Bridging & Commercial Magazine - The Responsibility Issue

ISSUE 6 NOV/DEC 2019

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www.pumapropertyfinance.co.uk Puma Property Finance Limited is a private limited company registered in England and Wales under company number 11685426 and is not authorised or regulated by the Financial Conduct Authority, (“FCA”). Property finance does not constitute regulated investment business. As such, clients of Puma Property Finance will not be afforded the protections available under the rules of the FCA and will not be eligible for compensation under the rules of the Financial Services Compensation Scheme (“FSCS”). Puma Property Finance is the trading name of Heritage Square Limited, Oasis Lending LLP and Puma Lender S.a.r.l.

Acknowledgments Editor-in-chief Beth Fisher beth@medianett.co.uk Creative direction Beth Fisher Caron Schreuder Senior reporter Simon Thompson simon@medianett.co.uk Reporter 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 photographer Alexander Chai Special thanks Tim Swabey, DEFRA/Department for Environment, Food & Rural Affairs Daniel Thomas, Foot Anstey Amy Edwards, The Lead Engine Tracy Robinson, Connect for Intermediaries Leoni Alexandrou, Sirius Property Finance Lucy Barrett, Vantage Finance Adrian Cormican, Hallcroft Structured Property Finance Zed Lorgat, JM Financial Steve Walker, Promise Specialist Lending Paul McGonigle, Positive Lending Danny Robinson, Grey Matters Ali Sanders, B2B Finance Andrew Robinson, Arc & Co Jo Breeden, Crystal Specialist Finance Lewis Casserley, Edgarley Finance Printing The Magazine Printing Company Design and image editing Russ Thirkettle, Carbide Finger Ltd Bridging & Commercial Magazine is published by Medianett Ltd Managing director Caron Schreuder caron@medianett.co.uk 3rd Floor, 71 Gloucester Place London W1U 8JW 0203 818 0160 Follow us @BandCNews

H

ow is it almost the end of 2019? How is this our sixth issue of Bridging & Commercial?! This year has flown by—but it’s been an interesting one.

I believe the industry has evolved massively in the past 12 months, and I feel this is down to the sector’s continued drive to boost professionalism and encourage productive dialogue. The latter is something which we have enjoyed enormously— hundreds of financial experts have helped us put together each issue with their specialist knowledge and input, while really probing current industry practices and demanding more from our sector.

Together, we have looked at the critical importance of knowing how the bridging market is funded, how distribution in this space has—or hasn’t— changed; the contrast of our country’s resilience in the face of Brexit with the irrespective pressure our sector is under, why we might not be as ripe for contraction as we think; and raising the invisible bar in order to uphold the reputation and standards of the industry.

While 2019 has been the year of discussion around best lending practices, little has been divulged about where brokers come into all of this. So, we decided to focus the microscope on this other side of the story [p36] and, in about 6,000 words, sum up a bridging broker’s core responsibilities and what does and doesn’t warrant a fee. “For your client specifically, if things aren’t done properly, they will lose faith in you, your company, your lender and your industry.You are representing much more than just yourself,” states one market stakeholder. And if that doesn’t highlight the importance of this topic, I don’t know what will.

Flicking through the magazine, you will find our exclusive interview [p14] welcomes back a familiar face to the sector, and this issue’s In Conversation [p56] brings together industry stalwarts Marc Goldberg and Danny Waters—yes, we have over-delivered.

Elsewhere, we look at who is driving product innovation [p22], what it’s like to spend a day as a student at the Connect Academy [p48] and whether nitrate neutrality issues in the Solent could spread further afield, deepening the UK’s housing crisis [p28].

While the industry has stepped it up a notch, I’d like to think Medianett, as a publisher, has too.

We introduced this magazine as a fresh and essential news source to the market, breaking down the barriers to what trade publications should look, read and feel Like. We have worked hard to ensure that each copy of the magazine was not just diverse in content, but also reflected in who we were approaching for expert opinion. The typical face of the industry is changing and this can only be for the greater good. Our mission is to continue to represent and promote this going forward. We launched even more video content through our filmed roundtable events and built and strengthened relationships with those that we can collaborate with to force positive change. And, next year, you can expect even more from us. You will be able to tune in after every issue to our soon-to-launch podcast, which will take you behind the scenes of our glossy read—including what didn’t make it to print...

Enjoy the festive period and, in advance, happy new year!

Beth Fisher Editor-in-chief

3 Nov/Dec 2019

I’m not a fan of publicly calling people out because, firstly, there’s two sides to every story p36 4 Bridging & Commercial

6 12 14 22 28 36 48 56 66 71 74 76

The cut Products Exclusive View Zeitgeist Cover story One day Interview Explained People Limelight Backstory

A good omen

The real drivers of innovation

Why up to 10,000 homes have been stalled at planning

It’s what you’re paid five figures for

Back to school

Marc & Danny

Beyond borders

The </end> of traditional broking?

Matthew Anderson

6 Bridging & Commercial

The cut

What words of wisdom or encouragement would you offer to industry newcomers?

In November, Bridging & Commercial teamed up with bridging lender TAB to host an all-day podcast at the Finance Professional Show at Olympia London.

Interested to know what experts said once they got hold of the mic? Look no further

7 Nov/Dec 2019

The cut

Michael Primrose

Managing director at The Property Finance Guy

Sarah Milne

Anyone aged 25 and under thinks that going in and starting your own business is a difficult thing. My wife and I took the risk to start our own business, The Property Finance Guy, when we had two kids already, so we had mouths to feed. It was a big thing for us; we took a bigger risk than we usually would. I’d definitely say 25 is not too young—especially in the bridging and development space—to get in and start your own business like this. People are choosing to become self-employed, but they are working under other people’s umbrellas. I don’t think there is necessarily a need to do this any more. Our business has just reached its first anniversary and is going from strength to strength with the assistance of mentors from the industry and a great team around us. We have understood the need to branch out across a number of formats, including our own networking event in London and our podcast, which has already amassed 10,000 listeners and helped us to gain traction.

Associate at Puma Property Finance I think, particularly in this market, it is essential that introducers remain realistic and ensure a scheme works on a base-case scenario, rather than becoming too reliant on a potential upside. People can run into difficulty, lenders included, by trying to push the envelope too much and getting stung in the process. Examples of this could be increasing the leverage against an inflated valuation, seeking sales figures that are unrealistic in the current economic climate, or stretching the physical boundaries of a building or site—resulting in a less desirable end product. My advice is to be slightly conservative when going into things and to ensure the focus remains on deliverability and suitability—both of the development itself and the proposed funding package the introducer is looking to arrange.

8 Bridging & Commercial

Alice Williams

Head of property finance at Pilot Fish Don’t be afraid to work with others. A lot of brokers are very protective of their own clients, which is understandable, but there is so much value in building partnerships, learning from each other and collaborating.

Your professional network is invaluable when you first enter the broking market.

Get in touch with solicitors, valuers, accountants and other brokers in your area. Understand their specialisms, their unique selling points and discuss both what you can bring to them, as well as what they can do for you. Don’t neglect any working relationship by having a onesided outlook and expecting a professional referrer to send work your way without reciprocation. Building your professional network takes time and consistency, but these relationships really are key to longterm success. We refer and share our clients with professionals within our network, whether it be insurance, accounting or legal services. These referral arrangements have proven to be incredibly beneficial to all parties and have enabled trust and mutual respect to be developed, leading to excellent working relationships and great scope for collaboration. While it is human nature to be protective of your business, your contacts and your intellectual property, it can prove lucrative to go against this inclination and share more. If you are operating as a single broker, it’s unlikely you’ll have specialisms across all areas of the industry, so focus on your area of strength.

The cut

Richard Nordgreen Head of investments at Proseed Capital

Jon Salisbury Nick Baker

Head of intermediaries at Allica Bank For me, it is all about those looking to enter the industry being completely open minded to developing their understanding of the market; there is no room for preconceived ideas. Consider what you are looking to achieve; take time, ask questions and be super inquisitive, because the more you do that, the more you pick up. It’s how you learn your trade. It’s how you really develop as a professional in such a diverse and fast-moving industry.You must then seek to figure out what the end customer is truly trying to achieve. That is absolutely key. In the SME space, the one thing that I have always loved about what we do is going to speak to SME business owners—we have all got them. They are in our families, they are among our friends. It is these people who run the businesses that are undoubtedly the backbone of our economy.

If we told young people what we actually do as an industry, I think we would attract more. In many ways, the market is facing an identity crisis which could potentially lead to talented individuals looking elsewhere.

Managing director at Ortus Secured Finance This is going to sound really old fashioned, but the people that have done well with us have bitten off what they can chew. The most important thing is to do something well.

You don’t know much yet, you might have great skills, great aptitude and things to bring to the business, but you don’t actually know anything yet.You haven’t done a deal and you have never done a recovery.You have never seen something go wrong. Look around at the people that have done it and learn from them. Be a sponge and know your place. Don’t get annoyed because you think something is beneath you. Also, get some credibility: do some exams, get qualified, go on a course.

We’re often contacted by introducers whose clients have expended time and money with other lenders who have failed to perform.

Sometimes this is because an initially enthusiastic developer hasn’t subsequently been able to get the deal through credit—so navigate this by accessing the key decision makers early in the process. Other times it’s because the initial cost of the debt ends up being materially more expensive due to hidden costs/fees—so ensure that you gain full transparency of all the costs at the outset. In short, communication with decision makers is critical to ensuring the reliability of lender performance.

Additionally, know your lender. KYL is just as important as KYC. Is your lender made up of people who understand property? If things don’t go to plan, someone with the relevant experience is likely to react in a far more helpful manner than someone who hasn’t seen how to work through difficulties in the past. This knowledge creates a funding partner relationship where the lender can add value—not just a cost of finance.

9 Nov/Dec 2019

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Pluto Finance

Enhanced bridging offering • available on a two-year term • up to 77.5% LTV • rates from 0.49% per month

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Real estate investment • allows investors to acquire, finance and improve properties on a turnkey basis online • delivers a return on equity of 25–50% • investors must contribute a minimum 25% deposit, with Dot advancing a 75% revive-to-rent loan to cover balance and refurbishment costs

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Exclusive L-R: Maeve Ward, Ruth Griggs, Paul Stray

Words by

BETH FISHER Photography

Alexander chai

Welcome back After leaving her directorship position at Shawbrook in February 2018, Maeve Ward was likely to have had her fair share of job opportunities. However, after 18 months of silence, we guessed something bigger was on the cardsâ&#x20AC;&#x201D;and we were right

15

W

hen we found out Maeve was heading up a new bridging lender, complete with a small, but strong team of former Shawbrook colleagues, we had questions: why now? Have you seen how competitive this market is?

Having spent a year getting the business ready to open its doors, Focused Bridging launched this April and has been quietly trading under the radar. Bridging & Commercial is the first publication to visit the company for a long overdue catchup to get a feel for what is to come.

On a Wednesday afternoon, the day before the UK was supposed to leave the EU, I leave the hustle and bustle of central London for the peace and quiet of Bricket Wood, St Albans. Arriving at the leafy, rural home of Focused Bridging, with the willow tree-lined paddock views and marigold-tinted leaves framing the winding road, I instantly feel calm and relaxed—a stark contrast to the out-ofthe-capital concrete business parks I’ve been in before. An interesting place to work, I think to myself as I am buzzed upstairs. I haven’t seen Maeve for around two years so, while I am desperate to be brought up to speed on the larger developments since then, I am also intrigued as to why she picked this tucked away location as her new business abode, having come from such a large, buzzy company previously. She explains that when the start-up was on the lookout for where to open its office, it was important to incorporate the spirit of the late David Johnson (former managing director of secured lending at Shawbrook Bank, and founder of Commercial First). David played a significant role as a mentor for most of the individuals in the fourstrong team, and many others within the wider industry. Although Horseshoe Business Park came completely out of the blue, as its office space rarely becomes available, the team felt it was appropriate given David’s biggest passion outside of finance and his family: horses. He was a successful racehorse owner and even went on to win the Grand National with ‘Comply or Die’ in 2008. Maeve tells me she felt it was a “good omen” and feels like he is still with them in their new venture. The lender’s branding also mimics David’s horseracing colours as an additional tribute. “I credit him with a lot of what I know today,” Maeve says, adding that she probably wouldn’t be sat here,

Exclusive

doing this now, if it wasn’t for David.

“So, why did you decide to launch your own business?” I ask Maeve, who is now sitting in front of me, nursing a warm cup of coffee after our hour-long outdoor photoshoot. She admits that running her own company was never her passion and, until the idea was presented to her, she hadn’t given it any thought. Ultimately, she knew that if she didn’t give it a go, she would always ask herself, ‘What if?’ She adds, “I guess, if you’re not going to back yourself, who are you going to back?”

“When I left Shawbrook, I had quite a bit of time out of the business, [and it] gave me [the chance] to reflect [on] perhaps some of the things that I would want to do.” During that period, Maeve was approached by Stephen Johnson (David’s son, who stepped down from Shawbrook’s board last year, and has since launched new brokerage FinanceWell) and a few other people to set up her own business with their support. At the same time, she had just found out she was pregnant with her son, Lorcan, who is now six months old. “I went into labour the week that we launched. Talk about taking it to the wire,” she laughs.

Stephen provides consultative support to the business, a role best described as a non-executive director. He helps Focused Bridging with its funding lines—which are currently from a private investor and an equity partner—and discusses new ideas that the team has. “He challenges us, in terms of making sure that we are doing the right things,” explains Maeve.

“He’s a sounding board.” The business’s sources of funding have different criteria in terms of appetite, so that the lender can provide flexibility and choice.

Despite only operating in the unregulated market, the business has been built as if it is regulated, with the correct controls and procedures in place from the outset.

“That might cost us a deal or two, as some brokers might feel that we ask for more than others, but so be it,” Maeve states, “we are here for the long term.”

The rest of the team at Focused Bridging—which is currently on the waiting list for larger offices in the same building—also had experience in the regulated market at Shawbrook.

Lending director Ruth Griggs worked with David at I Group (which was then sold to GE) and set up the lending side at Commercial First before it was taken over

by Shawbrook—where she stayed for 16 years. Her career at the bank spanned a number of different positions, including 16

Bridging & Commercial

in short-term finance, and she finally found herself working on projects with Maeve in the second charge mortgage sector. Ruth admits that she “really missed” being involved in underwriting at that point and wanted to get back into it. After leaving Shawbrook in October 2018, Ruth was approached by Maeve to see if she would be interested in helping to set up a bridging lender and, specifically, the underwriting department. Ruth tells me she is excited to be part of Focused Bridging because she will get to see it grow.

Katie Wilsher, operations director—who was busy in a client meeting while I was visiting the team—has been in the finance industry for 15 years, more than 10 of which were at Shawbrook in various roles within residential mortgages. “Watching and being a part of the amazing growth of the bank, the regulatory changes which we undertook with pride, and its fast pace certainly saw my time there flash by, and I left with a hugely enhanced CV and many fun and happy memories,” she tells me after. “When I was approached by Maeve, the conversation went along the lines of starting something from scratch, being part of a small team I had loved working with previously and going back into the bridging market where we had first met—I was like, ‘Where do I sign up?’”

Paul Stray joined the business as underwriting manager, having previously worked at Money Partners, GE and Shawbrook. “I came here because it was a new challenge,” he tells me. He explains that he had been in the first and second charge mortgage market for a long time and knew what he was doing “inside out” and wanted to stretch himself. “I’ve always joined companies,” he adds, referencing that he has never been at a company from inception, unlike Ruth and Maeve.

Before serving as managing director of residential mortgages at Shawbrook, Maeve’s career was born in the bridging market at Link Lending, which she was part of right from the start. Ironically, when they launched Link Lending, the market was just recovering from the last downturn. “…What was important to brokers at that time is very similar to what I’m seeing in the bridging space today,” she explains. “There were only a couple of lenders that had weathered the storm [back then] and when we entered, we weren’t the cheapest, but I learnt very early on [that] cheapest doesn’t necessarily mean the best,” Maeve adds. “…Delivering on our promises enabled us to grow from

â&#x20AC;&#x153;Delivering on our promises enabled us to grow from a small acorn to a huge oak tree and the biggest second charge mortgage lenderâ&#x20AC;&#x201D;all while never being the cheapest. I hope the same can be said this time around, although we have no aspirations to be the largestâ&#x20AC;?

