and needs the extra staff to deal with its increasing deal flow. Mark Harrison, director of business development at Stretton, explains that it is looking for people with a positive attitude.
Together has revealed that it is looking to grow the buy-tolet side of its business. Marc Goldberg, commercial CEO at Together, told Bridging & Commercial that it is doing around £35m a month of buyto-let and this is increasing month-on-month. He says that the buy-to-let division is the business that is popular with the networks and clubs, and it is seeing real traction there. “So, we’re looking to grow that. We see it as a big part of what we can do.” Marc adds that he thinks bridging is still a key focus with around £1bn of its current book emanating from this. It is now typically doing around £60m a month of bridging.
8 Bridging & Commercial
The cut
Residential developer Gardnor Group and bridging lender KHK Capital have formed a JV partnership to launch a new VAT bridging lender. VAT Bridging will be principally funded and provide the VAT funding for commercial property. It will work both directly with clients and brokers. It will offer loans on UK property and take security on the VAT from HMRC, while also taking a second charge on the property. Interest rates will differ on a deal-by-deal basis, with a max loan size of £600,000. Nick Swerner, director at Gardnor Group, has focused on the segment for around 18 months with his business partner Jack Davidson. The JV will offer the VAT expertise and developer perspective from Gardnor Group, in conjunction with the lending expertise from KHK Capital. It claims it will differ from other VAT lenders by offering the senior debt and VAT finance in one deal, therefore limiting costs and fees. Nick believes the market is undeserved and this goes hand in hand with it helping to educate the market. “If we think [about] the wave of permitted development deals and how many of them will have attracted VAT, in contrast to the amount of brokers I have spoken to who are unaware of VAT in property transactions, we can see a demonstrable gap. We are hoping to help plug [this].”
The commercial finance industry has helped to raise funds to buy a bionic leg for Shawbrook’s Lee Albino. At the time of writing, £31,495 has been raised equating to 52% of the final goal. Lee recently had to have his leg amputated at the hip due to cancer. He faces six months of intensive chemotherapy once the wound heals. The funding will help him to walk again with a brand-new bionic leg. Gavin Seaholme, head of sales at Shawbrook, came up with the idea to set the crowdfunding page up for his colleague. Redrock Commercial Finance has revealed that it is interested in acquiring some smaller brokerages. Gary Poulton, director at Redrock, says that it is looking to acquire brokers with two to three people in the team and which have a proven borrower base. “Really, what we’re looking for, is more regional type offices with established relationships.” This comes as it recently moved to new offices in Dorset and is planning to double the size of its team. The broker believes it is at the point of expansion and hopes to arrange more than £150m of loans in 2020.
Complete FS is targeting £100m of bridging and commercial arrangements in 2019. Phil Jay, director at Complete FS, told Bridging & Commercial that the packager arranged just under £250m of finance last year, and that with Brexit in the background, planned on doing the same this year. However, it aims to do more in the bridging and commercial space and less in buy-to-let. “We made a conscious decision this year that we would promote the criteria more because I think it’s becoming more competitive in other markets—especially on the residential and the buy-to-let, with more lenders coming to market. And I think brokers are becoming more specialist in their areas as well ... and that’s where I think a packager can really add value.” 9
May/Jun 2019
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ccording to recent data compiled by VAS Panel and seen exclusively by Bridging & Commercial, the last two quarters running from November 2018 to January this year, and February to April, showed that actual commercial property valuations were down by as much as 10.3% on estimations. But what is causing this sizeable difference and how is this impacting business? To put the figures into context, the research included over 350 valuations across more than 40 lenders in each of the two quarters. The actual VAS Panel valuations ranged from £35,000 to over £1m during both periods and covered all commercial sectors across the UK. The two sets of data—based on a relatively large volume of valuations from a significant number of valuers—show that estimated values, on average, are consistently between around nine and 10% too high. This implies that the average borrower’s expectation of their commercial property’s worth is too elevated when they look for finance. Using these estimated valuations, brokers could be sourcing funding terms that will inevitably have to change later down the line once an actual valuation has been conducted. Is this a big problem? Potentially. For example, if a commercial
Actual
property is estimated to be worth £1m, but, once valued professionally, the figure turns out to be £900,000, this would dramatically affect what can be borrowed and, ultimately, achieved by the borrower. The analysis indicates that over-inflated valuation estimates in the commercial property market are a recurring issue. But why is there such a gap between estimated and actual commercial property valuations in the first place? “It is unknown where the estimated values come from, whether it is in fact the owner’s or an agent’s view of value,” says Stephen Todd, co-founder and managing director at VAS Group. It is said that it’s more likely to be an agent’s estimation when a transaction is involved, or from a customer directly if it is to refinance a property. “In a rising market, it is easier for a property owner to fully understand the value of their properties as there is additional transactional evidence and readily available data to support this. However, where the market is either flattening out or declining slightly, it is difficult for the customer to know exactly where the value is.” Considering the complexities of valuing 14
Bridging & Commercial
a commercial property, using valuers with local market knowledge and the right sector experience is becoming increasingly important. However, if an actual valuation comes in circa 10% less than what the client (or lender/broker in the transaction) expected, is the industry quick to blame valuers for being ‘too conservative’ or ‘playing it safe’ in an uncertain market? Stephen clarifies that as all loan security valuations are to be carried out in line with the Royal Institution of Chartered Surveyors’ Red Book, the definition of market value is essentially what a valuer believes a property could be sold for on a specific date, having been openly marketed, with an arm’s length transaction at a certain point in time. “Valuers rely on comparable sales evidence in order to support their opinion of value,” he says, adding that where there is a lack of sales evidence to reference, the valuer has to rely on their judgement and experience. “As such, talking to in-house or external sales agents is extremely important in order to give an accurate value. I do understand the notion that people might have in terms of valuers being cautious— perhaps when there really is a lack of evidence in the market—however, not
-10.3%
Nov 19 - Jan 19
-9.01%
Feb 19 - Apr 19
Valuations for commercial property only can a claim be made on valuers where they overvalue properties, they can also have a claim made against them where they undervalue properties. It is in everyone’s interest to get them as accurate as possible.” Interestingly, VAS Audit—a valuation auditing and assurance service business under the VAS Group—is currently seeing numerous lenders auditing more cases during the initial applications process and retrospectively looking at cases agreed over the last few years in order to reassess their risk levels. With many lenders using auditing services at early stages of a transaction, the averages from this new data could be useful for both brokers and lenders when taking a view at the start of a loan application. With all parties currently getting the ‘moment of truth’ at valuation stage, it
would be beneficial for brokers to have more data at a much earlier stage in the deal process. This information could mean they are better able to review an application and ascertain whether the customer’s estimation of value and requested loan amount is realistic. This could, therefore, result in better conversion rates and also flush out the borrowers whose deals do not stack up financially. Stephen says that brokers and lenders undeniably lose a lot of time when property valuations do not meet the estimated values. “The residential market is very transparent with lots of readily available
Words by
BETH FISHER data that I am sure brokers and lenders are using in order to get themselves comfortable with estimated values from the outset,” he says, claiming that, on the other hand, the commercial market is not as sophisticated in terms of information available, unless you pay for external comparable database tools, which can be expensive. “I think it would be difficult to ascertain an accurate value of a commercial property prior to the carefully selected valuer inspecting and carrying out their due diligence as per usual,” he adds. “However, arming yourself with additional tools to allow you to make informed decisions from the outset would undoubtedly be useful.” Information from the likes of VAS Panel and other companies on valuation trends could really add value to the industry, reduce risk for lenders and help to increase transparency in the market. While the most recent figures showed a reduction of around 1% on the previous quarter—possibly due to the market stabilising or slightly improving—it is difficult to predict whether the gap will steadily close or continue to widen and, therefore, it will be interesting to analyse what the next two or more quarters of this year show. In the meantime, if more brokers are aware of the average gap from the outset, it could save them valuable time and money later on.
15 May/Jun 2019
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T WHAT HAPPENS
WHEN A LENDER ENTERS
he past decade has seen the likes of Tiuta, Mathon Finance and Collateral (UK) Ltd enter administration, as well as Amicus Finance and Fincorp more recently. Despite the headlines and industry gossip, few can tell you what actually happens when a lender goes into administration and its real effects on the market. With the process shrouded in mystery, we decided to break it down for you
The UK administration process is, at least in part, designed to bring a company back from the brink. Administrators take over the running of a company with an aim to save it from insolvency and, if possible, steer it back to profitability. However, there is also the possibility that it is a route to an orderly wind down of a company’s business to return money to creditors. Stephen Parker, partner at Watson Farley & Williams, works on restructuring and insolvency. He explains that—notwithstanding administration leaving open the possibility of a company continuing to trade at the end of the process—for lenders, the expectation is that they won’t exit administration once they enter it. Watson Farley & Williams’ Ranjeev Kumar heads up the firm’s real estate finance department and claims that lenders aren’t comparable to most other businesses, such as retail chains or football clubs entering administration. Essentially, when you look at the assets, it usually just consists of loans. If there is no money available for lending, then there isn’t much of a business for the administrators to run. If there is any hope of saving a lender from administration and eventual insolvency, it likely comes before the official process is triggered. Stephen says that potential administrators may also have a mandate to advise on a restructuring transaction or sales process, and so they will assess the situation and try to work out whether they can find extra funding, renegotiate the lender’s obligations to keep it solvent or sell down some of the book. Once administration formally commences, the administrator’s role is managing loans, selling off the assets, dealing with staff and managing any litigation.
Words by
simon thompson
ADMINISTRATION?
Zeitgeist
Zeitgeist
It begins How is the process triggered? For lenders, the administration process can be initiated by the directors themselves or by the company’s creditor(s). Creditors with qualifying floating charges (common in debenture or all asset security) have the capacity to appoint administrators if their obligations are not being met. An unsecured creditor (such as company suppliers) could trigger administration indirectly through a winding-up petition, which may force the company to start the administration process. The administrators are usually chosen by the company’s directors, with input from secured creditors, who can overrule the director’s choice. Appointed administrators are required to be qualified insolvency practitioners and by law are obligated to manage the company assets and debts in a way that maximises the return of creditors’ money.
What could lead a lender into administration? • defaults on loans • funder(s) pulling funding line(s) • secured creditor enforcing as obligations aren’t being met • inability to meet commitments made to borrowers • inability to cover business expenses and overheads • a shareholder resolution to put the company into administration • investors’ interest payments going unmet
20 Bridging & Commercial
When a lender goes into administration, the directors are removed from managing the company and replaced by administrators. A moratorium comes into place to prevent any action being taken against the company’s assets while the administrator decides how to deal with the company’s affairs and obligations. Administrators have eight weeks to develop a plan. Daniel Richardson, insolvency practitioner at CG & Co, says the plan outlines how they will deal with the company’s affairs, the time it will take, the number of admin staff required and an estimation of costs and fees. He highlights that this is not set in stone; the administration duration can (and sometimes does) overrun, as plans often evolve. Daniel says that significant secured creditors do get some say on the plan, revisions and the direction. “They might actually say, ‘Do you know what? I would rather it go down this route because I believe it could achieve a better outcome, and as I am the primary beneficiary, that is how I want to do it.’” He claims that, in some cases, secured creditors could remove the administrator(s) completely if they don’t feel they are doing it correctly.
The hierarchy: who gets paid first?
Technically, the secured creditors are paid first but, in reality, for practical reasons, administrators’ expenses and their own fees are the priority. Stephen says no administrator would manage an administration without the guarantee of its expenses and fees being met as a top-line priority. The order
• administration
costs/expenses (the cost of doing the administration, legal fees, staff etc) and administrator’s fees fixed-charge creditors preferential creditors (eg employees) and the Prescribed Part floating charge creditors unsecured creditors
• • • •
Stephen admits that the process can take years and that most of the debtors don’t usually see full reimbursements. “I think the reason why people complain about the process is that, in some situations, if you have got a secured lender in there, by the time the secured lender and the administrator have been paid, there is going to be very little left for everybody else.” The way a lender is funded is often a determining factor in how much money makes its way down the hierarchy of creditors. “If there has been secured debt funding into the fund, then the unsecured creditors and the equity investors in the fund are clearly at a significant risk of not getting any return at all.” The position could, however, be different if the lender was not backed by secured debt (eg if the funding comes from equity).
21 May/Jun 2019
Zeitgeist
Zeitgeist
The Prescribed Part Many of the low-level creditors will receive some payment from the Prescribed Part: a ringed-fenced fund which administrators are legally obliged to set up. This ensures that creditors of this type still receive some payment if the company doesn’t meet all its debts. The calculation is set out by the Insolvency Act 1986 (Prescribed Part) Order 2003. The Prescribed Part—which is capped at £600,000—is then divided between the unsecured creditors.
How are borrowers affected?
What happens to the loan book?
The ideal scenario for borrowers with fully drawn, short-term agreements is that loans continue uninterrupted. Even in this best-case scenario, loan conditions become more stringent and inflexible in line with the lender’s limited funding capacity. That means less or no room for rollovers, late payments, delays and/or additional funding. Ranjeev says the continuation of development loans is a lot less feasible. Lenders in administration generally don’t have the capacity to provide additional money to fulfil tranches of funding and, in most cases, loans have to be sold on. The sale of loans to different lenders can be extremely concerning for the borrowers. While it may not be as consequential for good credit borrowers, it is a major concern for borrowers with loans in distress. Lesser-known lenders who may not be concerned about repeat business in the specialist lending sphere could be less flexible when it comes to the end of a loan. Stephen admits that for some people, their worst nightmare is their loan being sold to an aggressive hedge fund which could impose harsher terms and extra fees. Basically, more pressure. Ranjeev highlights that, in the past five years, there have been more cases of borrowers specifying who can buy their loans in the event of administration (or other circumstances) in initial loan agreements.
Administrators assess the lender’s key asset— its loan book. One scenario is where the lender can hold on to their loans and keep administering them. However, a swift resolution delivered by selling the loan book in one go might be best in terms of recouping money. Alternatively, administrators could sell off each loan individually, or divide and bundle them up into different packages. “In some cases, we see loans packaged together, so it is up to the buyer to ascertain the overall risk,” adds Ranjeev. “They may accept that in every [one] hundred there might be 10 dogs.” Stephen explains that administrators will design whatever sales process is likely to recover the most money. This can mean holding on to some lower-quality loans so that they can be restructured and eventually sold on for a better price. However, Stephen admits that this could be a risky and time-consuming scenario, which could lead to higher administration fees and expenses. Apparently, almost every loan is sellable. “If it is a real basket case, there might be a very low price for that loan,” he says, but you can recover something for it, unless there is absolutely no chance of making a recovery.
