Bridging & Commercial Magazine — It's a packager's world, but why?

ISSUE 8 MAR/APR 2020

It’s a packager’s world

but why?

+ Enterprise software that speaks to smaller lenders p10

BRIDGING FINANCE

Short term financing to bridge the gap Our Bridging Finance could help your customer get a quick solution to their short term borrowing needs:

0%

0% facility fee products

REGULATED

Regulated and Non-Regulated Bridging Finance products available

NON-REGULATED

AVMs (Automated Valuation Model) available subject to criteria

Contact your local BDM 0800 116 4385 precisemortgages.co.uk

FOR INTERMEDIARY USE ONLY.

Precise Mortgages is a trading name of Charter Court Financial Services Limited which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority (Financial Services Register Firm Reference Number 494549).

Registered in England and Wales (company number 06749498). Registered office: 2 Charter Court, Broadlands, Wolverhampton WV10 6TD.

01966 (1)

Get in touch

Joint legal representation

Acknowledgments Editor-in-chief Beth Fisher beth@medianett.co.uk Creative direction Beth Fisher Caron Schreuder Senior reporter Simon Thompson Reporters Andreea Dulgheru andreea@medianett.co.uk Sam Monk Sub editors Greer McNally Geoff St Louis Sales and marketing Caron Schreuder caron@medianett.co.uk Contributing photographer Alexander Chai Special thanks Kieran Barnden, Brilliant Solutions Chloe Butterick, Clever Lending Matt Wells, M Public Relations Marc Meneaud, Together Rob Derry, Brunel Mortgages & Loans Sam O’Neill, Clifton Private Finance Dan Narwal, Cynergy Bank Lisa Bebbington, Sanova Real Estate Finance Kelly Rule, VIBE Finance Melanie Bien, Bien Media Printing The Magazine Printing Company Design and image editing Russ Thirkettle, Carbide Finger Ltd Bridging & Commercial Magazine is published by Medianett Ltd Managing director Caron Schreuder caron@medianett.co.uk 3rd Floor, 71 Gloucester Place London W1U 8JW 0203 818 0160 Follow us:Twitter @BandCNews | Instagram @BridgingCommercialMagazine

W

hat better way to spend your lockdown time than with a copy of Bridging & Commercial? It’s been a mad few weeks for the team at Medianett (we designed this entire issue over WhatsApp with our designer), and somehow we still managed get it to your door (or desktop) on time. While some lenders have taken the decision to temporarily halt new business, we are pleased to see other companies within the sector which have come up with new and positive approaches to working remotely and getting business done, or at least lined up for when we’re out the other side.

Covid-19 has indeed ripped up the rule book, with surveyors on lockdown and many bridging lenders taking a hiatius, but the industry’s cogs are still turning—albeit slower than before the pandemic hit.

Most of our articles were heavily researched and written before the pandemic and associated uncertainty had an impact on the UK and wider economy, so please keep that in mind when reading the opinions of market experts, and our own. However, with the help of our strong relationships in the sector, we produced a coronavirus reading corner to look at how lawyers are mitigating social distancing challenges [p28] and a broker’s personal diary #WFH [p24], the week before this issue headed to the printers.

The main thing that Bridging & Commercial is adamant to deliver at this time is transparency to brokers.While the typical ‘business as usual’ statements have littered our LinkedIn feeds, it’s quite clearly the opposite—and our readers deserve to know what that means for them and their clients now, rather than on the day of completion, for example. Transparency is something which we aim to thread through every topic we explore, which is why we’ve dissected the jump in packager-originated bridging business in 2019 [p34], and whether this is making the market more efficient and competitive. To coincide with origination models, we invited network heads Stephanie Charman and Jonathan Burridge to discuss how they treat product areas which are less mainstream [p50].

Technology is set to make a much bigger mark on the industry during this period (it is a wonder that Zoom is able to cope with the rise in users it must be experiencing) as the human, face-to-face approach [p60] is questioned. We spoke to Aurius from Apak Group, a Sopra Banking Software company, about its new tech solution which endeavours to reduce risk, increase efficiency, and help control the cost of managing complex loans in the development finance market [p10].

And, if you want to brighten your day with a reminder of simpler times, flick straight to The Cut [p6] where we have included a montage of our favourite pictures from our annual Directors Lunch, in partnership with Brightstone Law. While valuers are being responsible and currently staying safely at home, you can also read one experienced professional’s [p44] day in the life, pre-coronavirus.

While it is important that the industry works together during this time to ensure it can keep offering solutions to borrowers who need them, our health and mental wellbeing must come first. Make sure you get your one exercise per day; I have been doing online yoga classes which have really brought down the stress levels—just make sure you turn off your laptop camera first. Also, try to keep up the social aspects (both business and personal) of your normal week through phone and video calls. We are still doing ‘Friday afternoon work drinks’ with the team through Zoom and, one Sunday, a friend of mine hosted a very boozy ‘pub quiz’ on video chat.

It’s imperative we all stay at home during this period to ease the pressure on our country’s real heroes, the NHS.

Beth Fisher Editor-in-chief

3 Mar/Apr 2020

6 10 18 24 34 44 50 62 66 70 72 Systematise early. Don’t wait until you’ve got to p10 4 Bridging & Commercial

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

Time to ditch the spreadsheets

2020’s first bridging buyout

Seven days in lockdown / Completing in the time of Covid-19

‘You get what you pay for’

What 40 years of surveying can teach you

Stephanie & Jonathan

Are rules made to be broken?

61% worried about the human element

Maria Harris

In seemingly long-ago, happier times, we held our annual Directors Lunch, in partnership with Brightstone Law. It was late February, and 60 of the industry’s most influential people joined us for an afternoon of delicious food and wine, in the very best company.

It was a celebration of what had started out as a very exciting year for specialist lending, and, hopefully, an indication of the leadership and optimism that will see us through to its end.

DISCOVER YOUR ROUTE TO SUCCESS WITH

BESPOKE BRIDGING LOANS, MADE SIMPLE.

Loans from £100,000 to £10 million in 3 days

020 7060 1234

Simple application process and no hidden costs

Direct contact with our skilled underwriters

bridging@mfsuk.com

Fast, efficient turnaround, tailored to the client

www.mfsuk.com

Rates from 0.59%, with up to 75% LTV

Did You Know?

African elephant ears are, helpfully, the shape of Africa. (and we provide development loans simply & swiftly, that’s what makes us Alternative)

0208 349 5190 alternativebridging.co.uk

Enterprise software that speaks to smaller lenders At a time when margins are being squeezed, a new tech solution aiming to reduce risk, increase efficiency, and help control the cost of managing complex loans, has launched to meet the needs of the development finance market.Traditionally, financial system models are inaccessible, expensive, and, ultimately, off-putting to smaller lenders, but AuriusDF from Apak Group, a Sopra Banking Software company, is determined to change that

Words by

BETH FISHER Photography

alexANDER chai

Exclusive

contact, while analysing how much business respective brokerages are bringing them.

pak started life as a familyrun business in 1979, before being acquired by Sword Group in 2007. In October 2018, it became part of Sopra Banking Software—a €490m-plus, circa 5,000-employee company, marking a massive step change for the business. Being part of a much larger organisation has given it the space and support to expand its suite of products. While Aurius (a broad lending and deposit-taking product) has been around since 2006, with Sprint (a front- and middle-office asset finance offering) and Freehand (a pricing tool) already supplied to a range of large specialist banks, it is Apak’s newest product, AuriusDF (development finance), which is offering something new and more approachable for smaller organisations. Officially launched in October last year, it is pre-packaged, pre-configured, deployed in the cloud, and available to rent as a service—designed to meet the vast needs of niche banks and non-bank lenders operating in the development and bridging finance sectors.

Although the system tracks brokers, it doesn’t allow them to use it—yet. Mark tells me that it’s an interesting direction that AuriusDF would like to explore further. He says that, while it would need to be careful about data protection, the development team are keen for the portal to provide information to both the lender and the broker about the progress of development finance applications in the future. Once completed, this would then allow the broker to see what stages their loans are at during the project.

Another valuable feature of AuriusDF is the ability to guarantee security monitoring, which includes tracking LTVs, which are constantly moving. An unusual aspect of development finance is the fact that the value of a property can change radically throughout the course of a loan. While the land itself starts at a particular value, it can potentially go down as shovels hit the ground and (hopefully) surge later as the project continues to build out. Then, as individual properties start completing and are sold off plot by plot, the value of a lender’s security changes dramatically. “…By the time the development is finished, if [the developer is] paying you back as they sell the plots off, for example, you could be down to the final house and, [now that the] value of your security is really quite reduced, you want them to be paying the loan down when they sell the plots off,” Mark explains. “…

You need to be able to see that happening [and] understand when the LTV is getting risky.” I ask him what non-bank lenders are currently doing to monitor this if they don’t utilise software. The answer is, they’re using spreadsheets. Lots and lots of spreadsheets.

This is fine, of course, if they only have 20 or 30 loans on their book, but, if a lender wants to surpass 100 loans, it ceases to be an efficient method of working. “…You’re going to miss one, and the one that you miss is going to be the one that bites you,” he says.

He adds that another benefit of AuriusDF is that lenders can start doing more advanced portfolio analysis, such as looking at their overall average LTV. More information inevitably means more control and the ability to respond, which drives innovation.

As a result, brokers could also expect to see lenders launch new products and solutions.

On a cold, windy day, I sit down with the business development manager for Aurius from Apak, Mark Elliott, at 106 Baker St, one of our favourite brunch spots in Marylebone. I want to find out whether this new addition to the Apak portfolio— which took 18 months of work—could really innovate in our specific markets.

As most know, lending in the development finance sector presents unique challenges due to the highly changeable nature of projects, the need to ensure deals stay within their agreed parameters, and the difficulty of producing clear information in order to be able to manage risk and predict cash flow.

The AuriusDF product has been introduced to help overcome these hurdles and, as a result, assist in controlling the cost of managing this type of lending. One of its key functionalities is loan tranche management, which enables lenders to track the pots that disbursed funds are allocated to, whether for a land purchase, to break ground on a dig, or for any other phase during the build.

“Monitoring a development finance loan is hard all the way through,” Mark tells me, referencing the various parties involved that can make it difficult. AuriusDF enables lenders to follow these different parties, their loans and security, all in one place. It can also show lenders which brokers are introducing the deals, so that staff know who to

The proposition is already receiving “a lot” of interest. As it is a new approach to the market, he acknowledges that it will take a “little bit more time” to build awareness.

“We know there are a load of organisations out there that are specialist development 12

Bridging & Commercial

“We know there are a load of organisations out there that are specialist development finance and bridging lenders who don’t have anybody looking to service their needs at the moment�

Exclusive

“A model that’s based on the amount of business going through the system [motivates] me to help you grow your business because [I’m not interested in] how many people use the system”

Exclusive

finance and bridging lenders who don’t have anybody looking to service their needs at the moment.” While other Aurius products are meeting the requirements of big banks, Mark explains that Apak wanted to take that functionality and package it up in a way that smaller lenders and challenger banks could use as a service, too, rather than just an onpremise deployment of software. This allows for a much lower barrier to entry when it comes to cost. “I think [smaller lenders] shy away from IT projects because they see them as complicated, time-consuming and fundamentally not providing enough value and, historically, that was probably true. I don’t think that [is] what we’ve got now.”

The current problem is that lenders are undervaluing what technology can do for them. “Those smaller organisations will take another person on to do admin [instead],” he says. “…A lot of these [firms] are based here, they’re in London … this isn’t a cheap part of the world.” He feels that if businesses valued software in terms of how many people they saved hiring, particularly as they grow, then they would realise AuriusDF makes strong financial sense.

So, how does it compare pricewise to more conventional software systems? “I think that, when it comes to software, affordable is a relative concept, isn’t it? If you’re used to paying a couple of hundred pounds for a Microsoft Office licence, then, sure, enterprise software costs a lot of money,” he laughs. “Enterprise software is not cheap. Software, generally, is not cheap.”

He tells me that, typically, if large banking organisations are looking to implement a system, they could face a bill of up to seven figures, in addition to 12 months or more in time to do so. However, AuriusDF is expected to cost lenders no more than five figures, with the emphasis on being charged based on how much business users end up putting through the system. That way, both the lender and software provider grow together. “It means that our interests are aligned with our customers’,” he says. “If you think about the old traditional software model where you charge per installation, or per seat, there’s a perverse incentive . . . as a software supplier . . . to make sure you employ more people, because that’s how I make money. I don’t really care how much business you process. Whereas a model that’s based on the amount of business going through the system [motivates] me to help you grow your business because [I’m not interested in] how many people use the system.” If that means a lender puts through more business and can keep their staff numbers down, then everyone benefits.

During a time when we have a skills shortage in the specialist finance sector, this should

be music to the ears of brokers, who may have concerns around lenders being able to cope with a rising number of enquiries.

In addition to smaller lenders utilising it, Mark hopes that the bigger specialist banks will adopt AuriusDF to manage their development finance and bridging books. Banks can access it in its entirety through an API, rather than the user interface, which means they can implement it into their existing infrastructure, due to what Mark calls “a very sophisticated connectivity model”.

While the software hasn’t gone live with anyone yet, and therefore we can’t analyse how it has improved a development finance lender’s overall proposition, Mark does cite a bank client that has grown five times over in a period of seven years while using the wider Aurius system. “I’m not pretending that that’s all to do with Aurius—of course it’s not. But it has, as a product, helped that organisation grow ... importantly, in book size, not in numbers of people.”

He argues that smaller lenders looking to implement a system should do it sooner rather than later. “Systematise early. Don’t wait until you’ve got to,” he cautions. Why? “Well, because then you’ve got a much bigger headache … what happens when you’re running systems on spreadsheets [is] that the consistency across the book is low, because you’ve got ultimate flexibility,” he explains. “So, if you get to a book size of £500-£600m … you’ve got a book that is kind of all over the place … you don’t have control of it.” He adds that it is much harder to then introduce and migrate a system. “…

Culturally, your organisation has got used to being able to do what it likes and, actually, that’s not good. [It’s] not a recipe for growth.

Systematisation aids growth and, if you can do that early, the overall cost to your business is going to be a heck of a lot lower.”