Exclusive

refurbishment. This includes both light and heavy—with the latter being defined as anything that requires planning. Focused Bridging also allows the facility fee to be added to the advance, exceeding the maximum LTV, along with the ability to service the loan, which it believes are two key drivers that enable an investor to obtain the maximum available. It can utilise private funds to lend up to 100% LTV, with no additional security, for refurb costs where the borrower is experienced. “We also lend to first-time landlords, an area of the market which is otherwise underserved,” Maeve adds.

a small acorn to a huge oak tree and the biggest second charge mortgage lender— all while never being the cheapest. I hope the same can be said this time around, although we have no aspirations to be the largest.” Instead, she asserts that it wants to be the lender of choice.

Maeve believes that lending standards in today’s bridging market have been raised as a result of more competition, but the old perceptions of the sector that were around when she was first in the space persist. “…It hasn’t changed as much as I had perhaps thought it would. And, a lot of the conversations that I am having are exactly the same as I would have had 13 years ago”.

The lender will utilise desktop valuations at certain LTVs to reduce the cycle time, as well as the cost to the customer, offer dual representation, and provide direct access to the decision makers. “With a regulated background and a morale barometer, we are sensitive that, in this market in particular, circumstances [often change] so [we] work closely with the customer throughout the life of the loan to address any concerns or delays along the way, rather than wait for the surprise at the end of the term when default rates and extension fees often come into play.” I ask whether the team has considered regulated bridging, given their experience. While it’s not on its immediate agenda, I am told it is on the roadmap. “Our plans aren’t shut,” Maeve explains. “At the moment, we’re focusing purely on unregulated. Have we got [intentions] to diversify? If you asked me right now to make a decision, I would say no. If you asked me that same question again in six months’ time, I think the answer would be very different.”

Considering she has helped create a lender before, I ask her whether she has come across any new challenges this time around. Maeve explains that it’s about having to wear “multiple hats” and enter unknown areas. “In some respects, while it’s a challenge, it’s also a positive as it stretches you as a person,” she adds. “That said, I’m a real supporter of acknowledging your weaknesses and playing to your strengths. I have a mantra within the business that you should do what you do best and refer the rest, so [we] have forged great relationships with firms, outsourcing HR [and] marketing.”

This allows the team to spend time where it adds most value. She also doesn’t think that the current economic and political threats have affected the business’s plans at all. “…Sometimes, with the biggest challenges, comes the biggest and greatest opportunities,” she says, adding that the bridging market has always done very well in times of economic turmoil.

Focused Bridging’s distribution strategy is currently 95% via intermediaries.

Maeve says that brokers are “the life and soul of the market”, but launched with a controlled distribution to enable it to test its processes and make tweaks before expanding. Going forward, it will be looking to grow this. In terms of volume, the company has targets for the next five years which are “manageable” and is set for “slow, steady growth”. “I always think that the best businesses are the ones that are run very lean and [keep] a tight control on [their] operating cost.”

She highlights that the positives of starting a new business are that you are in control of your own destiny and can be more nimble and fluid as a result. “It allows you to be in tune with the market and move quickly when [it] shifts—something which is a lot harder when you’re working for someone,” she says, pointing out that it is especially more difficult [for] larger organisations with more red tape. “…

By the time you’ve pulled the paper together, presented at various committees and achieved sign off, the market has moved on, and often you’re left behind.”

Upon leaving the office, I think of horseshoes and the luck that they are said to symbolise, and how that may be considered a small comfort to any new business, especially in today’s volatile market. But, with this team’s experience, passion and work ethic, it’s unlikely they will need it.

In a bid to stand out in a highly competitive market, the lender—which offers short-term finance on residential and commercial up to 75% LTV by way of first or second charge (or a combination) and rates from 0.75%—specialises in 21

Nov/Dec 2019

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22 Bridging & Commercial

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When it comes to inventing and improving financial offerings, it is often lenders we observe first. But, behind the scenes, we find that brokers are integral to the product development process. After all, they are at the coalface of the market and see the deals that can and canâ&#x20AC;&#x2122;t be placed and where demand is.

In a competitive sector, innovation is key to standing out, and therefore we sought to find out how brokers have and can continue to help lenders define new products fit for the current marketâ&#x20AC;&#x2122;s needs

the

A P S Words by

simon thompson

23 Nov/Dec 2019

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“Brokers are far better placed these days to communicate with lenders to let them know exactly what their needs are and why”

GAUGING DEMAND A criticism often cited by brokers is that lenders create products that they think borrowers want, as opposed to what borrowers actually need. Darrell Walker, head of sales at InterBay Commercial, believes brokers are crucial in identifying how demand in the market can be met. He explains that InterBay consulted brokers at various stages in the development of its unregulated product. “Brokers are far better placed these days to communicate with lenders to let them know exactly what their needs are and why.” He adds that brokers revealed the need for regulated products with speed and quality of service and also indicated the level of existing competition. During the development stage, brokers commented on the draft product, which led to major changes, such as putting a serviced loan option on hold as brokers asserted that there would be little demand. Broker advice has also been critical to the enhancement of products at United Trust Bank (UTB). Taking on board intel from intermediaries across the UK, Gavin Diamond, commercial director of bridging at UTB, says it realised it could write more business if its minimum loan size and property values were reduced. The specialist bank recently introduced a property improvement loan product as a result brokers telling UTB about the need for more flexible funding for professional property developers who wanted to acquire and then improve properties.

It has since become a successful part of its portfolio.

PILOTING During the soft launch of its unregulated products, InterBay Commercial made its new bridging range exclusively available to the two broker firms it worked with in the development phases. This pilot revealed that the associated legal fees made it difficult for brokers to recommend. As a result, InterBay amended the fee structure. “This stage was invaluable as it highlighted important (but non-critical) oversights in our process, which we were able to correct quickly,” explains Darrell. He admits that it wasn’t until a year later that it was able to launch the product to the wider market after it was able to confirm that the proposition was competitive and would be taken up by brokers.

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Over the summer, UTB launched dual legal representation. While this is common in the mortgage market, it is an innovation in the bridging space, according to Gavin, and offers some advantages for borrowers both in terms of reducing their costs and making the application process quicker and smoother. He adds that UTB worked closely with broker partners to soft launch the service. “[Broker] input undoubtedly contributed towards the smooth roll-out and success of the new service.” After listening to feedback, UTB made further improvements before finally opening it up to the wider market.

BROKER-INSTIGATED PRODUCTS When lenders aren’t sufficiently tuned in and tailoring products to borrowers’ demands, it’s sometimes left to brokers to lead the way. Nizam Patel, director at Halal Options, was a broker that willed a sharia-compliant bridging lender into existence. Nizam experienced people of Islamic faith wanting to buy property through an auction, or work on some kind of development project, and were in need of short-term finance when there wasn’t enough time to get finance through a bank. Keen for a short-term sharia product to take to his borrowers, he worked to convince Bilal Ahmed, head of operations at new sharia-compliant bridging lender Offa, to make the product a reality. It wasn’t an easy sell and Nizam had to do quite a lot of the leg work in the product’s creation. This went as far as searching to find funders and figuring out how to structure the product in a way that would not only be financially feasible, but also accepted by the Islamic community. “It’s just got to be done right and you make sure that the sharia compliance is to a T so we don’t get people finding fault with it.” As a result, Offa launched a finance model designed in accordance with universal Islamic Finance principles earlier this year.

Castle Trust has long advanced loans over longer terms (up to five years), but it only recently started to offer term products along with traditional bridging, and introduced flexible interest options. Marcus Dussard, director of sales at Castle Trust,

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claims that it only arrived at these propositions after brokers pointed it in the right direction. Originally, it had a product that was intended to serve the same function— advancing a loan secured on equity within the property. But brokers suggested that the product’s market reach would be better served as a term product with options to roll up some, or all, of the interest. “We found a number of brokers that used Castle Trust developed a very strong understanding of our proposition and how we could evolve it to better satisfy the demand they were seeing from clients.” Marcus claims that broker input can also be valuable for perfecting products. “Again, with feedback from brokers, we launched our first official bridging product last year.”

“To make a new product launch worthwhile, it is fundamental to understand the potential size of the market and the longevity of demand, which is difficult to gauge without the involvement of a broker”

BROKER DIY When brokers can’t get lenders to see the merit of potential products, in some cases, brokers have forged ahead with the product themselves.

Adam Davies, CEO at Westgate Private Finance, is one such example.

With government regulations, such as section 24—which will restrict relief for the finance cost on residential properties to the basic rate of income tax—making BTL a far less lucrative proposition for many property investors, Adam’s former brokerage witnessed an increasing demand for funding that allowed borrowers to purchase then fix and flip dilapidated properties, usually to sell for profit or add to their portfolios. However, he couldn’t find a product that was fit for purpose or a lender with a flexible enough approach. “People were coming to my office saying, ‘I want to do this!’ and you just think there is no way [they] can do that.” Seeing a lucrative gap in the market being underserved, he decided to develop the product himself. Adam lent on the first fix and flip deals with his own money. Later, he secured more funding and launched lender Westgate Private Finance. Although he was able to devise the product, he claims that innovation can sometimes be limited by the restrictions of funding lines, especially if they are from institutional funders.

INTEL SYSTEMS While broker perspectives are critical, they don’t always result in big sweeping changes. Often,

introducers can offer suggestions or tweaks to criteria to make a product more suited to their target customers.

With these details sometimes making the difference in the overall success of a product, a number of lenders have systems in place to glean this input more efficiently. For example, Avamore produces a quarterly market report from which it gathers broker sentiment. Zuhair Mirza, principal and co-founder of Avamore, says it was able to utilise broker insights to get a broader market assessment of the demand for its new and formalised finish and exit offering. “To make a new product launch worthwhile, it is fundamental to understand the potential size of the market and the longevity of demand, which is difficult to gauge without the involvement of a broker.” Over the past 12 months, the report has captured consistent themes aligned with the finish and exit trend.

“This broader market feedback reflected what Avamore was seeing on a deal-by-deal basis,” explains Zuhair, adding that brokers can often have a stronger understanding as they are able to extract honest feedback from developers and quickly identify changing trends and demands that they can communicate back to lenders.

Gavin says that UTB often requests and discusses market feedback and uses that acumen. UTB also attends broker events and roundtables to gain a deeper understanding of the challenges and frustrations brokers face, on top of the opportunities they see.

It is clear that brokers are vital to help boost innovation in the market, however, is there sufficient incentive and reward for them to go the extra mile? Does the additional level of work, time and effort which goes into this process benefit the broker as much as the lender? While key broker partners are sometimes given the opportunity to pilot products and have exclusive access to them for a period of time as they come to market, giving them an edge over other brokers, they may not to continue to benefit exclusively. Every broker has a vested interest to aid industry evolution. This is especially true if it leads to bringing new borrowers to the market, allowing the completion of deals which previously wouldn’t have been possible, and providing existing and new customers with even more solutions.

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14:49

Are You Switched On?

Scan me with your camera

IS THE NITRATE NEUTRALITY PROBLEM IN THE SOLENT A CANARY IN A COAL MINE? Words by

simon thompson

Around 55% of land in England is deemed to be nitrate vulnerable, according to the Department for Environment, Food & Rural Affairs (DEFRA).

As a result, such areas are at risk of experiencing delays to housebuilding projects

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Zeitgeist

n the region around the Solent in Hampshire on the south coast, where nitrate levels are already exceeding environmental regulatory levels, it is already happening. As developers scramble to meet a new interpretation of nitrate neutrality which requires that additional nitrates in wastewater from property developments are offset, as many as 10,000 houses are estimated to be stalled at the planning stage.

Nitrate neutrality is an item of environmental legislation whereby developers must prove that new properties will not add to existing nitrate levels. Nitrates can occur naturally in water systems, but tend to build up to higher levels due to agricultural runoff— animal manure and fertilizers—and outflows of waste from residential areas. The Solent is a marine-protected area encompassing a major estuarine system on the south coast of England and home to a number of coastal lagoons.

High nitrate levels running off into the Solent wetlands and water systems are causing algae blooms that can cover wetlands and deplete water systems of oxygen, killing off wildlife.

While work to remediate these environmental challenges is ongoing, a recent reinterpretation of nitrate neutrality by Natural England has put the brunt of the issue on the doorstep of developers. Natural England’s new advice on planning follows a Court of Justice of the European Union (CJEU) ruling in January 2019 known as ‘the Dutch Case’, whereby achieving nitrate neutral development has become an immediate and critical issue.

Councils in the region now require developers to prove that new builds are nitrate neutral.

Sean Woodward, head of Fareham Council, estimates that the regulatory reinterpretation is keeping as many as 10,000 houses across south Hampshire stalled at the planning stage.

“You cannot build one more house. In fact, [the Dutch Case] actually says you cannot have one more bedroom unless you can show that the development is nitrate neutral,” he states.

Judith Smyth, Portsmouth city councillor and vice-chair of the planning committee, claims it could have halted as many as 1,000 houses, although it is difficult to know the true figure.

“Obviously, people haven’t been putting in the planning applications in the quantities that they normally do because they know the problem.”

Michael Shepherd, development and new business director at Vivid Homes, which provides affordable housing in Hampshire, asserts that such developments will be disproportionally impacted. “…In my experience, affordable housing tends to be one of the first things to be pinched in a viability argument.” In Portsmouth, Judith says the nitrate neutrality reinterpretation also affects the council’s objectives to build new affordable and social housing. “…We do have targets set

by the government for the number of new homes we have to produce and we’re very worried about getting into arrears on those and then having problems later ... there’s a lot of difficulties in finding land and places for any new homes on Portsmouth island itself.”

PROVING NITRATE NEUTRALITY There are ways for developers in the Solent area to achieve nitrate neutrality and get their houses through planning and approved for occupancy. Reside Developments is a housebuilder operating in the region which has managed to get two housing schemes through planning: one of 55 units, the other of 27. Andrew Munton, director at Reside Developments, claims that it was able to offset the additional nitrate inputs from the houses by taking farmland out of agricultural production.

However, he adds that this was “complete luck”. Another project of 100 homes which Reside is intending to develop hasn’t been so fortuitous in getting through because it doesn’t have any mitigation land. Michael claims a lot of developers are digging deeper into the history of their land allotments looking for solutions and opportunities to offset nitrates.

“Everyone is getting more and more [clued up] about the history of their development sites. Was it farming land in the past? Then you can take it out of production [and] give yourself a nitrate credit.” Michael states that Vivid Homes is also considering upgrading the water facilities at existing properties under its management. I am told that the water and energy efficiency measures can lower nitrate outflows. “We are looking at whether we can improve the efficiency of our current housing stock. If we can upgrade the water usage in the existing properties, it has the potential to create new capacity in our current networks,” explains Michael. He adds that it is still in discussions with the council to confirm how much upgrading is required to unlock additional properties.

Nicola Sutton, legal director at Foot Anstey LLP, works with a number of developers based in the Solent. She notes that developers can be adept at dealing and working with changes in planning and environmental regulations, but do require advance notice. “If they are given fair warning, they can build different methods into their viability calculations etc.” She asserts that what makes the nitrate neutrality guidance so problematic, on top of how rapidly it was brought in, is a lack of clear advice on how to actually offset it. “There was no warning, no preparation. Natural England’s guidance issued to local planning authorities just put everything into a state of moratorium and the result is local planning authorities are unable to issue consents without risk of third party challenge unless nitrate neutrality can be proven and that is not easily done in a number of authorities”.

30 Bridging & Commercial

Zeitgeist

“WE DO HAVE TARGETS SET BY THE GOVERNMENT FOR THE NUMBER OF NEW HOMES WE HAVE TO PRODUCE AND WE’RE VERY WORRIED ABOUT GETTING INTO ARREARS ON THOSE AND THEN HAVING PROBLEMS LATER ON” 31 Nov/Dec 2019

Zeitgeist

“THERE IS A POTENTIAL FOR SMALL, MEDIUM OR EVEN LARGE DEVELOPERS TO STOP BUILDING HOUSES IN THE REGION ... PEOPLE ARE GOING TO BE PUT OUT OF JOBS. THE ECONOMY IS GOING TO BE BADLY AFFECTED”

32 Bridging & Commercial

Zeitgeist

NATURAL ENGLAND After speaking with stakeholders in the Solent, I took many of their concerns to Natural England and DEFRA. They said that nutrient deposition (such as by nitrates) placed significant pressure on many of the country’s most important natural habitats, such as in the Solent. They added that housing remained a significant source of these nitrates, as do farms.