22 Bridging & Commercial
What happens to the staff? Pay, holiday and sick leave usually stops on an employee’s last day, often when the administration process begins. Employees at the lender usually don’t receive any advanced formal warning that the company is going into administration. According to a former employee of a lender which went into administration, the process is not designed with the employees in mind. He says that, in his situation, staff weren’t even told why their company was going into administration. Employees were left in the dark about what was happening, even after the ‘collective consultation’. Administrators have a duty to collectively consult with employees likely to be affected by proposed redundancies, before the first dismissal takes place. They are also obliged to give reasons for the proposed redundancies, how employees will be selected for redundancies and, among other things, how the redundancy payments are to be calculated. “The biggest concern at the time was: when will we get paid until? Will we get paid? And when will be the last day of working? That is the main thing. So, no one really knows about what their rights are in this context, because no one has really gone through it before.” Stephen explains that administrators have a duty to creditors and so need to carefully assess what they do about keeping employees on or making them redundant. “The administrators will look at which of those employees they need and which ones they don’t, and it may well be that they decide they need none of them.” He adds that, from an administrator’s perspective, it may save money (and therefore protect the estate of the company in administration) to make people redundant and deploy the administrator’s own staff to temporarily take on the employees’ roles at the company. The amount of staff needed is down to the size, quality and complexity of the loan book. For example, a good-quality book that can be sold in one go is likely to be a quick and less expensive process. “If it is something that needs an awful lot of work to try to recover, then it is going to be more expensive and take longer.” The staff that may be kept on are usually those that have crucial knowledge of company operations and are seen to be valuable to the administration process. The staff that do take the administrator’s offer to stay on with a company are said to usually do so because of either a sense of duty, inertia, or to buy more time to secure employment elsewhere. It could also provide better financial outcome in terms of redundancy and pay out. According to the former employee we spoke to, certain staff were kept on to wind-down the loan book of the lender he previously worked at. He was not one of them. He says that his age and length of service with the company meant that he got the maximum pay out of those not kept on—a total estimated at around £3,000. He says that redundancy threw most of his former colleagues into financial limbo and uncertainty. “It is completely out of your control, unplanned and your pay is minimal in terms of statutory redundancy. So, if you have a mortgage commitment and the usual outgoings, you can’t [pay]. If you are moving from job to job, you can plan for that. In the case of redundancy by administration, you are scrambling—you are literally in a race against the clock [to find a new job].” Stephen claims that, aside from extreme scenarios where employees have a direct role in the potential mismanagement of the company, employees’ professional reputations are left untarnished. They generally find other organisations to work for. Our anonymous source estimates that 90% of the staff were able to get at least temporary employment elsewhere. He, like many staff members, was snapped up by competitors. Ranjeev explains that organisations often do make comebacks, but the highly competitive nature of the specialist lending space and the stigma of administration means it is never under the same name. “In some cases, they are almost like a phoenix rising from the ashes of a previous fund,” he adds.
23 May/Jun 2019
Zeitgeist
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The brokers Lenders entering administration can leave the loans that brokers have arranged up in the air. If deals haven’t completed, it can leave them scrambling to find solutions for their clients with new lenders. Stephen Burns, at brokerage Adapt Finance, says it is not always easy to find a substitutable lender, especially if the loan is unique and warrants a niche product. “There are idiosyncrasies with each individual lender. For instance, there could be a lender that specialises in [a] product that isn’t available elsewhere,” he adds. Ultimately, it can cost the borrower more fees to reestablish a loan with a new lender. For example, the new lender might not accept the valuation that was conducted for the deal previously. What about brokers’ fees? According to Burns, the fees that brokers are supposed to receive on loan completion are lost if the lender enters administration before the deal completes. However, Burns maintains that it is not a big deal as the fee is generally recouped when helping the borrower transition to a loan with a different lender. “Obviously, you are going to lose your fee but brokers should be more bothered about the client that was committed to the purchase.” The biggest fall out for brokers could be how this affects their relationships with borrowers and reputation in the market. A borrower may question a broker’s judgement if they were guided to a lender that then enters administration. “[The] problem is if the client takes it badly, puts the blame on to [them] and uses another broker,” says Burns.
A silver lining?
Lenders entering administration can deflate market confidence, hamper borrowers’ projects, compromise broker reputations and throw professional and personal lives into chaos. However, Burns says that there is a positive twist that often arises out of these situations. If a broker’s contacts at one lender are made redundant and then reshuffled across different lenders in the market, this could result in more business opportunities and solutions. “They will go to companies that we don’t use, but we can start to use because we have got a relationship with the individuals,” he says. This could help diversify the way business is originated—which has barely changed over the last two years, as explored in the second issue of Bridging & Commercial—possibly resulting in improved conversion rates and further market growth.
24 Bridging & Commercial
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The Gamechanger During a time when we have seen a number of specialist mortgage lenders exit the market due to current economic climate and competitive pressures, such as increasing credit risk and funding costs, and a race to the bottom on rates, Kensington Mortgages has geared up for major growth, undeterred Words by
BETH FISHER Photography
Maciek wojciechowski
Pictured: Mark Arnold (left), Craig McKinlay (right) 27 May/Jun 2019
Exclusive
ollowing a complete rebrand in December last year—which has resulted in a 25% uptick in registered brokers—the lender spent around £2.5m to increase its committed revolving warehouse facility by an extra 30% in a bid to fulfil its ambitions to fund close to £1.4bn worth of new buy-tolet and owner-occupied mortgages this year. Will it be able to take more market share under the seemingly suffocating weight of competition and Brexit chaos? Its investment in technology, which it believes will be a “gamechanger”, could very well drive it to success. In March, Kensington’s wholesale funding platform publicly placed its latest securitisation transaction, which raised a further £535m of funding, with expectations of higher volumes of originations this year. Kensington reported a 29% growth in lending in 2018 and, this year, has an aspiration to increase this again by 15%. To get a better understanding of why the lender has such high hopes for 2019, despite the market being rocked by uncertainty, I sat down with its CEO, Mark Arnold, and new business director, Craig McKinlay, at its offices in the City, to map out Kensington’s plans (literally—there were multiple whiteboard drawings) and how it hopes to achieve them. Over the past four years, it has grown its mortgage lending by an average of 25% per year. Kensington conducted a major rebuild of its proposition last summer and has recently introduced a Property Plus range, which broadens out the list of properties that it will accept, including concrete, prefab, steel-framed, timber-framed, cob and colt construction and pebble dash. Its next steps will be looking at other segments, such as holiday homes and expats. It also launched cashback propositions for the first time and is now eyeing how it can enhance this offering for a limited company product. This could potentially pay for the incorporation of a limited company, which typically costs between £300 and £500. “I think our confidence is different to the confidence in the market,” Craig tells me. “We have grown much faster than the market has [over] the last few years and we expect that to continue.” While he predicts strong growth for the business this year, he doesn’t necessarily expect the market to grow as stalwartly. “There is a significant amount of uncertainty in the marketplace,” adds Mark. He believes that there will be a lot of consolidation in the sector and, when asked for his personal view on Brexit, he feels that 28 Bridging & Commercial
whatever happens there is a “huge” amount of pent-up demand now for mortgages. “I think when Brexit solves itself, whatever that may be ...everyone is going to pile into the market.” Once the sector has more certainty, there could very well be a big opportunity, and Mark feels that now is the time to invest in readiness for it. He explains to me that Kensington’s funding expansion was a defensive position to ensure that it was more than adequately funded for the year. “There are a lot of people falling out of the marketplace and I think what brokers want—and we’ve been around for 23 years—is certainty, continuity and the surety that someone’s going to be around.” As a result, the lender has more money now to lend than it has ever had. “Take it from the facilities that we’ve been given by the entities that provide them, you know, the likes of Citi and BNP,” says Mark. “Think about how certain and how confident they are in us to be able to extend those facilities in uncertain times.” Amid the volatile economic backdrop, the industry has seen the likes of Magellan Homeloans and Secure Trust Bank cease new mortgage business. When I ask Mark and Craig if they expect to see further specialist mortgage lenders leaving the market, Craig admits that there may be more to follow. “Funding costs are definitely rising,” he confirms, pointing out that deposit funding is not cheap unless you’re a high street bank and, therefore, claims that many of its competitors are paying a lot for their funding. I was told that challenger banks had moved from the stage where liquidity had been plentiful—with the help of the TFS scheme—to now, when we are seeing very competitive offerings from substantial players, such as Goldman Sachs’ new savings account Marcus, entering the market. This particular offering launched with a 1.5% rate in September 2018 and, by November, reported that easy-access savings account customers had joined at a rate of one for every 35 seconds. With a finite pot of savers’ money out there, Mark does not expect deposit funding to get any cheaper. If this “hot money”—as Mark describes it—can move around this quickly, challenger banks may be under pressure to offer the best rates in order to retain it. On top of this, Craig adds that it has also seen fairly irrational pricing, which is coming too low. “So, you’ve got high costs, low pricing, very thin [margins] and also people coming in taking a lot of risk.” Due to margin compression, Kensington identified the need to be more efficient through digitisation. Mark highlights that the market is changing as more people desire faster mortgages. And while there is a lot of choice when it comes to mortgage
“The market’s moved. It’s coming. It’s going to be the five-day mortgage at some point”
Exclusive
products, Mark thinks the current process is “painful”. “The fundamental gamechanger has been APIs [application programming interfaces].” Mark claims that the average journey time from application to offer in the specialist lending market is roughly 20 days. Kensington has optimised that process so that it can currently sit between 12 and 14 days. However, using APIs—with automated valuation models (AVMs) being one of the biggest—is set to completely speed up the whole broker process. “An underwriter takes a case and will look at all the evidence and the facts and make a decision … that’s not going to change. But the underwriter shouldn’t be struggling to find information,” says Mark. Last year, Kensington doubled its number of underwriters and has achieved a 30% improvement in operational capacity to date, year-on-year. With the new technology coming in, it believes it can accelerate those figures further. A part of this includes a new gateway which the lender bought called Axway, which allows Kensington to configure with the likes of Experian and Equifax to provide data instantly. The lender currently has around five APIs operating and expects to have 20 later this year. Due to this, the lender believes it could get its appto-offer down to an eye-popping five days within the next 18 months. “In the specialist space … there’s no reason why the process can’t be changed,” says Mark. “…Five days is not unrealistic if you have the right technology in place.” Kensington launched Mortgage Apply—a Twenty7tec API integration—in May, which allows any broker who has Twenty7tec to fill in its standard universal fact find for a customer and then, when sourcing products, it automatically translates the information into the lender’s application form before submitting it. Mark explains that the route to business and the way you gather data is going to change. “It’s not if, it’s when,” he says, adding that he believes it will happen in the next two years. “The market’s moved. It’s coming. It’s going to be the five-day mortgage ... at some point. Not two months. If you are a customer, or a broker, why would you accept two months? It’s appalling.” And if lenders are not ready for it, Mark thinks they are going to struggle. It’s clear that the players in the market that have clear intent and a long-term strategy— and are willing to put the investment in, despite the political headwinds—are likely to fare better than others if the industry is indeed set for a big opportunity once the UK gets a better understanding of what the Brexit outcome will look like. Regardless of our country’s economic state, the buy-to-let and residential mortgage space is ripe for change—and that could be as soon as 18 months away.
“I think our confidence is different to the confidence in the market” 31
May/Jun 2019
Cover story
Beth Fisher edtior at Medianett Gary Feast finance director at Robert Sterling Surveyors Joe Middleton senior partner at Lightfoots Solicitors Simon Thompson senior reporter at Medianett Jo Logan short-term lending & development finance specialist at Brightstar Financial
Andre Bartlett director at Capital B Private Finance
Jonathan Newman senior partner at Brightstone Law Richard McDougall partner at Cabot Square Capital Adam Davies CEO atWestgate Private Finance
33 May/Jun 2019
B
Cover story
REXIT WAS SUPPOSED TO HAPPEN on 29th March, two years after triggering Article 50. However, at the time of going to press (and who knows what may have happened by the time this magazine is in your hands), the exit date has moved to 31st October after the first extension in April was also delayed. If the government, MPs and the EU fail to pull together and agree a deal by Halloween, we could be leaving without a deal. But, is that a bad thing for our market? Armed with an abundance of coffee at Quo Vadis—an historic restaurant tucked away on Dean Street in Soho—we sat down with key bridging experts from a lending, broking, legal and surveying perspective to hash out how Brexit and the resulting political turmoil has really affected the sector
Words by BETH FISHER Art by JOSIE WILLEY
why [it] is probably better placed to withstand it than [any other sector] … and, part of that reason is because it’s quite a simple business: we are lending on UK property, mainly with UK money, to UK borrowers—it is quite insular. We are not waiting for the carburettors from Germany and exhaust pipes from France and all the rest of it. So, fundamentally, the business hasn’t changed. I think also, a lot of the ‘property market crash’ [talk, coming from] Mark Carney and the Bank of England ... I think that’s already been factored in to an extent, and I think that Gary will probably agree with me. Or he might not agree with me… (Group laughs) Since 2016, we’ve had a downturn in the property market, but the lending has continued to happen—[and] in big volumes. I am not expecting it to go. BETH: Is this just in London, though, or are you seeing it elsewhere? Because most people focus on London. GARY: Well, London is its own unique market, really, and the higher-end values have certainly taken a massive hit. It is not necessarily Brexit that has driven that. It is stamp duty changes and other influences. In June ’16, I didn’t actually know about the result for a couple of days because I was in Marbella with a couple of mates and I didn’t see daylight for a few days. (Group laughs). When I did eventually surface, it came as a hell of a shock. I was really surprised, and I actually thought then that everything was going to be a train crash, and what surprised me [was] that after the initial knee-jerk [reaction with] certain banks, lenders etc [who had] a sort of funding crisis … I think what has been shown is that the UK market is incredibly resilient and individuals within it are remarkably innovative and managed to stay ahead of the game … Valuers themselves are under pressure to maintain values that they are reporting at the moment. The temptation, I think—and certainly valuers have been accused of doing this—[is] to whack 15% off of it just for the sake of doing so, [which] is not a very good idea to be honest, because it is just a self-fulfilling prophesy at that stage. I think, our view is that it is fairly solid and surprisingly so. BETH: Does anyone else agree or disagree with this? (Voices of agreement) GARY: Well, that’s a relief! (Laughter in the room) BETH: Is it changing the typical borrower in the bridging market?
BETH: So, the first thing I think we all need to talk about is the first thoughts you had when the vote came in, back in 2016, and how you thought it would impact the specialist finance market. Have any of your initial assumptions rung true since then? ANDRE: [I was] shocked, but not surprised when it happened. I just had a feeling that the way the campaigns had gone it was going to head that way … I [had] left the business [SPF Private Clients] and started a new one [Capital B Private Finance], so it could be that it’s a little bit quieter because I have had restrictions [around] being able to talk to certain clients, but I have actually not found it hugely different than I expected it to be, for a new business… BETH: And you didn’t expect it to be any different? Or did you expect that and then were surprised that nothing had really changed? ANDRE: I mean, how long ago was it when it was announced?