Mark believes that the lenders able to provide consistency and efficiency to their customers are the ones who will succeed and grow. He is also of the opinion that enabling web access to all parties within the transaction chain will provide further transparency. “Allowing brokers and borrowers to be able to see, in a completely clear and transparent way, what’s actually happening with their loan could be transformational. The holy grail is the Uberisation of a market, isn’t it?”

In a market that has started the year with a punch, it seems that existing lenders should look to adopt new technologies soon or run the risk of being overtaken by the new players which do.

15 Mar/Apr 2020

The Software Platform for Specialist Banks and Lenders

Aurius from Apak Group, a Sopra Banking Software company, is the only platform targeted specifically at the UK Specialist Banking & Finance market.

The nature of the target customers and the scale of the banks and finance organisations mean it is a sector which has particular needs and challenges: •

The need for flexibility to help precisely target borrowers in specific niche markets

•

The requirement to be able to innovate and quickly respond to changes in those markets

•

The ability to originate and manage deposits to fund the organisation’s lending in a frictionless but flexible manner

•

The need to control the number of systems and suppliers the organisation uses

•

The requirement that systems scale with the organisation

Traditional system vendors with generic banking and lending platforms fail to understand the needs of Specialist Banks and Lenders. Aurius is specifically designed to meet the challenges of these organisations.

It provides: •

Low-touch retail and SME Deposit taking, including web-based acquisition

•

A flexible and configurable lending module which can be targeted at different Specialist Finance niches (Development Finance, Bridging, VAT finance, SME finance, etc.)

•

Open API access through the Aurius connectivity suite

•

Configurable, embedded workflow and document management

•

Tried and tested accounting, payments and transaction handling

This is delivered using a cloud-based Software as a Service model meaning that, unlike traditional software delivery models, organisations have a low cost of entry and pay based on the amount of business handled by the solution.

Interview

BEHIND THE BUYOUT WORDS BY BETH FISHER

‘No one knows your business like you do’

Hot on the heels of hitting the £100m lending milestone in 2019, Signature Property Finance kicked off this year with a £16.8m MBO, winning more than £20m of investment from Foresight Group. After an industrywide hiatus of next to nothing on the M&A front, is this finally a sign of things to come?

Feature

he principal lender opened its doors in Solihull and London in 2013 under Signature Private Finance and has since expanded its offices to Cardiff and Edinburgh. Over the past six years, it has benefited from the backing of Cabot Square Capital (a private equity firm with a portfolio that includes MSP Capital and Lendco—a lender created by the group behind SPF Private Clients).

Now, Signature has secured £21.8m of funding from Foresight Group—which is in place for the next five years—with Cabot pocketing a sizeable £16.8m, and £5m jumping into what the lender calls its ‘fighting fund’. Its goal is to boost the number and size of deals it completes, while still delivering high-quality personal service and fast turnarounds.

Talking to Tony Gilbertson, CEO at Signature Property Finance, he explains that executing a buyout was “always the vision” of its senior management team. “We knew undertaking an MBO would give us greater control over the future direction of the business and the opportunity to reward everyone involved in [its] success.”

The process started when the business recognised the need for a new investor which shared its growth ambitions. After getting in front of Foresight last September, it took a total of five months—described as countless long days and sleepless nights—to see the ink dry on the final contract. “My advice to anyone considering something similar would be, don’t,” he jokes.

He tells me that the lender’s first move was to appoint a corporate finance adviser, after doing extensive due diligence to identify those comfortable in this specific sector. “It’s not just a case of finding the best you can, but ensuring this is an individual you can really get along with; they will be your closest, most critical friend,” he says. “A personal chemistry is [vital] to a successful outcome.”

Already, Foresight’s involvement is attracting the calibre of staff Signature needs to ensure the business can fulfil its true potential, and it plans to use the funding to 20 Bridging & Commercial

target new locations and develop products, including three-year bridging and groundup development finance. “Although not new in the market, the need for these products, supported by our high-quality personal service, was evident from the commercial due diligence undertaken as part of the MBO process,” he claims. “The feedback led to a review of all our products, with many [given] a fresh look [and] new features that ensure they are now fully fit for purpose— this is the benefit of listening to your clients and not always assuming you know it all.”

It is also now looking to replicate the success it has achieved in Edinburgh, with further hubs and relationship managers covering Glasgow, the North West, North East and Cornwall, which Tony identifies as current or future property hotspots.

“We believe local people, with extensive knowledge of [those] property markets, are better placed to advise developers than loan administrators tapping at keyboards in an office hundreds of miles away.”

With the aid of the investment, Signature believes it’s likely it will be able to grow its enterprise value quickly over the next five years—and will also be looking for further funding. “The MBO is just the first step in our journey to transform the short-term property finance market,” he says, “and, rather than slowing down and resting after our exertions, we are quickening our pace.”

As a result, it already has two additional funding lines agreed in principle. He is adamant that this will be sufficient to achieve a loan book in excess of £100m within the next few years. With Foresight’s assistance, Tony boldly believes that the lender can compete with any business in the sector.

“It’s a big ambition, but we feel energised by the change. We have built a reputation [on] doing exactly what we say we will do— almost every deal we complete does so on the original terms issued.”

Could we see more lenders follow in Signature’s footsteps? Tony feels that PE firms now recognise that bridging is a viable financial tool to deliver much-needed

Feature

housing, in addition to offering good returns for investors. It is clear that Foresight Group—which has also invested in specialist lenders Reward Finance Group and Roma Finance—has taken such an interest. James Livingston, partner at Foresight, states that, while the market is competitive, it is also fragmented, which means good opportunities for progression—with the right platform. “Signature has demonstrated strong growth in the years since its foundation, while maintaining exceptional credit quality in the book,” he comments.

The strength and experience of its management was another reason for the PE firm’s investment. “The team has established a strong reputation for delivering on their promises to customers, which is evidenced by their relationships with the broker network. In addition, [it] has demonstrated [its] entrepreneurial spirit and appetite for growth with a suite of new products that are soon to be launched.”

Tony deems the sector to have “cleaned up its act” in recent years and predicts there will be “considerable consolidation” in the months and years ahead as awareness grows among PE firms. “It won’t just be MBOs … I expect to see significant M&A activity as well-managed, well-funded firms, like ours, seek to speed up their growth rate and increase their enterprise value quickly.” He also forecasts growing interest from family offices, highlighting that the next generation of wealth creators will be “more receptive” to the opportunities in this space. And we’re not just talking about investing funds, here.

We could experience something different altogether, which Tony suggests could create “hybrid alternative lenders”.

This development is likely to bring in outside expertise, along with a modernised way of doing things, potentially shaking up the market. But how do we get there?

I ask Tony what advice he would give to other lenders wanting to make a similar move. “Align your marketing to attract the interest of the PE firms and show them you understand your market,

“I EXPECT TO SEE SIGNIFICANT M&A ACTIVITY AS WELL-MANAGED, WELL-FUNDED FIRMS, LIKE OURS, SEEK TO SPEED UP THEIR GROWTH RATE AND INCREASE THEIR ENTERPRISE VALUE QUICKLY”

with a plan to grow—then go for it,” he answers. “Do not wait for others to [make] decisions for you. No one knows your business like you do and no one knows when you are ready for an MBO better than the senior management team.”

Getting close to your legal and accountancy advisers, delegating tasks internally and holding everyone accountable for their actions (or inactions), keeping to the project plan, maintaining momentum and keeping staff informed as to why you are undergoing an MBO, are also on the list as key to pulling it off. “Start your 100-day plan early and cover both macro and micro levels,” he adds, splitting up responsibility across employees. “The way in which they deliver what is expected, or not, will help you shape your future team. Be prepared for the unexpected and [a] white-knuckle ride—you know it will stop sometime but, for now, hang on and enjoy [it].”

Although, once that part’s over, the real hard work begins.

“It is still early in our relationship with Foresight but, so far, we couldn’t be happier and expect [it] to open doors for us,” he concludes. “We don’t want to give away too much at this stage,” he says, “but [what] I will say is, watch this space—Signature Property Finance is only just getting started.”

21 Mar/Apr 2020

Are You Switched On?

Terms from 1-24 months No PGs required for company transactions Residential, commercial & semi-commercial property Scan me with your camera

Zeitgeist

week in the life of a broker #WFH During the past few weeks of lockdown, the spread of Covid-19 has resulted in Peritus, as well as countless other companies across all sectors, having had to change the way it operates in order to stay ‘open for business’ for clients, in an operationally feasible way. All meetings with internal teams, as well as external client meetings, previously held on a face-to-face basis, were rapidly moved to online platforms like Zoom, Slack video, Remo etc.

Words by

Stene Jacobs

operations director, Peritus Corporate Finance

O

n a personal level, we have had to learn how to juggle the often nuanced and multifaceted responsibilities of ‘sharing’. Sharing childcare and home schooling with your spouse, work timeslots when important meetings are scheduled, technology and laptops…

But we have also learned to consider the importance of family, and stopping to enjoy and savour this time together, to really appreciate how special it actually is. In years to come, our children won’t remember the potential stress to the economy that this period presented, but, instead, will remember the time they spent with their parents with fondness.

In the wider industry, we have seen a broad cross-section of responses as lenders try to establish where the risks lie, and align their offerings accordingly. Some have stopped writing new loans altogether in the short term, while others have tweaked their products to diminish risk exposure—which may include only lending on very specific assets, or at a much lower LTV, and often at higher rates of interest.

Throughout this process, we have tried to plan for foreseeable outcomes.

We have always had the capability to work from home, but the current environment is unprecedented and a ‘black swan’ event, like the one we are going through, is very challenging, if not impossible, to plan for.

We continue to place deals in this difficult market, but our entire supply chain, with respect to professionals, is working to different time scales— if at all. Understandably, lenders are taking much longer to analyse deals at underwriting and credit levels, and lawyers, valuers and other service providers have had to change their modus operandi to keep the wheels of commerce turning. Some valuers have turned to video site ‘walk throughs’.

Certain law firms, which previously insisted on physically seeing clients for KYC purposes, or the insistence of ‘wet signatures’ on documents, have had to change their policies to allow business to continue. The use of technology has come to the fore in previous weeks like never before—and I think this will be one of the ‘wins’ from which we will benefit most, post pandemic.

24 Bridging & Commercial

Zeitgeist

own.

Here is my diary for week two in lockd

March 23 Monday 6:00am

7:30am 8:00am 8:45am 9:00am 10:00am

11:00am 12:00pm 1:00pm

2:00pm 3:00pm 4:00pm 5:00pm

k. Streets and Wake up. Take the dog, Daisy, for a wal a beautiful clear but neighbourhood in Fulham eerily quiet, blue sky.

Wake children up (reluctantly). n. Download Prepare breakfast for wife and childre ting at 10am.

‘Microsoft Teams’ for virtual team mee (‘Wake up, shake up’ Prep YouTube on TV for family exercise PE with Joe Wicks). le family is feeling Training with Joe Wicks begins. The who ner. win great. So far, the day feels like a talk about deal Dial in to a scheduled team meeting to see where we d to flow and each team member’s workloa meeting, my wife the er aft t Jus er. can assist each oth for my nine- and and I tried to initiate ‘home schooling’ working, tears five-year-old. Aaaargh! Technology not has reverted to from my daughter, and my younger one wife and I feel ! My his normal Saturday schedule already kids know it… the and d— nise rga unprepared and diso th of emails and Go back to home office for an hour’s wor phone calls. st chicken from Sunday—yum!

Break for lunch with family: leftover roa pen commentary for publishing.

Research current market position and reality, is ‘in’ and who’s ‘out’ of the , in Contact key lenders to establish who business’ line, but, really, they are for pen o ‘ the sector. Some are pushing funds out at this point in time. ‘quasi closed’ and very reluctant to put a message out to the market on our Liaise with in-house marketing to get by other senior directors. position and do a workup to be proofed wife’s nerves are shattered Second attempt at home schooling. My definitely feels like a fail today. ect already and its only day one! This asp phone calls.

Try to complete some more emails and e down anything that applies to Watch Prime Minister’s briefing and not work. Day one of a stricter net us as a business, or to our wider client . ced oun ann lockdown regime

25 Mar/Apr 2020

Zeitgeist

March 24 Tuesday 6:00am 7:30am 8:00am 9:00am 9:30am 1:00pm 2:00pm 3:00pm

6:30pm

at -1, but a beautiful walk Morning walk with Daisey. Chilly es above. ski along the river with crisp blue Get children out of bed.

Family breakfast. sh Start on GoNoodle—a Daughter insists on doing Fre who’s watching?! bit too much dancing for me, but h live clients. to lenders today and dealing wit out ng chi rea ; ails em on g rkin Start wo k. ily walk to nearby Bishops Par Break for lunch with a quick fam ing nce specialists for a post regard fina al son per our of one by g Pick up work proofing a blo of the coronavirus. mortgage holidays as a result to clients and ch platform, and then reach out ference calls or pte pro a h wit ng eti me one Hold a teleph ange as con physical meetings, or to re-arr other professionals to cancel video meetings instead. ” which is a webinar and SME property development eractive platform for s viru ona cor ing ndl “Ha o int l Dia stedLand. It was a very good int and digital social hosted by Tru ciplines in real estate. knowledge sharing across all dis

March 25 Wednesday 6:00am

Another sunny morning! Exercise Daisy along the river. Extremely quiet today.

Onl spot one other runner in an hour which y is uncanny for central London.

7:30am Wake up, shake up!

8:00am Breakfast—trying to make healthy choices is hard when all the kids want is Coco Pops!

9:00am PE with Joe Wickes. Muscles are sore this morning.

10:00am Team call via Slack to discuss current deal status or any new enquiries. Also took calls from new contacts met at last night’ s networking webinar. Amazingly, these remote platforms actually work really well.

1:00pm Lunch.

2:00pm Set up home schooling tasks for kids : times tables for Lily and alphabet lett er writing for Jack.

2:30pm Marketing call with our Newcastle offic e our client base and remain visible in the to discuss upcoming posts in order to help mar hearted or positive angle instead of the ket, including social posts for a more lightusual doom and gloom!

4:00pm Mark home schooling work set after lunc h.