I asked, more specifically, about the lack of options for mitigating nitrate inputs. They replied that while work continued on wider solutions, “we are confident that, with our support, local authorities will be able to find a pragmatic way forward in the short term”.

They added that it was merely highlighting new case law which could affect the decisions that local planning authorities need to make. But, ultimately, it is for the local planning authority to grant or refuse planning permission.

Following the European case law, Nicola says granting permission on developments that aren’t able to prove nitrate neutrality could put such authorities at risk of a legal challenge.

UK HOUSING SUPPLY The nitrate neutrality reinterpretation comes at a time when the UK government is striving to build 300,000 new houses every year by the mid-2020s. During a Q&A session at the MIPIM UK Summit, I asked Esther McVey, minister of state for housing and planning, whether she was aware of the nitrate neutrality issue in the Solent and whether the government was doing anything to resolve it. “We are working with government scientific advisers to, sort of, get an independent review of where it is, what it is and how best to resolve it. So yes, we are aware and we are working with scientific advisers on that,” she replied.

BROADER IMPLICATIONS Nicola—who also represents regional business group the Partnership for South Hampshire (PUSH)—claims that the broader implications of these delays on development could result in bigger problems for the local economy. “There is a potential for small, medium or even large developers to stop building houses in the region ... it’s really drastic. People are going to be put out of jobs. The economy is going to be WHAT DOES IT MEAN FOR THE badly affected.” Andrew estimates that about SPECIALIST FINANCE MARKET? I reached out to a number of different lenders one-sixth of Reside’s development projects and brokers in the specialist finance market. are in the Solent area. If the nitrate neutrality Worryingly, this issue wasn’t on the radar of reinterpretation continues to hold up schemes, most of the companies I contacted. Some the developer is likely to turn its attention to admitted they weren’t that familiar with the projects in other places. Around 50% of Vivid topic or attuned to its broader implications. Homes’ work is in the Solent area. Michael The reality is a lot of lenders don’t deal with is concerned about forward development developments until the planning has been and the future capacity that the change could granted, so they are largely unaware of the remove from the sector. He says it is working issue and, therefore, aren’t in a position to with local authorities to resolve this. With the comment. Brad Bauman, CEO at Fitzrovia time it takes for nitrate to show up in water Finance, is concerned that the problem, if systems, the problem in the region could unresolved, could “create black spots where be a canary in a coal mine—over half of the development can’t occur” and believes that it land in England has already been designated should be possible for environmental problems by DEFRA as nitrate vulnerable zones. These to be addressed and managed. Edward Clark, are areas deemed to be at risk of agricultural owner of broker Uplift Finance, acknowledges nitrate pollution. Therefore, it is speculated the environmental issue and that it needs to that other regions may face the same fate as be managed, but doesn’t think having a binary the Solent in years to come. on-or-off system is “practical”. While it is not directly impacting his clients currently, he is concerned it could in the future.

The precise guidance and approaches on how to mitigate nitrate issues are yet to be rolled out. Sean says that it is still a work in progress but, following push back, Natural England and Fareham Council have agreed to grant some housing developments permission on the condition that the homes won’t be occupied until the strategy for each site has been reached. This is cold comfort for developers such as Mike and lenders that, on the whole, require secure exit plans. As it can take as long as 30 years for nitrate from farms and residential areas to show up in water systems, many parts of England could face the same planning delays in future.

33 Nov/Dec 2019

from that brokerage? Why do we wa about excessive default rates? If a len does a lender use and how will this a both regulated and non-regulated bro for underwriting? Are the rates mont just introducing it? Or are you advisi retained or rolled interest? What is t brokerage? Why do we want to take excessive default rates? If a lender do a lender use and how will this affect regulated and non-regulated brokers underwriting? Are the rates monthly, just introducing it? Or are you advisi retained or rolled interest? What is th brokerage? Why do we want to take b default rates? If a lender doesn’t clea and how will this affect a transaction non-regulated brokers? How experien Are the rates monthly, compound or it? Or are you advising the client? Ho interest? What is the difference? Wha we want to take business from them? a lender doesn’t clearly answer these affect a transaction? Is a debenture r brokers? How experienced is its senio monthly, compound or an annual equ advising the client? How can we expe difference? What is the minimum ter business from them? How can you be clearly answer these questions, or th transaction? Is a debenture required?

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B R O K E R S, IT ’ s YOUR TURN

ant to take business from them? How can you be an independent adviser if you can’t access the whole of the market? Why are brokers complainin nder doesn’t clearly answer these questions, or their responses aren’t satisfactory, should a broker be using them? which valuation and solicitor firm affect a transaction? Is a debenture required? Is this first ranking? Can the lender sit behind other lenders? Is the lender regulated? Do they deal wit okers? How experienced is its senior management team? Do you get to speak to an underwriter or decision maker directly? What are their requiremen thly, compound or an annual equivalent? What are the net vs gross amounts? What fees are involved? Are there any minimum interest periods? Are yo ing the client? How can we expect everyone to fulfil their expected responsibilities? Will broker regulation shackle the bridging market? Does it hav the difference? What is the minimum term? What is Does it have drawdowns on a refurbishment etc? What’s the quality of work coming from tha e business from them? How can you be an independent retained or rolled can’t access the whole of the market? Why are brokers complaining abou oesn’t clearly answer these questions, or their responses interest? satisfactory, should a broker be using them? which valuation and solicitor firms doe a transaction? Is a debenture required? Is this first ranking? Can the lender sit behind other lenders? Is the lender regulated? Do they deal with bot s? How experienced is its senior management team? Do you get to speak to an underwriter or decision maker directly? What are their requirements fo y, compound or an annual equivalent? What are the net vs gross amounts? What fees are involved? Are there any minimum interest periods? Are yo ing the client? How can we expect everyone to fulfil their expected responsibilities? Will broker regulation shackle the bridging market? Does it hav he difference? What is the minimum term? What is the process for drawdowns on a refurbishment etc? What’s the quality of work coming from tha business from them? How can you be an independent adviser if you can’t access the whole of the market? Why are brokers complaining about excessiv arly answer these questions, or their responses aren’t satisfactory, should a broker be using them? which valuation and solicitor firms does a lender us n? Is a debenture required? Is this first ranking? Can the lender sit behind other lenders? Is the lender regulated? Do they deal with both regulated an nced is its senior management team? Do you get to speak to an underwriter or decision maker directly? What are their requirements for underwriting an annual equivalent? What are the net vs gross amounts? What feesW are Are there any minimum interest periods? Are you just introducin ordinvolved? s by ow can we expect everyone to fulfil their expected responsibilities? Will broker regulation shackle the bridging market? Does it have retained or rolle at is the minimum term? What is the process for drawdowns on a refurbishment etc? What’s the quality of work coming from that brokerage? Why d ? How can you be an independent adviser if you can’t access the whole of the market? Why are brokers complaining about excessive default rates? e questions, or their responses aren’t satisfactory, should a broker be using them? which valuation and solicitor firms does a lender use and how will th required? Is this first ranking? Can the lender sit behind other lenders? Is the lender regulated? Do they deal with both regulated and non-regulate or management team? Do you get to speak to an underwriter or decision maker directly? What are their requirements for underwriting? Are the rate uivalent? What are the net vs gross amounts? What fees are Will broker regulation minimum interest periods? Are you just introducing it? Or are yo ect everyone to fulfil their expected responsibilities? Will shackle the shackle the bridging market? Does it have retained or rolled interest? What is th rm? What is the process for drawdowns on a refurbishment bridging market? quality of work coming from that brokerage? Why do we want to tak e an independent adviser if you can’t access the whole of the market? Why are brokers complaining about excessive default rates? If a lender doesn heir responses aren’t satisfactory, should a broker be using them? which valuation and solicitor firms does a lender use and how will this affect ? Is this first ranking? Can the lender sit behind other lenders? Is the lender regulated? Do they deal with both regulated and non-regulated brokers gement team? Do you get to speak to an underwriter or decision maker directly? What are their requirements for underwriting? Are the rates monthl What are the net vs gross amounts? What fees are involved? Are there any minimum interest periods? Are you just introducing it? Or are you advisin yone to fulfil their expected responsibilities? Will broker regulation shackle the bridging market? Does it have retained or rolled interest? What is th rm? What is the process for drawdowns on a refurbishment etc? What’s the quality of work coming from that brokerage? Why do we want to tak e an independent adviser if you can’t access the whole of the market? Why are brokers complaining about excessive default rates? If a lender doesn heir responses aren’t satisfactory, should a broker be using them? which valuation and solicitor firms does a lender use and how will this affect ? Is this first What’s the quality sit behind other lenders? Is the lender regulated? Do they deal with both How can we d non-regulated brokers? Ho nt team? Do you of work coming an underwriter or decision maker directly? What are their requirements expect everyone Are the rates monthl What are the net vs from that brokerage? What fees are involved? Are there any minimum interest periods? to fulfil introducing it? Or are you advisin ryone to fulfil their expected responsibilities? Will broker regulation shackle the bridging market? Does it have their expected interest? What is th m? What is the process for drawdowns on a refurbishment etc? What’s the quality of work coming from that responsibilities? Why do we want to tak e an independent adviser if you can’t access the whole of the market? Why are brokers complaining about excessive default rates? If a lender doesn heir responses aren’t satisfactory, should a broker be using them? which valuation and solicitor firms does a lender use and how will this affect ? Is this first ranking? Can the lender sit behind other lenders? Is the lender regulated? Do they deal with both regulated and non-regulated brokers gement team? Do you get to speak to an underwriter or decision maker directly? What are their requirements for underwriting? Are the rates monthl What are the net vs gross amounts? What fees are involved? Are there any minimum interest periods? Are you just introducing it? Or are you advisin yone to fulfil their expected responsibilities? Will broker regulation shackle the bridging market? Does it have retained or rolled interest? What is th rm? What is the process for drawdowns on a refurbishment etc? What’s the quality of work coming from that brokerage? Why do we want to tak e an independent adviser if you can’t access the whole of the market? Why are brokers complaining about excessive Do you get to If a lender doesn heir responses aren’t satisfactory, should a broker be using them? which valuation and solicitor firms does a lender speak to an will this affect ? Is this first ranking? Can the lender sit behind other lenders? Is the lender regulated? Do they deal with both regulated underwriter regulated brokers gement team? Do you get to speak to an underwriter or decision maker directly? What are their requirements for or decision Are the rates monthl What are the net vs gross amounts? What fees are involved? Are there any minimum interest periods? Are you just maker it? Or are you advising th e to fulfil their expected responsibilities? Will broker regulation shackle the bridging market? Does it have retained directly? interest? What is th rm? What is the process for drawdowns on a refurbishment etc? What’s the quality of work coming from that brokerage? Why do we want to tak e an independent adviser if you can’t access the whole of the market? Why are brokers complaining about excessive default rates? If a lender doesn heir responses aren’t satisfactory, should a broker be using them? which valuation and solicitor firms does a lender use and how will this affect ? Is this How can you be an independent adviser sit behind other lenders? Is the lender regulated? Do they deal with both regulated and non-regulate ior management if you can’t access the team? 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How experienced is its senior management team? Do you get to speak to an underwriter or decision maker directly? What are their requiremen thly, compound or an annual equivalent? What are the net vs gross amounts? What fees are involved? Are there any minimum interest periods? Are yo ing the client? How can we expect everyone to fulfil their expected responsibilities? Will broker regulation shackle the bridging market? Does it hav he difference? If a lender doesn’t clearly answer these questions, What is the minimum term? What is the process for drawdowns on a refurbishmen ng from that brokerage? Why do we or their responses aren’t satisfactory, should a want to take business from them? How can you be an independen of the market? Why are brokers complaining about excessive broker be using them? default rates? If a lender doesn’t clearly answer these question y, should a broker be using them? which valuation and solicitor firms does a lender use and how will this affect a transaction? Is a debenture required

BE T

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H ER FIS

that there are two sides to

every

nd while 2019 has been the year of discussion around best lending practices, little has been divulged about where brokers come into all of this. Bridging & Commercial has explored many pertinent topics, such as transparency and the lack of standardisation within the sector, the importance of understanding the reliability of funding and the diverse ways lenders are backed in a changing political and economic environment, and how to mitigate the negative effects and pressures of increasing competition. However, so far, we have mainly been investigating how lenders contribute to these issues. In order to further build on the growing professionalism of the bridging market, all parties within our space need to work together to firmly put a lid on any current or emerging bad practicesâ&#x20AC;&#x201D;and that means looking at where responsibility lies with brokers. Our research finds that, to force positive change, intermediaries need to do more.

38 Bridging & Commercial

Cover story

SO, WHAT ARE A BRIDGING BROKER’S EXISTING RESPONSIBILITIES?

story

But where do we start? The bottom line, of course. In a recent poll conducted by Bridging & Commercial, we asked brokers how much commission, on average, they expected to be paid for a bridging deal. More than half of respondents (54%) felt their fee should be in the 1–1.9% range, with 21% expecting 2–2.9%. Only 9% of brokers said they anticipated less than 1%, while a sizeable 15% counted on 3% or more. With 42% of lenders claiming that the average bridging loan size over the past 12 months was over £600,000, according to EY’s 2019 UK Bridging Market Study, over half of the broking community could, hypothetically, (if their demands are being met) earn up to £11,400 per deal, on average. Clearly, I’m in the wrong job.

While the bridging sector is largely unregulated, brokers are still expected to work in the best interests of their clients and, therefore, have numerous responsibilities—which, if fulfilled, could help alleviate, or even solve, many of the industry’s problems that Bridging & Commercial has highlighted. And, for an average payout of five figures per deal, I don’t think it’s too much to ask.

Speaking to numerous brokers within the market, my opinion that intermediaries must offer more than a filled-out enquiry form— or, just a name and number in some instances—is undoubtedly shared. If anything, their duties are much vaster than I originally considered and continue way after the transaction has completed and been repaid. While this results in more work, it equally means further—and better—business. A win-win for all.

Putting the client’s needs first throughout the whole process is their overarching duty. From enquiry stage, a broker must understand everything upfront about a deal, the client’s profile, and their requirements and goals. This includes asking questions that they wouldn’t normally find on an application form, such as their attitude to risk, timescale requirements and what they are looking for in a lender. Intermediaries must also understand what is driving them and their business plan to ensure that they know it can deliver a viable exit. They should not only be aware of the exit, they should also support it. This can be done by securing a lender agreement in principle in advance—not right before the loan is supposed to be repaid—and having a back-up plan in case things go wrong. “Most mortgage [offers] are valid for six months,” claims Andrew Robinson, CEO at Arc & Co, stating that this exit route would need to be put in place with the original bridging loan term in mind.

Brokers need to question why they are considering a bridging product for this particular scenario and will need to be underwriting it from the start. They must also ensure they are sourcing the ‘correct’ product and loan term from whole-of-market options which allows sufficient time to repay and that they can meet the proposed lender’s criteria to avoid abortive time and costs. Michelle Westley, head of marketing at Brightstar Financial, points out that often the right deal for the client’s circumstances isn’t the cheapest, but the one that allows them to achieve their objective—this could be in respect of a tight deadline or credit/experience profile. As a result, the best possible deal should consider the security, reliability of funding, service, flexibility, serviceability and turnaround times. Kevin Thomson, sales director at Connect for Intermediaries, adds that, in order to obtain the best arrangement, there can also be an element of negotiation with the lender undertaken by the broker on behalf of the client.

Looking at asset viability and income strength are also important. Jo Breeden, managing director at Crystal Specialist Finance, explains that this must also be looked at on a short-, medium- and long-term basis. He argues that

“It is a relationship— not just a transaction”

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“How can you be an independent adviser if you can’t ac ce s s the whole of the brokers need to be “realistic” and can’t assume that certain products will still exist in 12 months’ time. “The reason why the term is called a bridge is because it gets you from A to B.” Dale Jannels, managing director at Impact Specialist Finance, tells me that it spends a lot of time with the prospective borrower to ensure that they understand the full features and benefits of the recommended product. “For example, does it have retained or rolled interest? What is the difference? What is [the] minimum term? What is the process for drawdowns on a refurbishment etc? And then communicate full terms to them.”