Was it three years? BETH: Three years, almost. ANDRE: I don’t know what I did three days ago (laughter around the table). I don’t know what I thought. I thought it was just a mad panic, like, ‘Oh, everything is going to change.’ And I don’t think everything has changed as much as we all thought [it would], at the moment… JONATHAN: Well, I was shocked when it came in. I thought, ‘Oh my god, I wasn’t expecting that.’ And I thought it was really bad news for the economy as a whole, and my business is no different to anybody else’s—we were affected by the business environment. But, I think as time has travelled on … we haven’t seen the impact that everybody predicted. We certainly haven’t felt it. We have had some very good years which have been good news for the bridging loan industry and I think there are a number of factors 34
Bridging & Commercial
RICHARD: I would probably spin it the other way, which is I think another reason [why] we haven’t really seen so much change is that there hasn’t really been a change in the availability of capital liquidity into the markets. And, I think, initially, that was driven by the fact that there was enough lead time. You know, we had a twoyear lead time—or even longer—so people were sitting there and thinking, ‘Well, I can’t sit on my hands for two years—I need to continue lending.’ I think, our experience over the last six months is that, potentially, liquidity still seems to be extremely strong. We are seeing a number of banks continuing to provide funding to specialist lenders, bridging companies and the like. They might be being a bit more selective just because in the bridging market there has obviously been a huge proliferation of new entrants into the market and there is probably an element of concern around the quality of underwriting and lending provision in that space. But, on an aggregate level and across speciality finance as a whole, if anything there has never been so much, and I think that weight of capital and liquidity [has] kind of offset some of the concern around changes to the market—certainly historically. That might change in the next six months and certainly post-12th April if that
ends up being a hard cliff edge. [Ed: which it didn’t] JONATHAN: That is quite an interesting point. So, the nervousness around Brexit has opened the door for new entrants in the market. RICHARD: …Well, over the last two to three years, I think there have been a bunch of new entrants driven almost by market circumstances, rather than Brexit. I think what will happen once we actually get some resolution on this, is we will see some of the larger institutions retrench back like they always do and then new entrants or existing independent entrants—as long as they have got their capital and liquidity secured—will be able to step into that place. Yields will start going up again. JONATHAN: I think we have probably already seen some of the larger institutional specialist finance providers become a little bit nervous immediately post-Brexit [vote], possibly internally [or] from whoever is funding them … that has created an opportunity for new entrants to get a foothold in the market by doing some more riskier stuff. RICHARD: Yep. JONATHAN: …And then once we get those new entrants in the market, that creates a bit of nervousness with the institutional people that are losing their market share and they want to come back, [creating] a little bit of excitement. It is probably countereconomical, but it works in the bridging finance [market]. That is why it has become so resilient—or appears so … I think the interesting point about Mark Carney’s prediction was the time he made it. I think it was probably about six to nine months ago he was saying that we could see a 30% downturn in the property market. Now, I think that was completely wrong. Because I think by that stage, we had already seen 25% off and if you add his 30% on to that, you would be 55% down on 2016, and I don’t think that’s happening… RICHARD: He was trying to make it clear that that was a stress test, so that was trying to say, ‘Look, if there was a 30% decline in house prices, then the banks would be able to resist that.’ But, you are right, (turns to Jonathan) I think there will always be players in the market who are trying to push LTVs, there will always be valuers in the market who are under pressure to support their lenders… BETH: Just going back to Jonathan and what you were talking about—risk. One of the main reactions that a lender had after the vote was that risk would materially reduce until the market knows what is happening with Brexit. Obviously, we still to this day don’t know what is happening, so has risk appetite declined, or has that not come true? Are we in fact seeing a riskier market? JONATHAN: I don’t think the risk has changed fundamentally. I mean, people are very wary of where the property market is. You know, I’m sort of old enough to have gone through probably three property downturns now. I think there is a subtle difference in what we are experiencing now … there are buyers out there and they are selling, but at a certain level … Has the risk appetite changed? Not awfully. People are very, very concerned about retaining their presence and retaining their market share, doing what has proved successful over time, and there is a continuing appetite to lend. You know, everybody is saying, ‘Risk, risk, risk, LTVs and all the rest of it.’ But there isn’t a massive amount of movement on criteria, as far as I can see. 35 May/Jun 2019
Cover story
then diminishes as well. If there is going to be a global property or national property crash, then surely if you’re doing long-term funding, maybe that will have more of an effect. I mean, our average loan duration is five months. So, short of armageddon happening in the next couple of months, which may be what Brexit turns out to be—who knows—I can’t really see that we are massively exposed in this particular type of lending. [For] longterm mortgages, I think I’d probably be a little concerned, but nobody is doing interest-only any more, anyway.
BETH: Adam, do you think the appetite for risk has reduced? ADAM: Reduced? Well, we came to market with probably the highest LTV bridging product out there at the moment at 80%, but we are focusing purely on the lowest point of the value … [we came up] with a fix and flip product, so, properties which you would not normally get funding on, [you can] then fix and then get to the point where you can actually get traditional funding on them. So, my view is, well, Brexit—whatever. It doesn’t really matter, does it? Because, if you have got people that want to buy the property at the lowest point of its value, then add value to it, your risk is diminishing as the value of the property increases anyway. So, if you get 20–30% coming off the top end, sure it may take slightly longer to sell it, but you are not that exposed as the project goes on … Obviously, you’ve got to manage risk, but as long as you have got good lawyers [and] surveyors behind you and you kind of know the area that you are lending in…We won’t lend in central London, because I think it is artificially high. Some of the Home Counties we probably avoid as well because … it is not taking a month to sell, it is now taking three, and if people are looking to flip things on quickly, then maybe that is something that we need to consider.
JOE: …Had it been Friday [29th March] or whenever, I don’t think there is going to be any massive collapse within any of the markets around the world. We’re probably far more affected still by what might be happening in America or China quite frankly than [whether] we do or don’t leave Europe. If you look [at] something like the Bank of England and their interest rate vote the other week and it is back to all of them keeping it [at 0.75%] and there is a chance it will probably go the other way at some point again soon. So, there are so many factors already being built in that the knee-jerk apparent reaction was only in that first month after the decision. I think, already, everything has adjusted. BETH: A couple of years ago, when we were told that we would be exiting on Friday [29th March], did anyone think that we would never make that deadline? Did you prepare for the situation that we are in today?
JO: …I think initially there was a knee-jerk reaction. LTVs were reduced … it didn’t really affect the rates, it was more the appetite to lend and that was in the early days [of Brexit]. But, since then, as we were saying, there have been new bridging companies that have come to the market, which has then made the bigger players perhaps offer a little bit more … that sort of stigma with the bridging side of things I think is going. I still think there is a lot of education that needs to be put across, but it isn’t a case of, ‘Oh my goodness, I have got to have a bridge because there is no other option for me.’ People are taking bridges daily for refurbishment, for ground-up building as well … we have got people that are probably building in their back gardens now to try to get the biggest return from the asset that they have. It’s massive. What is going to happen when the decision is made? I don’t know. But, at this moment in time, we are still really busy.
JO: I think it is concerning that they can’t make a decision in twoand-half, three years, or whatever it is, and we are still no further forward. JONATHAN: The bigger factor is [that] the political climate was unforeseen and unforeseeable. I think the bigger danger for everybody sitting around the table is less Brexit, it is more a change of government and what that government will look like. (Group murmurs in agreement) Everybody would agree on that. So, I suppose that is an indirect consequence of Brexit. CARON: Is the potential change in government brought about as a result of Brexit, though?
ANDRE: [The established lenders] now do 75%, there are lenders even doing 80%. The second charge bridging has increased as well—there are lenders doing 75% of seconds, where as it used to be 70% and the bigger ones wanted 65%. So, no, I have not seen any signs … I am sure there are some that have pulled back and some lenders have disappeared, of course, but there is more coming in than is going out and the LTVs are going up and, as Jo said, it is as busy as it has ever been.
JONATHAN: Well, I am not a great political commentator, because I give up halfway through—(table laughs)—but the reality of it is, but for Brexit, you couldn’t see a reason for the country to want a drastic change of government … even from an economic perspective, everybody would believe it would be disastrous… CARON: It’s highlighted huge leadership issues, hasn’t it?
JO: I think [there] is a bit of a ripple because London seems to have stayed quite stable and lots of people are starting to [invest] further up the country because they can buy the properties slightly cheaper and then they are obviously being able to refurbish them and the return is really good. But that line—or that boundary around London and the South East—I think is just moving [towards] Birmingham [and] up further.
JONATHAN: Yeah. BETH: If that’s the case, would it be much different if there was a change in government, because they can’t seem to make a decision as it is, and no one seems to know what is going on? JONATHAN: Well, there could be a huge difference as a result of a change of government, because of their economic theories and masterplans—and that will affect everybody around the table.
JOE: I think you need to look as well at the products … where you pitch your LTV is less of a concern, because actually what you are doing is financing the probable—the worst-case scenario is that a flattening market is going to be negated by the refurb work you have done. You are still going to have that margin there.
GARY: (incredulous) Master plan?! It is the disaster plan. (laughter). RICHARD: I think that it is going to come down to when the next general election is, and it seems like it might be this year—if there is some kind of resolution around the withdrawal
ADAM: Yeah, we [have] got our LTV glide, so it’s high initially and then as the renovation progresses, the LTV drops. So, our risk 37
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Cover story
agreements or no deal. And then, the second point is whether the general election is built around Brexit or built around wider policies for the country. And that was kind of what happened when Theresa May lost her majority in the last election, [when] she went out campaigning on a Brexit ticket and the whole narrative turned to all of the social troubles that were going on in the country and that is why she lost the majority. So, depending on how that general election is played out, which you can’t predict, [it] will probably have a massive baring on what the outcome is. So, again, in terms of planning, planning is very hard for these things. After the vote happened initially, we sat down internally and said, ‘Okay, let’s just think through all the things that could happen and what we should be looking at across all of our companies, not just bridging.’ And the point was [we] just came up with all the things you should be looking at as a normal, everyday business, which is: is my liability and capital structure fit for purpose? Do I have certainty of funding? Am I in control of my credit and underwriting and happy with the risk in my portfolio? And you look at it and go, ‘Well, these are all things that we should be doing every single day, isn’t it?’ There is no change. So, I think, to be honest, the only thing you can do is try to continue to be prudent or lend within the parameters that you are individually happy lending within and then make sure you are able to react to whatever volatility there is in the market as you see fit. And, actually, if there is a bit of unrest and volatility and if there is a no deal, that is actually probably a great opportunity for most of the people sitting in this room, because there will be some retrenchment. It is inevitable that the larger pools of capital will step back slightly and if you have got your capital liquidity in place, that is the best time to step in. It is exactly what happened after the financial crisis, which is across a whole bunch of different sectors—banks pulled out and independent finance providers moved in and made hay while the sun shone.
JONATHAN: (pondering) It is a shame she didn’t do it the other way around, isn’t it?
BETH: So, a no-deal Brexit could be a great opportunity for the bridging market?
CARON: The whole system looks quite weak, though. It’s not just her—
RICHARD: Potentially. You have obviously got to consider what happens on a macro basis and what is happening to house prices and the number of transactions … but all things being equal, from a market share perspective, it should be a good position to be in for, sort of, more independent players.
ANDRE: There doesn’t seem to be one leader anywhere. I am not even sure how many parties there are any more. It has got so confusing and I don’t know.
BETH: Is anyone worried about a possible no deal? JOE: I’m actually pretty indifferent about what the outcome or impact will be on my business, whether we [do] or [don’t] exit with a deal. I am more concerned with the result of [a] general election and there being a change in government … and I think that probably, without wanting to try and get inside Theresa May’s head, is where lots of her negotiations are going now: trying to actually broker enough support to get whatever deal it might be through, have a change in leadership [Ed: just before this story went to print, it was announced that Theresa May was to resign by the time you’re reading this] almost immediately, so they can become slightly more aligned again, and then probably already looking at how we can win the next general election—as opposed to how we can actually exit Europe or not. I think over the last couple of weeks with the Commons being able to table [eight different options] … I think it proves the fact that not one of them was able to get any kind of majority at all which, in some respects, I suppose, shows that she did have a completely impossible task of trying to get any kind of agreement, because it is such a topic where there are so many people who have got a different view on [it]. 38 Bridging & Commercial
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JOE: Yep. JONATHAN: She could have worked out that nobody had a better plan at the start and then come in with her plan at the end. She probably would have been through now, wouldn’t she? JOE: They were actually closer on her most recent deal than they were with any of the other eight that were put together... JONATHAN: I think everybody I speak to is far more concerned about a general election than they are about a deal or no deal, or whatever deal it is. I think everybody just got used to the idea that we are going out. I think, actually, not going out will be another upheaval that we don’t need. CARON: What is the best-case scenario, politically, for the people around the table? (Awkward silence in the room, followed by laughter) I mean, it is clear in this market how people feel about certain potential leaders. So, let’s take that off the table. ANDRE: The problem is, Brexit happened because of a lack of understanding [and] education around the whole country. In my opinion, I don’t think anybody really understood what it was, apart from let’s say, I don’t know, 20% of the population. A lot of people voted based on one or two facts that they knew. Now, for a general election … I think it would be a disaster for the general public, who are so confused. ADAM: …As a political leader, [May had] been given a turd and told to polish it, effectively from [David] Cameron.
JONATHAN: You’re not going on Question Time, are you? (Group laughs) ANDRE: No. Not this week. RICHARD: I think the only meaningful answer to, ‘What is the best outcome?’ is just to have some certainty of outcome. And I know that is a bit trite to say that, but if you know what you are planning towards, you can plan [for] it. If you’ve got no idea what you are planning against— GARY: (cuts in, eagerly) I agree, let’s have something. I don’t really care what. Right at the outset, I said that the UK business sector is pretty resilient, and we are nothing if not resourceful. And I think if we just have something, even if it is the worst thing that we could possibly think of, let’s just have it, so that we can get on with it. BETH: Just not an election. GARY: …Just not an election. (Group laughs) BETH: Because, that is the worry for some that it is just going to 39 May/Jun 2019
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continue to be extended. Is that a worst case scenario? Would you rather a no-deal Brexit than a couple more extensions and more uncertainty throughout the year? JONATHAN: I was a definite Remainer at the start and the reason I was a Remainer was, ‘Hey, we are doing okay, let’s leave it as it is. Why do we need to change anything? You know, life is going okay.’ That was actually a really bad reason for voting Remain … and now, we’ve seen the political mess, we’ve seen all the arguments, we’ve been told that we didn’t really understand it when we voted and all the rest of it, and now I am just of the view, well I am not quite sure how bad it’s going to be from here given all the uncertainty that we are in now. We might as well suck it and see. And so, I have changed my view. I think we need to go now. And I think we need to go quickly. And to answer your question, (faces Caron) I am not sure the system is [as] bad as you think it is, but I think the people within the system who are operating it, are. CARON: If we had a People’s Vote, what does everyone think the split would be? (Someone mutters) JOE: Depends on what the question was. CARON: Exactly the same. In or out, basically. RICHARD: I would have a sneaking suspicion that it would vote leave again. JO: I think there would be a lot of people sat on the fence. JONATHAN: I would really like to know actually. I would really like to know. CARON: Some people think we would completely swing [to remain], but I feel like we know less. (Laughter) JONATHAN: The old question, the original question, you’re factoring on top of that the mess that the politicians have [made], and I think that’s a more Brexit-orientated factor than anything else. GARY: I’ve got to be honest; I am the same as you. I voted to remain purely from a stability point of view, more than anything else … if it ain’t broke, don’t fix it … and now, having seen, certainly how the Europeans have behaved, and [Donald] Tusk in particular … I would rather vote leave, to be honest. JONATHAN: Absolutely. In business or in any relationship, it often comes a time when people split and move on. But, at the end of the day, the country has … we have decided to go another way by referendum or whatever, the country has paid its dues, we did what we were asked to do, we were very compliant, we now want to move away. Just on a humanitarian stage, the way we have been treated by the Europeans, it’s just disgusting that, really. And I don’t know what Joe thinks [but] legal contracts or legal relationships, whether you’re in an employment contract or you’re in a shareholders’ agreement, we have provisions for what happens when it all goes wrong and [you] all split off. There appears to have been no real provision whatsoever when we went in as to what would happen if we ever left. And that’s a massive error. CARON: Isn’t the way that we are being treated a result of the conditions, such as all the propaganda that was around the vote? 40 Bridging & Commercial
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RICHARD: I can’t see how you can have one. Because, I just don’t even know how you would determine what the question is and then even once you have determined what the question is, how do you implement it in a way that is not going to be exactly the same as what’s happening at the moment?
Because it wasn’t a cut and dried contractual parting of ways—it was quite vitriolic. JONATHAN: Yeah, it was, but is that any different from a normal general election where we get propaganda, lies and all the rest of it?
CARON: Also, how diabolical would it be if it ends up being the same scenario. Can you Imagine?
CARON: Well, I mean, I’m not British, but I have never seen anything like that. The campaigns that were flying around on the sides of buses, which weren’t on the fence whatsoever, and it was just lies in the end.
JONATHAN: …I don’t think another vote gives you another solution and I don’t think a general election gives you a solution either.
JONATHAN: The Remainers were just not as motivated or as professional as the Brexiteers.
GARY: Well that was the headline wasn’t it? (Room seems divided in opinion)
RICHARD: If you come back to the core of us trying to get certainty, if you think about what’s got to actually happen to get to a second referendum and then what would have to happen after a second referendum, you are talking about another two years, probably, before you even know what the game plan is at that point. Because, from here, you’d have to have a vote to have it as policy, and then you have to go back to the European Union to ask for an extension to enable you to have the second referendum. Then you have got to decide what the question is, which would take a hell of a long time, then you have got to have the campaign. Then you have got to have the vote. Then, once you have had the vote, you probably then have to have a general election—so, by any stretch [of] the imagination, you have got at least another year where nobody even knows what the deadline is going to be, never mind what the delivery of that second referendum is going to be—
JONATHAN: I don’t think it was. I don’t think people voted Brexit because of the £350m.