5:00pm New update on coronavirus. The call for 250,000 volunteers to help the NHS yielded 405,000 in 24 hours. yesterday

26 Bridging & Commercial

Zeitgeist

March 26 Thursday 6:00am 7:30am 8:00am 9:00am 10:00am

12:00pm 2:00pm 3:00pm

ning 7km run First cloudy morning of the week. Mor with Daisy along the river. to get into the Help wife with kids. They are starting home routine, finally.

Family breakfast. choice of Exercise on GoNoodle again. Daughters . ack owb thr s ‘Footloose’, an enjoyable 80 that was dshots taken for the team today, but Set up for work. Meant to have new hea ts. Spent two hours updating clients and men obviously cancelled due to WFH require seem to be changing on a daily basis. s speaking with lenders, as their offering and problem solve/knowledge share.

Team slack video call to discuss deals paninis.

Late lunch of toasted ham and cheese ty, so ’t have time in the morning and felt guil Help my wife with home schooling—I didn orrow. il tom have to leave continuing with work unt

March 27 Friday 6:00am 8:00am 9:00am 10:00am

1:00pm 2:00pm 3:00pm

4:30pm

Another sunny morning. I can’t believe this weather...Is the earth thanking us for giving her a break?!

Let children sleep in a bit today. Lots of changes for them at their age.

PE with Joe Wicks—he is up to almost

one million followers now!

Sit down to work. I decided Fridays are the day I pick up the phone and actually talk to clients and colleag ues. Spend ‘till lunch doing just that.

Had lunch in the garden with my wife and time together now. It’s been a positive kids. Starting to enjoy this change for us for sure.

Set up last bit of home-schooling for the week.

Conference video call with another net wor participants with some interesting sto king group. 50 ries and introductions. It’s great to be part of a few of these, as it makes you feel you are not alone in this mess. Made me very pos itive that we can get through this time of uncertainty.

Mark home-schooling work, pour wine, put feet up.

My takeaways

The last few weeks have made me realise that we can quite easily adapt to this new working from home routine. At first it took a bit of time—trust me, there were temper tantrums and tears—but we’ve all managed just fine. In fact, I realise that if I was to be isolated with anyone on the planet, I would actually choose my family for the job!

I’ve learned to ace multi-tasking (my wife would probably laugh at this) but, more importantly, patience—to be calm and realise everybody is adjusting to this new way of living at a different speed, with their own issues. I’ve also learnt things about my colleagues and wider network, by having a view into their home environments, and am learning about them on a much more personal and human level. I feel that this experience has brought me closer to family, friends and colleagues—even though physically we are more apart than ever. Some of these lessons learnt we would be foolish to forget when work returns to ‘normal’ and some of the positive ones will remain with us as a net gain on a personal and commercial level.

27 Mar/Apr 2020

Zeitgeist

Words by

caron schreuder

A few months ago, when such declarations were deemed important, industry at large would have boasted about its ‘paperless’ ambitions. As everything we know and love gets placed in the cloud, forever accessible, but no longer tangible, we have embraced technology in our daily lives at every level. The world of property transacting has not quite kept pace, however, and the Covid-19 pandemic has placed this discipline’s reliance on hard copies, ‘wet ink’ and physical interaction front and centre of an all but flatlining housing market 28

Bridging & Commercial

Zeitgeist

ercury rules could save real estate transactions 29

Mar/Apr 2020

I

managed to grab some time with Ranjeev Kumar, partner at Watson Farley & Williams, who shared some useful information surrounding what have been typical practices, the conundrums posed given the current climate, and the workarounds available to solicitors.

Perhaps underpinning this shift in the way we have come to operate—and heard elsewhere almost daily—is the new working world order which is likely to emerge as a result of the outbreak.

“Rigid and established practices and procedures are being heavily tested and coming under scrutiny, and these are changing to accommodate both the present Covid-19 concerns but also, more broadly, changes to modern ways of working,” Ranjeev believes.

JLL’s March report on the Global Real Estate Implications of Covid-19 predicts that an increase in remote working will likely have an impact on office utilisation rates and, in the longterm, could fast track the investment in collaborative technologies to facilitate it.

The wording of a solicitor’s undertaking— their commitment to do something—is pivotal to any transaction in matters that span pre- and post-completion. Failure for solicitors to observe and perform these undertakings may result in, as a minimum, an aborted transaction (because, for example, there would be no certainty as to how completion monies would be held prior to completion, or how security would be registered afterwards), and possibly even allegations of professional misconduct and sanctions being imposed.

But what happens in a time, such as this, when clarity is not the order of the day?

How does a solicitor commit to matters which are in a state of constant change?

According to Ranjeev, it is all about being “clear and unambiguous”, and then adding in revisions based on restrictions imposed by the crisis, being careful to relate these to specific aspects of the undertaking and avoiding broad, open-ended statements.

Also present in these undertakings should be the obligation for solicitors to support the use of electronic methods of signing, filing and transferring documentation, where possible, using “reasonable endeavours” to act promptly.

The introduction of the use of ‘material uncertainty’ in valuers’ reports means that more scrutiny, and a higher degree of

Zeitgeist caution, should be attached to valuations than would normally be the case. Given the amount finance providers rely on these, this clause stands to throw that into question. So, how should lenders proceed?

“Any restrictions of information and the ability to inspect, or the assumption of ‘material uncertainty’ need to be explicitly [specified] in the terms of engagement, agreed with the lender, and clearly stated in the report. Any valuation/survey assumptions that are being made because of restricted access and/or valuation information must be expressly stated and agreed in advance. This also means that any existing agreed terms of engagement must be amended and updated accordingly,” explains Ranjeev. Again, it comes down to a complete understanding of what the changes are and how this may impact a lender’s decision to extend the facility. It may be prudent for a lender to appoint a valuer during this time which does not insist on the inclusion of this clause in its report. Of course, lenders which specialise in lower value and geared loans, secured on undifferentiated properties in certain towns and cities, will also continue to have the option of a standard desktop valuation.

Now, onto documentation. Land Registry and Companies House are sticklers for getting original documents—and to strict deadlines. Practical challenges are presented by our current state of lockdown, making sending, receiving and checking post difficult.

The expectation is that most large City law firms are operating a skeletal post room, allowing for mail to be received and scanned to the relevant person, and, in some cases, for original documentation to be forwarded to the relevant solicitor to be processed, according to Ranjeev.

His top tips for keeping things in order when it comes to hardcopy documentation include: • certified copies of original documents to be prepared and scanned to all relevant parties, as soon as possible • all post to be scanned to the intended recipient before it is dispatched • notification to be provided when post is dispatched • a tracking service to be used where possible • confirmation of receipt of post to be given by the recipient as soon as possible

30 Bridging & Commercial

He adds: “The Covid-19 outbreak means that, due to the restrictions on sending and receiving hard post, and the fact that many individuals are working remotely, it is difficult to ensure that original documents are in the correct place and with the correct signatories to be signed in ‘wet ink’, witnessed, exchanged and completed. Use of electronic signatures and an already established practice of virtual signings and closings (known as the ‘Mercury rules’) can help to overcome these issues.”

Due to the nature of property transacting, there is still a fair amount of physical interaction between parties, mainly to ensure that no impropriety takes place. However, the Mercury rules are a precedent to how we can facilitate virtual completion. Developed to aid progress in a transaction when one or more signatories are not present at the same meeting, a set of guidelines has been established for the successful remote execution of deeds, contracts and guarantees. In fact, utilising virtual methods of completing is often “much quicker” than traditional approaches, says Ranjeev. “We have never experienced a completion failure in a real estate finance transaction when we have used the Mercury rules, nor have we heard of any failure elsewhere (and [as] the Mercury case is itself from 2008, the rules are now very established).”

“The downside to the Mercury rules is the risk that original ‘wet ink’ documents are not received on completion (but this can be mitigated by ensuring that they are the subject of an undertaking) and, of course, we cannot totally rule out fraud,” he explains, adding that the risk of fraud is present in all transactions.

I’m told that, even in regular life, “many bridging transactions” make use of these rules for speed of execution, resulting in considerable time saving.

Ranjeev and his team managed, just before the UK went into lockdown, to complete on a multi-jurisdiction property transaction by using the Mercury rules, with another refinance on a London development completing at the time of writing—also using the virtual method.

It is recommended, Ranjeev urges, to apply a “belt and braces” approach and ensure, in all cases, that the ‘wet ink’ docs are supplied as soon as possible, following any electronic signatories.

Zeitgeist When it comes to the Land Registry, things are a little more inflexible.

Ranjeev explains that law dictates that any contract for the sale or other disposition of an interest in land must be in writing and signed for on behalf of each party—per Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989—and an electronic signature is a valid signature for the purposes of a contract. The problem relates to deeds which need to be registered at the Land Registry: these must be signed, witnessed, and delivered—per section 52 of the Law of Property Act 1925, and section 1 of the Law of Property (Miscellaneous Provisions) Act 1989—and therefore face additional issues to those surrounding simple contracts. This is partly because a deed requires a witness, and also because there is currently no scope to register an electronically executed deed at the Land Registry—a requirement that isn’t likely to be relaxed anytime soon. What the Land Registry has done, however, is announce that there will be no cancellations of applications until 1st June 2020, effectively buying applicants more time to deal with requisitions—such as the presentation of original documentation.

I’m told that, even in regular life, many bridging transactions make use of these rules for speed of execution, resulting in considerable time saving

Ranjeev suggests that parties should be discussing potential problems (such as printing off documents, execution, and sending original deeds to the other side) at the outset of the transaction.

To alleviate this, I am told that many solicitors and clients have purchased new printers. The good news is that postal services and couriers are still operating, so solicitors have been able to move original documents, although it is necessary to factor in additional time, as this has been slower than normal.

What about witnesses? “Some of the electronic signature providers also [offer] a facility for witnessing documents, and the witness does not necessarily have to be in the same room. For example, we have come across a web-based facility which provides evidence to a nominated witness that a document has been signed by the signatory and gives that witness five minutes within which to witness the document. This deals with deeds which do not need to be registered,” Ranjeev states.

For registering deeds at the Land Registry or Companies House, a physical witness is needed, since electronic signatures are not acceptable, confirmed Ranjeev.

This is where the Mercury rules can step in to help. Signing and witnessing can be done remotely, as long as the witness is in the presence of the signatory and doesn’t represent any conflict of interest. Countrywide lockdown presents challenges to this as, whereas a spouse or relative may act as a witness, the use of a family member should be agreed between the parties in advance (and it should be noted that some lenders prefer an independent/non-family member witness, for obvious reasons). Ranjeev advises that it has, in most cases, still been feasible to request a neighbour to fulfil this duty, while observing social distancing and, he has heard that, in extreme cases, witnessing has taken place from the other side of an open window.

Is it, ultimately, reasonable to expect property transactions to go through under such unprecedented conditions?

“Completing a transaction under the current circumstances is difficult, but not impossible” says Ranjeev. “Lenders and borrowers cannot afford to sit on their hands for months to come and, together with other professionals, solicitors will be as important as ever in helping their clients navigate the current landscape and providing creative, flexible and practical solutions in a risk managed manner”.

Registering a charge with Companies House requires the applicant to submit an original or certified copy of a document intended for registration, Ranjeev explains. “Again, the restrictions on sending and receiving hard post, and the fact that many individuals are working remotely, make it difficult to ensure that original documents are in the hands of the applicant (or their solicitor) at the time an application is made. A combination of appropriate solicitors’ undertakings (to deliver original documents), and circulation of scanned, certified copy documents should help to facilitate registrations at Companies House. This a fast-developing area and we expect Companies House to issue updated guidance at any time.”

31 Mar/Apr 2020

Ensuring lenders �nd the right route through distressed loans in truly uncertain times.

Cover story

It’s a packager’s world

but why?

Words by

BETH FISHER

Last year, an upward shift saw almost 40% of bridging business originating through packagers. With scores of lenders announcing record results at the start of 2020 and ambitions to widen their offerings further, the packaged route is set to become an even more attractive option for businesses aiming to achieve scale at a rapid pace.

In April 2019, Bridging & Commercial revealed that the percentage breakdown of the different channels feeding through bridging business had barely changed between 2017 and 2018. To learn how distribution has potentially evolved since then, I contacted a sample of 30 bridging lenders of varying shapes and sizes to understand where they got their deals from in 2019.

Our research found that there had been a marked uplift in bridging business originated through packagers, master brokers and distributors when compared with the 12 months before. This model accounted for 37.9% of business—a leap from the 24.6% reported in 2018. While networks, direct, and ‘other’ stayed fairly static year-on-year, intermediary-channelled deals dropped from 57% to 46.3%.

So, what caused the rise in packager business?

The figures indicate that there may be more intermediaries entering the bridging market who need the support of a specialist. But why would ARs or DAs choose to go to a packager with a non-typical case instead of going direct? In a market that has seen an ongoing influx of new short-term financiers, specialists exist to bring experience, quality, service and speed to the lending process—they are the verified badge-holders of bridging.

With the sector maturing, distributors and the like are seen as key in the pursuit of scale. While smaller bridging lenders can grow both organically and by using other distribution channels, those that are looking to increase their books at a faster rate—possibly driven by the desire for cheaper funding or M&A reasons— will need slick, volume-led originators. “As more lenders seek to increase volume, it is natural to look at forging relationships with bigger distribution hubs,” explains Gareth Lewis, commercial director at MT Finance. The alternative is to buy other lenders or distributors—something which takes time and money.

Due to low interest rates across the board, driven by burgeoning competition in the sector, the bridging market has become much more acceptable as a form of borrowing, and therefore knowledge and awareness of the product in the mainstream market is on the up. In 2019, mainstream brokers saw the split 35 Mar/Apr 2020

Where was bridging business originated from

DIRECT

11.4% NETWORKS

2%

OTHER

2.4%

36 Bridging & Commercial

in 2019?

INTERMEDIARIES

46.3% PACKAGERS

37.9% MASTER BROKERS DISTRIBUTORS

37 Mar/Apr 2020

Cover story

“By using a specialist distributor, the chances of cases completing can significantly increase, as opposed to going it alone�

Cover story

between simple and complex cases shift. This was partly due to a rise in the number of BTL purchases through limited companies as a result of tax law changes, diversification of income streams, and difficulties caused by market uncertainty revolving around the political climate.