Paul Day, business development director at Clever Lending, agrees that considering and explaining all costs clearly— including those which could be incurred if the term expires— is very important, as well as ensuring the term is suitable.

During the loan, responsibilities for brokers mainly revolve around communication—with both the client and lender. This also includes leveraging their understanding of the market to assist both the lender and the process. “For example, knowing valuers and challenging the assumptions,” says Niall Brown, managing director at Auxilium Real Estate. Intermediaries should also be urging third-party work and underwriting along to hit deadlines. “This means not just handing it over to the lender, but managing the case right through to completion,” adds Kevin.

Sam O’Neill, senior finance broker at Clifton Private Finance, says that after the loan completes, a client wants to know it wasn’t purely a business transaction for the broker. Kevin Jones, CEO at Omega Group, tells me that, too often, he hears of clients that have been left to their own devices once the broker has placed a loan and has been paid. “It is a relationship—not just a transaction.” Andrew states that brokers that don’t speak to their clients weekly are unlikely to have a good relationship. I was told that intermediaries servicing a one-off customer, who they believe they are never going to receive repeat business from, are less likely to be monitoring it. In my opinion, this is not just irresponsible on behalf of the client, but also highlights a broker’s very short-term view on the bridging market and their attitude towards business sustainability. For example, if communication isn’t maintained with the client after completion to ensure their planned exit strategy is progressing, it could lead to them exceeding the agreed term and going into default. “It is far better to be proactive during the term rather than reacting [later] on in the timeframe when the client may be in danger of paying

market?”

default fees,” explains Kevin Thomson. Ben Lloyd, managing director at Pure Commercial Finance, feels it’s almost as much a broker’s responsibility to see the loan repaid as the borrower to deliver it—”considering we championed the lend at the outset”.

While this may, on the surface, make no difference to a broker if the client was unlikely to bring back additional business, it could very well limit their dealings with that particular lender. “We’re rated by our loan books within the lenders,” says Andrew. He explains that if a lot of deals go into repossession, lenders could decide not to take business from them. “…[If] you end up [with] a high repossession rate, lenders will think, ‘Well, actually, what’s the quality of work coming from that brokerage? And why do we want to take business from them?’ ” He adds: “So, then, how can you be an independent adviser if you can’t access the whole of the market?”

WHAT QUESTIONS SHOULD EVERY BROKER ASK A BRIDGING LENDER? While the majority of a broker’s responsibilities concern questions that a client needs to be asked, they also need to be continually scrutinising the market’s growing pool of bridging lenders. Several problems Bridging & Commercial has drawn attention to this year could have been mitigated if more questions were asked of those providing the money. For example, why are brokers complaining about excessive default rates? If they examined a lender’s approach and track record with regard to loan extensions and defaults from the outset and thoroughly understood the charges and fees involved, in theory, this should be less of a concern within the market. While it is commonly known that there is a lack of standardisation in the space, which could cause confusion, brokers can also be helping themselves—and the industry as a whole—by urging lenders to fix this. If a provider doesn’t clearly answer these queries, or their responses aren’t satisfactory, should they be used? To reiterate what everyone is saying—there is plenty of choice out there.

Andrew claims that it’s all about grasping the full set of terms, rather than just asking what a lender’s monthly rate is, or what fees they are paying. “It’s really understanding all the smaller points of that term sheet.” A broker’s job is not just about getting the client the best rate, but securing them the most suitable deal for their circumstance. If it lacks the right underwriting, care and responsibility, “you could create

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Cover story your client problems all the way through the transaction”.

A lot of the questions are typically answered in a set of terms or a lender’s criteria. However, Michelle highlights that some key elements aren’t always clear, such as the minimum number of partners required for a firm of solicitors, whether the client needs to meet with their solicitor face to face, or if the lender has to meet with or call the clients pre-completion. In addition, which valuation and solicitor firms does a lender use and how will this affect a transaction? Jo tells me he’s keen to know whether a lender is working with experts in the field that understand a typical bridging asset class. If a debenture is required, is this first ranking, or can it sit behind other providers? Is the lender regulated?

Does it deal with both regulated and unregulated brokers? How experienced is its senior management team? Do you get to speak to an underwriter or decision maker directly? What are its requirements for underwriting? Are the rates monthly, compound or an annual equivalent? What are the net vs gross amounts?

What fees are involved? Are there any minimum interest periods?

Kevin Thomson says that a broker should go as far as asking a lender for case studies to back up its claims to how quickly it typically completes a loan. In addition, Ben says that every broker must ask a lender how it sees itself getting its money back if the client’s exit strategy fails. “That way, before entering into the loan you can appropriately advise the borrower, not just of the contract risk, but the lender’s general intentions in a failed exit strategy event, so they are entering into it with transparency and clear understanding.” The way that lenders act in this scenario can also be altered depending on how the broker performs post-completion. Andrew claims that if a broker can put a case together on why a term should be extended, a lot of bridging lenders would consider it. “But, if you let it run to the end of the term with no communication, it will go into default.” Stephen Burns at Adapt Finance states that brokers should have all the information required in order to make a correct judgement for the client. “If elements are missing, written clarity should be sought.”

In addition to interrogating a lender’s loan terms, brokers must also be completely clear on how it is funded and if this impacts its lending appetite and decisions. For example, what discretion does a lender have over its funds? “It’s not unheard of for a lender to pull out of an application having previously accepted it,

and this can leave clients and brokers in a very difficult position, so ask the questions you need to in order to gain as much confidence as possible that the funds will be advanced in full and on time,” says Miranda Khadr, founder of Yellow Stone Finance.

WHAT HAPPENS IF A BROKER DOESN’T FULFIL THESE REQUIREMENTS? Over the past 18 months, Jonathan Newman, senior partner at Brightstone Law, has been contacted by a small, but growing number of short-term borrowers who have been let down, dissatisfied and “taken advantage of”, finding themselves in “perilous situations” as a result of being placed with and contracted to inappropriate lenders. He claims that a commonality to each case was the absence of a professional, experienced and established packager or intermediary.

Whether a broker fulfils their responsibilities or not usually comes down to the culture of the company, its main reasons for working in the bridging market and how the business is run.

If the right level of work, care and responsibility is not undertaken by a broker, it can prove expensive for all involved and end up affecting an intermediary’s reputation, as well as their income. If applications are submitted to lenders that are unlikely to be approved, then this also comes at a cost to lenders that need to pay for the resource to review the case before rejecting it. “Any case that does not progress to completion is wasted time and a cost to the lender,” says Kevin Thomson. Not only could this cost a broker its business due to a loss of credibility, but it could also have an effect on pricing within the industry.

“It remains [that] many brokers introduce and step away, which means lenders’ standard operating procedure is often to progre s s on their own and [are] surprised a broker like us remains

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“For your client specifically, if things aren’t d one properly, they will lose faith in you, your company, your lender and your

deal, so even the smallest of delays might jeopardise other people’s futures. “These people may not even be your clients, but you still have a moral and ethical responsibility to them,” explains Sam. “For your client specifically, if things aren’t done properly, they will lose faith in you, your company, your lender and your industry. You are [representing] much more than just yourself.”

SHOULD BROKERS WHO DON’T FULFIL THESE DUTIES GET PAID?

To avoid this, lenders can scrutinise the ‘not proceed withs’ (NPWs) of cases. Brokers which flood the market with a deal in a bid to see what comes back are more likely to have a higher count of NPWs. Seeking those out and removing them from distribution panels will help raise standards. However, the more the NPWs are witnessed, the more likely a lender will be wary of working with new brokers (controlled distribution has been a bit of a theme this year) and, in effect, will limit the growth of the market. Stephen admits that a broker can be considered second class to many lenders and “an awful lot” would like to transact direct. “It remains [that] many brokers introduce and step away, which means lenders’ standard operating procedure is often to progress on their own and [are] surprised a broker like us remains involved.” He adds that it can often be seen as “meddling”.

The wrong advice can have significantly negative consequences for the client, their credit record and future projects. “The impact on the client could be failure to complete, having to cover fees which may not be refundable, significant stress and loss of a deposit or property,” says Michelle. In addition, if a lender is not satisfied with the standard of information given, it could forgo lending on a transaction and, therefore, the client cannot be sure they are getting the best terms in the market. Also, if a broker loses credibility with one or more lenders, this could end up impacting more of its clients’ cases.

A broker with failed relationships may end up going to lenders with less favourable terms. “Unfortunately, the reputation of a broker has an overbearing effect on the borrower,” says Niall. At best, the broker is cut out of the transaction, but I am told that more often the lender turns down the transaction. “This is negative for all parties,” adds Niall.

Not dealing with a transaction correctly can also have much larger implications for the wider property industry. For example, some deals may have long property chains relying on a funding

Over the past 10 years, the bridging industry has become a lot more professional. It is becoming more popular to see firms launched and described as ‘debt advisory’ businesses rather than simply a ‘brokerage’, showing that the advice element is crucial. Despite this, there is currently no real standard for unregulated bridging brokers to adhere to and, therefore, this means borrowers and lenders could experience a completely different level of service from one to the other. Lewis Casserley at Edgarley Finance—a fairly new lender to the bridging space— claims a lot of the time brokers are just “churning deals”. “…These guys that have jumped on the bridging bandwagon to make a quick buck and put a Google advert out there and see a few deals come in … literally don’t even look at the deal, or think about the deal—they just copy and paste it [to] a lender for [them] to deal with. I don’t think that warrants 2–3% in fees.” He adds that this sort of broker will “ruin” the market and it will end up being wrapped up in as much red tape as the rest of the finance world.

Andrew tells me that the “A-Z performance” is needed from a broker in order to get paid. “…Are you just introducing it?

Or are you advising the client?” He believes that introductions alone don’t warrant a fee. “You’re not adding any value.” Kevin Jones is a firm believer that a broker should add value to each and every transaction. “Too often, however, many of the lenders are their own worst enemy as time after time I have heard them say to brokers, ‘Just give me a name and a number!’”

Commission should always be secondary to suitability. “By selecting the most suitable product, you get the applicable commission,” claims Jo. He explains that it varies by product and the amount of work required. For example, a bridge-to-let could earn a broker 0.5% to 0.7%, while a bridging loan could earn up to 2.5% or even more. “Different lenders have different business models and they pay you accordingly.” However, he adds that this shouldn’t be the driving factor. Niall believes that, unfortunately, some brokers do not provide the client with full options, “either because they don’t know the market or are conflicted by lenders who offer a higher fee”. If they’re looking at business opportunities

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INDUSTRY. You are [repre senting] much more than just

yourself”

holistically, brokers have a short-, medium- and long-term plan with each customer and there are potentially further opportunities with them down the line. Being commission-driven could make a broker susceptible to being just a single solution for a client.

The amount of expected work from a broker could be dictated by what their business model looks like. Niall explains that, for larger transactions of more than £10m, he would expect brokers to be heavily involved through to the signing of the facility agreement. “For smaller transactions, it is reasonable that a broker will need to work on a number of transactions at once and won’t be able to devote as much time [to] each transaction. That being said, borrowers should ... at least expect the broker to be actively involved up to the point that the term sheet is signed, and passively involved thereafter.”

Ben tells me that, ultimately, you could argue that any amount of work should result in getting paid, in some capacity.

“Without the broker introduction, the lender doesn’t have the opportunity to do the deal, so that needs to be factored into that argument. That said, the amount of commission paid is, in my opinion, down to the level of work undertaken by the broker.”

However, if some still get paid for simply introducing deals to lenders, how can we expect everyone to fulfil their expected responsibilities? One way could be to incentivise intermediaries to work through the loan and ensure it exits. Stephen believes that brokers should only be paid upon completion and is keen to see a bonus or split of commission upon redemption.

HOW CAN THE INDUSTRY ENSURE BROKERS ARE ALL WORKING TO A MINIMUM STANDARD? Andrew believes that FCA regulation in the broker market is the only way to ensure that standards are increased in the long run and there is some form of industry consistency. He admits that Arc & Co is a big fan of regulation, if done in the right way. This could be implemented if all brokers had something similar to credit broking permissions, but for unregulated bridging. Andrew believes that credit broking permissions will mean that brokers will have to have “the right policies in place [and] the right professional indemnity insurance,” he explains. “It’s only like any normal company would have—most companies in the world have professional indemnity.

Now, why doesn’t an individual adviser have one? Because they don’t have to.” Having an FCA number means brokers will be required to have their internal standards checked, and TCF and data protection policies in place. Tracey North, head of business development at Hope Capital, feels standards would improve if FCA permissions were required of all brokers offering lending advice to both individuals and businesses. Andy Reid, director of intermediary and network at Oblix Capital, believes that if bridging brokers were required to have credit broking permissions from

the FCA, it “would be a positive move for everyone concerned”.

Ben agrees that an area that could dramatically help improve market standards is to bring further regulation into the broker channel. He explains that this would ensure that borrowers are put with the right funders which marry up to the clients’ requirements, and that risks are addressed at the outset. “…I think that’s currently a major part of the problem, rather than the lack of lender regulation.”

But could broker regulation shackle the bridging market?

Arc & Co operates in the commercial, development and bridging markets, and has been regulated for the past five years. “It doesn’t restrict us in any way … it’s a good thing.”

Andrew points out that on an annual basis, lenders ask it to fill out forms to make sure its licences are renewed, PI cover is up to date and policies are all in place. He states that it “doesn’t make sense” that it has to do this to prove it can do business with a lender, while some will accept business from unregulated brokers who don’t need to produce annual reports.

Requiring all brokers to have FCA permissions may create barriers to entry which keep out unscrupulous operators.

However, Jon Salisbury, managing director at Ortus Secured Finance, believes that many of the best brokers in our industry are unregulated. “…Borrowers need to beware of relying on an FCA (or any other third-party) stamp of approval and make sure they [do] due diligence [on] all their counterparties.” Paresh Raja, CEO at Market Financial Solutions, claims that there have been cases of regulated loans not meeting the necessary standards stipulated by the FCA, so it is “questionable” whether the quality will be raised as a result of wider regulation. Ian Wilson, CEO at Acre Lane Capital, has worked in the regulated investment banking industry for 25 years and found that behavioural standards “vary” and are largely a function of the leadership of the company, not necessarily the regulatory environment. “The fish rots from the head! My general view is, if everyone acted ethically, there would be little need in a business-to-business environment for regulation.” He explains that it tends not to use brokers again if it has had a bad experience as, ultimately, the broker’s capability or ethics reflect on the lender. “Regulation is a last step. I believe it’s up to us lenders to self-select those we wish to work with, such that regulation is not required.” Gavin Diamond, commercial director of bridging at United Trust Bank, also highlights that some brokers may specialise in providing finance to companies or commercial transactions and, therefore, would be exempt from needing credit broking permission. “A broad brush of regulation isn’t the answer to dealing with what may be a very small problem,” he says. “I do, however, believe that lenders have a role to play in identifying those brokers which are failing their customers and, if necessary, refusing to work with them. Brokers with poor lender relationships won’t survive.” Maria Magnussen, business development manager at Fiduciam, believes that making all brokerages regulated will force some of the smaller players—who she claims often provide excellent service—out of the industry, or result in them working with the larger brokerages.

“It is our view that regulation will only benefit the larger firms,” she says. “Fiduciam has heard anecdotal stories about some brokers not placing the needs of their clients first, but it is our view that these brokers will eventually leave the industry, because they

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IN THE MEANTIME, HOW CAN BROKERS MAKE POSITIVE CHANGE IN THE MARKET?

don’t get a lot of clientèle, irrespective of any regulation.” Mike Strange, managing director at Funding 365, adds that while all brokers dealing with personal, rather than corporate, borrowers have had to be regulated for the past few years, he hasn’t seen a huge change in broker submission standards driven solely by this. “It is, however, fair to say that standards have risen over time generally as the industry has become larger, more mainstream and increasingly professional. Therefore, I am not convinced that simply introducing regulatory requirements for all bridging brokers will, by itself, raise standards. I believe that [they] could be raised if borrowers had some method of enforcing sanctions on to brokers who are found to be mis-selling bridging loans.”