GARY: —Do you think Europeans really want us to stay, ultimately?
CARON: I think there is a sizeable portion of people that believed that.
RICHARD: They might be changing their minds now, because they just want [a] resolution, but, absolutely.
GARY: I think a lot of people were conned by it.
BETH: Have you seen a reduction in investment in the bridging market, as a result of Brexit? That could be within teams, innovation, technology—are people holding off? (People shake their heads no)
ANDRE: Or arrogant … they thought, ‘We will be fine.’ Because everyone they know would vote to remain. And they didn’t know anybody that would vote to leave because it was all led in central London. GARY: It become a revolt around, eventually, immigration, but more specifically, [£350m] a week for the NHS. So, it became a completely different issue. JONATHAN: Was it really about that?
JONATHAN: People believed it, but I think they were voting out anyway for other reasons. RICHARD: And this is a problem we have … that the machinery of politics and the media is set against the leave vote. It just is. And, so, it is a targeted narrative smear against those voters. You know, it is very difficult because, on the one hand, there is almost no point talking about the campaign historically now because it is done, the result came through. You just end up in a perennial, circular argument about who told the bigger untruths. Is it worse for the government and Bank of England to stand up [and] say that we are going to go into an immediate recession after and there is going to be millions of jobs lost and, in fact, it has been the complete opposite? Or, is it worse for somebody to stick a gross figure rather than a net figure on the side of a bus? I mean, it’s academic. So, now you have got to work with what is in front of you and the challenge we have is whatever anybody says, there is a disconnect between the people who are sitting in the Houses of Parliament and what that vote said. The question is: how do you resolve it? And, I think, Theresa May is [probably] trying to resolve it in the only way that is physically possible, which is bludgeoning, bludgeoning and bludgeoning and trying to get her deal through, with the threat that if you don’t, somebody is going to get destroyed for having enabled a no deal, ultimately. And, I think that has been in the game plan [for] months—if not years, probably. BETH: Do you think there should be a People’s Vote? And what effect do you think that would have? 42 Bridging & Commercial
GARY: [It] seems to be the opposite. CARON: It feels like everyone’s looked at it more as an opportunity than anything else. We have seen teams grow more in this period … we have already established that [bridging] is a type of finance and vehicle that thrives in conditions like this. SIMON: We keep coming back to [the idea of a] general election. Is it the uncertainty that it would create or the potential policies that could come through with it that you have concerns about? JOE: [It’s] the likely taxation on higher taxpayers that I think, for me, looking at it very personally as a business owner, it is far too punitive … I could see how lots of other people would think, ‘You know what, I am just going to move and go somewhere else, quite frankly…’ BETH: Are we seeing difficulties in recruitment in the specialist finance market? Lots of talented people don’t seem to want to move company and give up the packages they have got with them, because of the uncertainty. However, there is not a huge amount of talent available with all the new entrants in the space. So, can businesses grow as much as they want to? ADAM: Well, we just had someone actually approach us and ask if
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we had any sales jobs going and we took him on, on Friday… GARY: One thing I would say from a professional services point of view, valuations in particular, is as there have been more and more entrants and the number of key staff they require has gone up in number, there are fewer and fewer who are really wellskilled and the training probably isn’t there to bring the new case managers up to a level where they really need to be. We are seeing this in the diabolic state of quote enquiries and instructions that we have come across. They literally are back-of-fag-packet [stuff]. ‘Can you give us a quote on a property in central London?’ Give us a clue, what is it? (Laughter) It really is that basic. Funnily enough, we have been working quite closely with the NACFB and others to try to create a platform where people are learning what is actually required at the instruction stage, so that we can actually undertake our job and [quote] accurately for that task, and I think it’s not improved over a period of time. There is a limited number of very experienced underwriters and case managers and, as the market’s expanded, [it] has had to bring in new blood that is not properly trained. That’s my view, anyway. JO: I would totally agree with that opinion. I am finding that, with some lenders, where everyone is getting so busy, they are bringing in new staff that perhaps they are not being trained quite as well as they should be before they are let loose... ANDRE: You get a ‘no’ from a lender from a certain underwriter [and] you push back until you get to someone else. Not every time, but a lot of the time, that decision gets overturned because someone more experienced goes, ‘Oh no, no, no. We are okay with that.’ So, if you take the first no from a lender—and sometimes a yes as well—you have to go and check it out with someone more senior because you think, ‘I am going to spend the client’s money here and I am not sure you are happy with this tier 1 visa, for example, because I have got a feeling you might have problem with this, and I’ve only just found that out—’ JO: Or, you don’t actually understand what we are asking you. You are giving us the answer and when you challenge that, they are saying, ‘Oh, I don’t really know. I’m going to have to get somebody to call you.’ It is because the lenders are increasing their loans etc. BETH: It is quite worrying for new brokers attracted to the specialist finance market who will be approaching lenders and, if they are getting a no straight away, might think bridging, or whatever product they are looking at, is not going to be helpful to them if they don’t know that they can maybe question the lender … have you seen that quite a bit? ANDRE: Not a lot, but you do see it. When you think, ‘You should do this deal. This is a deal that you should do, so I am going to speak to somebody else that I know.’ And if that person says no, then you think, ‘Well, okay it isn’t a deal you do.’ But a lot of the time they go, ‘Yeah, yeah, we are happy with that type of security, who told you we weren’t?’ Well, one of your underwriters.’ And they come and say, ‘Oh, they didn’t realise something.’ Yeah, you get it a lot more than you should. BETH: Do you think it is an effect of lenders building up their teams quickly in other areas they aren’t already in? So, for example, London, an area people are moving away from and into different regions and they are building teams in those places quite quickly to try to take a share of that market. Do you think that it is a kind of chicken-and-egg situation, where they are building very 44 Bridging & Commercial
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not how we operate. I am very flattered, but I can, probably, in time, go and hire, train someone up and take on [a] lender that gives me 20 cases a month over the next six months, we can build up and get that number up to about 30, 35—but that’s my limit. When you have got lots of new lenders coming along—some that I act for at the moment—they are saying, ‘Brilliant. I have got this pot full of money now. I think our numbers are going to go from about 20 instructions a month to about 70/80. Just checking that you have got capacity.’ And the answer is no. The risk would be someone else saying yes, rushing out there and just hiring the first 10 CVs they see and thinking they need bums on seats, which then comes back to the problem that everyone else has spoken about, that I have got someone doing work under my name that shouldn’t really be working in that sector. But it’s quite hard to push back and say to them, ‘No, I can’t take on that work or I can’t take on anything like the volume you are talking about,’ because they will go and talk to another panel firm.
quickly, but they are not going to [do] the business if they’re not training correctly? ANDRE: Yeah, some are growing quicker than they should be growing. I know somebody that started at a bank that does everything, bridging etc … and after three months, they were the most experienced junior underwriter there. When they started, there was a team—let’s say there [were] eight junior underwriters—within three months, they were then top, with people below them. Because all those others had either left or been made senior underwriters. So, they had been a junior underwriter for between three and six months, and you think: wow. CARON: Anecdotally, we’ve heard that from an underwriting point of view, now is the most important time to have experienced underwriters, because if you are not experienced in the current conditions, you will make mistakes and, especially for new lenders, if you get the first few of your loans wrong, you’re out. So, that is very worrying if that is the sort of situation at credit level, for some. Yikes…
CARON: That is a really interesting point, because if there are too many instructions out there and the capacity is limited from skilled, specialist solicitor and surveying firms, then are they going elsewhere to not-so-skilled firms?
ANDRE: They are building bridging, but they are also building second charge lending and long-term lending and they are building it all at the same time. I mean, you have seen companies go from 50 staff to 300 in a year and a half. It is a lot of training—and I am not sure how much they get.
JONATHAN: They will have to, won’t they! CARON: Well, yeah, exactly. But is that a worry, because transaction levels are up, so, where is that business going if you can’t do all of it?
BETH: We have also seen bridging lenders create new product offerings and launching into term products or three-year bridging products. If their underwriters are not already as experienced as they should be right now, what is the backlash of launching into these other areas, to have this lifecycle lending proposition?
JONATHAN: Yeah, I agree with you—there is a wider issue. What’s happening in the bridging market is because it has expanded so much over the last few years. The larger players, they have lost to a certain extent the pricing for risk element, so there is an appetite to lend, there are huge amounts of money to lend, they want to grab market share, they have reduced their price and all the rest of it. Once they do that, then you are going to see others, if they want to enter the market … they again have to move on other areas apart from price, otherwise it is just not profitable enough. So, that’s when other lenders start doing more risky stuff. Of course, you make a good point, because having the right professional partners is really important for a lending business.
ANDRE: I suppose they end up doing deals they shouldn’t do, or turning away deals they should do! And then [some] brokers will go, ‘Well, I am not using them again.’ And they lose that potential referral of business. But, more worryingly, is they will lend money at higher LTVs than they actually understand, or into areas that they don’t understand where the exit might be. CARON: Some of the recent casualties that we’ve seen, be it from a funding line point of view or just altogether, do you think that is related to Brexit directly, or would it have happened regardless? We know that the buy-to-let situation is more to do with taxation and all of that, but some of the more high-profile lenders that have ceased trading, do you think that was [because of] Brexit? JOE: I think that is them actually not being able to keep up with the growth internally with their own staff, because they are losing staff left, right and centre to other new entrants that are offering very appealing packages for inexperienced, or under-qualified people. [There are] lots of new entrants out there, because money is cheap to secure good, strong credit lines, and actually then they can’t pump it out to the marketplace quick enough. So, therefore, the only way to do it is to change your products and actually your larger, more established lenders are thinking [that] actually, you know what, it’s not about Brexit, they just don’t necessarily have the appetite to go head to head with someone else who is intent on lending money, almost at any cost … Hiring from a legal perspective … my biggest problem most of the time is actually trying to manage my client’s expectations, saying, ‘You know what, I haven’t got the capacity to take on another 40 cases from you a month within that team. I am not going to try to scale up or run an operation that is a low-cost centre with 200 people—that is
RICHARD: The issues with these lenders who are going wrong are typically where they are stretching for origination. Either they are [doing this] because they have got a big weight of capital burning a hole in their pocket, or there is something about their business model that means they have to get a lot origination out the door, so that is the peer-to-peers and people like that. Or, the front end is slightly disconnected from the back end, and the front end is growing really well, but the back end isn’t keeping up with it and keeping the risk parameters under control … those are always the problems ... do they have the expertise around the underwriting and risk management? Are they stretching into areas in which they shouldn’t be because it is poor lending, or, because there is inherently too much risk in what they are doing, and they are not getting rewarded for it? Perilously few banks genuinely do risk for reward, or reward for risk, but they are not unique in that by any stretch of the imagination. BETH: Are there any concerns about the stability of other markets that would exit a bridging loan? GARY: We are seeing a lot of re-bridging going on—people that
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have probably not really thought about their exit accurately at the outset [are] sort of bridging a bridge, which I don’t think is a particularly clever thing to have to do. [This] is actually, [from] a valuation perspective, causing a bit of a problem, because a lot of these properties are South East-based, and they have got to rebridge something that is 15 months old. And 15 months ago, their property was worth more than it is now, and they have a hell of a shock when the valuation comes up and it is 15% less than it was a year ago. And they go, ‘Well, it can’t be,’ and I [say], ‘Well it is.’ (Group laughs) That causes a problem, certainly. BETH: What other pressure points are there? ANDRE: There is pressure on everyone. The lenders are under pressure to pay the broker all of the fee. There never used to be. They used to pay one of two, then it became two of two and now quite a few pay two-and-a-half of two. The brokers are under pressure to cut that fee down for the client, because if we quote 2%, another broker will do it for 1%. I think everyone is under pressure, you know, [when] you phone around to get a surveyor booked in, you keep phoning to get the cheapest one for your client. GARY: That is not necessarily the best thing to do. ANDRE: Of course it isn’t, but that is what the client wants you to do—get the cheapest. The lender may disagree and say it has got to be these, but I think everyone is under pressure, yeah.