I am told that it was likely that brokers found it more difficult to place deals with lenders due to them being more cautious compared to previous years. This, for packagers, created a perfect storm of business opportunities. “In a modern age, mainstream lenders are failing to keep up with changes in people’s lifestyles and borrowing requirements,” states Marc Goldberg, commercial CEO at Together.

“Therefore, there’s a growing need for agility in lending which can adapt to different customer circumstances, and skilled packagers can help in these more complex situations.” If brokers feel they do not have the relevant expertise or time to deal with these cases properly, they can choose to refer them on to packagers and master brokers. “We work with many early-stage property investors who are considered high risk,” highlights William PW Omony, property tax adviser at Proactive Consult, stating that packagers can shorten the processing period and present them with a much wider pool of funders. Lucy Barrett, managing director at Vantage Finance, believes that there has been a rise in intermediaries who have gained confidence when receiving complex cases and have reached out to specialists to support them. She adds that, with an increase in these kinds of deals, brokers have had to adapt, become more agile, and move with the times— or end up losing business and clients.

Kieran Barnden, bridging and commercial specialist at Brilliant Solutions, who started in the industry in August 2018, has already seen a “massive change” in the volume of business for both short-term and commercial-term products. He tells me that, over the past six months, brokers who didn’t normally deal with a mass amount of bridging are finding that their clients are becoming more curious about what the product can offer them. “This interest from clients seems to be driving the brokers to specialist packagers, like ourselves, as they have no idea what to do.” He explains that when intermediaries approach them and ask how the product works, after discovering what processes and costs are involved, they end up feeling it entails a lot of work or risk. As a result, they deem it more appropriate to go through the packager.

“This is certainly a win for us, and generally a positive for the clients, because they have the comfort that they have been given the

correct advice from their advising broker, as [they have] used someone who is specialising in that particular product market.”

In the unregulated space, where the client has a commercial intent, the approach to finding a solution is vastly different to that in the regulated, residential sector.

“Bridging requires a bespoke, manually underwritten assessment, and [the] solutions obtained are not off-the-shelf products,” states Natasha Yea, director at Next Route Finance Limited. Considering that the bridging market is a moving beast, with new products constantly being introduced, calling upon assistance can give intermediaries an edge over their peers.

“Also, if situations are a bit more complex, there’s nothing wrong with getting a second opinion,” says Paul Day, sales development director at Clever Lending.

Packagers and distributors generally employ experienced people who have worked in underwriting or BDM roles previously, and therefore know what lenders will want.

Gavin Diamond, commercial director of bridging at United Trust Bank, says that it doesn’t surprise him that the level of business conducted through specialist distributors continues to rise year-on-year.

“In the regulated space, in particular, ARs are often prevented by their networks from placing deals directly with lenders in any event, requiring them to [introduce] via distributors on the network’s panel.”

Jo Breeden, managing director at Crystal Specialist Finance, tells me that he sees overall progress in the way that networks and mortgage clubs identify the benefits of bridging, which could be why this origination silo is flourishing.

Many lenders themselves have also encouraged brokers to submit business via packagers, as it can help achieve a quick turnaround and release of funds. Mainstream mortgage lending retrenchment last year may have also resulted in brokers who would normally deal with the high street looking at the specialist finance arena. “The need for specialist lending—and packagers who can deal with such cases—may even increase as the mainstream players look to streamline and automate their offerings, as well as [tighten] lending criteria,” Marc points out.

More education and a rise in proactive marketing from packagers and networks, specifically aimed at offering assistance to smaller brokers, has also helped. Jo tells me that, as part of an ongoing project, Crystal puts the message out far and wide through education, workshops and webinars, and invests greater sums in this every year. “The more brokers we can influence, the bigger our role will become,” he states. Brightstar has also been

on the same mission, and has undertaken extensive work with its introducing partners, focusing on availability of products in the space, as well as how to identify opportunities. By channelling more of its marketing spend into activities that deliver practical guidance for brokers, it has created greater engagement and generated more interest from new brokers eyeing up the sector. “By implementing simple referral systems, training initiatives and workshops with brokers, lenders and networks, we have provided a valuable support structure to those with limited knowledge, but with the desire to maximise their opportunities,” states Steve Burch, short-term lending and development finance specialist at Brightstar Financial.

Are procuration fees playing a part?

One packager claims that some intermediaries will not want to split their fees and therefore will try to take on simpler cases that they can take straight to the lender. To get larger volumes of business, I am told that charges from packagers—which normally consist of application/commitment, broker and proc fees—are becoming more competitive. “Like lending, the broking market is also very competitive and, as we see lenders enhancing their offerings to remain [attractive], packagers, too, have incentivised their offering with reductions in application fees or free valuations in an effort to [generate] more business,” says Danny Robinson, director of commercial at Grey Matters Specialist Lending. Sam O’Neill, senior finance broker at Clifton Private Finance, believes that, as the volume of deals is generally increasing, the need to make a large return on one deal is dropping. “Packagers have realised that brokers are increasingly going to lenders direct rather than through a packager and [have consequently had to] lower their fees.”

Rob Derry, managing director at Brunel Mortgages & Loans, tells me his firm has charged a flat fee for some years now.

“Some packagers don’t do this yet, but I think they’re in the minority,” he claims.

It is also said that lenders set packagers annual volume targets, the meeting of which results in them paying out a bigger fee. The benefit for the lender is that it is buying business security through purchasing market share. Andrew Robinson, CEO at Arc & Co, expands on this, saying that, while it costs lenders more, they are guaranteeing themselves business and, therefore, their bottom line. Committed volume is vital for lenders which need to deploy the funding lines they are paying for. In order to win the deal, packagers

39 Mar/Apr 2020

Cover story

have been offering intermediaries more of the fee split than they would have done historically. “Whereas brokers traditionally wouldn’t have touched specialist finance, they are now thinking, ‘I can do this myself and earn 2%.’ A packager will say, ‘Well, we will do all of the work for you and pay you half of what we earn to win the deal,’” explains Sam. He claims that some lenders pay up to 2.5% if packagers provide large volumes. So, while a broker—who can provide a steady flow of business and is proficient—might get 2% going direct, they can get up to 1.25%, without as much hassle, via a packager. And that is still a larger return than their core business would make.

However, the customer’s best interests should always come before proc fees.

Perhaps that is why a reform across the board has been suggested, which could prove that lenders and packagers are on panels based on merit. “Volume arrangements should be removed,” urges Dan Narwal, BDM at Cynergy Bank, stating that this would ensure a customer is placed with the most suitable lender, “rather than a lender who the packager has commitment to provide certain business levels to.”

The practice of lenders paying the levels of fees required by volume-based distributors is likely to continue. But, with bridging interest rates dropping, will this be feasible for finance providers?

“If your products are not sustainable, then you have a responsibility to the market to not offer a product that cannot be delivered,’ says Gareth. Andy Reid, director of intermediary and network at Oblix Capital, adds that the issue comes down to each lender’s cost of funds, and the costs of transacting a particular deal. “…Flexibility is always a feature of our sector and it’s not always about the lowest rate or the highest proc fee; it’s generally about the certainty of funding. So, it’s not unusual for cases to be priced on a risk basis which therefore has less impact on the proc fee payable, or indeed, the other way round,” he argues. D’mitri Zaprzala, head of residential at Octopus Real Estate, confirms that rising proc fees will not be sustainable in the longer term. “…Margins are already being squeezed and so you can’t continue to exponentially increase proc fees; we see [them] as remaining stable.”

For lenders which deploy their own funds, there is not as much debt exposure, making them more reliable in both good and challenging conditions. Scott Marshall, managing director at Roma Finance, says that, at first glance, it may appear that the cost of acquiring a customer is increased when using a packager, however, the value of a well-packaged case is “extremely high”

to a lender, as it increases the efficiency of processing. “In reality, a good packager or master broker is worth their weight in proc fees,” he adds. Richard Tugwell, intermediary relationship director at Together, says that its business model considers this cost in its overall proposition.

“Fast and easier processing when cases are packaged well is also a consideration in the overall cost,” he states. Marc agrees that, in any walk of life, people would rather deal with somebody they know who will do the job properly. Therefore, it may be worth paying a bit more for a specialist who packages the case speedily and correctly.

“You get what you pay for,” he declares.

It is unsurprising, really, that this route has increased. A referring adviser can focus on their day job, while earning almost as much as if they were advising on the case themselves, with limited risk of delivering bad advice. “The adviser keeps the relationship with their client, is paid for the referral, and the client receives appropriate advice—it is a winwin [scenario],” says Jonathan Burridge, development director at JLM Mortgage Services. The key message here is that referrals shouldn’t be fixated on fees and, if clients aren’t put first, an introducer’s business is likely to end up elsewhere. Rob says that fees are much more transparent now and can’t be hidden in the detail.

“Reputable brokers have the conversation upfront with the client about what it’s all going to cost, and borrowers are much more aware of this, too ” he divulges.

“Clients need to be told what they’re going to pay and when they’re going to pay, or they’ll walk away and deal with someone who will give them that information.”

The value-add: is this trend making the bridging market more efficient and competitive?

Placing cases with the right lender—the first time—is key to enhancing speed and relationships across the board, and Piragash Sivanesan, founder of Totum Finance, says that the challenge for smaller brokers is to ensure that deals presented meet lenders’ criteria and are suitable. “Many borrowers have given up after being turned down by the lender or intermediary because they have not presented their situation or case very well,” says Lucy. She believes that many of those borrowers could have actually received the funds needed if they, or their intermediary, had taken it to a master broker who knew how to present and package the case in the best possible way, as well as which lenders would take on such a case. “We’re like a bouncer at a nightclub—we keep the applications away that are just going to cause the lenders problems and push the good ones 40

Bridging & Commercial

to the front of the queue,” clarifies Rob. Packagers which only deal in this specific sector and have a specialist, experienced team, have strong relationships with lenders which means that they are constantly updated on new products across the industry. “Due to [the] choice of lenders who are all delivering the same message of exceptional service, speed and competitive rates, brokers can advise on ...who is simply ‘talking the talk’ [and] those that are actually ‘walking the walk’,” says Kim McGinley, director at VIBE Finance.

These relationships also enable specialists to obtain enhanced products and better rates—a win for the consumer. Steve tells me that it also gives specialists the ability to negotiate and gain approvals on what he describes as ‘borderline cases’. “By using a specialist distributor, the chances of cases completing can significantly increase, as opposed to going it alone.”

Packagers, distributors and master brokers also often have access to dedicated underwriters—both in-house and at lenders’ offices. This saves the lender and borrower time and money in the long run, as they are less likely to absorb unnecessary costs when applications fall through during the underwriting stage.

“We provide multi-product search and technology solutions, too, both of which are specially designed for all areas of specialist finance, including bridging,” says Dale Jannels, managing director at Impact Specialist Finance. “Due to busy lives and time constraints, borrowers want to know that they are in capable hands and that any application is not going to be turned down because key information has been missed or information has been presented incorrectly,” says Matthew Van Lorson, director at Sanova Real Estate Finance Ltd. “Borrowers want a tailor-made service.”

While bridging is designed to be a shortterm solution, the average completion time in Q4 last year was over 50 days. Jo explains that packagers understand the appetite of every bridging lender, which means that when it approaches a lender, the application has the best chance of reaching drawdown. It will also be submitted in a way that meets the lender’s internal systems and procedures, resulting in speedier transactions. “It ensures that lenders are able to focus on deal delivery as opposed to chasing borrowers for outstanding requirements,” comments Alice Williams, head of property finance at Pilot Fish. “A greater level of conversion and speed is expected by lenders from packagers,” says Jack Coombs, director at Aspen Bridging, given that they have more resource and expertise than the typical brokerage.

Cover story

“As lenders diversify their own funding from private to institutional lines of credit, the pressure to originate deals will increase further�

Cover story

The concerns While it seems that more intermediaries are dipping their toes into the bridging space, it is not the right solution for every case. Packagers—which deal in multiple specialist finance areas—can quickly identify what is best for the customer.

Jo tells me that, because bridging is the “go-to product of choice” at the moment, there’s a chance that customers could be funnelled in a certain, less-appropriate direction. “It is not uncommon for us to propose another financial solution, if we believe there is a better option elsewhere.”

Another worry is that intermediaries who aren’t as knowledgeable in bridging may underestimate the importance of gathering the details around a case upfront, which could mean challenges are discovered down the line—when they are too late to overcome. “A mistake we often see is chasing headline rates,” reveals Lucy, adding that, while this is fine for vanilla transactions and those that fit the bill, it can turn out to be “full of risk” if the knowledge and experience isn’t fresh and current.

The worst-case scenario is an inexperienced broker dabbling in bridging directly with lenders, and potentially wasting their client’s time and money.

Sam divulges that his firm was approached last year by a client who had used a mortgage broker with a lack of bridging expertise to arrange a case for them. After the valuation was conducted, the lender ended up pulling out of the deal due to the unique construction of the property.

An issue which Sam argues would have been clear at the outset to an experienced broker, following an in-depth fact find.

The understandably annoyed client—who was looking to raise funds against their residential property—bypassed the broker and ended up going direct to an unregulated lender, who allegedly encouraged the client to take a charge over some of their additional securities to make the deal unregulated. “The client contacted us and we explained why the unregulated lender couldn’t do the deal, why the first broker should have realised that the initial regulated lender wouldn’t do the deal and we brokered [it] with a recommended bank and the deal completed.” While the outcome was positive, all of this could have been avoided if the case was referred to a specialist in the first place.

Will this trend continue?

Once brokers become more knowledgeable about putting cases through packagers, master brokers and distributors, are they sticking with them or going it alone? Kieran tells me that brokers do keep coming back. “Even

when they grow confidence in what bridging is, we still find that [the] broker will return as they appreciate the ease of using a packager,” he says. However, he does believe that we may see the numbers drop off as bridging becomes more popular. It seems that packager business will only continue to grow if the core business of the brokers using them remains in the mainstream market.

If relationships proved positive and lucrative in 2019, this trend could very well continue this year. “The 2020 market appears to be filled with optimism which could lead to an increase in the number of new brokers entering the industry,” predicts Chris Treadwell, relationship manager at Avamore Capital. Despite this, he feels that the confidence in the market suggests that experienced, independent brokers are unlikely to face the same challenges around deal placement.