While it is so often feared, unwanted and deemed unnecessary by many, Jonathan feels that regulation has actually had an “overall positive effect” in many ways, but not all. “…I do not disregard some very real negatives to regulation,” he tells me. This includes the cost to implement, maintain and report. Applications to the FCA can also take up to 12 months. “Some well-run, fair businesses struggle with the additional requirements of regulation, which can be disproportionate to their business, diverting so much of their time from productive fee earning to compliance duties, and others simply give up.

That can lead to less consumer choice and, ultimately, higher consumer pricing.” Despite this, he doesn’t think it is a coincidence that the regulated lending industry is now a much more sophisticated, technological and “infinitely better space” than it was in the old “light-touch OFT days”, when licensing was “nothing more than a single document application”, which he claims could be approved within a few weeks. “Could that be replicated if all brokers required similar levels of regulation?”

The challenge to commercial finance back in 2013, in anticipation of the change to the Consumer Credit Act on 1st April 2014, is still a very vivid memory, and a hard battle was fought to align brokers with a regulated environment, according to Adam Tyler, executive chairman at the Financial Intermediary & Broker Association (FIBA). Despite this, he believes that all commercial advisers having full credit broking permissions can “only be a good thing” for the industry. “It would be seen as a positive step for customers, both private and corporate, to see that the professionalism of the industry is being monitored and its specialist advisers are qualified to provide the right advice.”

While a formal standard for all bridging brokers is currently a pipe dream, more can be done by brokers to accelerate positive change.

Our industry’s intermediaries can influence their clients’ options, and the standards to which lenders are held, by demanding more and ensuring poorer lenders are held accountable.

While there are still threads of complaints from brokers on platforms such as LinkedIn about lender behaviour, they rarely name and shame—despite requests to do so in the reams of comments. But, should they? Could that help deter brokers from using unscrupulous outfits? “I’m not a fan of publicly calling people out because, firstly, there’s two sides to every story,” states Jo. For example, a client may have a fantastic experience with one firm and another client may have a very negative encounter.

Kevin Jones says that expecting a lone broker to call out a peer or lender is a “tall order” and, instead, they should provide detailed feedback to a recognised trade body. “I would be very cautious about calling into disrepute any other lenders or peer brokers openly, particularly naming them directly,” adds Niall.

“Certain types of brokers suit certain parts of the market. That being said, I would always privately advise clients of my or others’ experience with particular lenders or brokers.” While he doesn’t agree with call-out culture, he believes some broker practices, such as “double dipping on fees” (which he defines as brokers taking fees from both the lender and borrower, which is a concern when the borrower is not aware this is happening) should be addressed openly in the right forums in order for brokers to hold each other to the right standard.

Ben thinks it’s “imperative” that bad behaviour is extinguished, and if that means firms getting called out as a result of their inability or reluctance to act right, then so be it.

Ian agrees, stating that it is “perfectly reasonable” and “useful” for a broker to be able to share his or her user experience of a lender; good, bad or indifferent. “Given that a forum literally translates into a meeting or meeting place, these most definitely exist, ie pubs. Are they proper and impartial? Often not and, [most likely], it’s hearsay. Acre Lane Capital, and other lenders, are somewhat at the mercy of this hearsay within [the] broker community. Nevertheless, we trust that the quality of our service, honesty and holistic risk analysis will become apparent.”

Jo believes that brokers don’t work closely enough with trade bodies, adding that intermediaries could do a bit more on reporting and standards. This includes properly holding lenders accountable to a trade body’s code of conduct by giving feedback.

This could also be an independent forum that brokers can

“I believe that standard s could be raised if borrowers had some method of enforcing sanctions on to brokers who are found to be mis-selling brid ging loans”

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Cover story complain to and then it can choose to publicise that information based on a reasonable assessment. “…I think if we want to look at improving standards … we’ve got to get the trade bodies [more involved] and encourage a proper reporting process.” Andrew claims that trade bodies are “treading on thin ice” when it comes to their patrons paying them fees but, at the same time, they need to lay down the law. Paresh agrees that while industry bodies such as the Association of Short Term Lenders, National Association of Commercial Finance Brokers and FIBA support intermediaries and commercial brokers, nothing currently exists to specifically address bridging complaints by way of intervening and adjudicating. “In general, setting up a complaints authority for the bridging market would require the creation of a new ombudsman office, which would overlap with the oversight and monitoring bodies currently in place at the FCA,” he claims. This could lead to bridging loans taking a longer time to be issued due to lenders having to adhere to more guidelines. “I personally do not think there is a need for this type of body as most lenders

“Lenders have a role to play in identifying those brokers which are failing their customers and, if nece s sary, refusing to work with them.

Brokers with poor lender relationship s

carry out their due diligence and are thorough. Borrowers can also seek professional legal advice if need be.” Maria also disagrees with the need for a forum where brokers can report complaints about lenders. “From a lender’s point of view, in the first instance, we would expect the broker to approach us directly with any issues and that we could work together to resolve these,” she says. “Fiduciam feels that lenders are already accountable without the need for a forum, ie poor performance may well end up on social media, which will tend to result in fewer enquiries.”

Without statutory authority, Jonathan has “serious doubts” about the effectiveness of a new body and it being taken seriously by those who are asked to submit to it. While he can understand why the idea of a proper and impartial reporting process which holds lender firms accountable may appeal, he doesn’t believe it is necessary or workable.

“Who would staff it? Who would be qualified to staff it?

And why would anyone submit to it or accept its findings?”

In a bid to see whether our industry associations themselves could do more to fulfil such a reporting process, I asked FIBA what part it could play. Adam says that “without doubt” the sector would benefit from having access to such a reporting process. “Currently, the industry has no formal central point to go to for complaints or to report dubious practice,” he adds.

“However, the joint industry forums that we have chaired at FIBA have already allowed certain aspects of our industry to be aired among all participants: brokers, lenders, solicitors and valuers.”

He adds that the likely increase in regulatory oversight may be on its way but, in the meantime, FIBA is committed to provide an independent and impartial mechanism to make it happen. “We have already proven that we are in the best position to provide that rallying point, having campaigned hard since inception about the need for higher standards and greater transparency from all parties involved in a specialist property transaction. The value of expanding this initiative would provide further evidence that the bridging market is not prepared to tolerate poor practice,” he adds. While wider, albeit light regulation for brokers, and a formal hub for complaints and, ultimately, action, would be ideal to put a stop to unethical practices, the industry needs to be looking at what they can do now. One suggestion is for brokers to stop feeding substandard lenders their business. An argument I have heard against this, on more than one occasion, is that while a lender may not be satisfactory, they may be the only solution to a client’s problem. In a market bursting at the seams with financiers, I find this hard to believe—and if they are the only one which will consider the deal, maybe it shouldn’t be placed at all.

won’t survive” 45

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ONE DAY (OK, TWO)

At the Connect Academy Despite traditional mortgages being the main focus of a large number of property brokers, there is an increasing nichification of the mainstream market into more specialist finance sectors. In a bid to grow the number of advisers in these areas, Connect for Intermediaries has launched Connect Academy, whereby brokers (old and new) attend a week-long training programme designed to ease them in. To see what our particular market looks like from the outside, I sat in as a student to observe the courseâ&#x20AC;&#x2122;s bridging and commercial finance sessions

Words by

simon thompson

One Day

Kevin Thomson, sales director at Connect for Intermediaries, teaches students how to structure commercial property deals

One Day Josh Knight, business development manager at Octane Capital, leads students through different types of specialist finance deals

A

fter taking the tube to the third from last stop on the District line, I arrive at Hornchurch in Essex. A 10-minute walk brings me to Connect for Intermediaries’ headquarters, where CEO Liz Syms has arrived early to lay out binders, pens and learning materials as well as a generous spread of refreshments. I ask her how the week-long course has been so far. She says that the students are moving through the material with enthusiasm. The first of which to arrive is Mark Thomas, a professional photographer who shoots products for retail stores such as John Lewis. He has come to learn how to advise on BTL mortgages and says he has had his eye on the market for some time, but finally decided to make the leap to bump up his earning potential and have a bit more freedom. Mark actually got his CeMAP 12 years ago and was set to move into his family’s mortgage broking business when the credit crunch hit. “…We went out of business,” he says.

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One Day

Gareth Norman, commercial lending specialist at Connect for Intermediaries guides students

explains that it doesn’t take just anyone.

“We’re always looking for some kind of connection to the mortgage or property market.” Potential students need to have relevant experience or to have at least passed their CeMAP. The course costs £499, plus £50 per month for support in the first six months as brokers start their businesses. Liz adds that the programme is expensive enough to weed out timewasters without ruling out people who show promise. The interactive- and discussioncentred delivery of the academy means that it is limited to seven students per intake. So far, around 45 students have graduated since it began in March.

I join on the third day of the programme.

After the Monday devoted to fact-finding and analysing documentation and Tuesday dedicated to BTL, today will focus on bridging and development. Liz invites me to sit in, ask questions and contribute to the discussion as if I was a student.

After a slick introduction to bridging via a video from MT Finance, Josh Knight,

Liz Syms, CEO of Connect for Intermediaries, shows students how to assess and calculate borrower affordability

But he feels that the mortgage market has seen some major changes over the past decade and there are now more areas in which brokers can make money.

“Before, in the mortgage market, I was only going to do residential, but now [I am looking] to do BTL.” Next to arrive is Jiestine Augustine. He works in the facilities department for a hospital in Hertfordshire. He owns a few BTL properties and has just completed his CeMAP. He is planning to use what he learns at the academy to broker specialist finance products to the Indian community.

“I thought I can work in my Indian community or my Asian community and get some more business.” Last to turn up is David McDonald, a mortgage broker from Edinburgh, who was previously dealing with mortgages in France for UK expats. He says that he has come to the course to add a few more strings to his bow. Liz says a number of the academy students tend to be accountants, estate agents and traditional finance brokers. She 51 Nov/Dec 2019

One Day

business development manager at Octane Capital, walks the class through some bridging case studies. With the use of arrows and figures scrawled across a flip chart, he delves into the intricacies of how bridging loans are structured when the borrower is from overseas. When David raises a question about a case where the client was based abroad, Josh explains how financial credibility can be established for foreign nationals. He runs through three more cases and gives a few plugs for Octane Capital before finishing up. I ask Josh about the benefits of taking part in the academy. Aside from supporting Connect, an important introducer for Octane Capital, Josh says it is about building a rapport from day one. “By helping some of the academy members at an early stage, we are increasing the likelihood that they will introduce business to us further down the line.”

Liz tells me that having the lenders in to supplement the curriculum means that they are able to bring the reality of deals to life and confirm what kind of cases brokers can bring to them. After a short morning tea break, Liz leaves us with the next lender. Stuart Benge, regional relationship manager at Assetz Capital, breaks down the structuring of development finance deals into three key components: how much does it cost to build? How long is it going to take? What experience have they got? He asserts that Assetz Capital, as with most lenders, wants to see the borrower with some skin in the game. In between cracking jokes, Stuart shares wisdom from his own time working as a broker. He delves into the who, what and where of the deals that Mark, Jiestine and David think they will be doing after the course. He focuses on David, who is planning to base himself in Edinburgh. “We [Assetz Capital] are actually quite big in Scotland, probably about a quarter of [the lending] we do [is in the region].” David is enthused to hear this. I ask Stuart about the importance of supporting more brokers entering the market. “When you look around, [it’s] all grey hair. The younger generation of brokers is not coming through.”

Liz says there is also a lack of women in the specialist broking space— something she is working to change. “I think sometimes women do not have the confidence to take on a male-dominated role or see it as a pure sales role, rather than an analytical and advisory [one].”

She adds that it aims to attract more women into the industry through how it advertises and also by promoting the flexibility of the role, especially for mothers and fathers. “…During my

own self-employed time in the business, I have also been able to raise three children. The role was flexible enough to allow me to be there to pick them up from school and then work further in the evenings once they were in bed.”

Liz takes us through a bridging factfind with Knowledge Bank, an online platform which allows brokers to search for lenders to place deals with using over 95,000 individual loan criteria. There are two more lender presentations, one from Castle Trust and a section on business loans from Spotcap. The lender presentations are starting to feel routine: the BDM drops off their lender’s swag, gives a bit of advice and then they make the pitch emphasising the kind of deals and the areas where they are the lender of choice. There’s definitely Connect Academy students take in a presentation on broking development loans

some overlap between their claims, with deals being presented to them even if they are out of their self-pronounced areas.

Re-energised by a night’s sleep, Mark, David and Jiestine file in on Thursday for the part of the course dedicated to broking commercial finance, an area none are particularly familiar with.

Kevin Thomson, sales director at Connect for Intermediaries, takes the lead. He says commercial is often overlooked for being too complicated, but he believes there is room for brokers to prove their value to clients and make good margins.

Kevin educates the class on the differences between a commercial trading business and a commercial property investment and how that impacts loan affordability and lenders’ willingness to lend. Kevin’s 52

Bridging & Commercial

Gareth working with brokers post-graduation

presentation suggests that only experience can teach you the different nuances between lenders’preferences when it comes to deals. “Every commercial lender will say they’ll do all of it, but they will have different appetites at different times to each different sector.” This is usually dependent on what is happening economically in each area of the market.

Kevin claims that every lender loves and will lend on doctor and dental surgeries which have income guaranteed. He adds that, in most scenarios, the success of a commercial deal ultimately comes down to how it is structured. He highlights a case in which they couldn’t get a lender to finance a hotel in Blackpool, where there was just two-and-a-half years left on the tenant’s lease. According to Kevin, high street banks like seven-year leases.

One Day

However, a deeper dive into the owner of the freehold’s profile revealed that they had previously run the hotel with great success. This mitigated the risk for the lender in the scenario whereby a replacement tenant couldn’t be secured if the current one didn’t renew.

Once brokers graduate from the academy and take freshly developed skills to the market, Gareth Norman, commercial lending specialist at Connect for Intermediaries, offers support as they start doing business. He says it usually takes them three to five deals before they really get comfortable. “. . .They’ll always get asked questions that they don’t expect, and it’s only experience that will get them through that, but that’s what we’re here for.” A theme I have heard repeated throughout the day is that there are two

kinds of brokers: those that find and refer leads, and those that package a deal and do the leg work. To get them to the latter stage, Gareth offers a hybrid service where he holds new brokers’ hands, helping them structure their deals. But he does take a marginal cut on the broker’s commission.

The graduates get monitored support for the first six months if they join Connect for Intermediaries’ network as ARs. How will those first six months progress for our students? I ask Jiestine what his next move will be after the course. He replies that it will take a few days for it all to sink in, but his initial plan involves going to social events and functions in the Indian community to get his name out there and make contact with potential borrowers. He speculates that it could take a few months before things really

get going. Mark has made an agreement with an estate agency which will be handing over clients for him to advise on loans for BTL properties. After today, he is really interested in the less rigid structuring of deals and the higher potential margins that can be achieved.

David says he had never really considered commercial, but feels it is easier than he thought it’d be. Speaking to the different lenders’ BDMs has also given him more insight regarding his plans to base his broking in Scotland, an area tipped for growth. Testament to how courses such as this stimulate sector growth, Liz reports that brokers often complete their first deals within days of graduating, emphasising that, with a little help, ushering much-needed new blood into the market can be done.

53 Nov/Dec 2019

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26/02/2019 15:46

&

Marc Interview

Words by

caron schreuder Photography

alexANDER chai

&

Danny Interview

in conversation

A

s far as personalities go, these two are up there with the strongest. Marc Goldberg, commercial CEO at Together, is known for getting up at 5am and always being directly contactable—he’s a relationship type of guy. His rise to fame is the stuff of industry legend: once an office junior at age 17 making tea for Henry Moser, Marc now runs the multibillion-pound business which has survived several downturns in its 45-year history. As a result, he is emphatic about supporting customers throughout the cycles: both their own personal ones and the country’s.

Danny Waters, CEO at Enra Group—which owns packagers Enterprise Finance and Vantage Finance, as well as specialist lender West One—has insured himself as a long-term player with his investment on both sides of the transaction. Taking on more of a strategic, behind-the-scenes role in the past few years, Danny has a reputation of being smart and tenacious—qualities which generally make people sit up and take notice. Since 2009, Enra has racked up multiple acquisitions, awards and accolades, with no signs of slowing down.