that clearly hasn’t really changed in the market, and is clearly not always the best option. JONATHAN: I think that is an education piece within the lenders. What I see is an internal battle taking place within the lenders between the sales arm and the underwriting arm, or the security arm. And the sales arm believes that cheapest is best, because that will guarantee them the best market share. So, they are pushing for cheaper rates, cheaper brokers, cheaper valuers, cheaper solicitors, because they think that gives them an opportunity to win market share against their competitors, and we get into a price war. And, what happens then, is you get your professional partners and your introducers and you lose the goodwill element—the trust and confidence between partners— and it is really important for the lenders because it is not the sales piece that will govern whether you are successful or not, it is your collection piece at the end of the day. (Group cheers with agreement) So, this constant striving for cutting fees to make yourself look attractive to gain market share when, ultimately, the only thing that happens is everybody follows suit and we all just end up in a market where people are just earning less and your market share is not going up and the market share that you did have, you swapped for a cheaper one. It doesn’t work, ultimately. RICHARD: And it will reverse, eventually, because everyone will suddenly go, ‘Oh god, I am not actually making any money off what I am doing, lets retrench again—’
BETH: Does there need to be a lot more education on why cheapest isn’t always the best? I think there has been such a massive focus on price and rates for the last couple of years and Roma_BC_205x140mm_HalfPageAd_May19_AW.pdf 1 21/05/2019 13:39
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Increased competition in the UK bridging market has pushed down rates, squeezed margins and left little room to innovate further with regard to new products. However, not far from our shores in the Republic of Ireland (ROI), one broker claims that the bridging scene is similar to what the UK experienced a decade ago
Explained
he combination of conservative lending practices at Irish banks following the global financial crisis and a rebounding Irish housing market has left an acute demand for alternative finance. While housing in the ROI took a hit in the downturn, the market has come back strong, making a 98% recovery. But this doesn’t necessarily mean that banks have put out the welcome mat for borrowers. Lending practices remain cautious and there is still a scarcity of finance. To put this into figures, mortgage finance in the Irish market totalled €39.9bn (approximately £34.4bn) in 2006, but by the end of Q3 2018, it stood at just €6.1bn (approximately £5.3bn). Clark McCann and his co-partner Will Aylmer had their eye on the recovering Irish market while they were working as brokers in the UK during the evolution of alternative finance. In September 2014, they eventually took the plunge and moved back to where they call home in Ireland and launched specialist lender Castlehaven Finance. “There was a huge, huge need for alternative funders here and that is what we realised when we came back,” explains Clark, adding that it is still a dysfunctional market. To date, Castlehaven has provided over €542m (approximately £468m) of funds, redeemed around €150m (approximately £130m) in loans and boasts a growing team. Clark estimates that about 20% of its loan book is bridging. Rory McEntee, COO at Initiative Ireland—a P2P lender offering residential property loans in the €1m–3m range (approximately £860,000–2.6m)— believes that this is an underserved gap that banks haven’t come back to. “The feedback we’ve received from dealing with banks is that it can take nine to 12 months for funding to come through. So that’s just not sustainable if someone is looking at a market acquisition.” Rory claims that four years ago, alternative finance options in Ireland, such as bridging, were “virtually non-existent”. Between 2012 and 2015, Michael Bolger was working at Grant Thornton Debt Solutions on personal insolvency cases and debt restructuring all over the ROI when he witnessed the same phenomenon: client after client short of liquidity. “There was a desperate need for bridging,” explains Michael. “I would say desperate in capital 50 Bridging & Commercial
Explained
letters. It was a real necessity. ”Three years of working in Irish debt recovery gave Michael the insight and relationships he needed to launch Beacon Capital. He now arranges bridging products for borrowers across the ROI, many of them from the network he built previously. According to sources I spoke to, the size of the ROI bridging market is estimated to be between €1.5bn–2.5bn (approximately £1.3bn–2.2bn). There is apparently little to no regulated bridging, with most alternative financiers only lending to corporate entities. There also seems to be no master brokers, networks or Irish equivalents to trade bodies like the UK’s Association of Short Term Lenders. According to Beacon Capital and UK-based brokerage Belgravia Property Finance (which sources funding in the ROI), average monthly rates in Ireland are said to be between 0.85% and 1%. Rory at Initiative Ireland claims that he has seen the cost of finance for borrowers drop by as much as 50% since 2014. Will the market expand further? Last year, Castlehaven had six members of staff, whereas today it has 16 and is likely to add up to six more. “We still see it as a market that has a lot of opportunity left in it,” states Clark. According to conversations I had with experts, there are around eight known specialist lenders offering varying degrees of bridging finance in the ROI. Michael estimates that bridging accounts for 60% of Beacon’s broking business and it has had to invest in and develop a software program to keep up with lenders’ different offerings and specifications. While market conditions are still ripe for alternative finance, Michael laments that the conservative policies associated with the immaturity of the ROI bridging market has left the product offerings inflexible and lacking in innovation. “We are leaving really good deals behind and I hear that all the time.” If there is room for innovation and new products, could we see UK-based bridging lenders and brokers crossing the Irish Sea to get a share of a less congested market? Samuel Hoban, director at Belgravia Property Finance, says it is not only inevitable, but is already happening. “There is definitely market opportunity. If you were going to look at where you can lend money and have less competition, you
would look at Ireland.” The UK market is saturated with lenders. “Over there, it is much easier—you can pick up a lot of business.” Samuel claims that bridging in the ROI makes up around 10% of Belgravia’s business. And it’s not just brokers. UKbased lenders, such as Fiduciam, already have lending lines into the market. So, what does bridging in the ROI look like to a UK player? Weighing it up, Samuel reflects that the rates are higher, but not as high as you’d expect, however lenders are picky about where they lend. “Half of Ireland is off limits because it is too remote,” he says. Solicitors and surveying services also tend to be more drawn out and expensive. Speaking to Claire McCormack, partner at Amoss Solicitors—which acts for a significant number of Irish lenders in bridging— she explains that things might be slow and expensive with other Irish solicitors because bridging is still a relatively new addition to the market. “Traditionally, [borrowers] are instructing smaller law firms, rather than a firm such as ours.” Claire highlights that Amoss represents most of the key lenders in bridging. “It is an extremely active area at the minute.” Michael speculates that brokers need to have local nuance or a rapport in the market to avoid facing limitations in sourcing private money or working on regional deals. Michael admits that new, external players may not be embraced so quickly. It seems that post-recession caution means that word of mouth through personal networks factors highly in decision making. “Background checks are very important. Being able to pick up the phone to somebody in rural Ireland or the region and being able to say, ‘Do you know so and so?’ And to be able to say, ‘Yeah, just be careful there.’ Little things like that can make all the difference.” This strong network mentality could be the reason why so many Irish lenders, brokers and service providers work on repeat business. Clark confirms that most company decisions come down to who it is dealing with, and that is often based on a long-established affiliation. “We are very much relationship-led. We have clients who are on deal five, six and seven with us now. It is repeat business that we are after.” Both Michael and Rory state that coming
“IF YOU WERE GOING TO LOOK AT WHERE YOU CAN LEND MONEY AND HAVE LESS COMPETITION, YOU WOULD LOOK AT IRELAND”
in as an outside player would be risky without regional partners armed with local insights and the capacity to vet projects. Is the ROI bridging market already locked down by locals? Michael speculates that it is becoming a more stabilised market. “It is probably getting towards saturation point. I don’t think there is massive growth potential, but I think there is a good bit of juice left in it.” According to Irish players, there are still some key obstacles keeping a lid on the bridging market. Rory believes Initiative Ireland would get a boost if P2P lending became regulated in Ireland— as it is the UK, under the FCA—as this would draw more foreign funders into the country. This April, Initiative launched Initiative Financial Services UK to secure UK funding investment into its P2P platform for Irish projects. Irish mortgage restrictions for firsttime buyers is another limiting factor. Introduced in 2015, the Irish Central Bank caps first-time buyer mortgage borrowing to 3.5 times their income. The size of the cap is reviewed on an annual basis. Clark says it is a constant source of debate in Ireland. He adds that while it is important that the credit isn’t going too wide, as it has in the past, the central bank is being a little too cautious and it might be due for a review. The general consensus among those that I spoke to was that even a slight rise in this could take the burgeoning Irish bridging sector into another dimension. Michael says that new players in the mortgage market would also progress things. A Knight Frank study cited a scarcity of mortgage financing is a key factor behind the lack of new Irish housing supply. Stronger Irish mortgage offerings are likely to bring more confidence, security and potential for borrowers to shore up exits from bridging products. On top of this, a residential market review for 2018 and outlook for 2019 by multidisciplinary property advisory practice DNG stated that there was an increase in the number of international funds that earmarked Ireland for major residential investment, and claimed that Ireland was one of the last countries in western Europe where relatively high yields could still be achieved. From that alone, it’s an area that is definitely worth keeping an eye on.
51 May/Jun 2019
“ANY REQUEST FOR A THREEYEAR TERM RAISES MORE QUESTIONS THAN ANSWERS” Words by
simon thompson
Why a lender might push typical term
boundaries
Explained
I
n Q1 2019, the average bridging finance loan term was 12 months, relatively unchanged from Q1 2018, according to Bridging Trends. However, more and more lenders are offering terms considerably longer than this. Just from searching online, I found 12 lenders advertising two-year bridging loans, with five providers confirming they have the flexibility to offer terms of up to three years. This poses the question: what is the function of a three-year bridging loan and where is the line between short-term finance and longer-term facilities? The rules of the Association of Short Term Lenders (ASTL) define short-term (or bridging) loans as up to 24 months in length, but Benson Hersch, CEO at the ASTL, argues that even three years can qualify as a bridging loan, depending on the circumstance. The true definition of a bridging loan is usually less about the term length, and more about the functionality of the product. I spoke to five lenders that have the option of three-year bridging terms—Fiduciam, MSP Capital, United Trust Bank (UTB), Ortus Secured Finance and Peninsula Finance PLC—although, at the time of writing, MSP Capital had not yet lent on such a product. Johan Groothaert, CEO at Fiduciam, says the scenarios where these product terms are useful and attractive are far more numerous than you’d think. “We are talking about borrowers that are actually looking for a longer-term bank facility, but don’t yet tick all the boxes.” He tells me that these longer facilities are often an option for commercial properties that take a while to refurbish, are bound by specific regulatory processes or when more time is needed to get a project into a mortgageable state for longer-term financing. The refurbishment of a care home facility is a case in point. “You can’t refurbish the whole thing at the same time because you can’t just put all the people out of the care home,” explains Johan. “So, you would actually need to refurbish it five rooms at a time and that takes a while.” After all of this, banks want to see at least 12 months of normal trading figures and the UK Care Quality Commission (CQC) needs to inspect it to certify that facilities are up to the required standard. While the care home is a unique case, Johan maintains that three-year bridging products can be used for a variety of different reasons, including complex, evolving planning; borrowers with CCJs still on their credit file; situations where banks require a longer trading history; large development schemes where it takes time to sell off all completed units; and change of use. Two- to three-year bridging loans account for around 10% of Fiduciam’s lending, with Johan adding that it is seeing an
54 Bridging & Commercial
increase in demand for the three-year option. United Trust Bank (UTB) doesn’t advertise or have a specific three-year bridging product, and Gavin Diamond, its commercial director of bridging, says he could only envisage a very narrow set of circumstances that would require a facility of that length. “While we don’t have a specific three-year product, the nature of specialist lending is such that if a borrower came to us with a request for a non-regulated, three-year facility, it could be considered if the length of term was deemed appropriate to facilitate the exit strategy.” Jamie Russell, business development manager at Ortus Secured Finance, confirms that it offers three-year bridging terms. He says the product, which is about “optionality”, benefits from the fast underwriting and flexibility you would expect from a bridging lender. “… Three years gives the borrower the opportunity to try a plan A in the knowledge that there is time to switch to plan B if needed.” MSP Capital introduced this type of product in the past six months and, according to director Paul Miracca, it is receiving more and more enquires. “We have noticed in the course of the last four to five weeks a marked increase in the demand for this type of product.” While high street banks already offer term loans, Paul points out that they don’t have the speed or flexibility that characterises the short-term lending space. Paul concedes that one of the main reasons it is offering the product is to avoid losing good clients. “We would, potentially, have seen them go to other lenders, so in order to have a broader funding package for our clients, we decided to invent one ourselves.” But do brokers think there is a market for this product? In an online poll by Bridging & Commercial, the industry was fairly split with 52% of brokers believing that there was a need for three-year bridging loans. Geoff Wilson, managing director at White Rose Finance Group, is one such broker who sees the value in this type of offering. While he admits that three years is longer than normal bridging, he says it could be useful for the longer-term optimisation of planning on a development site, credit repair prior to refinancing with a mainstream term lender or where the exit for a bridge facility is considered less than guaranteed. “[In these cases] all would benefit from having an option to leave the bridge facility in place for a longer term if necessary and would no doubt provide peace of mind to the client.” Lee Carling at First 4 Bridging already deals with lenders offering the product. He asserts that a these longer bridging loans could have some merit in scenarios where borrowers need to establish a trading history or could use a
Property Finance, Done Differently.
Explained
safety net for when projects overrun. “Products are constantly evolving, and if it benefits the client, then that is always welcome.” This type of product could also be beneficial to foreign investors. Simon Das, managing director at 978 Bridging, says he will be using them for his overseas clients that want to buy in the UK. “The rates that are achievable on three-year bridging are not far off what they will be paying on a buy-to-let mortgage with one of the high street lenders,” claims Simon. “As soon as we talk about overseas nationals to high street lenders, the rates jump from about 0.35% to 0.6% pcm.” According to Johan, average rates for three-year bridging loans are 0.75% pcm, depending on the LTVs. Bridging lenders tend to be more open to working with overseas borrowers and completing on a longer bridging product would also give such borrowers an equivalent track record if needed. However, Marcus Dussard, director of sales at Castle Trust, doesn’t see a market for bridging loans beyond two years. He claims that past 24 months, clients usually don’t require the speed or flexibility of a bridging loan. Ultimately, he says these borrowers would be more suited to development exit products with three-year terms. “…That provides the peace of mind of a three-year term, but with the flexibility that the client can sell a proportion of properties without incurring early repayment charges.” Fiduciam’s three-year bridging offering has no exit fee and early repayment charges only apply within the first 18 months. “It is not a product that locks them in for three years, it is a product that gives them the option to go up to three years,” says Johan. John Waddicker, director at Positive Commercial Finance, feels that if the term stretches to three years, he doesn’t see it as bridging and claims this is a function already served by term loans. Nicholas Christofi, cofounder of Sirius Property Finance, is not sure whether the product has any value. Despite this, he states that there is a need for similar length hybrid products, such as development exit facilities—especially as sales levels on new builds soften. “…It is important [that] borrowers have access to a product which allows them to stabilise the asset, but also gives them flexibility to still sell units without a penalty throughout the duration of the loan.” Should a three-year financial position be organised on a bridging rate? Matthew Yassin, commercial finance broker at Coreco, argues: “You can imagine with bridging costs that could be quite a lot of compounded interest. Which could work in an adverse way to the end user.” Chris Fairfax, managing director at Catalyst Property Finance, can’t see there being
56 Bridging & Commercial
much take up for the lengthy offering. “Any request for a three-year term raises more questions than answers.” He highlights that while he can understand borrowers who want to protect against potentially punitive default interest rates, they are risking the erosion of substantial proportions of equity. While Ortus Secured Finance’s three-year bridging product can offer more flexibility and optionality, Jamie explains that taking the pressure off borrowers isn’t always a good thing. “…We need to guard against borrowers simply delaying an inevitable problem or pursuing unrealistic goals.” For Brian Rubins, executive chairman at lender Alternative Bridging Corporation, he believes it is just a marketing stunt that is distorting what bridging really is. He says that borrowers attracted to these types of loans are better off getting three- to fiveyear term loans. He suggests that if lenders are providing these longer bridging loans, it is because they can’t offer terms products. According to Johan, while the risks of bridging lending are further compounded by longer terms, ultimately it demands more care with regard to LTVs. “If you get a bridge for six months, the probability that prices will be fairly similar is pretty high. If you give a bridge for three years, the probability is much lower.” Fiduciam’s three-year bridging product offers a maximum LTV of 65%. Johan asserts that, as with all bridging, it is factored down to how it is underwritten. Brian acknowledges that there are unique circumstances when bridging terms longer than two years can make sense, but they are usually only feasible when the interest is serviceable, such as with rent or profits from a business. Alternative Bridging Corporation is offering a two-year rolling overdraft to make a broader sweep for the market of borrowers looking for more flexible, longer-term products. Brian thinks the industry is destined to have a smaller number of lenders, offering a wider range of facilities than just a bridging loan. While many in the bridging world have reservations about the availability of longerterm bridging offerings, they are not the first non-standard innovation to enter the market. Development exits and bridge-to-lets are good examples of viable products which have pushed typical term boundaries and have become more popular over time. What is available now may have been completely unfathomable a decade ago. In that sense, it will be fascinating to see what offerings the sector will be able to evolve over the next few years and whether its collective viewpoint on longer bridging terms will change.
We pay our brokers on day of completion
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0.75%
No admin or exit fees
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12
James Chisnall, director at City Finance Brokers “If City Finance Brokers had to choose the most important measures for a bridging lender, it would be lending volume, strength of team and innovation. In short, we need to know that when a bridging lender says yes, they actually mean yes.”
Lending volume
7
%
Terry Markham, managing director at the Funding Operation Limited “In my experience, dealing with a lender who knows their market, is innovative in product design and responds to brokers’ needs is always going to be a lender you want to deal with time and again.”
Innovation
%
8
Thomas Clark, director at NapeX Finance Ltd
“…First and foremost, being profitable with the ability to withstand losses which are part and parcel of the space, ie they won’t get wiped out by a market event or a couple of bad loans.”
Richard Jones, managing director at Pilotfish
“We judge a bridging lender to be successful when they are commercially minded and proactive in getting a deal over the line. This means pushing valuers, QS and solicitors for responses.”
Johan Groothaert, CEO at Fiduciam
“Ultimately, a successful lender will be able to cater for a broad area of the market, will have solid funding lines, competitive interest rates and provide an excellent service, all while making a solid profit and growing their loan book.”
Loan book size
2
%
Marcus Dussard, director of sales at Castle Trust “Successful bridging lenders give brokers the appropriate tools they need to meet their client’s individual needs. Does this lender give me the flexibility and certainty I need to provide my clients with the solutions they need?”
“All too often, success is equated with high sales numbers. But, while lending volume is an important component of commercial achievement, success should be thought of as delivering a combination of good outcomes for both the customer and the lender and doing this in a way that is sustainable.”
Benson Hersch, CEO of the Association of Short Term Lenders
Profitability
21
%
Lucy Barrett, managing director at Vantage Finance “There are plenty of ways to measure success, with the most obvious and key to all business stakeholders being the bottom-line success.”
“I would consider the following to be a measure of a bridging lender’s success: sizeable market share; a scalable platform; unique, diverse and market-leading funding sources; distribution capabilities and strong relationships with intermediaries; and strong underwriting standards underpinning the quality of the loan book.” Hari Patel at Coreco Specialist Finance
Michael Clapper, executive chairman at Black Book Finance “A successful bridging lender needs to tick several boxes. It needs to offer competitive rates and fees, be flexible where reasonable, be able to produce indicative terms within a couple of hours or less, and then get the case completed and paid within two weeks or less.”