Brightstar—which also believes the trend will continue—recently introduced an additional support element by employing dedicated national account managers, who it says have already had a “significant” impact in the development of brokers and the generation of more enquiries. “There is so much business out there that isn’t currently serviced effectively, or is just turned away, and often all it takes is a simple call to one of our consultants to generate more income and referrals, and ultimately help more consumers,” says Steve.

With signs that the property market is starting to strengthen again, frequently (and tiringly) referred to as the ‘Boris bounce’, the bridging market is tipped to benefit.

In a recent report by Avamore Capital, it found that almost two-thirds of respondents in a specialist finance sector survey (65%) believe that developers are more likely to purchase sites in 2020 due to increased political certainty. Kieran believes that with the uncertainty of Brexit somewhat over, people are filled with a renewed sense of urgency to obtain properties they may have seen six months ago. “I have also noticed a number of brokers who are dealing with pushy vendors/estate agents who seem to want offers and completions a lot quicker than usual and are then feeling that due to the client potentially losing out, a bridge is the clear option, as maybe six to 12 months ago that wouldn’t [have been] the case.”

In addition to this, fintech could also stimulate master brokers’ ability to aggregate volume, which Piragash believes is important as the industry matures. “As lenders diversify their own funding from private to institutional lines of credit, the pressure to originate deals will increase further,” he explains. “Automated processes [and] working closer with master brokers, 42

Bridging & Commercial

who can be part of the process chain, makes sense.” Jack feels that there will be a natural limit to the extent of business packagers will enjoy, as lenders may further simplify their processes in order to attract a greater number of IFAs themselves. Despite this, he concedes that the rise of platforms may give technology-focused packagers “the capacity to grow their market share further”.

The election result and EU exit giving the market more confidence and certainty could also create a more level playing field in 2020 and beyond, which Masthaven believes could increase the number of straightforward bridging cases and therefore widen distribution channels.

That being said, there is still tough competition between the ever-rising number of bridging lenders in the market, resulting in high business costs and squeezed margins; packagers may be the best bet to alleviate this. While lenders may need to pay out additional fees to volume-led packagers, it saves time and personnel costs. It makes sense that monitoring one packager rather than multiple brokers is more economical.

“Working with specific packagers and master brokers means that [lenders] can focus on the processing of applications and not constantly having to answer emails or take telephone calls from inexperienced brokers who take up resources and time,” explains Matthew. “This means the quality of business and application success rate is higher. We believe that we will get to a point in the future where many lenders will work with specific, qualified and select brokers in order to maintain the quality of enquiries and increase the possibilities of closing business.” However, Andrew warns that what you then lose is the independent advice that you get with individual brokers, “because the packagers do not represent the entirety of the market and only package for a certain number of lenders.”

As additional brokers enter the specialist finance market and packagers cut fees and start offering more traditional mortgage products to keep clients in-house, could we see the line between brokers and packagers start to blur? “On the other side of the coin, brokers who traditionally did mainstream deals are now looking at specialist finance to diversify, so both parties who used to be polar opposites are becomingly more familiar to each other,” Sam says. If that’s the case, the role and purpose of both distribution channels could look completely different in the future.

SIMPLIFIED

FLEXIBLE 3 YEAR BESPOKE SOLUTIONS FROM 6.74% PA (MIN PAY RATE 4.5% PA) UP TO 75% LTV UP TO £3 MILLION RESIDENTIAL, COMMERCIAL & SEMI-COMMERCIAL PROPERTIES ADVERSE CREDIT CONSIDERED

IMPROVED

BRIDGE TO 3 YEAR INCLUDES FLEXIBLE 3 - 12 MONTH BRIDGE FROM 7.25% PA

2% COMMISSION

Speak directly to one of our award-winning underwriters for super, flexible 3 year property loans with unparalleled speed and service.

Unregulated deals only. Standard fees and ERCs apply (no ERCs apply during bridging term). Visit www.funding-365.com for full product guides.

Funding 365 Limited is registered in England & Wales. Company Registration Number: 08488034. Company Registered Address: 20 - 22 Wenlock Road, London N1 7GU.

ONE DAY

In the life of a traditional surveyor At a time when an increasing number of mainstream lenders are turning to AVMs and desktop valuations to generate their estimates, we spend a day with a seasoned expert who demonstrates that a personal, hands-on approach is the only way to gauge the true value of a property

Words by

Simon Thompson

John Neal

One Day

John Neal knows a thing or two about valuing London properties. A surveyor for over 40 years, he is a non-equity partner at Belleveue Mortlakes, the commercial and residential secured lending property valuation specialist which has opened its (and other) doors to me, so I can see how a traditional surveyor works in the British capital.

W

e meet at Russell Mansions, one of the grandlooking apartment blocks that line Southampton Row in Bloomsbury. As we wait for the landlord, we discuss what will affect John’s valuation of the property—a recently refurbished fourbedroom, two-bathroom flat on the third floor of the 22-apartment period building.

The key factor, he explains, is square footage.

Other aspects that feed into the final value include street noise, condition and location.

When the landlord arrives, we head upstairs, and John pulls out his valuation report and floorplan. There is an easy rhythm to his motions, as he goes from room to room, double-checking the dimensions with his laser measure. The handy surveyor tool, which he affectionately calls his “disto”, means the whole process is pretty efficient and he’s done in 15 short minutes.

I can see all the stats are already noted down on his floorplan, so why measure?

This is all part of John’s methodical approach to the work in hand. “I have to make sure this is actually correct,” he explains, waving the piece of paper in my direction. “Quite often, it’s not right. We can’t rely on it, because we haven’t done it ourselves.”

Given that valuations are hugely influenced by the total square footage of a property, precision is everything here. A decimal point in the wrong place could later lead to a dispute over the report and even damage the firm’s credibility. I can’t help but think that this is where a personal approach matters. An AVM or desktop valuation just wouldn’t catch this kind of error.

John asks the landlord a little more about the place. Of the several flats the man owns in the building, it is the only one rented out on Airbnb. He has been using the popular holiday let site to generate revenue while things become more settled, politically.

Now, in January, with the ‘Boris bounce’ buoying the market, he feels more optimistic and is ready to put the flat up for sale.

While he listens, John snaps away. The photos he is taking will be kept on file and only seen by the surveyor, lender and the solicitors processing the deal. I notice he is only concentrating on certain rooms and ask why. “We tend to just photograph kitchens and bathrooms––not bedrooms––to give an indication of the quality of the flat.”

Some people object to having their personal spaces photographed, he adds. “Sometimes I’ve been to places with expensive pieces of art,” he explains, “and so people don’t want you to photograph their living room...

You just have to respect [their] privacy.”

Having been inside for a while now, John has been able to get a better idea of the flat’s positioning on the third floor of the block. We return to the question of value.

He tells me the properties in the building will fluctuate in price by 10-15%. This is due largely to the floor they are on, with the more expensive most likely to be found on the first, benefitting from a happy mix of high ceilings and low street noise.

Flats on the floors above may be comparable in layout and build, but will be more likely to fetch less. A functioning lift is also a factor. “If you have a child or a pushchair and no lift, you’re not going to want to live in a fourth-floor flat,” John tells me.

An extra filter to factor in is the unpredictable top floor. All bets are off, pricewise, here, as even if the flat is not a penthouse, it may come with a view or with rights to build up into the loft.

John and I continue to discuss the other variables at play, which include location, the length of the lease, and the general neighbourhood. What does come as a surprise is that the decorative standard, to an extent, is not too important.

“Perception is obviously better if it’s nicely decorated,” John tells me, “but if you are valuing a flat for a million and you have to go in and spend £5,000 decorating it, it doesn’t really affect the value, does it?”

Of course, this changes if the property is a £250,000 house that needs £10,000 worth of work. But those are not the

46 Bridging & Commercial

One Day

usual properties John tends to value.

As we head out to the street to inspect the exterior, I ask John what outside elements will affect his valuation. The first thing he notices is the bus stop right in front of the apartment’s entrance—good for transport, bad for noise.

Then there’s the restaurant next door. Some lenders don’t like to lend on properties above commercial, with some forms of businesses less appealing than others. “They don’t like restaurants, fast food takeaways and dry cleaners. Anything that can create a smell or noise, basically. And pubs. People don’t want to live above pubs.” [ed: speak for yourself] Such disruption, he explains, can diminish the safety of the property, while weakening its appeal to families. But then, this flat won’t be aimed at that market.

“In this area, you’re going to be attracting reasonably high-wealth owners and renters. It is not really a family block.”

Southampton Row is a busy main road, so the fact the flat is at the back of the building with a garden aspect works in its favour.

“You don’t have the noise from the buses and the taxis,” points out John, before adding that the diminished noise pollution could add 5% onto the property’s total value.

The main allure of the place is, of course, its convenience. It delivers easy access to central London—the employment market— and the Tube. Ultimately, what it all comes down to, he says, is whether you want to live there. I ask him if he would. He thinks about it for a moment as we say goodbye, before smiling, “If I had the money, yes.”

With the on-site assessment giving me a lot to think about, it is now time to get a better idea about the other aspects of Belleveue Mortlakes’ hands-on approach.

So, I head over to the Polo Club at the Westbury Hotel in Mayfair to meet John’s colleague, Shaf Ali, a partner at the firm.

As we chat about the sector over coffee, our conversation turns to AVMs, something that mainstream lenders are starting to rely on for properties outside London. We discuss whether they are here to stay, and if they are becoming more prevalent. Shaf’s not sure.

“AVMs really affect firms like Countrywide,” he explains. “National bulk, tick box, that kind of thing. We don’t tend to do get involved with those kinds of transactions. We’re more [about] the million-pound flat around the corner.”

But that is not the only reason Belleveue Mortlakes doesn’t use them. “AVMs just don’t work in London and never will,” Shaf states.

He believes they can work in smaller cities outside the capital, though, citing a traditional road in Birmingham, with three-bedroom houses lining the street as his example.

“Everything is identical. If a sale takes place

on that road, it’s easy to use the AVM model, because they are all [the same]. They have a ceiling––if you extend into the loft or do an extension the uplift will be negligible.

Maybe from £350,000 to £375,000.”

But, he continues, if you take a house in Fulham or Chelsea and go into the loft or add a single-storey rear extension, you could end up adding 30-40% to the market value.

“With those traditional houses, you can allow for a margin of error.You could be £10,000 off, but it’s not going to be a deal breaker. Being half a million off on a house in Fulham or Chelsea is.”

And an AVM won’t pick up on that difference. “There’s just too much diversity.

That’s why London and the surrounding counties need valuers to interpret evidence. It’s all about interpretation.”

He also doesn’t believe that AVMs work for bridging. “I’ll tell you why,” he says. “For AVMs, you need to put serious investment into a platform and, the only people who can do that are the large lenders, [of which your typical bridging lender isn’t one].”

That’s not his only issue with the tech; he doesn’t believe it can pick up structural issues, either. He tells me about cases of internal structural damage associated with subsidence, and even mentions a London pub which suffered from rotten internal timber structures due to a pigeon infestation. “You have to go in (and outside) to see those things.”

That’s why Belleveue Mortlakes endorses a personal approach to its surveying. It all starts with getting on the phone, talking to the client and asking questions about the building. But it doesn’t stop there. The next step for Shaf and his team is to liaise with the client, keeping them informed at every stage of the process.

“With every valuation we do, regardless of whether we ‘down value’ or ‘up value’ the property, we call the client and say the valuation is complete and will be with the bank this afternoon.

That happens on every single case.”

It’s that personal touch that he often finds lacking with new surveyors when they come to apply for a position at the firm.

They also tend to put too much faith in the information doled out by estate agents. Those packs, he says, should go straight in the bin.

That’s why his new recruits are required to shadow veteran surveyors like John, who can explain the rationale behind each valuation.

For Shaf and his partners, the work is all about integrity and credibility. That’s why Belleveue Mortlakes continues to work the way it does. “Anyone can do a valuation,” says Shaf.

“It’s the process around it that is so key.”

47 Mar/Apr 2020

Development Finance?

Over £1 billion lent to SMEs & property Our team is highly experienced and developers knowlegeable, so we can go beyond the tick-box and provide real solutions for your clients.

We’re the lender

We’ve funded the equivalent of 1 in every 100 new build UK homes last with year, so if you’re looking for development finance, look no further. solutions

real world

Stuart Law, CEO & Co-Founder

Tim Harper, Head of Credit

Real world lending 0800 470 0430 www.assetzcapital.co.uk/borrow

Stephanie Interview

Words by

caron schreuder Photography

alexANDER chai

Jonathan in conversation Interview

I

n March 2019, we peered into the world of mortgage networks, looking specifically at why there was a dearth of introductions from that channel when it came to specialist finance. While some were forthcoming, others skirted around the issue which, we believed, told the real story. Just over a year later, we managed to get two network heads together to discuss how they treat product areas which are less mainstream, and the vital support that they’re providing to modernise adviser thinking.

Stephanie Charman, specialist lending relationship manager at Sesame Bankhall Group, was brought in to manage the growth in specialist lending that the business was experiencing. Her 15-year tenure at Mortgage Intelligence means that she’s not new to the game, however, driving a revision in attitude to more complex products—through Sesame’s framework of support and referral system— now sees her helping to usher in a new era. Stephanie wholeheartedly backs and encourages the broker’s right to choose what fits their strategy and objectives, as well as their entitlement to access whole-of-market information, and wants to see specialist offerings remain advice rich.

Running a smaller, boutique network of “high-achieving” advisers, Jonathan Burridge is director of JLM Mortgage Network. With over 30 years’ experience in mortgages, he is crying out for the mortgage network model to be brought up to date—and has some pretty strong feelings about the practices that are holding it back. In between analogies and anecdotes, Jonathan shares his passion for providing a service and releasing advisers from the onerous red tape that doesn’t serve the growth of their individual firms.

Once we got going, Sesame and JLM’s distinctions became clear: on lender panels, working with packagers, and approaches to tech and growth. What does unite them, however, is an emerging enthusiasm for boosting visibility for their members in our specialist space and the undeniable fact that now is the time for brokers to be getting clued up and taking advantage of as many customer solutions as possible.