While they are now direct competitors, Danny and Marc’s relationship began almost two decades ago as a mentor-mentee dynamic, built on their mutual appreciation for an honest, no-nonsense approach.

Much of Marc’s leadership qualities appear to have been instilled in Danny and, similarly, Danny’s energy and drive has rubbed off on Marc throughout the years.

Interview

Marc Goldberg: My earliest memory [of bridging]…? I think I’ve been doing it for too long, because I can’t remember that far back... It’s interesting, bridging evolved, didn’t it? I first met [Danny] at Enterprise…

Danny Waters: Eighteen years ago.

MG: And do you know who I was thinking about on the train down?

Both: Paul Rose.

DW: Yeah. Paul Rose was the founder of a business called Enterprise Finance [later acquired by Danny in 2009 as part of Enra Group] and Paul and Marc were good friends [and] business associates. My first memory of Marc would’ve been when he came into our Edgware offices around 2002/03. I was just cutting my teeth in the industry; Marc was seen, even at that stage, as an industry leader.

Lancashire Mortgage Corporation (as it was then) was one of probably two big bridging lenders in the UK market and Marc was a young guy— MG: Hair, fit, happy... (laughter) DW: —Who had risen through the ranks quickly within mortgage-related financial services. I was a junior, so the interaction at first would have been relatively minimal, but Marc, being Marc, as a big personality, went out of his way to— MG: I took a shine to you.

Caron Schreuder: Why? MG: I think you meet people who you know have not got a hidden agenda. He was hungry, he was hardworking, he was tenacious, he could sometimes be a little sh*t.You like people who are honest and are not trying to prove anything to anybody.

He just had it in him to be a success. I think that was one of the key [reasons] why we are probably friends as well as business associates—because there’s trust there.

Here’s a kid who came into a business, which was kind of an owner-managed, family-type business—a bit like what Henry [Moser, founder of Together] has got—and he disrupted it. That’s something that I get a kick out of; it’s what I did.

DW: Yeah, we got started as a broker and a lender [respectively]. Dealing with Marc, the relationship changed pretty quickly because as I started to rise through the ranks in Enterprise— MG: I started to get demoted! (laughter)

DW: My interaction with Marc increased a lot and then we started to put together deals and, over the next five years or so, we’d be speaking every day on the phone, probably three or four times. The level of interaction was huge. And then it goes beyond that. It takes time to form friendships—at least it does for me— MG: Absolutely.

DW: Because trust is a big part of that. It is learned though both difficult periods as well as boom markets. The truth is that he and I were two of the very few people who stuck it out in the financial crisis. So, we lived through those times together and it was bad for us both. Ultimately, it ended up good, but when you were living through it, you thought the world was coming to an end.

MG: Bridging was a last resort product where somebody had been let down, probably in the credit impaired market, it was something that you did to maybe clean somebody up to get a remortgage...

I think bridging or short term has become more of a mainstream product. It used to be more expensive; you’d only take it if you had to. Whereas, today, certainly West One and ourselves are not interested in looking at single transactions any more.

It’s more about how you can support a customer 10, 15 times over a 12-month period. I think that’s the key to our business now. I look at the corporate side of the short-term market, where it’s not looked at as expensive ... you’re doing it because it makes sense. If [the loan] goes on a little bit longer, you’re quite happy working with people that you trust ... it’s that end-toend journey. Bridging has evolved in the 30-odd years I’ve been in this industry and it is no longer seen as a bad thing to take out a short-term bridging loan—it’s looked at as part of your business plan.

CS: Do you have any reservations about bridging becoming more mainstream?

MG: I don’t … [Recently], Clydesdale pulled out [of bridging] after about six months. I think bridging is about speed, flexibility, service, understanding, [knowledge], experience and real people making real decisions. I don’t think the high street banks and the challenger banks are ever really going to get into that.

DW: Also, the size of the market... Just why would they be bothered? The market is too small—I mean, we think it’s a big market—but, in the wider universe, it’s actually not that big. For high street banks, clearers or even challenger banks, the size

of the opportunity is probably [less] than the prizes they can achieve through successful execution. They look at alternative ways to play in the market, so, what you’ll be seeing … over the past five years, I suppose, is a number of institutional lenders that, rather than lend directly into bridging finance, do warehouse corporate finance facilities to bridging lenders. That’s a way for them to participate in the opportunity . . . without the direct involvement and the operational intensity that’s required to run a bridging lender.

MG: It will be interesting to see what happens when a few of those don’t go the way they think it should go. I’d like to see what the reaction is. If you think about P2P lending—this is something we’ve said for quite some time—you look at people who don’t really know what they’re doing, they just think it’s an easy way to make money.

It’s very easy to lend money, it’s another thing ... getting it back in.

DW: It’s the ‘skin in the game’ point. I mean, when you’re lending your own money, like Marc and I do, you think long and hard about every transaction.You think, ‘What’s the probability of a loss-giving default here?’ … That drives your behaviour around when you lend and when you don’t lend. If there’s only upside in a transaction...

In P2P, for example, they take management fees for granting credit and there isn’t much of a downside if the loan goes into a default situation, [therefore] there’s a misalignment of incentive and that’s when you see that the markets are going to have some issues.

MG: …Making lending decisions is one thing . . . [but] I also think it’s how you deal with customers when you’re in a collection situation. Foreclosing on a customer is not always the best option. Being able to help and support them is critical and I think a lot of the successes I’ve seen for us over the years has been [in being there] with customers ... the ones where you give them time, you help and support them, and they do get themselves out of the situation and come back to you time and time again.

DW: That’s the quality end of the market.

The people who have various different options and levers to pull to be able to solve problems that they run into—that’s the professional end of the market and [what] Marc was articulating is the difference.

Candidly, I remember, back in the day, when we could use something like a repossession order as proof of residency, whereas now what you have is institutional borrowers using our money to make money—and that’s the big difference in bridging from when we

59 Nov/Dec 2019

Interview

“Lending is an art. And I think one of the issues with this industry is too many people are involved in it that don’t understand it”

started our careers. The other concern in the market today is the LTV creep, in my view.

Post-financial crisis, if you talked to Marc— and I mean immediately post-financial crisis—he’d have been at 65% LTV, because the scars were still really fresh, he was dealing with some back book problems—as every lender would’ve been—and there was caution in terms of your lending. I’m not saying 65% is the right place to be in terms of LTV, but now what you see commonly is lenders at 80%-plus—and that’s senior debt. And that’s where, I think … you don’t need much to go wrong before lenders start to lose both capital and interest.You can have a slight softening of house prices, the repossession can take you longer than you anticipate so your interest accrues, the fees of enforcing security can spiral and, therefore, if you are at these nosebleed LTVs, inexperienced lenders will start to lose money in softer markets. It has been good in the past decade and, one thing’s for sure, it won’t stay that way forever.

MG: Henry, who started our business 45 years ago, has always said the same thing: LTV is critical to everything. Ultimately, you’ll never know which client is going to pay you, and who isn’t going to pay you... People give you exit strategies of a mortgage offer which can get withdrawn.

The market has definitely softened, there’s no two ways about it, and things are taking longer. Whether it’s a remortgage, a sale... So, having that flexibility does allow you to help to give a customer more time and support because there is obviously that LTV buffer in there.

CS: How do you feel about the ramifications on your businesses as a result of the actions of other lenders?

MG: I’ve said this for many years: I only worry about Together.You know, without being disrespectful to Danny, who’s my pal, do I care what West One... If he rings me and says, ‘I’ve lent £100m this month,’ if we’ve lent £60m, we’ve lent £60m. Over the years, we’ve had lots of customers who’ve come to us and said, ‘Such-and-such is doing it cheaper, they’re doing a higher LTV.’ Some 80% of our bridging loans are paid monthly; we’re an outlier. Danny and I have had this conversation many times. Sometimes that works for us because other lenders are deducting payments from the loans, so they actually end up getting more money from us but, ultimately, if somebody says, ‘We’ve got to do this loan at this LTV, at this rate,’ you know what, thank you very much, we’re here if you ever need us in the future.

DW: You have to let people run their 60

Bridging & Commercial

business as they see fit. If they think it’s a good idea to lend 85% LTV on a bridging loan, well, it might be. It’s just not within the philosophy of our business to go and do that.

We have a certain set of beliefs and we want to maintain those—we could be wrong. Do I feel that it creates any adverse impact [on] us? Well, of course it does, because it leads to competitive tension and if people can go and get higher leverage, which is one of the key driving points in making a buying decision for a customer in bridging finance, then they may choose to do that. But we think about our business in the long term.

MG: When somebody does fall by the wayside—which is never good for the industry, there’s a customer at the end of the journey—the funders all of a sudden pick up the phone to you and say, ‘Tell us, what do you think about this?’ and, ‘What’s your book like?’ and they want to do an audit… I suppose we’re slightly different, our business is 45 years old … but it does cause issues. The fallout of all of this is, let’s face it, these lenders, we’ve seen some of them—Lendy and Amicus— some of the business [probably] wasn’t right in the first place, but some of these customers, unfortunately, have not been able to borrow more money or get out of the situation, they have been the victims, the real losers, and that’s sad for our industry.

DW: Brokers actually have a responsibility with where they’re placing the business.

Most of this market is still intermediated and brokers are involved in the placing and structuring of bridging loans. Something I have heard more of in the past six months than I have in the past decade [is] brokers starting to think again about where that certainty of finance [is]? Who does have long-term capital? Who is committed to the market? The likes of me and Marc, who have been doing it for a number of decades, hopefully our reputation is that we’ve been in it in good times and we’ve been in it in bad times and, therefore, it’s more likely that we’re running our businesses in a professional and sustainable way. The customers do sometimes become losers, but the brokers need to assess counterparty risk.

DW (cont.): I think it will be interesting to see how distribution channels start to change as things, such as digital, start to become more pronounced in the bridging market. Going back to our point about scale, how digital do you need to be when you’re dealing with hundreds of transactions, not many thousands? That’s the first question: what problem are you trying to solve? I do think as bridging has become more mainstream, IFAs and

Interview

mortgage brokers are now transacting more directly with lenders and, therefore, there’s a big threat of disintermediation within the packager market. If you know how to package a bridging loan, do you need to go to a packager in order to access Marc or myself? Some people may say it’s really value-adding—and it is for many businesses—and others will say there’s a control and possibly an income aspect where, if [they] go direct, [they’re] not sharing [their] earnings with someone else.

It will be interesting to see how that plays out—and that’s coming from someone who owns two packaging businesses.

MG: That’s a one-off. But what I’m trying to say is, if you have got your own funds tied up in the business and you can make those decisions, you’ve got the lawyers on standby, you know the customer... I suppose one of the interesting things that we have with our corporate business is that we know and understand the customer, so when they pick up the phone and say I need the money because of this, we’ve dealt with [them] 20 times before. I know Danny’s got some clients who … could pick up the phone and the transaction underwrites itself. These are people who know what they’re doing; the presentation they put forward is spot-on.

MG: Do you not think that in the shortterm market it is about knowledge and experience? We’re doing a big project at the moment about automation, innovation and transformation and I don’t think that can play in short term. We completed a transaction last week for a customer . . . from start to finish, we did it in five hours.

That’s receiving the application, assessing it, instructing lawyers and getting it completed.

I mean, there’s only a few lenders—

DW: An advantage that we both have is [inhouse] lawyers. Actually having a physical presence where your lawyers can draft legal documentation and someone can come into the office and sign it. If there’s a valuation that has already taken place, it’s a case of literally sending them the money. That’s how you can really accelerate the process. But you can only justify having that legal team in place once you get to a certain size.You do benefit the bigger you get in this market.

There are some disadvantages to being big, as well, like, do you still have the same agility and nimbleness?

DW: When you said ‘five’, I thought you were going to say five days and [I] was still going to congratulate you! (laughter) MG: But that’s the beauty of that knowledge and experience, knowing the customer, the security, knowing exactly what we needed to do and how we needed to do it. He contacted us because he’d been let down by his bank at the last minute.

CS: Was it a direct deal?

MG (nodding): A direct transaction.

CS: If there had been a broker involved, could you have got it done in five hours?

MG: Well, there are some brokers who genuinely could’ve done the same thing as us. If you know which lenders...

DW (interrupting vehemently): I disagree. I really disagree.

MG: I’m not telling you who, though, or else you’ll be on the phone to them straight afterwards! (laughter) DW: To get a deal done in five hours...

I’ve been doing this a long time, right, and they are few and far between. We’re one of the few who can make really quick decisions and pay out cases, [Marc] is genuinely the other one in the market, and five hours is just incredible.

CS: Well, apparently [Together does], given the five-hour example.

MG: That’s one example.

CS: Sure, but I wouldn’t have said it was even possible.

DW: I can give you exactly what happened in that scenario: it was one of the corporate clients who called Marc Goldberg— CS: Directly.

DW: Yeah, which, if you’ve got 800 people in your business, it could’ve gone to someone else.

(Marc shrugs off the particulars of how this amazing five-hour deal came to be) MG: Lending is an art. And I think one of the issues with this industry is too many people are involved in it that don’t understand it. That’s a problem from what we’ve seen in recent times...

CS: Do you think that spans lenders and brokers?

DW: Of course.

MG (disagreeing): Is it a broker’s problem when, ultimately, they’ve got a job to do 62

Bridging & Commercial

for a customer and give them the business?

Lenders who basically haven’t got a business plan, don’t really understand what happens if a customer doesn’t pay or what happens if it goes past the time...

DW: On the origination point, you have to look at the whole value chain, so brokers are included in that. The best brokers I know are the ones who have ‘control’ over a customer and are also working closely with the lender to structure the transaction in a way that makes sense for both the customer and the lender, and getting to that point as quickly as possible. Sometimes, if you have a broker who isn’t as experienced or familiar with the short-term lending sector, they’d be better off just handing over a name and telephone number and saying, ‘Can you deal with this guy?’You could cut them out, still pay them all of the money that they are entitled to, but you would arrive at the destination much quicker.

Beth Fisher: Do you think working direct will become more popular next year? Is it a threat or an opportunity?

DW: The big corporate customers already work direct. So, a lot of those guys are borrowing tens of millions of pounds a year and they have in-house finance functions where they understand how to place a transaction and also the economics of the transaction ... and they like that relationship. The big guys really want to be able to look a principal of the lending business in the eye and say, ‘Are you going to do this transaction?’ Sometimes you just don’t get that same certainty when dealing with an intermediary. There are other benefits of dealing with an intermediary, [including] that you get to see the whole entire market as opposed to one person’s proposition. But, often, if [the larger corporate borrowers] are going to make millions of pounds out of a transaction, one or two basis points doesn’t really make a difference. What they are looking for is that certainty, flexibility and speed.

MG: And they’re looking for a relationship. Finding out what their business requirements are over the next 12–18 months is really important.

CS: Who would you say controls the market?

Lenders or brokers?

DW: Customers.

MG: Yeah, I’d agree on that. Look, brokers are the lifeblood of our industry … I look at our business and we deal with networks and clubs, we deal with brokers, we have

Interview

Together+... We still find new brokers that we’ve never seen before, we’re still getting more and more customers. Everyone wants to look at distribution, but I think the customer has the choice to use a broker or could go direct to a lender and they want to make sure that the service they get is dealing with their situation. I still think brokers play a key part in our industry and will continue to do so, no matter what.

DW: One can’t live [without] the other. The size of the market would not be the same without introducers going out there and identifying deal flow and opportunities but, at the same time, without the capital from a lending business, these customers wouldn’t get served. It’s the value chain, for me.

Ultimately, nobody owns the market. Our view has always been that there are different points in the market where different roles are more or less valuable. [To address that], we’ve tried to have a foot in the broking camp when there’s lots of liquidity in the market and remuneration fees are high—you want to be able to monetise that—and there are also times, such as the financial crisis, for example, when liquidity was really scarce and you didn’t want to be reliant on other business’s treasury functions to be able to operate your own. Making sure that you have capital is also important. It ebbs and flows.