Steve Walker at Promise Specialist Lending “The lenders which get the price, service and legal process nailed on should come out top. At the moment, I can’t think of any lender which fully ticks all three boxes.”
Rob Jupp, CEO at the Brightstar Group “…Success always starts with the customer and focusing on their needs and expectations. By maintaining this clear focus on the customer, lenders can ensure they build appropriate products and technology and invest in their people to create a workforce that is motivated to deliver great service. Get the basics right and the culture of your business right and commercial success will come.”
Vic Jannels, managing director at Impact Specialist Finance “I do not believe, as a user, that it can be measured in either volume or profitability. A lender may consider success in those terms, but they also need to understand the reasons why we use them, which are almost certainly, and only, in consideration of the needs of our applicant.”
Strength of team
%
Peter Black, managing director at Snowball Alternative Finance “In my experience, bridging lenders are prone to overpromising and underdelivering, so I would measure success on the basis of them having high levels of repeat business.”
Chris Fairfax, managing director at Catalyst Property Finance “…A lender’s success can [be] measured in the growth and happiness of its team, ours is a people business and I believe great people contribute to great success.”
John Mitchell, director — head at Christie Finance “In terms of measuring a single firm’s success, repeat business is a clear indication of quality of service. In a crowded market, developing longterm relationships with borrowers and introducers can only be achieved if the underlying offering is of a certain quality and operating in a clear and transparent manner is key to this.”
Repeat business
%
Ability to redeem loans
Liz Syms, CEO at Connect for Intermediaries “Lenders that indicate initial terms, which then change, if the change is perceived to be unfair, they may not benefit from future business. Bridge lenders who have built trusting relationships with brokers will, therefore, benefit from repeat business and ultimately be the most successful.”
Gareth Lewis, commercial director at specialist lender MT Finance “It is very easy to lend money, but harder to get it back and not make a loss. The ability to do this is the true acid test of any lender. Many lenders out there have never seen a downturn—they haven’t been tried and tested. This will be a barometer should we see a further correction in property prices.”
Jonathan Sealey, CEO at Hope Capital “The success of a bridging lender is based on its ability to lend and grow its lending book, while carrying out responsible due diligence, which ensures that each loan is paid back, ideally in the specified timeframe. The success of a bridging lender needs to be taken over a period of time, as irresponsible lending may result in rapid growth, but could, ultimately, end in the demise of the lender.”
WHAT IS THE BEST MEASURE OF A BRIDGING LENDER’S SUCCESS?
Stephanie Charman, specialist lending relationship manager at Sesame and PMS
“Based on the experience an adviser and their customer receives— both during the application and redemption of the loan—this will determine if they return to use the lender in the future.”
%
26
Amadeus Wilson, associate director at SPF Short Term Finance
“I know of lenders who don’t ring the metaphorical bell when money is sent to the client, rather they celebrate when loans are redeemed. Shortterm lending is 95% given on a non-serviced basis, thus lenders generally see either nil or de minimis positive cash flow until redemption.Therefore, generally the better the underwriting, the better the redemption statistics, and the better regarded the lender.”
Ashley Ilsen, CEO and co-founder of Magnet Capital “…The rate at which loans go wrong are the clearest reflection of how good a business is at lending money. It’s been very easy for lenders to be successful over the past eight or nine years as the market has performed well, but going into the tougher years ahead we should get a clearer sign of who the more successful lenders are.”
Jo Breeden, managing director at Crystal Specialist Finance “There’s a line given to us by a number of bridging lenders: ‘it’s easy to lend, it’s not as easy to get it back.’ In our opinion, that makes a successful lender. One that lends, gets repaid in the agreed timeframe and goes on to relend using the same successful criteria.”
Record loan volumes, staff expansion and product innovation might make for good headlines, but do they really tell us anything about a lender’s true performance? A recent online poll by Bridging & Commercial, which attracted over 180 responses, found that the ability to redeem loans was voted the best measure of a bridging lender’s success. Interestingly, the least popular quantifier was the size of the loan book. To provide some explanation behind the results, over 20 industry experts answered the question for us in more detail
Rob Interview
Words by
caron schreuder Photography
alexANDER chai
&
Andrew Interview
in conversation
Interview
Andrew Bloom: I’d just like it to be put on the record that I came prepared with some notes. Beth Fisher: Great. Rob Jupp: I’d like to put it on the record that I didn’t. Mine is just intellect. (Laughter) On how and when they met
L
enders and brokers are sometimes said to have conflicting agendas, what with their differing levels of customer contact, risk exposure and targets. However challenging, it is this relationship which is at the heart of distribution and growth in our sector. Rob Jupp, CEO at specialist distributor Brightstar Financial, and Andrew Bloom, CEO at challenger bank Masthaven, are both formidable leaders, not only of two very successful businesses but of the bridging market as a whole; they are part of its very fabric. Their professional partnership stretches back over 15 years, to when Andrew was a property investor employing the adviser services of Rob’s early team. Today, they acknowledge how their common values and a desire to stand firm in the face of various market cycles has supported both Brightstar and Masthaven’s impressive expansion trajectories.
RJ (gesturing to Andrew): Well, your research is probably better than mine. I mean, I know it was in the 90s.
Oh, it was OFM! It was before Personal Touch. BF: So, what was the brokerage? RJ: OFM Group— BF: And that was when you first met professionally? AB: Online Financial Management? RJ: It was, and we rebranded it because we weren’t online, and we weren’t financial management. AB: Apart from that, it was a cracking name.
RJ: I’m sure it was the late 90s.
RJ: We spent a few quid on a branding agency that came up with a great term: OFM Group. Brilliant. (All laugh)
AB: I thought it was early 2000s, because I started Masthaven 14, 15 years ago.
RJ: Never used an agency ever again after that.
RJ (matter-of-factly): But you were working as a waitress in a cocktail bar. (Everyone laughs)
AB: So then I decided to quit a proper job in the City to start up my own business. I remember it really clearly, because my wife was both self-employed and pregnant, which isn’t a good mix when you tell her, “Oh, by the way, I am going to quit this pretty decent job and start my own business.” One of the things we did was run a finance business where I worked and that’s where I [learnt]. But I truly didn’t learn it until I started myself and then I learnt a whole host of things, which I thought I knew, but I didn’t until I did it myself. Luckily my mistakes weren’t too expensive, and I moved on. Masthaven was a very small start-up and I pitched to Rob for business.
AB: I didn’t think it was that—
AB: That was only at the weekends, it wasn’t in a professional capacity. RJ:You might be right—late 90s, early 2000s.You were buying property at the time and we were helping you with the transactions. AB: That’s right, that’s exactly it. I actually think Kit Thompson [now director of shortterm and development finance at Brightstar] was my mortgage broker. So, one of Rob’s early staff members was my mortgage broker and he did some buy-to-let mortgages for me. RJ: One of the first investors buying property with buy-to-let mortgages, I remember, and I think you had just come out of running care homes. Is that right? AB: I worked in private equity and the fund, which I worked for as an investment manager, we bought Southern Cross Healthcare. I was an investment manager and we bought into this deal where we bought 140 care homes for about £80–85m. I was an investment manager there and I also had a buy-to-let portfolio. RJ: I am sure I [first] saw you when you were at Masthaven… Was it Lombard Street that you were at initially? AB: Yeah. So what happened was, I started Masthaven when I left [in] 2004 and you were running, or owned, Personal Touch.
BF: How come you decided to make [the] move to launch your own business? AB: Because, well, I always wanted to do something entrepreneurial. There were no backers of Masthaven apart from myself; there were people providing us with the money for the funding lines, but [the] working capital was 100% provided by myself. Now I look back and it was a pitiful, small amount, though at the time it felt like a lot of money. I had some customers who we used to provide services to and I had some contacts I had made who had provided the funding lines—some institutional funding and others just high-net-worth, who had to provide a proportion of each loan which we made. AB (continues): I went into business by myself and we rented a very small office in Lombard Street—which had a fancy address—and when people came in they said, “Is this your
building?” and it was just an unbranded, serviced office [in which] we had one little cubby hole of a room with four of us there. BF: Was Rob one of the first people you pitched to? AB: No, I pitched to every other broker. They said no and I had no one left to go to apart from Rob. RJ (joking): We were just desperate… So we thought we’d come all the way up on the basis that because he had a big address, he would be quite good. AB (laughing): No, what happened was, I went round to all the specialist brokers. It wasn’t just going to, like, I don’t know, Legal & General network—I was going for the people who were entrepreneurial themselves and recognised that one size doesn’t fit all, [who] needed help from people who could offer bespoke finance for their clients’ needs rather than trying to find clients which fit with a financer’s needs. I spent years travelling up and down the country meeting firms like Rob’s and trying to persuade them, explain to them, why my product would work for their clients: when it would work and when it wouldn’t work, and when they should be using us and when they shouldn’t. Because back then, just an easy example, if you went to buy a buy-to-let property—and I knew this from the previous experience I was talking about—and let’s say it had no kitchen, no bathroom, so it was an old property, maybe somebody lived there for many years and it was run down, you couldn’t get a standard buy-to-let mortgage. They would say, “Sorry, it’s not habitable. It gets zero on the rental assessment,” because they’re right, there is no kitchen, no bathroom and so you couldn’t get a buyto-let. They would put 100% retention, so Masthaven, and others, could provide finance just based on the value of the property, not on the income flow. Then they would use Masthaven to get a bridging loan and spend the next four to eight weeks renovating it and then it would be habitable and finished and they would get a buy-to-let mortgage. We were just that stop-gap for two to six months. RJ: That was the very nucleus of the start of the short-term lending industry.You say many others [but] I can’t think that there’s many names from 15 years ago, other than Masthaven, that are [still around]. There will be a few, but not many. AB: Together. They were Blemain or… Lancashire Mortgage Corp. Remember that? RJ: Look, let’s get the appreciation club out
63 May/Jun 2019
Interview
the way early doors so we can really get our teeth into each other. You go to Andrew’s business now, just off Soho Square, and it is a huge triumph for him and his team, how well it has progressed over the years. I do remember those days... It was 15 years ago—blimey, it does feel like yesterday—and all credit to him and his team, of which a lot of them have been around, with you, for quite a few years. I mean, it’s fair to say it is unrecognisable from those days in terms of quantum, but still very hands-on. Are you head underwriter still or have you lost that one? (Laughter) AB: I’ll answer that in a moment. But, I should quite honestly and fairly pay Rob the same kind of compliment. If you look at how many specialist distributors there are… Both of us have had our ups and downs throughout the economic cycle—difficult times… RJ: And with each other! AB: And with each other, which I’m sure we will touch on, but certainly from my side there has always been incredible, I hope mutual, respect. Rob has grown a number of very sizeable businesses over the years, so we have very much [seen] the journey together, but from different viewpoints. BF: How do you feel the bridging market has changed, in general, over the last decade? RJ: Goodness, from a distributor’s point of view it’s... I find the market currently exhausting.You could spend all your days of the week talking to people and not doing any business. There is an oversupply of lenders, many of them doing the same thing, and, within Brightstar and Sirius, we look at the number of lenders that we use in a year [and] we probably do 80% of our business with seven or eight of them, yet the amount of resources taken up by speaking to the other 20–30... AB: What, BDMs just coming around and pitching? RJ:Yeah, disproportionate. So, I think, there is a certain oversupply of very similar products and [there] seems to be no shortage of lenders coming in and that is why it is really important when we work with partners… You know, I can think of numerous transactions with Andrew and others that have not quite worked out the way that everyone had planned from the outset, but you have a level of responsible behaviour, working with the borrower to try
to get a mutually acceptable outcome. When you speak to a customer and they say, “Well, what happens with this bridging business? I’ve heard that it can go horribly wrong and I can lose everything. What happens if I can’t do this?” It does help to have that track record and certainty when things go wrong; the guys are decent. AB: You know one of our first Masthaven deals was with Kit’s father-in-law or mother’s— RJ: He has quite a few wives actually, so… (Laughter) RJ: That is on the record. AB: We could do a whole hour on that… Let’s move on. The point I was making was that one of Masthaven’s first deals was with Rob’s business, which was Personal Touch packaging at the time. BF: And how has business between you changed over the years? Or hasn’t it? RJ: I think that if we want a deal done and that it is a deal that is worthy of it, you know Andrew is still prepared to take a phone call and an email, as is his team—and there are plenty more people now in his business that are decision makers that have got the mandate to do it—but simply if you want something done you can still find the top man and he will take your call and that’s impressive. It’s not the same for everyone, I’ve got to say. And occasionally, when you need something just moved on a little bit and you just need a bit of support on something, that relationship and that heritage is something you can’t really put a value on. AB: From our perspective, people don’t recognise how important it is when you get business from different brokerages. It really does matter who you get it from. And someone will go, “Why does it matter, it’s the same case whether you get from this brokerage or that?” Because certain brokerages which have a very strong reputation like Rob’s, where you know that the client may have told them something incorrect and they have accidentally passed on something incorrect to you—that is just business, [for example] the person says he earns £100,000, but only earns £80,000 per year. The broker has been honest and fairly passed it on, but you know that you can always rely on what they are going to say. We may both have had the wool pulled over our eyes by clients over the years, of course we have, there are always people out there that are trying to game the system. But at least
when I am speaking to one of Rob’s teams, they will tell you exactly as it is, and we work on things together. And there are far fewer brokerages I can say that about than I should be able to say that about. RJ: On reflection, we’re no different, actually. We have the same suspicions and natural concerns with new market entrants because we don’t know them, we have no heritage with them; we have no track record or DNA of things going badly and I struggle a bit with that, I have to say. BF: Is it a difficult time for new lenders and brokers, then, to enter the bridging space because of that? AB: It’s always a difficult time to launch any business. I mean, both of us have launched our own businesses and it is always hard when you are the tiny minnow and you have just started, whether you are the smallest lender, smallest broker—same thing, same market, just different sides of a transaction, different parts of a transaction, I should say. I do think, though, that there are certain times when it is harder to enter a market than others. I mean, post-credit crunch in 2010/11 there was far less competition for lenders because so many of them had lost their funding lines or lost their pants. RJ: I just get nervous that people who don’t understand or transact bridging regularly will cause problems for all of us. When I was chairman of the former AOBP, the big thing I was pushing for was a professional qualification to ensure that there was some standard which people could prove that they could get to and also, like the equity release qualification, a track record that there were active transactions being done every X amount of months … to prove that the knowledge was live and relevant. Some years later, that was maybe four, five years ago, I think it is even more relevant now than it was then, because the amount of people we get phone calls from who have gone through the bridging route and it’s not worked out well for them and they are coming to us for a refinance or a re-bridge and you go, “My goodness, if we could have just had that 10 months ago, we would have positioned that in such a different way.” BF: Do you think the industry would back a qualification now or do you think they still wouldn’t? RJ: No. I think there is a noisy minority that probably would, but I think that the only way you are going to get this to happen is if the regulator says in order to do regulated short-term loans you have to have a CeMAP
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Interview
bridge qualification. They were supportive of that and then there were all sorts of bigger priorities: the Mortgage Market Review, MCD … the whole CP14/16 came in … the retail analysis, then pensions, and then an awful lot on the life assurance sector— it [was] just not deemed a big enough priority for them. It’s weird: if you look at the amount of fuss—I know you guys (gesturing to Andrew) are very active in second charge term mortgages—but you look at the huff and the puff over MCD, how many column inches that took up for what, at that time, was no more than a three-quarters of a billion pounds a year market— AB: Even now it is only a billion pounds a year, £18m a month originations only… RJ: And short term is, what, four or five [billion pounds]? Well, no one actually knows, but at least four … and maybe closer to six [billion pounds]; four or five times bigger. It’s scandalous, in my opinion. BF: What truly terrifies you about the bridging market at the moment? AB: What worries me about the bridging market is, as a lender, you only have two main levers you can use to win business— there is a third one, which is service, which is very, very important, but it is something that you can only demonstrate by practice—and that is rate and risk. So, what do you do as a lender coming to the market? What you should be doing is looking for a pocket of risk which you have specific expertise in, which you can then pitch to people like Rob and his company, and other similar companies, and say, “We specialise in bridging short-term leases,” for example.You’ve got a lease which is under 50 years? Come to us because that is our thing. Or maybe someone is focused on leisure and tourism, restaurants etc. But the ones that are trying to be all [things] to everyone, it is really hard because, really, as a lender you need to either be a price leader for the really vanilla, low cost—the highestquality, lowest-risk deals—or you have got to have a specialism which you can work for; I think the successful ones fall into one of those two categories. I don’t know if you would agree? RJ:Yeah, I would agree. I think my concern is probably different, obviously it would be, but I have genuine concerns that you have got part-time advisers—and, by definition, I mean people that aren’t doing bridging very often at all—that are just [seduced] by big lights and big cars and rates and lenders with decent marketing and everything else, and really it doesn’t suggest that they’re always the best opportunity for customers.