Interview

Stephanie Charman: I fell into financial services. I think most people do. I’m not entirely sure you leave school with that as your set objective. I found myself, quite quickly, following admin jobs, [working] as a mortgage adviser in a branch, and sort of got hooked from there. I moved into distribution and worked for Mortgage Intelligence for 15 years, and then moved, two to three years ago, to Sesame Bankhall Group. I think, for me, the hook was [that] no customer came into branch asking for a lump sum of money; they had an aspiration.You know, ‘I want to purchase this house’, ‘We want to buy a bigger property [because] we want to start a family’ or ‘We want an extension’.

Sometimes those stories were perhaps a little sad in some scenarios: ‘We’re in a bit of trouble, can you help me?’. That’s the part that I got a bit hooked on. Nobody came in and said, ‘Can I have £100,000?’ ... the money was a facilitator behind that.

Jonathan Burridge: If I look at my advising career, a lot of clients have become friends— SC: That’s the personal part...

JB: [reminiscing] I remember sitting at a top achievers’ lunch at L’Escargot. Halifax hosted it—crikey, we’re going back a few years—and I can remember the guy next to me saying, ‘I’ve been doing this so long, I’m doing my best client’s child’s first-time buyer mortgage.’ And I thought, dear lord, I hope when I’m your age, I’ve grown beyond that. [laughter] But, now, I am probably the age he was then ... and, actually, the really good thing about this job is seeing that result ... so I still advise, and that’s the bit of the job that I get the most satisfaction from.Years ago, my postman knocked on the door and asked, ‘[Are] you a mortgage broker? I’ve had four people tell me I can’t move’, and, six months later, he sent me a photograph of the keys to his new house. It’s those little anecdotes where you go ‘Yeah, that’s it’. That’s what we look for in our ARs. It’s about the ambition and the achievement of the people rather than how many advisers they’ve got in their firm; it’s their aspiration that brings them to us. [remembering the original thread of conversation] Much like you, Stephanie, I fell into it at 19. A friend of mine set up a commercial mortgage brokerage ... and we dealt a lot with UCB Bank at the time—beautiful gold on black, real 80s stuff [laughter]—and then I got a job at UCB and I’ve banged around ever since and nobody has found me out yet. I’ve been tea boy through to director.

SC: ...From being a mortgage adviser,

I joined Mortgage Intelligence on their mortgage help desk, [assisting] advisers with enquiries. It’s a fantastic grounding, because I’d gone from thinking I knew an awful lot, knowing one bank’s products, to actually realising there was a bigger, much wider world.

JB: It’s hugely exciting when you get somebody who joins a bank and they come on board and walk in believing they know everything. Then, two months later [say], ‘I never knew you could do these things’. It’s amazing.

Caron Schreuder: How would you compare the world of being a single AR and DA? JB: The only reason that I think you’d go DA is the belief that you’re going to have greater autonomy.You can scale up... In my previous role, we set up a DA business from 0 to 30odd advisers over three years. But you need scale.

[Brief pause while JB answers CS’s phone thinking it’s his, despite the caller ID being clearly visible.

‘How rude of me!!’]

JB: In many respects, I am quite antinetwork, because I think most networks are still dinosaurs. They are stuck 20-30 years ago and need to change massively. They’re going to get found out eventually; brokers are going [to become] aware of that. But I just think, to be DA, you don’t have access to the same products. [Another] good reason [is] you don’t have to complete a Gabriel report. That’s a good enough a reason to join a network, in my view.

SC: I think different models work for different firms, depending on their size and what the adviser is looking for. Sesame Bankhall Group has both sides of that: we’re a mortgage club and support directly authorised advisers, and we’ve got the network that supports network advisers. But you have to make sure both propositions are valuable to those advisers. What do you add as real value to their business? You can develop and grow a business on both sides, DA and AR. As a network, you should align yourself with what that individual firm is looking for and then help them get to that aspiration.

Some of that is growing their business [and] the number of advisers, or it might just be widening their knowledge and product set, [so they can] build connections with other firms...

JB: I think that is essential today. If you look at specialist lending ... we licence our brokers—if they’ve got the qualifications—

[to] do equity release. Rory [Joseph, founding director at JLM] always tells the story, if you imagine standing in the street and in front of you are two mortgage brokers. One of them only does equity release and the other one is a general mortgage broker—and you are 68 years old ... [whether] you go left or right [decides if] you’re going to be advised on equity release or potentially [shoehorned] into a standard mortgage.You’ve got to give your brokers the tools to enable them to be holistic and stand back and decide what is appropriate for that client. There are networks that don’t let their advisers do equity release, advise on seconds, commercial lending, bridging... and like I say, it’s old thinking.You can’t, as a mortgage broker, sit down and truly advise your client unless you have the whole range of solutions out there— and they’re growing, which is good news.

SC: I think you can have awareness ... it’s the GP analogy, isn’t it? You wouldn’t go to your GP and say there’s a problem with your knee and expect him to say, ‘Hop up on the couch, I’ll operate on you now’.You would expect him to refer you to a consultant who specialises in orthopaedics. So, using that analogy, as long as that adviser has an awareness and recognises the opportunity— that that customer needs a specialist in a certain area, whether that’s seconds, equity release, whatever that looks like, and then refers to somebody that can do that. That good connection of referral partners is also key.

JB: I think that’s fair. I’ve got two hats: as well as being a director for JLM, I am a director of Master Private Finance, which is our network’s specialist mortgage master broking/packaging business. So, today I am selling apples and not oranges. The trouble is, though, if you don’t have an understanding about equity release, you don’t necessarily think about it to make the referral to pass it on.You don’t look at the opportunity.

It’s like secured lending: when it became regulated, we, in the company that I was in at the time, decided that we’d start operating [in] and giving advice on seconds.

Before, I think we did a handful a year. It was suddenly becoming a [larger] percentage of what we were doing, because the advisers were empowered and trained to look for, understand and actually advise on it. I agree with the GP analogy but, actually, what is today’s specialist, tomorrow will become mainstream.

SC: And we’ve seen that evolution already.

JB: Buy-to-let is a really good example of that.

53 Mar/Apr 2020

Interview

“We are in a significant period of change now and we’ve got the next few years to really get it right. As technology comes in, and becomes an enabler and a facilitator, we’ve got an opportunity now to really grasp hold of some of these specialist areas”

SC: Fantastic example.

JB: I can remember standing in Platform’s offices when we were launching BTL products and it was a completely new concept. I can remember when Kensington launched and kind of brought the adverse lending market to the mainstream through Private Label—now there’s a name going back. And, before, you simply couldn’t do them. Today, that’s now considered bread and butter. It’s not for every firm, let’s be correct.

A lot of firms are generalists and that’s where they sit and [are] happy. But if they want to take the business and develop it and look [to] grow, then we should be supporting that and giving them the tools to do it.

SC: I totally agree, and that’s something that we work very hard on.

CS: Stephanie, would it be correct in saying that, at Sesame, you would refer more specialist business?

SC: A combination. Different product sets have got different permission levels. So, we will support an adviser depending on 1) what their business strategy is and 2) depending on that product set. In my view, I agree with a lot of what you’ve said there, Jonathan.

We’ve spent a lot of time raising awareness and educating, so an adviser actually has the understanding to be able to recognise that opportunity.

CS: Coming back to your reference, Jonathan, that the network model needs to be updated—do you agree with that, Stephanie?

Are there quite a few networks operating in an antiquated way? What would you like to see change?

SC: The market has moved and will continue to move. We are in a significant period of change now and we’ve got the next few years to really get it right. As technology comes in, and becomes an enabler and a facilitator, we’ve got an opportunity now to really grasp hold of some of these specialist areas.

The term ‘advice rich’ really resonates with specialist lending. That’s never going to go through a system [without] touching the sides [or being] straightforward. We work really hard to support our members in growing their awareness and education, giving them the tools to move into those areas if they wish to. Or giving them the awareness to refer, if they wish to. I think more and more mortgage networks are working hard and are on that journey. Sesame recognised probably two to three years ago that the specialist lending market was going to grow. It is a smaller part of the overall market, but there is movement there. That’s why my position 54

Bridging & Commercial

was created; to have somebody come in, have a voice, drive that forward and pick up the bits perhaps getting lost among the Santander or Halifax [deals] and bring those to the forefront.

JB: It tends to be the bigger corporate networks... We are a small network; we like the word ‘boutique’. We haven’t grown rapidly, nor do we intend to. It’s about getting the right bums on seats. We very much understand that we are a service provider.

There are networks out there who consider their ARs to be employees. Sometimes it comes down to pounds and pence when people sit and have a conversation about which network they’re going to go [to], but it is extremely difficult to change network, made so by some of the [them].

It can be expensive [because] of business disruption.You can lose skills within your network. And [there is] fear... I have seen networks write to every adviser in a practice warning them of GDPR legislation when the company announced they were going to move [network]. Now that’s just bullying.

Corporate bullying. I read [about] a guy who is leaving his AR, his principal firm, and he’s got a 12-month notice period. Now, that can’t be equitable ... you’ve got to stand back and look at it: we provide a service. People choose to use us. Like Stephanie was saying, it’s about adding value ... one of my favourite expressions, which I stole from somebody else, is, ‘Price is only an issue in the absence of quality’. What you have to do, as an adviser, is truly assess what you’re getting in exchange for the money you’re paying your network. Some networks think about how much they’re paying their firms. No—it’s [the firms’] money. We are here [to] provide a service. We provide oversight, compliance, access to products and services. That’s what we’ve got to be good at.

SC: You want a member to feel part of something. Sometimes that personal side is difficult to touch … it’s difficult to put into black and white.You want a member to feel ... that you’re invested in their business and their growth aspirations, plans and strategy. It is still their business.

CS: You don’t own them.

SC: You don’t.

JB: Completely right.

CS: Stephanie, you partner with specialist lenders quite a bit, don’t you?

SC: Yes, and we see it very much as a partnership, so it’s got to work for both parties. Actually, you’ve got a bit of a tri-

Interview

“The [person] who sits in a room, who’s got a toolbox and in that toolbox is only a hammer, a blunt chisel and a screwdriver, could probably get the job done.

But it’s going to take them a lot longer than the one who turns up with a van and every bit of kit that you can imagine. It’s our job as a network to be that van”

party thing there; you’ve got the lender, ourselves and the member firm. I very much see the role of specialist lending as making brokers aware of everything that lender has to offer. We are in a time where they will be writing a significant number of product transfers. In the mainstream market, we’ve seen that remortgages and product transfers have taken over from a transactional point of view last year and that’s business that they’re used to, that’s their bread and butter. It’s about taking them out of their comfort zone, showing them the opportunities and getting them to see what the call to action is there.

CS: How do you select the lenders you want to have on your panel?

SC: We call it a panel internally but, externally, it is just our product offering.

It is the value we offer to members. We have a very strict governance around our panel appointment process. If you take away some of the standard legal and financial due diligence that sits there … what does that lender bring to our members and, ultimately, their customers? Where is the value? Do they offer something new, different, innovative?

We’ve significantly increased our panel over the last three and a half to four years, adding nearly 50 new lenders. To us, a smaller building society doing a few million pounds worth of lending in a year is as important to us as a high street brand, because it’s about having a solution for every customer.

JB: We don’t operate a panel because, if you look at bridging, for example, it’s a red sea— there are hundreds of bridging companies out there and, pretty much, the model is the same. There isn’t a huge amount of difference between [them]. It then comes down to relationship, potentially pricing, slight attitude... all of those change, dip in and out.

If you look at the mainstream credit-scoring lenders, they will just adjust their credit score depending on the time of year and the volume of business and then, suddenly, 95% LTV deals are flying through, which were declined three months ago. We will deal with any lender. We will permit our brokers to go off and create relationships. Due diligence is sensible, obviously … but it’s more about making sure that the proposition they’ve got is correct and the product is appropriate.

CS: What’s the difference between the mechanics of having a panel and not, in terms of your responsibilities? What happens if one of your advisers wants to work with a lender off-panel?

SC: We do operate an off-panel process. What we need to do is make sure that that lender still fits some of our due diligence processes.

56

Bridging & Commercial

We feel we have a panel that is incredibly wide—over 100 partners, [including] lenders [and] master brokers—so it’s very rare that a broker needs to go off-panel. But if that does occur, we will look at that lender and make sure that there isn’t anybody else on panel who could potentially do that case that the broker’s missed. We’ve got a mortgage help desk [that takes] nearly 70,000 calls a year, so they will know of a small building society or bridging lender who will do something maybe a little bit different that the broker maybe hasn’t considered before. If we get to a point [when] that is the right solution for the customer, then that route to market is considered and we’ll have a conversation with those lenders. Sometimes those off-panel requests are actually when you come across a lender ... and they get added to panel. So, it’s a really good solution for everybody.

CS: Have advisers’ attitudes to risk changed when it comes to bridging and specialist lending?

JB: Twenty years ago, if somebody said, ‘I’ve taken a bridging loan’, I’d have said ‘Well, you haven’t planned properly’. [Now], there’s a space for it [and] clearly there’s demand for it. It’s an area of the marketplace where advisers need to operate in. We need to train and make sure that they’re giving appropriate advice, because it is high risk. They need to ensure that the product that they’re advising on is appropriate for the client. If you looked at the number of bridging firms in the 90s . . . they existed but tended to be, or my impression was, that they were backstreet sharks charging 2% a month and, if you didn’t pay, the boys would come knocking on your door. The market has moved and changed and there are regulated bridging lenders [and] non-regulated bridging lenders, but they’re members of trade associations; they’re ethical. It’s a marketplace that didn’t exist. An interesting thing is, where has that business been taken from? What was funding the projects that bridging is being used for now?

SC: I think there was, [and still are], a lot of misconceptions in an adviser’s mind around bridging. It is more costly, but you have to look at what the solution is for the customer.

You’re right that it’s higher risk, but it should still be considered overall. Security of exit, for us as a network, making sure that the broker has looked that through; what is the reason for doing the bridging finance; what’s the security of the exit? Chain-break scenarios are the immediate ones that will probably spring to what I would call a mainstream broker’s mind. But, that’s only one small scenario—there are lots of other reasons. I think that’s why using a master

Interview

broker, whose specialism has been bridging— and they’ve probably seen more of the market cycle than perhaps we have, Jonathan—using them and their specialism and tapping into that and how they then put that deal together [and] make that round peg fit in that square hole or vice versa, perhaps is the right route.