MG: There is no single lender that is bigger than anything. I’ve seen lenders come and [think] they’re the best thing since sliced bread and then they pull the funding, or they lose the funding or whatever. At the end of the day, the industry just picks itself back up and gets on with it. [In bridging], if Together wasn’t here, there would be somebody else that would pick up that type of business— DW: West One. (laughter) MG: There is no single customer who can make or break anything, no single lender or broker.

DW: It’s a pretty fragmented space. Marc’s the biggest lender by balance sheet in this marketplace.

MG: £4bn we touched on Friday [8th November].

DW: Did you really? Wow. (turns to Caron and Beth) There’s an exclusive for you. (laughter) DW (pauses): I’ve lost my train of thought now after having that crowbarred in. (laughter) DW: So, you look at Marc’s £4bn balance sheet [and] you look at us [with] about a

quarter of the size of that. There are many challenger banks who have balance sheets which are either bigger or around that size, but the composition of those are probably more focused on long-term BTL lending.

If you did an industry poll and you tried to understand how many lenders have a loan book north of £500m in the pure bridging space, there are not many at all. The broking business is also fragmented: you’ve probably got 20 master brokers who have some kind of scale, but even scale doesn’t really mean scale—it’s, like, 20 deals a month.

CS: While you’re both clearly focused on your own businesses, do you see a contraction happening fairly soon or people retrenching from the bridging market?

MG: There must be 250 short-term lenders in the marketplace—and there might be more. There are lots of people lending private money... In the past two weeks, I know of 10 people who I didn’t know the week before. The regulator is certainly looking into the short-term lending market, both in regulated and unregulated … I think it will become more regulated as time goes on. The most important thing is to think about your business; the end-toend journey for the customer, customer outcomes and exit strategies all play a major part in being a successful business.

You never particularly want to foreclose [on a] customer. Some lenders, if you look at the ratio of what they have to do to foreclose on people, it’s eye-watering.

BF: What about other secrets to success?

What would be your words of wisdom to a new lender?

CS: I don’t think they want to give any words of wisdom to new lenders! Maybe, ‘Don’t’? (laughter) DW: The trade secret isn’t to lenders, but rather to anyone who has aspirations of being successful: it’s hard work. The single most important thing around making a business successful isn’t about the idea, it’s about the execution. It’s about making sacrifices to grow a business and thinking about it long term. [Like the old saying goes], it takes 10 years to become an overnight success. I think that’s really true. If I look at when I started to really gain traction in the market, I had been in it for 10 years. And [gesturing to Marc] you [were] probably the same.

MG: One of the things that Danny and I have got is that I could ring him up or he could ring me, and we can ask each other a question about our businesses, and he knows, and I know, there’ll be no bullsh*t

in the answer. Whereas, I see lots of other people that like to badmouth [others].

Honestly, I hope all the lenders do really well, let them get on with it. All I care about is Together.

DW: But that’s because you’ve got an established business which has been really successful over a long period of time and the other upstarts are looking a little envious and saying, ‘We’d love to be in [Together’s] position.’

MG: In the second charge market, there was Swift and . . . we never badmouthed them. Ever. Let them get on with their job, we’ve got a job to do.You have to have an understanding of what’s around the corner.

I think we could be heading for a recession, there’s lots of uncertainty. I know we’ve not mentioned [Brexit] yet, but people are thinking a lot harder about what their plans are ... it’s not stopping the market by any means; people are still buying properties, upsizing, downsizing, and some businesses are doing particularly well. But, I do think we need to be extremely careful. We’re heading into an election... I wouldn’t be able to bet which way it’s going to go. I know which way I’d like it to go ... I think there are scary times ahead.

CS: Do you plan internally for both [outcomes], during the Brexit mayhem, and now with an election coming up? Does this impact your internal strategies?

MG: Our banks came in to see us the other day and the ratings agency said, ‘What plans do you have for Brexit?’You know, if we’re honest, we are in the UK, we lend money on property. [Going back to LTVs], property prices can go up and they can come down.

If you lend to the right customers and have the right strategy in place ... even if prices come down by 10%, 15%, they will, at some point, go up. We’re a strong enough country to survive. When the [Brexit vote] first happened, I don’t know about you, Dan, but in July and August I thought the world was coming to an end. Genuinely.

The phone wasn’t ringing. It was almost as if someone turned a light switch on on the 1st September [as] everything was back to normal again. If anything, it got better.

DW: We do [have internal plans according to the outcomes]. Part of our corporate governance will be to have a piece of white paper sitting in a drawer [that says], ‘If these things happen, what is our playbook?’

The difficulty is that Brexit has been prolonged and there’s still lots of geopolitical uncertainty. I’m hoping that by the time this [interview goes out], there will be

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Interview

some certainty to some of these questions that we’re asking ourselves right now. The general election is probably a bigger point than Brexit, but one feeds into the other—if we get some certainty around the general election, Brexit moves on.

MG: There’s a shortage of housing in the UK. Whichever government gets in, that’s going to be the focus because there are not enough homes for young people who want to get on the property ladder, such as first-time buyers and some of the [lower-income families].

DW: Tax reform, right? One of the biggest things which [the property industry as a whole] probably [needs] to stimulate is a review of stamp duty and, also, potentially, tax changes around BTL. It’s made property ownership really unattractive in the UK. I understand the point about BTL landlords competing with first-time buyers, but you’ve also got this other demographic of people who have lived in [a] house which has appreciated in value ... and they’re trying to sell their house to downsize to something more modest, but there’s no buyer community because the cost of stamp duty is so prohibitive.

It’s not just professional investors and people who are benefiting from property trading or ownership—there are real people being caught up in the system.

CS: What inspires or motivates you, and have you got any professional milestones coming up?

MG: We’re in our 45th year this year— DW: You hadn’t mentioned... (laughter) MG: I’m inspired by success for people, people like Danny. I have true respect for the guy, I like him. People like Henry, the owner of Together. We’ve still got lots of unfinished business at Together. We still think that we can continue to grow in a controlled manner, and I see lots of opportunities for us. We’ve got some great colleagues … young people coming through the business.

That’s another thing that inspires me: seeing young people coming through the ranks, having probably better opportunities than I did and will probably do better than I have.

That’s exciting.

DW: Like Marc, like-minded people who I can be intellectually stimulated by and can also have fun along the way with is really inspiring and motivating. Also—I think this is true for both of our businesses because when he mentioned it … it resonated with me— [the] development of younger people in our

business who are maybe in their late 20s, early 30s, who really have an opportunity to progress their career. [It’s] really rewarding to give them the opportunity, the training, the development, the mentorship and then hope that they go and have the capability to take advantage of the opportunity. [When] I see success stories like that in our business, it is truly rewarding. What it does for our business as a commercial benefit is that the next generation down—who are the next tier of graduates or whatever programme it is we’re running—then identify those guys as mentors and want to replicate what they do, [bringing] a great energy ... and a freshness, which I really like. I was the most driven person, [Marc] will tell you this, for a long time and I am still super-motivated but, before, I used to have milestones where I used to say, ‘I want to get to this level of profitability’ or , ‘I want to originate this amount of loans in a year’ and I’d be fixated on that business plan— MG: Or, ‘I want to sell out three times, get lots of money and not have to worry any more...’ (laughter)

“Brokers have a responsibility with where they’re placing the business …

The customers do sometimes become losers, but the brokers need to assess counterparty risk”

DW: As you get older ... you don’t concentrate so much on the individual milestones.You actually try to enjoy the journey that you’re going on . . .That leads to me making better, longer-term decisions, because I’m not saying, ‘In one or two years, I need to be here.’ I’m saying, ‘That’s my ambition, but if we’re in a scary place in the UK economy or the political situation, I’m not going to stick my neck above the parapet and do anything at any expense.’ I’m going to think long term, and then hopefully have a business that’s been around 45 years and is worth £4bn! (laughter) MG: I agree. Going back to young people who inspire you ... we have apprentices now ... I’ve noticed a big change in our business: kids don’t want to go to university now ... these are people who want to come into your business, work hard, do project work—they are the future.

DW: Two examples: me and you.

MG: Absolutely.

DW: I wouldn’t go as far as calling us leaders of an industry, but we’ve done pretty well in our careers.

CS: Well, we only invite leaders here. (laughter)

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Words by

simon thompson

Why foreign investors should be on your radar

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hile Brexit and political uncertainty may have left domestic demand for UK property subdued, research by JLL shows that foreign investors are taking a longer-term view and remain undeterred. Although a number of specialist brokers and lenders have reported that some of their largest deals in the past few months have come from foreign investors, an online poll by Bridging & Commercial found that a significant 59% of respondents found it difficult to source property finance for this type of borrower. Without the right expertise, team and policies in place, advising and lending to foreign investors can come with myriad complications. With the weak pound drawing in overseas investors looking to snap up UK property deals, the opportunity for brokers could be vast. We spoke to leading industry figures to get the lowdown on what you need to know about this particular market.

Last year, 79% of all central London real estate acquisitions were made by international investors, according to research by JLL, and the majority are coming from Hong Kong, China, Korea, India and the Middle East. The UK’s growing population, limited landmass and steady rule of law continue to make property a secure and attractive option for investment. In fact, the prospect of a no-deal Brexit, and the resultant fall in pound sterling, presents them with the chance to purchase UK property at discounted prices.

WHERE AND WHAT ARE THEY BUYING? Articus Finance estimates that it generates 60% of its deals from foreign investors, including expats. According to company CEO Antonio Michael, many of its foreign clients are from the Middle East and are often interested in “trophy assets” which he describes as £5m-15m properties in prime locations such as Knightsbridge, Chelsea and St John’s Wood. He claims that higher prices can make deals harder to place. “…A lot of lenders shy away from [very expensive houses] because [if a lender needs] to repossess [the property], there are probably only 1% [of buyers] that can actually afford to buy [it]—it is harder to move.” Conversely, Simon Das, managing director at 978 Bridging, says his overseas clients are interested in diversified property portfolios, such as small blocks of flats or HMOs. “...Most are looking for more smaller deals rather than one or two big deals.” Charles McDowell, managing director at Hampshire 66 Bridging & Commercial

“A weaker pound has put buyers [paying] in alternative currencies in a stronger position and this has encouraged them to make larger investments, which have resulted in bigger deals,”

Trust Bank (HTB), claims that while diverse portfolio building is common among investors, the past 12 months has seen HTB complete on a number of £5m-plus deals for foreign clients. As borrowers move into different asset classes, Chris Whitney, head of specialist lending at Enness, explains they’re also moving into other regions. “…People are realising that there is value to be had outside of London with improved, and improving, transport links and areas undergoing regeneration.”

STAMP DUTY AND TAXATION The government is considering an additional 1% charge on existing stamp duty for foreign investors buying residential property in England and Northern Ireland. “The UK is and will remain an open and dynamic economy, but some evidence shows that non-UK resident buyers of UK property could be inflating house prices,” explained Mel Stride MP back in February when he was the financial secretary to the Treasury and paymaster general. The stamp duty charge could likewise apply to certain UK-resident companies which are controlled by overseas shareholders. However, Jimmy Baillie, managing director at Silver Oak Capital, believes that while additional stamp duty could dampen things a bit, he states that foreign investors tend to have a long-term view. Simon explains that many investors are able to sidestep additional tax by leaving profits within their UK companies and reinvesting. “The tax implications mainly come into play when they choose to withdraw funds … our clients all use UK-based accountants who are experienced at working with overseas nationals and expats.”

PROVING INCOME With regard to the ability to repay the funds and money laundering checks, the questions are the same as they are for UK borrowers: who are they and where did they get their wealth? For domestic borrowers, this can be confirmed with a passport, bills, a tax return and a savings account statement. Charles highlights that verifying this for foreign investors can be “tricky” as every case is different.

“We lend to investors based in over 100 countries and each of those countries has some nuance.”

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Explained

Ortus Secured Finance claims that given the volume of non-UK resident transactions it has undertaken, these days it rarely comes across an issue it hasn’t previously dealt with. Managing director Jon Salisbury explains that it has developed tech to streamline the process. “…We have an enhanced due diligence system which works from the same ID and proof of address items provided by UK borrowers.” Jon adds that once borrowers pass the test, the loan process is no different from that of a domestic borrower.

Some countries present greater risks than others when it comes to foreign investment, especially in terms of mitigating against money laundering. Antonio explains that if the client can’t validate how they reached their present financial position, it makes things “very hard”, especially if the client represents a possible reputational risk for the lender.

James Chisnall, director at City Finance Brokers (CFB), believes that getting lenders on board can be challenging if the international borrower is selfemployed and doesn’t have salaried income, with verification often requiring the services of a top accountancy firm. “The source of funds is also scrutinised in a lot more detail.” The complexity of the foreign investment market can be off-putting for brokers to move into. Miranda Khadr, director of Yellow Stone Finance—which routinely advises foreign borrowers—adds that brokers looking to enter the space should seek guidance from those already operating in the sector. “It’s a good idea for brokers who are less experienced in this market to partner with an expert so that they can be confident they are providing the

“Some overseas borrowers are very much limited by the amount of money that they can move out of the country and this has, on a number of occasions, created a huge delay in the transaction while funds are being transferred to a UK account” correct information, and to ensure the best possible client outcome.”

COUNTRY-SPECIFIC RISKS AND CHALLENGES Many lenders shy away from countries with unstable political situations or poor human rights records. Other countries can be more challenging in terms of carrying out sufficient due diligence checks to identify the ultimate beneficial owner (UBO) and sources of wealth. When it comes to reputational risks, Antonio says that lenders are increasingly scouring the internet. At a minimum, he claims that lenders will search the client’s name in Google and any queries or potential red flags have to be explained and justified by the client and the broker.

Castle Trust utilises the Basel AML Index rating of the country where the borrower is based. According to Marcus Dussard, director of sales at Castle Trust, the independent annual ranking allows Castle Trust to assess the risks of money laundering and terrorist financing around the world. The index provides risk scores based on data from 15 publicly available sources, including Financial Action Task Force (FATF), Transparency International, the World Bank and the World Economic Forum.

Brokers new to the space also need to be aware of borrowers based in countries that regulate the amount of finance taken out of the region via capital controls.

“Some overseas borrowers are very much limited by the amount of money that they can move out of the country and this has, on a number of occasions, created a huge delay in the transaction while funds are being transferred to 68 Bridging & Commercial

Explained

a UK account,” says James. Tight controls are usually found in economies where the capital reserves are lower and more susceptible to volatility. At the customer end, Simon points out that being an international borrower without a track record in the UK can often mean that deals require more cash upfront, sometimes buying and refurbing entirely in cash before refinancing, or a lower LTV from the lender on day one.

THE TIME FACTOR The complexities of foreign deals can sometimes lead to completions dragging on. Jimmy explains that many of Silver Oak Capital’s (predominantly residential) deals can take longer than conventional domestic cases, often more than six months.

Antonio claims that it routinely takes time for borrowers to compile the necessary documentation to meet government regulations and lenders’ criteria.

“Sometimes we talk to the client and it is maybe a year before they actually buy something, just because they need to go away and get their paperwork and finances in order.”

Jon says it doesn’t have to be such a lengthy process, although he admits foreign investment can be tricky for lenders without a team experienced in dealing with this type of business. He explains that it comes down to effective planning. “Lending to non-UK nationals also comes with practical challenges if they are overseas when the transaction is completed. This rarely presents an insurmountable problem if the necessary forward planning takes place, for example, documents can be signed in front of local lawyers who can undertake to forward documents following completion.” He adds that the initial fact-find is extremely important, and that time spent on this at the outset can be of huge benefit later on.

SOURCING CLIENTS Word of mouth and referrals tend to be the best sources of leads with regard to foreign borrowers. Ollie Hines-Lloyd, director at Articus Finance, believes that the bigger deals come from established relationships, while the smaller ones are a result of enquiries over the internet. Jimmy states that Silver Oak Capital is working to set up hubs in Johannesburg, Monaco, Dubai and London for sourcing foreign borrowers. In addition to leveraging its existing networks, he believes that good relationships with private banks is also advantageous, as they won’t be able to do everything.