You know, deals that are not being done on the right term, with the right exit strategy, we still see far too many of those. Ultimately, my view is that, by definition, people that want to take a short-term loan are, in my eyes, deemed vulnerable because of the cost of the debt, therefore, you should do a proper job and make sure it is entirely appropriate as a product, which, when it is, it is absolutely fantastic, it is a huge capital generator for thousands of people in the UK. I think, really, short-term lending has been the mainstay of the recovery of the property sector, particularly in London and the South East, where so much more housing stock has been brought back in: permitted development, changes of HMO… I think without short-term lending in the last decade, where would we be right now? It is quite frightening, really... AB: It has certainly acted as a very strong and positive push in the right direction. Because it creates a source of finance for people [who] aren’t vanilla, they have got something they want to do. It is either part of a business transaction or sometimes it just allows a market to flow—for example, chain-breaking bridging. BF: What businesses, brokers or lenders, in the bridging space do you admire and who do you think is successful at the moment? RJ: Brightstar. Sirius. (Laughter) If I may reflect on lenders—because I think we have a better view of lenders as opposed to competitors—I think the likes of UTB, Octane, Octopus, Precise, Together, MTF Masthaven, naturally, are still the lenders out there to really beat. I think some new lenders of more established brands, such as OneSavings Bank—its InterBay brand has been really interesting, we’ve really quite enjoyed working with those—and some smaller lenders. I have to completely agree with what you said about finding niches, like the Avamores of this world that do development, like the Ortus’s of this world that are into leisure and pub—they are definite niches and they are very good at what they do. I think you have got that big powerhouse, and apologies to anyone I have missed out, which is probably most people, but you have the powerhouse of those seven or eight lenders there and then you have got others … that you will transact with [in] certain niches when they become available. BF: Apart from Octane and the InterBay offering, you haven’t mentioned that many of the new lenders—the small lenders—is that what you were referencing earlier where there are potentially new lenders coming into a space where they don’t have a niche? 66
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RJ: We have done deals with lenders that I haven’t mentioned that are new lenders and I am sure we will continue to do deals. But I think you need to just have some natural caution initially, see how those deals go. Doing a deal is not the difficult part; it’s getting that deal off the balance sheet and getting it to redeem, that can be challenging—that’s when you do your best bit of work, not transacting it.You ask me in a year’s time, I am sure I can add more names to those groups of lenders. LendInvest we left out of that initial group. And then you have got some of the other lenders [with whom] we are doing a fair bit with at Sirius at the moment.Your Hampshire Trust Banks, your Castle Trusts, Aldermore to a degree as well. Those lenders just mentioned are very, very good for the bigger-ticket deals that some of the other lenders might be a little bit nervous of, because they have got the experience of doing the £5m-plus deals and there are probably just a handful of lenders that are really good at that. BF: What brokers do you think are really successful right now? AB: I think there are a number of brokers which are really successful. I think the ones which I like are the ones which look at the holistic package for the customer. So, for example, one of the struggles which the good brokers have is what happens when the bridging loan needs to extend. Shock, horror! Someone selling their house gets messed around a couple of times and their six-month bridge needs another three months added on. Is the lender going to charge them a reasonable and totally acceptable extension fee or is some lender going to be there rubbing their hands together saying, “Charge them a 5% extension fee.” We’ve all heard lots of stories of those kind of lenders [with] 3–5% extension fees, and … if you don’t do it, then all of a sudden they are very heavy on the threat of legal action. So … of course, you look at price, you have to look at price, and you have to look at whether it gives them the amount of money they need, and structure the deal, but, actually, are you confident as a broker that if something goes wrong the lender is going to treat you fairly? It is very hard to have that confidence unless you have dealt with someone for many years and you have that feedback. If I just look at Masthaven, of course over the past 15 years there have been some borrowers that have paid us back late, that stuff has happened in that period of time which has delayed them … but how have you dealt with those people? That is as important for a broker to feel confident.
Interview
Simon Thompson: Is it the new lenders that tend to be rougher? AB: No, I am not saying they’re rougher, it’s just that they’re unknown. RJ: There you go: it’s the lack of track record. I think that that’s where I am. BF: I guess that’s the same thought that you have with new brokers in the market or the part-time introducers which you mentioned that they might not know… RJ: Beth, I really want to stress this: it is not a boys’ club trying to prevent new members at all costs—far from it. There are some new firms that have been created out of existing distributors that are as experienced in the market as anyone else, but they’re just new as in businesses. But, I think, it is still very much an individual personality sector and if one of my guys left my business and started their own business, Andrew would know that hopefully they would be as moral as they were when they worked for me. I just think we don’t deal with newcomers terribly well and it probably takes a while for people to be accepted. AB: And they need to, when I say pay their dues, they have to pay it by demonstrating over a period of time. It’s the same for brokers and lenders, it’s no different. Is the broker there just to try to earn a quick commission or is he going to stick with the customer and actually support them and give them best advice, even if the best advice means not to use you? That’s always the ultimate acid test. When someone goes, “Actually, I know this isn’t in my best interest, but you should take that loan direct with HSBC rather than take the bridge first.” … I also like the brokers who are entrepreneurial. It doesn’t necessarily mean that I agree with everything that they do, but I like people actually trying—they’re not scared to make mistakes, that they do something a little bit different. I mean,Y3S, for example, they’ve done a consolidation play down in south Wales with Chaseblue, and others … They’re going, “Ok, let’s try to put together a little south Wales powerhouse of specialist brokers,” and are they stronger together than separate? BF: I guess that links back to what you deem as successful in this market? AB: I am talking about being innovative; sometimes innovation equals failure. BF: Right.
AB: So from my point of view, you can’t be scared to fail. And I like firms which do something a little bit different and sometimes [they] fall flat on their face and other times… RJ: For my group, success looks like profit. I know that it’s a bit of an old-fashioned word to say that you actually run a business to maximise profit, but we do. It says plenty of capital to make sure that if things were or became more difficult, we have got plenty of oxygen in our tank, we don’t run out of money for as long as we possibly can. I think behaving appropriately in the right way to your people, to your customers, to your lenders and being ethical all the time, is absolutely crucial—and not just talking it, but actually doing it, is really, really crucial. Because we all have a legacy standpoint here. At some point, the two of us are not going to be around any longer. AB: Hopefully you are talking about retiring rather than dead? (Small spot of laughter) RJ: Well, I would say your retirement and my death might be inextricably linked but, yes. So we have a legacy issue and with longevity and business comes leadership, and leadership is about trying to do the right thing and trying to lead the way for the new generation to do things correctly, to learn from some of the things that we have seen [turn out to] be bad about the market and the things we try to do well. AB: I think that the scorecard for success is definitely not just profit … If you look one level down and you look at customer satisfaction, look at staff turnover. I mean, I know Rob has had people that have worked for him for literally 15–20 years… RJ: I think the other thing is that, if you look after your business, you do the right things, you learn from your mistakes, you are not afraid to go and occasionally gamble in a small way, it kind of takes care of itself. You will make profit, you will give your shareholders, in my case, decent returns where they’ll be happy and you know you can have some fun and do some good things along the way. So, it’s a great world for that. We’ve shown as a community that we’re very generous. We’re good benefactors of various, not just charities, but supporting groups and I think it’s a great place to do business. I really do sincerely miss the short-term lending community … I used to be in it a lot more. It’s a really great place. AB: It is—it’s a nice niche. One thing that I 68
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try to remind myself is, I started Masthaven at 29 and I’m guessing you must have been circa the same, early 30s, late 20s. RJ: I would have been early 30s, I think I am a couple of years older than you. AB: We shouldn’t have that arrogance of thinking the next lot of 29, 30-yearolds can’t also grow good businesses, because they absolutely will. It just takes a bit of time to prove that you can and that you are not just a good sales guy or a bit of a good product guy, but don’t have the whole package, which is needed in order to run a successful… [business]. On attracting talent into the sector RJ: I have to say that it’s not really changing much, there aren’t enough people coming in. Now that might be because of what I was saying earlier, that there is a suspicion, naturally, within our environment. It might just be, dare I say it, specialist finance, if you are a young post-grad, it isn’t seen as sexy. Most people that do the job didn’t go to school and go, “One day I want to be a specialist finance distributor.” It just happened to be the way it ended up. I know that Medianett is doing an awful lot of great work with the whole women in finance piece and Women in Finance Charter; that, for me, is a hugely underserviced area. We are working very, very hard on our gender pay gap and the reality is that there’s too many men who are consultants and there is too many women who are administrators/ support and there’s your gender pay gap for that very reason and there are other groups that we can work very hard on. ST: So, young people are one of those groups? RJ: I think young people, of course, are one of those groups. When I was 22, I started out as a mortgage adviser and I was told by— AB: Who did you start out with, Countrywide? RJ: Countrywide, yeah. I was told by people that were much older that older people— which at the time felt like everybody, how times have changed—would never want to do business with me because I was too young. And they did, and I became one of the top mortgage advisers in the country at the time when there were hundreds and hundreds of advisers, because I was personal [and] I gave good customer service. I think it is just a bit of an ageing community and I am not sure
that, when I look around the room, there are as many young faces as I’d like there to be. AB: …You need to have not just the technical skills, but also the EQ.You need to be personable; you need to understand where they are coming from; you need to understand their demands, their objectives. RJ: We have something called Young Brightstars, where we sort of champion younger people.Yeah, not sure I came up with that… AB: Are you sure it wasn’t someone, like, your wife? RJ: It probably was… Recently, we asked our support staff, who were mostly women, “Why are you not applying for jobs as consultants?” We have done a lot of research around that and the reason was, “Well, unless I am completely certain I can do it and do it really well, I won’t apply for it.” Ok, so there is our challenge: we need to design an environment where there is that surety, that confidence. I will use an example: Jo Logan. Jo has worked for me now for 15-plus years and she has been doing bridging loans for eight or seven of those, within Brightstar for eight. She was an administrator and I said to her one day, “You can sell.You can do this.” She said, “I really can’t.” I said, “You really can. So, I’ll tell you what I am going to do: I am going to leave your package as it is, take a few leads, it’s December, it will be really quiet, see how you get on and if you can’t do it, I’ll move you back in January.” In that first [12 month period], she was top income earner in the whole business. Just shows you can do it. AB: We also take this gender gap very seriously. We’re one director away from having a 50/50 split board of women [and men]. BF: Amazing. What’s the size of the board? AB: Eight—five-three (five men, three women), so [we need] just one more woman. BF: Great. Have you noticed a big difference from that? AB: What we are a real believer in, is that [if] you get a number of able people, you make better decisions than anyone individually. But if you have eight identical people, that benefit of discussing a decision is greatly reduced. It’s still more than an individual, but if you [take] people who come from different backgrounds and different mindsets, then actually they bring something different.
RJ: I don’t get why there is this challenge, people not wanting gender parity within their business. I really just don’t understand it. Every piece of research that is out there shows that diversity equals better businesses. BF: Have you both set individual professional milestones for yourselves and also as businesses? RJ: My initial milestone, when I started Brightstar almost nine years ago, was just to get through the first year. When we did, we were really happy and really delighted, and then all of a sudden you get to a point where you look at your business and you go, “Blimey, how did this happen?” I think where I am now is I am very aware of the fact that I am two years away from being 50, my ability to do the late nights and early starts is diminishing as I get older the fact that I have got, like Andrew, a fun family that’s really engaging… So, I would probably like to look at the people I’ve got in my business and say, in five years’ time [they] will be running the business and I won’t be. I think that’s good for them [and] it’s certainly good for me, my health and my family. That would require some form of monetisation of the business and what we do in the next four to five years is key to that. AB: We’ve looked at things [in a similar way], but [with] a slightly different slant. There’s nearly 200 of us, we’re growing very significantly every year—the bank has only been going two and a half years and half of those people joined last year. What I have done is [give] 10% of the bank to the employees. We’re just finalising the next tranche, but once that is through, we will have something like 140 staff members who’ll be shareholders in the business. And they are shareholders not in lieu of salary, or a bonus or anything else, [but] for the simple premise that those people [who] help create success, should share in that success. RJ: We do the same, but very few people will. I think that’s exceptional, I really do. I think what that will do, quite simply, is it will get people to go, “This is part of my business.” It’s that whole John Lewis & Partners idea. It works really well. On professional differences AB: ... Rob and I have obviously had our disagreements over the years. Especially when one of his staff members joined us… RJ: It was Richard Deacon.
(Laughter) BF: When did Richard work for you? RJ: Richard worked for me from 2004–2008. AB: He’s just done 10 years at Masthaven. ST: Any other good bust-ups we should know about? (Laughter) AB: Oh, we’ve got plenty! RJ: I think there’s just really one and, at times, [2007-2009] were difficult years. From a personal perspective, I deal with things in a pretty different way now, because you’re older, a bit more measured, less emotional, you’re less worried and concerned. BF: What’s been your biggest career highlight, individually? RJ: Well, I have to say, winning the Sunday Times Best 100 small company to work for two months ago. If I achieve nothing else as the CEO of this group from this point onwards, that will go [with me] to the grave as a positive experience. AB: For me it’s a bit of an old one actually, but I think back [on] this as a pivotal moment for myself and for Masthaven: [getting] through the credit crunch with not one of my funding lines and not one of my shareholders losing a penny. RJ: [That’s] some achievement. AB: I lost some money, enough to give most people a tear in the eye that’s for sure, but ... we had three funding lines, Kaupthing Singer & Friedlander, Clydesdale and NatWest, and we had a whole host of high-net-worth individuals who put money in, and every one of them got their interest coupon and every one of them got paid on time and in full. I became a developer, I had to decide when to cut my losses and just take a view on something and I learnt more in those couple of years… And, actually, when I was doing the rounds to raise further money in 2010 and 2011 [with] my data from the last three or four years, [it wasn’t] that people couldn’t believe it, but they were like, “That’s really great.” RJ: When was the first B&C Awards? I think the first one I attended was about 2009. It would be really interesting if you got the list of finalists [from] then.