CS: Have you noticed a significant change in requirements from your advisers over the last five years to support and back up the growth of the specialist market?

SC: Yes, in all product areas. One lender took two products, bridging and a BTL product, and put them together. That could already happen in practice, but by doing that, it brought bridging and BTL to the forefront of a normal BTL broker’s mind.

All these little moves and product niches and innovations— it’s not massive innovation, but it is innovative, because you are bringing something to a mainstream mortgage broker’s mind ... [leading them to think], ‘Well if I can do that, what other solutions are there out in the market?’ … it’s positive.

JB: You would sit in front of a client 20 years ago and if they’d say, ‘I want to buy this dilapidated house. How can I do it?’, you’d say, ‘You’ll have to buy it with cash, because you’re not going to get a mortgage on it.’

Whereas now, you can go, ‘I’ll tell you what we can do. We can do the short-term finance.

We can bridge it and then we can flip it into a BTL.’ So, your exit is all done and dusted, and potentially we can do it with one lender, or two, or however many. It’s good to have that option, but it’s important now, because there is knowledge, that they’re also [asking], ‘Is bridge-to-let appropriate, or can I actually do one bridge and a separate BTL?’ It’s the age-old consideration when you’re talking to a client about a product transfer, and they want to borrow some more money, you need to make sure that you’ve looked at a further advance, a remortgage and a second charge, and evidence that you’ve done so.

Even though most bridging is non-regulated, we still come at it with the same principles [as if it were regulated business]; it is assessed and underwritten in the same way. Even though most bridging doesn’t require proof of income, we still expect it, because you’ve still got to know your client to make sure that you’re giving appropriate advice.

SC: A suitability assessment is still key.

JB: Even though the product is not regulated, you still operate in [that] spirit.

CS: Can you break down why bridging has traditionally been seen as high risk by networks and advisers in general?

JB: The risk for a network is that you operate to your lowest common denominator. So, rather than upskilling—what a real Noughties word!—your team and providing solutions and education on all of the things that are available, you simply say, ‘You can’t do it, because we don’t understand it and we’re scared of it’. Castle Trust, when they first came to the market, found it quite difficult to get involved and deal with networks. I was with HLP [Home Loan Partnership] at the time, and they were quite open to the product and the solution. That’s the issue: networks don’t understand something, so the simple answer is to say, ‘No, you can’t do it’.

It’s like packagers. There is a network that says you’ve got to use one packaging firm.

How is that good for your customer? They fall over because of service or they don’t have access to all the products, or they charge nonrefundable fees payable at application.You’re increasing your client’s expenditure; you’re potentiality putting them at risk. Surely, you let your adviser decide what packager they use, because they’ve got the relationship?

JB: But there are different models.Your estate agency mortgage broker—this is probably a sweeping statement—is more likely to deal with a mainstream panel of 1015 lenders…

SC: Choice is key for advisers because, again, back to where we started, we are here to offer a service proposition. To have a choice of a number of partners that, from a network perspective, we have put through a rigorous due diligence process to make sure they align with our values. So, they will offer good quality products, innovation and service with a respectable customer and adviser fee structure—but then the broker has the choice. [They know] we have done all of that behind the scenes and [have] the comfort and security of that, but [they have] the choice of different businesses to work with. [Each one] works differently and has a slightly different feel to the way they work. Then that decision is down to the individual adviser.

CS: What sort of growth are you seeing in membership numbers?

JB: You might use one packager or master broker specifically for one lender, because, again, it’s about relationships as much as it’s about product, and you generally enjoy better relationships with some people than others.

SC: It’s human nature.

CS: Do you think that there is a disadvantage that ARs experience, because they may not get access to new products due to networks’ reticence to work with innovative stuff coming out?

JB: Completely.

CS: How do you mitigate that?

JB: You join JLM! [everyone laughs at this shameless plug]

SC: The more transactional, first-time buyer [sort of thing]...

JB: As you move further away, then you become more consultative in what you offer your client and therefore their needs are different. Within our network, we have two very successful ARs who run specialist businesses dealing in bridging, development and commercial lending, and we’ve got generalists and sole traders. We’re back to choice, aren’t we? The [person] who sits in a room, who’s got a toolbox and in that toolbox is only a hammer, a blunt chisel and a screwdriver, could probably get the job done.

But it’s going to take [them] a lot longer than the one who turns up with a van and every bit of kit that you can imagine. It’s our job as a network to be that van.

JB: Again, I’m going to quote Rory. When I joined the network, he said, ‘Imagine our network is a dining table and there are a finite number of seats. Every day, for perpetuity, you are going to have to eat with the same people. We want to make sure those are the people we want to eat with.’ We don’t have any plans to come knocking on the door of the big networks. For us, it’s about finding the right firm where there is a match of personality [and] ambition, and then helping them grow … we’re not interested in head count. It’s quality and value.

CS: What about the demand from advisers to become part of a network?

JB: Oh, it’s constant.

SC: And there’s lots of choice out there, which is good, because every broker’s model is slightly different. What they are looking for as a firm is slightly different—that’s definitely been a theme out of today’s conversation.

Our adviser numbers grow.You see that with new recruitment into the network, new firms joining, and also with organic growth within businesses. That organic growth and … sitting with that business and saying, ‘What are your aspirations and business strategy?’ And then helping them get there is as important as a completely new firm into a network. But quality of advisers, and the quality of the business they submit and adding value to their business, is key.

57 Mar/Apr 2020

JB: People make enquiries, [who’ve] just qualified: ‘I’ve got my CeMAP, so I’m a mortgage broker and I want to join a network.’ ‘OK, let’s go back a little bit. So, you’ve sat some exams?’ It must be hugely frustrating as an entrant … because it’s going to take you a year to get through the FCA approval process, if you get through it.

Then you’re not going to have access to a number of big lenders, because you’re DA and a one-man band [and] you represent higher risk. So, you go, ‘Right, OK, I’ve got to join a network.’ And the first question every network will ask is, ‘How much business did you do last year?’ I’m guilty of it.

Starting off is difficult and changing network is difficult. I think that whole process is overly complicated and people tend to just ultimately think they’ll get more money by going down that [DA] route, without sitting back and saying, ‘Well, ok, what am I going to be doing in the future? What is [my] attitude to bridging, equity release, commercial lending? Where am I going to sit?’

on to a master broker or specialist is part of that process.

SC: ‘If I want to evolve my business, what’s the network partner that can help me with that?’ There are networks out there, like Sesame, who can help you if you’re new to market, or want to move networks. Looking at evolution, the market will change. What do you want your business to be today? What do you want it to be in the future? That issue is our ultimate goal.

JB: I completely agree. Tech is a tool...

JB: We have to remain relevant.

CS: For us, the utopia would be that all brokers would be regulated to an extent.

Networks becoming friendlier and more open towards specialist offerings may get more of that cohort to come towards the light, so to speak, [and benefit from] some of the services and support you offer from a compliance and standards points of view. Do you see yourself as offering a service for the greater good of the mortgage market?

JB: Regulation is a good thing. We should encourage it. People need advice. If you look at a regulated house purchase, it’s the largest financial transaction that most people undertake. The impact of that decision is colossal, and it still doesn’t necessarily get all the consideration it needs, because you’re desperate to buy a house.Yes, we care deeply about what we do. When people would ask me what I did for a living in 1999, I would [say] [mutters], ‘I’m a mortgage broker’.

Now, I am hugely proud. We have increased professionalism, knowledge... The amount that we need to know as individuals to sit down and actually give holistic advice to a consumer is enormous. Identifying when it goes beyond your capability and referring it

[Jonathan tells us a story about a man screaming into a fax] SC: Technology is already here. I saw a presentation [recently] where a generation expert held up a mobile phone and said, ‘To everybody in this room, your mobile phone is tech. To the younger generation, it isn’t. It is as much tech to them as your kettle is to you.’

And that really shocked me and made me feel very old. Within financial services, we are way behind the curve of where technology should be. But we need to embrace it as an enabler and facilitator, but actually concentrate on the true value of advice.

Advisers have to stay relevant and real. It’s down to that customer contact. If you don’t contact your customer for two years, are they still your customer? ... The customer needs to see you as their go-to person for any financial aspiration that they have.

SC: It can really help us.

JB: But actually, what people want is advice … There is a market for people who will [self-advise] and use aggregators. Now that non-advised sales have got the green light, we’re going to see [the likes of] Money Supermarket stepping in and offering mortgages online. Dear God, help the day that that happens. It’s coming.

“The amount that we need to know as individuals to sit down and actually give holistic advice to a consumer is enormous.

Identifying when it goes beyond your capability and referring it on to a master broker or specialist is part of that process”

SC: People’s lives are becoming more complex ... We’ve seen a rise in the private rental sector... the age of your first-time buyer has gotten [older]. People are looking to rent for longer and with friends ... the model of how [we] are renting is growing … a rise in self-employed customers, a rise in CCJs … Customers still need support and I think the specialist lending areas are where brokers can really come into their own and say, ‘You know what? I have a solution for you. Come talk to me.’

CS: Do you or your advisers ever feel threatened by technology?

JB: God, no! I’m an early adopter. When the first iPhone came out, I was there.

CS: But your iPhone isn’t doing your job for you.

JB: You have to understand where technology sits. The amount of fintech firms that come and say, ‘In six months’ time, we’re going to do this.’ What are you doing now? What have you actually delivered?

59 Mar/Apr 2020

“Networks have a whole array of support there to help you, whether that be through education, events, webinars, email communication...

Whatever that is, it’s all there at your fingertips to get hold of.

Embrace it.

Because the market will change...”

SC: Tech always takes longer to be embraced and become the norm than anybody expects.

You look at robo [advice] and, probably, 18 months ago [we] were all quite scared. But what you actually see is customers starting on a robo advice journey and quickly coming out of that, because they recognise they need advice. It is just another route to advice?

examination. Life insurance... The idea that your customer could pay more for exactly the same product [from] an adviser in another network, just because the commission has been uplifted, is obscene. How the regulator hasn’t turned around and said, ‘Hang on a minute. What’s going on with this?’ It beggars belief.

JB: If you go to the robo mortgage broker’s offices, you’ve still got 40 mortgage brokers sitting in a bank of chairs.

SC: Those are of some of the areas that brokers need to take into consideration when choosing a network.

SC: It hasn’t replaced them; perhaps it’s brought more customers in? I’m a very optimistic person.

CS: What are your greatest successes in your career and any milestones coming up which you’d like to share with our readers?

CS: Let’s talk threats: if you could name one thing, what do you think we need to act on now? What concerns you?

JB: As I said at the outset, I haven’t been found out yet. [laughter]

JB: It’s bizarre that I consider the regulator to be one of our biggest threats...

CS: You’re not alone.

JB: Look, they do a big job, mortgages are only a small element of what they’re responsible for, so... Hats off to you, FCA, we love you. [laughter] That word regulation puts the fear of god into people, but it shouldn’t.

Because, actually, it sets standards…

SC: [It] professionalises.

JB: Yeah. It gives you a greater sense of comfort in your dealing with a short-term lender, who is FCA approved and a member of [a trade body] —[that] still gives some degree of self-regulation.

SC: A common set of standards.

CS: For brokers, too. We tend to wonder, if you’re against it, why? At this stage, coming back to your reference to the toolbox of products, you’re limiting yourself if you’re not embracing some sort of regulation.

SC: The threat to advisers is not recognising and embracing all areas of specialist lending. Networks have a whole array of support there to help you, whether that be through education, events, webinars, email communication... Whatever that is, it’s all there at your fingertips to get hold of.

Embrace it. Because the market will change, the lender landscape will change, but make sure you’ve got all the tools that you need.

JB: [The] number of bridging firms is colossal ... there are far too many [lenders] out there. I think secured loans still haven’t really had scrutiny. Fee-charging on secured loans is something which needs closer 60

Bridging & Commercial

CS: Do you have imposter syndrome? [more laughter] SC: I think we all have a little bit of that.

JB: It’s not for me to say what my greatest achievements are. It’s for those people around me, and my reputation, which I believe is good.

CS: What would they say?

JB: I have no idea! [laughter] It depends who you speak to. I do have that habit of bumping into people and they go, ‘Do you remember we went out in 2007?’ And I simply don’t remember. [There are] all sort of very exciting things on the horizon, none of which are ready to be announced.

CS [rolling eyes]: Our readers will be riveted, thank you. [laughter] SC: Again, I would agree with you that it’s probably for other people to— CS: Oh, come on.

SC: Well, I put a lot of time and effort into the relationships with our members and our lender partners.You spend a lot of time at work and you want to be with people who are engaging and inspiring. That for me is the true success; people wanting to come and work with you.

Know-how? No problem We pride ourselves on our financial expertise at Accredo. Years of experience has taught us to look past the numbers and view the complete picture of the clients we’re providing solutions for. And the most suitable terms and finance options for each individual case.

We offer commercial loans and leases from £25,000 to £1,000,000, often lending when others won’t, with terms from 3 months to 10 years. Our experienced teams also understand that you’re providing a service and therefore we’re dedicated to providing our introducers with a fast, friendly and informative experience every time.

Ease and expertise from Accredo Send your proposals to props@accredoltd.co.uk or call us on 01444 255915 for more details.

View

Lending is not about a tick list of requirements— [it] is deal specific. Each case needs to be considered on its own merits

B

ridging loans are known for their flexibility. Google the term “bridging lender” and you are greeted with promises of “bespoke” and “tailor-made” products. But just how much can this kind of deal bend before it breaks?

When it comes to making a decision, everyone has a list of criteria they follow, from choosing a new team member to a car. A bridging lender deciding whether to give the green light for a loan or not has such a list, usually with a layer of flexibility built in.

“Lending is not about a tick list of requirements—[it] is deal specific. Each case needs to be considered on its own merits,” says Caroline Barlow, director of credit risk at Oblix Capital.

“It is about looking at each proposal individually and being flexible enough to lend [on] good quality deals, even if they don’t 100% meet policy rules.” Lending criteria simply cannot fully accommodate every bridging deal. So, whether you call it common-sense lending or a process tailored to every client, most specialist finance providers view a level of flexibility as an intrinsic part of their job. “Credit policies are often conservative and unable to include the huge diversity of risk profile that exists in bridging.