HIGHER COMMISSION FEES? Foreign deals don’t necessarily lead to higher commission. Some brokers, like Jimmy, claim that the complexity of cases means that lenders are inherently pricing higher for risk, while some lenders state that they don’t increase rates for foreign investors. “We offer the same approach to buyers from the UK and foreign investors, so it’s not necessarily true to say that loans for foreign investors come with higher profit margins,” claims Marcus. However, it has been responsible for some of their larger deals. “…A weaker pound has put buyers [paying] in alternative currencies in a stronger position and this has encouraged them to make larger investments, which have resulted in bigger deals,” explains Marcus. Chris has seen the same phenomenon on foreign transactions and adds that Enness, likewise, doesn’t differentiate in terms of broker fees charged for UK or overseas-based clients. “Our client base is very international and our skillset in this field means that advising an international client typically doesn’t create any onerous additional work for us and thus doesn’t justify higher fees.” While fees may not be larger, the advantages of working in the space could mean additional clients and a specialist edge that sets you apart. With many brokers already in the competitive domestic market, expanding your horizons (and knowledge) might be a smart move.

69 Nov/Dec 2019

People

Is The Modern Broker A Digital Broker?

Words by

simon thompson Currently, there are brokers in the specialist finance market using online lead generation as a vital source of referrals. Social media platforms such as LinkedIn, Facebook, Twitter and Instagram are becoming increasingly common places to connect with borrowers and ultimately source leads. Some 89% of new homeowners looked for available properties online, and a similar proportion (86%) researched house prices, according to a recent HSBC study.

While the opportunity is obvious, the strategy and approach isnâ&#x20AC;&#x2122;t. Those who are overwhelmed by how to make the internet work for their business and ensure it is worth the time spent are not alone. We spoke to brokers in bridging who are generating more of their leads digitally to understand how to make a success of it

People There are approximately 15,000 Google searches for “bridge loan” made each month, according to Boston-based software as a service company SEMrush.

That’s potentially thousands of borrowers in immediate need of advice on specialist finance. And this is not taking into account searches elsewhere online. “[People] on social media are looking for information, [and education] especially in this kind of space,” claims Alex Curtis, director at financial services marketing company The Lead Engine. Over the past 12 months, Alex has seen a rising number of specialist brokers looking to tap into digital networks to channel online interest into business. For The Lead Engine’s services specifically, it has seen enquiries go from four to five per week to as many as three to four per day.

Sam Norris, senior property finance broker at Bond Finance, shares his content on LinkedIn, Facebook, Instagram, Twitter, Snapchat and YouTube, and also has a podcast. He publishes a range of content from detailed explainer videos about property finance to updates about what he is doing and where he is going. Leads for brokers usually come in the form of comments and direct Facebook messages. In Sam’s case, people call him up, usually citing where they saw him or what platform compelled them to get in touch.

He has found that consistency is key. Alex suggests that brokers who aren’t as digitally savvy or naturally inclined towards the camera should tailor content to specific topics as it often delivers a higher post-to-lead ratio. “Find out the questions that they’re asking … that can then drive what content you make, because you’re just answering [them].”

Nadeen Hall, private client adviser at City

Finance Brokers (CFB), states that she gains a number of her referrals through Facebook, chatting in property- and finance-focused groups and posting updates on dedicated mortgage pages.

“I have set up [business accounts] on Facebook, Instagram and LinkedIn and have posted to my own followers who have gone on to refer me to their own

podcast aimed at property investors and developers. He claims that it picks up a good level of leads, with high conversion rates. “If anything, the conversion of digital leads is possibly higher, as we tend to find that the investors who are sourcing their brokers online do not have a broker in place already.” He adds that in an age when a lot of its business is done over the phone without ever meeting face to face, The Property Finance Guy relies on the podcast to showcase to clients that it is knowledgeable and capable.

Matt Barrett, broker manager at Y3S Bridging & Commercial, has only recently taken up a digital strategy for lead generation.

He posts information about bridging in a way that new borrowers can understand and adds that online can be different to the traditional broker approach in that he is effectively offering advice for free. “…By providing content, you are building a reputation of being a trusted adviser…” He claims that borrowers who go direct, usually would have done so anyway. “[Yet] the clients that were unsure of who to use, will now step forward as you have educated them and given them confidence that you are a specialist in the area and can offer a solution to their situation.”

Alex says a lot of brokers are reluctant to post content that delivers detailed guidance, for several reasons. One is the worry of being called out for being wrong in a public forum that has the potential to be widely viewed. “…It doesn’t happen that often and provided you’re able to back up or justify what you’ve posted, if challenged, you shouldn’t have a problem.” Michael adds that there is also a fear within the broker market that clients will try to cut them out of the deal and

“Brokers that are reluctant to post content may be missing out on a very large volume of leads, all because they are trying to avoid one potential client from cutting them out of a deal” friends in their relevant groups.” A lot of her digital referrals come through as a result of being tagged in friends of friends’ posts—primarily on the topic of suggesting a good broker.

Michael Primrose, managing director at The Property Finance Guy, hosts a

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People go direct to the lender in order to source their finance. “Brokers that are reluctant to post content may be missing out on a very large volume of leads, all because they are trying to avoid one potential client from cutting them out of a deal.”

Digital lead generation can also be a longer-term strategy. Alex claims that, when online, people can be more resistant to being sold to. He explains that they are less likely to have the trust with brokers that they perhaps would have if they had been referred by someone they know or whose services they have used before. “…The less you try to be really salesy, the more you appeal to people.” He adds that people online are looking for information, and they want to understand what they’re getting into before making decisions.

Rona Rivera Rahman, who focuses on online marketing in property investment, asserts that brokers shouldn’t have to sell online. “Social media brings you to your ideal customer: people who are already interested in you, so it is never [about selling] … most [people on social media] don’t want to be sold to.” She believes that they are on social media for entertainment and information—so that is what brokers should be posting.

Social media offers huge opportunities for brokers to reach borrowers, but also opens the same door for lenders to reach clients directly. Guy Harrington, CEO at lender Glenhawk, speculates that digital engagement could be the way forward, revealing that it previously had a borrower who made initial contact via Twitter.

Sabinder Sandhu, marketing manager at Avamore Capital, explained it had closed a deal with a borrower that originated from Instagram. “While this does not happen every day, it demonstrates the true opportunity for genuine interaction with potential leads from your phone or laptop.”

Avamore produces a great deal of online content, from blogs and articles to videos and features. Sabinder claims that digital marketing supports wider sales efforts and also works as a fresh lead generator. “[It] provides an opportunity to showcase Avamore’s offering to a wide audience and potentially speeds up the time [it takes for someone to get in touch].’’

Generating online leads is not simply a case of build it and they will come. There are strategies and a guiding psychology that ultimately determines the success and quality of the outcome.

NOBODY WANTS ADVICE FROM A STRANGER Specialist brokers often have websites and social media pages which are formallooking and heavily focused on lending products. Alex asserts that people want

to interact online and are more engaged by personality than the formality of a company. “No one wants advice from a stranger, they want to deal with a real person.” A tenet of Sam’s online strategy is quirky, relatable content. “I’m standing there doing a video and I’m in, like, a Metallica t-shirt—I’m not in a suit and tie.”

He says that can help to build rapport and ultimately makes him more approachable.

“There’s a reason why they invented Kryptonite for Superman, because he was boring.”

EVERYONE LOVES A SPECIALIST Alex says one of the most common mistakes brokers make when entering the online arena is being too broad in the advice they give. The reality is that people who are looking for solutions gravitate towards specialists. “They want to know that the person can help them before they pick up the phone.” Posting content that is narrow, but deep on specific topics and scenarios, can also allow brokers to curate credibility in a range of different specialisms, distinguishing themselves from brokers with a more generalist message. Alex claims that this opens up brokers to more scale and a larger volume of leads.

But even with a niche focus, Sabinder says that digitally sourced leads are often not that solid. Given the complexities behind deals, and the fact that there is rarely a ‘one-size-fits-all’ approach to transactions, she speculates that it could be a long time before these leads outperform more traditional methods.

A BROKER’S DIGITAL TOOLBOX SEMrush is a tool that identifies different search query and keyword trends within market niches. It allows brokers to measure online interest for information and products, which they can then use to tailor their content. The tool can also help bump up the level at which specific content and webpages are appearing on Google. The service also allows brokers to SEO audit their content and webpages for maximum reach. Alex says some of the bridging lenders and brokers he works with have been able to use the tool to rank in the upper echelons of Google searches.

FACEBOOK PIXEL Facebook pixel is a tool which can be installed to collect data on page visitors and analyse a business’s sale conversions via the platform. Based on collected data on previous visitors, the program determines the best audiences to target, optimising the effectiveness and streamlining the costs of social media campaigns. The tool also re-markets products to users

on Facebook that have previously shown interest in your website.

IMPLEMENTATION In terms of executing a digital lead generation strategy, Sam suggests that time-poor brokers should go all in on one platform rather than spreading themselves thinly over multiple options. Being on film may not be for every broker. For businesses, Alex recommends working out which advisers on the team are comfortable in front of a camera and getting them to be the face of different specialist areas and products. To gain traction, Alex suggests developing a digital plan than can be executed within 30 minutes each day.

While the notion of generating leads without ever having to leave the office is enticing, how often are brokers in our market actually seeing these convert?

Sam says his conversion rates are not too dissimilar to his conventionally sourced leads: about three to four out of every 10 convert. As mentioned earlier, Michael believes that the lead enquiries from his podcast have a possibly higher conversion rate than those that are traditionally sourced.

The ongoing digitisation of commerce and human interaction will unquestionably see more borrowers going to the web as their first port of call. But given the highly personalised and complex nature of the specialist finance space, it may be some time before the digital world becomes brokers’ sole or main source of business.

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Limelight a glimpse into our ever-busy schedule

1 Who: Castle Trust, Oblix Capital and three brokers Where: Watson Farley & Williams HQ, City What: Discussing whether hybrid products in bridging are an opportunity or a necessity 2 Who: Cogress Where: The Loft at Six Storeys, Soho What: How to maximise development marketing strategy and whether including that spend in a business plan helps or hinders when looking for funding 3 Who: MIPIM UK Summit Where: Old Billingsgate, City What: Not quite the same as the one in France, but we did learn about the government’s plans for modular housing 4 Who: Funding 365 Where: Bloomsbury Bowling, Tavistock Hotel What: An interesting bowling technique, table-sized pizza and the best and worst of karaoke: Roxxxaaaaaaaanneee!

5 Who: Medianett Where: The Gate, Marylebone What: Celebrating Beth’s birthday with a vegan lunch and ending up with enough polenta fries to feed a small town 6 Who: InterBay Commercial Where: The Lighterman, Kings Cross What: How brokers can help shape lender offerings and haggling while holidaying in Mexico 7 Who: Brydg feat. Savills, Arc & Co & Spice Capital Where: Brydg HQ, Mayfair What: The future of real estate in a post-Brexit environment and witnessing the coolest poker table turned bar 8 Who: Sirius Where: Sirius HQ, Copthall Avenue What: Visiting their brand new London office and plans to derail a jungle-hiking detox retreat in Thailand 9 Who: ExWorks Capital Where: The Wells Fargo Building, City What: The opening of ExWorks Capital’s new office 10 Who: Watts Commercial Finance Where: The Century Club, Soho What: Attending yet another London office launch and reminiscing with old friends. Is there such thing as a ski field?

11 Who: FRWRA 2019 Where: Alexandra Palace, Muswell Hill What: Honouring spectacular women in finance, with Hope Capital winning equality employer of the year!

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Backstory

‘A lack of experience in the industry to cope with an economic downturn will see many struggle’

Bath & West Finance’s commercial director discusses funding constraints in an evolving sector, what could cause more high-profile casualties in the bridging market, and the importance of lenders setting realistic targets and ensuring they have the right staff to meet them Matthew’s career spans over 25 years in the bridging and development finance arena, which has seen him work in a number of director roles at prominent companies, such as Wintrust, Fincorp and Amicus Finance. He decided to join West Country financier Bath & West in September. In his new position, he will be raising the profile of the business in the South West and utilising his contacts within the short-term lending industry.

How did you become acquainted with Bath & West?

I’ve known Martyn Smith [founder and director at Bath &West] for a number of years. His father set up a bridging company back in the 1980s and was a contemporary of Ronnie Natas at Fincorp. When Martyn was looking to set up his next venture, it was no surprise he came to talk to Ronnie and we were able to set up a mutually beneficial arrangement.

How does over 25 years of experience in bridging and development finance help you in your new role?

I am, perhaps, one of a dying breed that has managed loans from cradle to grave.This approach has given me exposure to all facets of lending and has also meant I have been lucky to work with some very experienced stakeholders in the businesses I have [been in]. In more recent times, funding has become key and, again, I have had to become [an] expert in that as the short-term lending industry continues to evolve. I lost count a long time ago [of] how many loans I must have originated, but I do remember some that went wrong—because those are the loans I learnt the most from.

You are set to be involved in the company’s day-to-day operations in addition to developing relationships with stakeholders—what are you aiming to implement first?

The first priority was to raise the profile of the business within the South West, which we have started and is ongoing. Our new website is now live, and we took the rather old-fashioned approach of posting (not emailing) our brochure out to local brokers and IFAs, which was very well received. New relationships have been established on the back of this, as well as old relationships rekindled.

Bath & West has reported it has ambitious growth plans. How will your support help scale up the business?

One of the key aspects of our growth plans will be funding, and getting the right funding to support the business we want to write.The short-term lending industry’s move towards status lending has been governed by constraints imposed by funders in exchange for cheaper sources of finance—this doesn’t always make them user friendly for the

lender. We are in advanced discussions with a couple of funders—watch this space.

How has activity in the West Country bridging market changed in recent years?

Traditionally, it’s been populated by small, local lenders. With the advent of greater competition around London and the South East, lenders have, in recent times, looked beyond their traditional boundaries— although some still struggle with anything west of Portsmouth. We now have more BDMs in the South West representing major lenders and rumour has it one or two lenders are looking to open satellite offices in Bristol.

Two lenders you previously worked at entered administration within the last 12 months. Why do you think we are seeing high-profile casualties in the bridging market, and do you foresee this to continue?

Each set of circumstances is unique, but I believe a lack of experience in the industry to cope with an economic downturn will see many struggle.

To my mind, the short-term lending industry is still maturing. Most lenders were born out of the last recession, filling a gap left by the demise of established banks and secondary lenders. And, by and large, since 2011/2012, the property market has been pretty stable. Some lenders have ambitious growth plans but, given the number of lenders we now have in this space, such growth can only be achieved by cheaper rates and higher LTVs. Not, I would suggest, a good recipe. On top of this, I believe there is a lack of experience in the industry—[there are] undoubtedly lots of good people but, lending in a recession? It’s a different world.

Having been in the industry for a long time and ridden out a number of downturns, what would be your advice to any new bridging lender looking to maintain a robust loan book?

Be realistic in your targets and make sure you have the right staff to meet them. As I have already said, make sure you have the funding that matches the products you want to offer—and develop the ability to say no!

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What did you spend your very first pay cheque on?

Beer.

What is your favourite venue for meetings?

Scalini, Walton Street in Chelsea.

Most memorable moment from your time in the industry?

There are many, but a few that involve Keith Aldridge do spring to mind—I’ll say no more!

What is your favourite industry event of the year?

Does B&C host an awards event? I think I went to one once, and it was pretty good.

If you didn’t work in finance, what would you be doing?

I’m involved in grassroots football and would love a chance to run Surrey FA.

0345 241 3079 www.castletrust.co.uk

Go wild for bridging you can trust You can trust our Bridging products to keep things simple with streamlined requirements and simple pricing.

Castle Trust | Belvedere House, Basing View, Basingstoke RG21 4HG | Tel: 0345 241 3079 | www.castletrust.co.uk Castle Trust is the trading name of both Castle Trust Capital plc (company number 07454474) and Castle Trust Capital Management Limited (company number 07504954). Castle Trust is authorised and regulated by the Financial Conduct Authority, under reference numbers 541910 and 541893.

Registered oďŹ&#x192;ce: 10 Norwich Street, London, EC4A 1BD. Registered in England and Wales.

Owen understands

Owen Bentley 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 Owen is one of UTB's Business Development Managers just one of our growing team of Bridging specialists working closely with broker partners across the UK to help them deliver flexible short term loans.

T: 020 3862 1002 E: bridging@utbank.co.uk

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