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AB: Brokers and lenders. RJ: How many names [would we] recognise? I wonder, in 10 years’ time, if we looked at the one in 2019 whether there’d be much difference? I am not sure there would be. AB: I think there’s been a professionalism in the short-term lending market. I think a lot more sizeable institutions are into it. If I look at my cohort of challenger banks … all in all they have a good level of professionalism. Is that fair to say? You’d know better than me, but certainly from afar they look decent. RJ:Yeah, I think the systems and controls in place now are second to none. AB: Previously it was more a cottage industry. Someone lending £50m a year here, someone doing £100m a year there; now there’s a lot of sizeable FTSE 250 challenger banks … and that’s taken a lot from the market. On what might surprise people about the bridging sector AB: ...The professionalism. It used to, especially when we started out, have a little bit of a Wild West feel, sometimes. There were parties in it that solely cared about personal enrichment of the firms and lots of them have come and gone. Now, the vast majority of the firms are run by wholly professional, responsible lenders who treat their customers fairly—I think that would surprise people. RJ: I would say relationship. I do a fair bit of work for various businesses globally who are looking at this market, [and] I do my very best to put them off. (laughter) But one of the things I do say and they struggle to get, is the fact that trust is absolutely crucial in any relationship here and that feels like it’s a bit emotional, but it’s not actually—it’s longevity, it’s doing the right thing. I think they really struggle with that. That you can phone somebody up and say, “You have my absolute word that that customer will deliver on what I say they are going to deliver,” and you know there is a track record of having done that 20–30 times before. AB: And you can only do that once you know somebody over a period of time. RJ:You have got to look this old to be able to do that. (Laughter) AB: It has obviously been a difficult 15 years, Rob, hasn’t it?
Bridging & Commercial
“Trust is absolutely crucial in any relationship here and that feels like it’s a bit emotional, but it’s not actually—it’s longevity, it’s doing the right thing”
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People
he specialist finance market has seen major expansion in recent years, but it seems that the development of new talent has not kept pace. According to data from agency J2 Recruitment, vacancies within specialist lending rose by 50% between Q1 2018 and Q1 2019. The four recruiters we spoke to claim that the shortfall is resulting in salaries sky rocketing and conversion rates faltering. This means that companies within the industry will need to carefully assess their options to ensure they can secure and also retain talent for the long term. James Warburton, director at J2 Recruitment, says that around 60% of his recruitment work is with companies in the bridging sector. He claims that while there are shortages across a variety of different roles, the deficit is most pronounced in compliance, business development and underwriting. He—along with many of the recruiters we spoke to—claims that underwriters with upwards of five years’ experience are “rare” and the most in demand. “We are hearing of underwriters getting paid ridiculous salaries,” James confirms. With a lack of back-office people, he believes BDMs are on the verge of turning away business. “I have had a number of BDMs come to me saying, ‘Look, I can bring in these cases, but we can’t turn them round quick enough.’ That is a big concern.” Catherine Hesford, who is in charge of recruitment at Shawbrook Bank, admits she is witnessing companies becoming more and more aggressive in attempts to poach the bank’s staff. “Our employees are very honest with us and they will tell us if somebody has been in contact with
them.” James Bloom, managing director of short-term lending at Masthaven, adds that these aggressive approaches are coming from new lenders entering the market. “What they have done—because they don’t have a track record—is offer [quite] silly salaries [and] inflated positions for people and they are taking some talent away.” It is a current market reality that companies are increasingly having to equip themselves for. Andy Morrison, a director at Fintellect Recruitment, believes that companies can usually hold on to their talent with counter offers but, in the prevailing climate, companies trying to onboard talent are now starting at an even higher mark. “They are anticipating that and actually going in at a higher salary level to make sure they can bring them across.” As a result of not enough talent to go around, it is turning into a bidding war. Surprisingly, boosting staff salaries can often be the cheaper option, especially considering the long-term costs of paying recruiter fees and dealing with the effects of an empty chair in the office. Scott Marshall, managing director at Roma Finance, says that while it hasn’t had significant problems with recruitment, staff turnover is always reflected in the bottom line. “When you bring in new staff, you inevitably see a drop in conversion rates because there is a time when they are learning about your business.” He tells me that conversion rates then tick back up after new recruits have learnt the ropes and been on the team for a period of time. Andy claims some companies are getting ahead of this scenario altogether by shoring up their lower-level talent with pay
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rises and promotions. “They are going there and saying, ‘Well, if we can’t get the middle management, we will go and take from the tier below. They will be middle managers in the next few years anyway and what we will do is we are just going to secure them now.’” In terms of skills and experience, Andy admits these kind of career advancements are sometimes premature. “The junior-to-
the Association of Short Term Lenders (ASTL) and says there are articulated concerns about its impact on the broader bridging sector. “You do have concerns about standards in the industry following on from that,” he admits. “Reputation is very important to the regulator and how the wider market views us.” Aimée Willow, director at recruitment
IT DOESN’T HAVE TO BE A BIDDING WAR
senior gap is massively decreasing.” While it is understandable why companies are doing this, it does throw up red flags about the quality of underwriting. Bloom states that he is aware of other lenders that take people on that are not as well trained, who then become underwriters straight away. He has a seat on the executive committee of
company Aimée Willow Connex, adds Words by that while quality is a concern for those companies unwilling or unable to pay for it, simon it is a great time to be a skilled professional in bridging lending. “The market is there for your to look at what is out there and where your career path could go.” As frustrating as lofty recruitment fees, pay rises, counter offers and the threat of poaching might be
thompson
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People
“AT THE MOMENT, A LOT OF BUSINESSES AREN’T PUSHING THEIR EMPLOYER BRANDING ENOUGH. IF YOU GET THAT RIGHT, A LOT OF PEOPLE WILL WANT TO COME”
for businesses, there are positive outcomes. “It seems to be a market that is growing very rapidly,” she says. “We are working with lots of clients that have a lot of opportunities in that space. There is certainly no negativity around. People are developing their companies and growing their businesses.” Serena Chow, a director at Fintellect Recruitment, says the bridging sector’s expansion might warrant a more direct undertaking in workforce development. “People just need to take a little more ownership of it in order to create the next generation of people doing this,” she says, and some lenders are doing just that. For example, Roma established the Roma Academy, which trains a mix of staff, interns and graduates. Scott says that, if anything, Roma has an excess of talent. “We have a queue of people that are wanting to work for us at the moment and we were unable to recruit all [of them].” This year, Avamore Capital launched some unique recruitment events to streamline what has been a timeconsuming process that often takes team members away from the company’s core work. Amit Majithia, principal at Avamore Capital, says that these events are effective, but only for recruiting junior staff. “There is a greater importance on finding candidates with the right attitude and raw skills which will allow them to succeed in their respective roles. The recruitment evening was, therefore, the perfect opportunity to find candidates which have the potential to grow.” Serena says recruitment programmes solve the first half of the talent deficit equation; the second part is retaining staff. What can lenders do to keep talent? The recruiters I spoke to say that money isn’t everything any more, and certainly not to the extent that it used to be. According to a PricewaterhouseCoopers study, opportunities for career progression, competitive wages and work-life balance are the three most attractive employer traits modern workers base their career decisions on. Late last year, Shawbrook launched comprehensive learning and training portal programmes for staff to undertake career progression of their own volition. Members of staff are also paired with training ‘business partners’ to help them navigate their careers. Catherine says allowing staff to make less traditional, sideways moves between job roles in the company has also been effective for retaining staff. “To make those steps, people will often leave an organisation to do that. At Shawbrook, we want to give people that career development and that opportunity to seek out any career prospect within the bank.You don’t want to
invest in people’s development and then lose them to another organisation because you can’t offer them the career path that they are seeking out.” Bloom says that while a large percentage of Masthaven staff have benefits such as gym memberships and share options in the business, its core strategy for getting the best is by being the best. “Our reputation and name in the industry helps us attract people. I think it is reputation, really, that allows us to confirm that we have got some of the best people.” Another solution Many of the lenders we spoke to said that they don’t have as many women in leadership roles as they would like. When the demand for skilled people is competitive, company diversity measures can sometimes take a back seat. When it comes to onboarding staff, cloud banking company nCino might be ahead of the game. Based in the US, with operations in the UK, nCino reports a surplus of financial and tech talent. In the past three years, it
has been able to attract enough people to be able to more than triple in size, from 200 to 630 people. It can also report that half of its leadership team in product development and engineering are women. In the UK’s financial services market, women make up just 14% of executive committees. Jill Harrington, recruiting director at nCino, attributes nCino’s success to good employment branding. This involves marketing the company as an employer of choice to groups targeted for recruitment. When looking to attract more women into roles, I was told that building relationships with women’s groups at universities, ensuring women are publicly visible in leadership roles and creating inclusive job descriptions which appeal to a wide variety of candidates, were key. “We look at talent acquisition as more of a long-term relationship building type of event, or series of events,” says Jill, adding that it is less of a check-box activity. And while it has been extremely effective, Jill believes that as it is a longer-term approach, it therefore may not resolve immediate shortages. Adding to this, Warburton feels that
Commercial Mortgage Broker
employment branding is a solution that isn’t fully being taken advantage of by companies in the bridging market. He says that, as a recruiter, using it on behalf of UK companies has been extremely effective. J2 Recruitment has often been able to convince candidates of the merits of making the move to a certain company, with data revealing the average length of staff tenure, their experience and the calibre of universities staff have attended. “At the moment, a lot of businesses aren’t pushing their employer branding enough. If you get that right, a lot of people will want to come.” He tells me that it is a value-added service that it is starting to offer at J2 Recruitment, which should increase companies’ direct applications and allow them to save on agency fees in the long run. The recruiters we spoke to claim that most companies in the bridging market have the necessary ingredients to onboard the quality and quantity of staff they need, but that more effective, longer-term approaches aimed at attracting a more diverse range of people represents a sustainable way to get the recipe for growth just right.
Mutual Finance
Mutual Finance a long stand commercial mortgage broking firm of over 25 years based in the Mayfair area are looking for an experienced commercial mortgage broker to join our team. We are willing to consider staff that have come from a banking environment. Any applicant must have established industry presence/experience, possess a proven track record and have an existing client base. You should also be self-motivated, ambitious and exhibit an entrepreneurial streak. The remuneration package will be consummate with both experience and performance with additional commission payments made reflecting achievement and delivery.
Please contact Scott McKinnon with your CV by email only (NO AGENCIES). s.mckinnon@mutual-finance.co.uk
MFL Finance Limited 17c Curzon Street Mayfair, London W1J 5HU www.mutual-finance.co.uk
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Limelight a glimpse into our ever-busy schedule
1 Who: Avamore Capital Where: Their refurbished offices at 78 Cannon Street, London What: Recruitment ‘speed dating’ and crashing their office party
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2 Who: LDNfinance, Brightstar and Medianett Where: 150 Minories, EC3 What: Women in Finance briefing, providing more clarity on the key responsibilities of signatories, making the commitment and how companies can reach their goals
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3 Who: MT Finance Where: Blues Bar, Shoreditch What: The benefits of having a great company culture, flaming sambucas and…rearing pigs 4 Who: United Trust Bank, Hampshire Trust Bank and four brokers Where: Watson Farley & Williams’ office, 15 Appold Street, London What: B&C filmed roundtable event discussing BTL lender departures and its impact on bridging exits 5 Who: The PROPS Lunch 2019 Where: London Hilton, Park Lane What: Raising a staggering £410,000 for Variety to provide wheelchairs for disabled, disadvantaged children 6 Who: The House Crowd Where: Tri Ciccio, Manchester What: Fundraising plans and the Dragon’s Den experience 7 Who: InterBay Commercial Where: The Ivy Café, Marylebone What: Being a sub 0.5% bridging lender and excitement for the B&C Awards 8 Who: Adapt Finance Where: Sushi Samba, Covent Garden What: Discussing a new offering, finding the best summer gilet and debating whether beer and wine is always fine
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9 Who: Glenhawk Where: Albemarle St, Mayfair, London What: 1st birthday celebrations
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10 Who: Hope Capital Where: Salt Dog Slims, Liverpool What: Industry diversity and a heated debate about Kanye West 11 Who: Precise Mortgages Where: Adam’s Restaurant, Birmingham What: Celebrating Alan Cleary’s birthday with a never-ending tasting menu, personalised Sambuca shots and way too many cocktails
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Backstory
‘I think it could be a bumper year’ Crystal Specialist Finance’s head of bridging finance discusses the realisation of the stark disparity between how lenders do things in the market, why she decided to get off the road and into the office and her plans to substantially grow completions at the packager in what she believes could be a bumper year Harriet started her career as an admin and marketing executive at Borro Private Finance and worked her way up to a BDM position—a role she then went on to hold at specialist bank Masthaven for two years. She decided to swap lending for broking in February this year where, in her new post, she is responsible for delivering future growth targets and playing an important part in Crystal’s education programme for brokers. What has been your biggest achievement to date while working in the specialist finance market? Twice winning BDM of theYear—it is a really proud feeling when you are nominated by your clients and peers for having done a good job. You have switched career paths from lending to broking—what has been the biggest culture change for you? The opportunity to say yes more often and no longer being restricted to the criteria of a single lender. We can generally always find a solution for clients through our panel and it means I’m seeing a much wider variety of cases. So far, what has surprised you about the ‘other side’ of the market? No real surprises, but it’s taken some getting used to the difference in the way lenders do things. We’re at a crossroads where many of the key players/mortgage lenders have successfully introduced portals for their bridging propositions and further automation of the process with AVMs, while at the other end of the scale, we still have paper-based application forms and email instructions. How did Crystal approach you and why did you decide to make the move? I have known the team for a long time and it has always been one of my key accounts. Coming into the office has always felt very familiar. I knew I couldn’t be out on the road for the rest of my career and I wanted to give something in the office a go. It certainly felt like the right decision straight away. I look forward to still working with my old Masthaven team on cases going forward, though, and it’s helpful knowing the criteria inside out. What one thing does the industry not know about Crystal? The fun we have with our completion songs—there is KanyeWest through to 50 Cent—and if you’re lucky enough to be in the office, you might even catch the odd dance for a good case!
How does your previous experience (at two very different lenders) help you in your new role? Perspective. It can be easy as a lender to know only your way of doing things and overlook what a competitor may be doing better/more logically. Also, it certainly helps knowing how a lender thinks—consideration of reputational risk, pricing for risk, and so forth.We have a whole-of-market perspective here and it’s good to know the role of the BDMs and provide them with feedback. What challenges and opportunities have you faced as a result of becoming a broker? The main challenge has been getting used to all of the lenders’ criteria and processes, but this will come with more experience and the team is a great support.The opportunity is the same; I always want to build my knowledge further. What are you looking to implement and change at Crystal as head of bridging? We want to improve our efficiency with lenders using AVMs, internal legals, electronic ID and a whole other raft of systems.We want to ensure we are at the forefront of this to complete an ever-growing number of cases with the team we have. If you could only reach one of your aims for 2019, what would it be? Substantial growth in completions year-on-year from 2018. Now that you are experiencing the sector from a different perspective, what one thing would you like to change about the bridging lending industry? Its perception.We are definitely all getting there and with rates sub-6% a year, it is a great solution to the right situation.We are doing our best to continue to educate brokers to identify when an opportunity is on their desk. What key changes do you expect to see in the bridging market in 2019 and how are you preparing for them? I expect an influx of business once the big ‘B’ has been decided. Anyone who has held off buying/ selling will enter the market once they have greater certainty. Bridging is the best option to respond quickly to opportunities and I think it could be a bumper year. 80
Bridging & Commercial
What did you spend your very first pay cheque on? A night out. What is your favourite venue for lunch/dinner/drinks meetings? Tough choice. I don’t have a favourite. I spent a lot of time in coffee shops when I was on the road, so you become a bit of a connoisseur. Most memorable moment from your time in the industry? Definitely my first B&C Awards. It’s fascinating to see for the first time, unlike anything else. What is your favourite industry event of the year? Again, the B&C Awards. It is great to get everyone together, from just our industry, in an incredible venue and during the day, which is a bonus.The cocktail fountain was a personal favourite of mine last year. Dream job if you weren’t doing what you do? I would own my own restaurant. I miss the variety of London and I would like to bring a different concept to Birmingham.
Nick understands
Nick Warren 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 Nick 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
we understand specialist banking