62 Bridging & Commercial

View

A matter of

policy

Words by

Andreea Dulgheru

So, it is important that flexibility exists to enable good lending opportunities to be supported,” confirms Chris Fairfax, managing director at Catalyst Property Finance.

It is also worthwhile distinguishing the difference between lending policy and criteria. According to Jonathan Sealey, CEO at Hope Capital, policy is a “set of core parameters that dictates the broad outline that all lending and all products fall [within], which will usually dictate the risk a lender is prepared to take.” Meanwhile, criteria refers to the individual factors set around a product that the deal is required to meet.

“Think of lending policy as a set of broad guidelines and lending criteria as the way those guidelines are implemented on the ground, in real-life lending decisions,” explains Mark Posniak, managing director at Octane Capital.

Gary Bailey, managing director at Hope Capital, further asserts that, when it comes to bending the rules in a bridging deal, it is not the specialist lender’s policy that gets tweaked, but rather certain criteria that enables room for adjustment. “Lending outside a set policy … should be difficult to do, unless the policy needs

updating,” he says. Gary, along with other specialists interviewed, agrees that any tweaks made to complete a deal come down to the lender’s risk appetite, with each having their own priorities when assessing the quality of a case.

That is not to say that all brokers are actively pushing a lender’s boundaries in order to secure a bridging deal. On the contrary–– they tend to avoid negotiating numerous adjustments in criteria, as it could affect their relationship with a provider. “You simply wouldn’t disrespect the boundaries presented by a lender. By doing so, you would potentially cause ramifications in the long term,” explains Matthew Yassin, director of structured finance at Arc & Co. He further emphasises that their position within the industry is to “work in accordance with the lender’s bridging policy”.

However, this is where things get a bit more nebulous. The promise of “flexible” lending often finds brokers and clients guessing which criteria may be altered in some cases, and which are strictly immovable. It can end up feeling like a bridging version of Minesweeper.

63 Mar/Apr 2020

View

WHERE DOES THE FLEXIBILITY LIE? There’s no hard or fast rule when it comes to the dos and don’ts of lending outside of criteria.

As many experts in the industry know, bridging lending is a subjective matter. What may pass for one provider, may not work for another. Some may take a harder look at the type of property for which the loan is intended, avoiding real estate assets such as Grade I-listed properties. And yet, lenders agree that there is one key element that can carry a case out of the ‘no’ pile and into the ‘yes’ one: the client.

According to lenders, an experienced, trustworthy borrower—who has preferably worked with the lender before—has a better chance of obtaining a loan, even if the application and proposed deal do not meet all of a specific lender’s requirements. A client who is familiar with bridging and has successfully completed and repaid previous loans is simply a lower risk, [and] specialist lenders will be more likely to bypass certain criteria for them.

This was the case for Hope Capital, which provided a bridging loan for a refurbishment project at a higher LTV than they traditionally advertise. Gary explains that the client’s extensive experience with that type of refurbishment was the main reason for increasing the LTV at the beginning of the loan. “This was clearly a sensible lending approach, carefully weighed up by looking at all criteria that resulted in a very successful outcome,” he justifies.

New clients, however, should not write off the chance of securing funding that doesn’t quite match a lender’s criteria. A clear, contracted exit route may compensate for a client’s lack of experience. “A loan is only a good loan once it’s been repaid,” says Gareth Lewis, commercial director at MT Finance. Caroline shares his view, adding that a lender should always first look at the quality of the deal to make sure it “stacks up”. “If it’s a good quality deal, then any policy issues can be considered.”

Brokers and potential clients must be aware that, while these elements are significant in swaying a deal in their favour, it may not result in drastic changes to the initial offer, but rather minor tweaking. “It is all about mitigating risk. As a lender, assessing a transaction outside of policy, you would look to balance out the factors that take a deal out of the usual acceptable boundaries,” continues Gareth.

“We had a case recently where a client was purchasing a four-bed detached house and converting it into a six-bed HMO,” says Kelly Rule, specialist mortgage broker at VIBE Finance.

“The client needed to finance 100% of the build costs, but it meant that the profit on cost was 2%.

We approached a new lender that had recently come on panel and they were willing to make an exception to policy [regarding] the profit on cost, which typically would be a minimum of 10%. This lender was happy to accept that the client was actually converting this property to retain and run the HMO for long-term income return. Therefore, the profit to them was not an important factor and they were willing to lend 75% LTV, 72% LTGDV and 100% build costs. It’s really beneficial to work with lenders like these, where a commercial approach can be adopted.You’re not dealing with computers; you are dealing with real people that can make a common-sense decision based on the pros of the deal.”

Other criteria that might be considered flexible are the interest rate, the term and size of the loan and the asset type. “There are occasions when the lender will consider lending either below their minimum or above their maximum loan, if the story behind the request is strong. But, usually, lenders stay within the designated parameters as set by the funding lines and overall lending strategies,” admits Matthew. A lower interest rate might be agreed when the LTV is considerably low or if there is a solid exit in place, for example.

“The approach should always be a full review and understanding of the client’s circumstances, aims and aspirations and a thorough review of the plausibility of the client’s exit strategy, as well as the security. Experience, skill, care and diligence are essential, and any decision should be fully considered and informed around affordability and suitability, with the full support of any funders,” asserts Gary.

However, there are some boundaries that are more difficult to cross. While we have seen examples of when LTVs can be stretched, many lenders agree that LTV is an area where they are reluctant to make changes, due to the increase in risk. “There is a strong argument that LTV is a critical factor that shouldn’t be taken lightly. A suitable LTV, where an exit can be achieved, is one of the most important factors a lender should be mindful of,” notes Gareth. “LTV is generally seen as the foundation of a lender’s attitude to risk.

There’s an element of truth to this, of course, but, for us, risk is far more complex than just LTV. In fact, there are many circumstances where a lower LTV loan could conceivably be higher risk than a slightly higher LTV loan. Risk is a multiplicity of factors, not just LTV,” points out Mark.

64 Bridging & Commercial

View

HOW FLEXIBLE CAN A LENDER BE? When approaching specialist lenders with loan applications that fall outside of their lending criteria, brokers needs to ask two big questions: will the bridging lender make an exception for a particular case, and how open are they to negotiation and compromise?

Chris believes that flexibility increases based on how many funding lines a bridging lender has. The more they have, the more a lender is enabled to set out a wider range of policies and criteria, fitting for each. “The key is to find a funder who shares the same ethos and approach to lending,” explains Caroline. She believes bridging lenders should never “put all their eggs in one basket” and should instead aim to have multiple sources of funding to ensure diversity in their portfolios.

Barry Searle, managing director of mortgages at Castle Trust, believes that attitudes to criteria and policy will change according to the type of funding line(s) the specialist provider has. Ian Broadbent, director at Holme Finance Bridging Solutions (HFBS), agrees that a corporate body (such as a specialist bank or hedge fund) can be particularly inflexible and unlikely to allow for advancing outside of policy. Therefore, bridging lenders who are solely funded in this way may find it more difficult to tweak certain criteria.

The situation is different for bridging lenders who are independently funded, such as Castle Trust and HFBS. Both directors report that financing deals from their own private funds allows them to have full control over which criteria can be adjusted and which cannot. In addition, independently funded lenders are typically able to make these internal decisions much faster, as opposed to those with external funding.

THE IDENTITY CRISIS: CAN YOU BE A BRIDGING LENDER WITHOUT BEING FLEXIBLE? The answer to this existential question? Yes, you can––at least according to most. Chris is of the opinion that, while bridging is connected to flexibility, it is not the defining aspect that determines a company’s status as a bridging lender, but rather the length of the loans being advanced. “There are bridging lenders out there who are successfully lending in the more mainstream space without the need for flexing policy,” he says. Barry shares his view, adding that bridging lenders can take a flexible and pragmatic approach on cases, without necessarily having to lend outside of policy.

“I would argue it is a little unfair on many of the lenders in the market to suggest restricted flexibility invalidates the label ‘bridging lender’. It is reasonable, though, to suggest that the greater

autonomy/flexibility a lender can negotiate when securing funding lines, the better a lender that makes them,” concludes Ian. WHY WOULD A BROKER ASK A LENDER TO COLOUR OUTSIDE OF THE LINES? In an interview with Bridging & Commercial online, Kelly said one of the biggest challenges brokers are facing at the moment is the multitude of specialist lenders in the market, each with their own “very attractive” terms, competing with each other and making it difficult to offer advice to clients. “. . . As a broker, you do have to be selective in who you use … especially if time is of the essence.” And, yet, with the increasing number of bridging lenders in the market, one might wonder exactly why a broker would still approach finance providers with deals that are outside their policy?

“If the lender were to have a particularly strong aspect of their offering, which I believed my customer would benefit from, I would potentially ask the lender to step outside their policy,” says Marc Champ, commercial finance broker at Wharf Financial Services. He has encountered lenders which are happy to look at deals outside their parameters because they follow a guide, rather than a strict policy. Tuscan Capital is one such lender. “We have no pre-set criteria boundaries–– only broad guidelines––and we always work closely with our broker partners to understand as fully as possible the full story behind each opportunity presented to us,” says Colin Sanders, CEO at Tuscan Capital Limited.

So, what’s the bottom line? It seems that tweaking, rather than ‘breaking’, may be the answer. “Break is a strong word, especially in the bridging world. Lenders generally don’t break the boundaries as to go against policy would be very a naive lending practice,” clarifies Matthew. For most companies, ‘lending outside criteria’ is not necessarily colouring outside the lines, but rather adjusting said lines to provide solutions for a wider range of deals, in a way that is not detrimental to the lender.

It all comes down to the lender’s risk appetite.

And yet, there is something to be said about relaxing criteria too much. If a specialist finance provider has to change a significant amount of criteria to fit a deal, are they the are the right lender for that particular loan? Will compromises early on lead to problems further down the road?

65 Mar/Apr 2020

Access to talent #2 challenge faced by bridging businesses

The team at EY has provided us with exclusive additional insight into their recent findings on the state of the UK bridging finance market.

In particular, lenders’ and brokers’ concerns over finding talent to drive what was—prior to the coronavirus outbreak—shaping up to be a bumper year for the industry

People

F

irst, a recap of what was published in the EY UK Bridging Market Study earlier this month. Over 50 bridging lenders and brokers were surveyed in January and early February this year and it was found that businesses were really feeling the effects of an oversaturated market on human resource, citing ‘limited access to talent and human capital’ as a key concern.

The report showed that 61% of lenders and brokers considered this to be the most important challenge for 2020, second only to increased competition.

The additional analysis of the statistics revealed that this obstacle was experienced equally by lenders and brokers operating above and below the £100m loan book/ brokered volume threshold—in other words, businesses of all sizes are feeling the pinch when it comes to attracting the right people. A further breakdown of those figures evidenced a slight differential when looking at the <£50m firms and those above £250m, which represented this challenge as slightly less of a major issue.

This reflects some of Bridging & Commercial’s coverage last year. Our article ‘It doesn’t have to be a bidding war’ in the May/June issue warned of a lack of experienced people to go around and the resulting inflated salaries, both of which had the ability to negatively impact standards and the bottom line. The ‘35 under 35 Power List’ we released in February showcased the best of younger talent, but clearly highlighted to firms who they don’t have on their teams…

Geographically-speaking, businesses based outside of London feel more affected, with the Midlands and South hardest hit. 52% of London-based firms considered sourcing the correct staff a hurdle, as opposed to an average of 67% outside of the capital, with the Midlands topping the list at 83%.

Valorem Partners, a recruiter operating in the specialist finance sector, is witnessing the reported difference in access to talent when it comes to London versus the rest of the country. Seeing as the capital has historically been a hotbed of activity for the bridging industry, the workforce to cope with that demand has, therefore, typically resided in London and the immediate surrounding areas. Nick Wilcox, director at Valorem, is, however, seeing lenders and brokers increasingly opening regional hubs.

“There has been a definite shift over the last few months with more companies popping up in the regions which will obviously create certain challenges surrounding the sourcing of talent for their businesses.”

Phil Gray, managing director at Watts Commercial, is leaning on specialist recruitment services to fuel his growth. “It is difficult to locate and recruit high-calibre

staff and, therefore, we now use professional experts to source our new employees,” states Phil.

Katie Bowles, director at Fintellect, who recently helped Phil recruit in Scotland, isn’t surprised by the results of the report. “…If anything, 61% is lower than we’d imagine. It’s a relationship driven industry and is candidate light, therefore you won’t get the best talent via job boards.You need to know their push and pull factors and be able to find a way to access the candidates who aren’t actively looking for new roles,” she claims. According to Katie, Fintellect has a 94% success rate of achieving a strong shortlist for its clients, meaning, essentially, that the talent is out there—different methods just need to be employed to get to it.

Nick’s feedback from the market is that sourcing “high-quality people with the right specific skills and experience they are looking for, primarily in loan origination and lending operations” is a concern for his clients and suggests that more can be done to “attract new people who have the transferrable skills, or graduates, in order to plug the gaps.”

In addition to training people coming from adjacent markets and encouraging graduates to consider the sector, other methods of growing the talent pool include diversifying a business’s attitude to hiring and office culture to widen the selection of potential candidates.

Broker UK Property Finance isn’t having trouble recruiting at all. In fact, it was inundated following its latest advertised posts, perhaps owing to a unique, flexible rota-based working pattern, excellent Google ranking and the fact that it supplies all leads. Managing director Gary Latham tells us little more about its approach. “We will start five new people this month. Brave, eh?! Three advisers (all CeMap-qualified, one relocated from London and two local), a highly experienced administrator and a trainee underwriter, both local and all females.

“We were massively oversubscribed for all positions and all roles were filled very quickly, following intense interviewing— which is completed by our office manager and/or sales manager, along with other invited staff members … we try to anticipate any [need for] recruitment prior to vacancies occurring, due to the time needed to train and acclimatise.”

Perhaps, it’s all in the planning?

Interestingly, elsewhere in the report, respondents claimed that macroeconomic factors were their primary concern for the industry at large. That has certainly come to fruition with the coronavirus outbreak and consequent impact on business and society.

68

Bridging & Commercial

Phil considers the knock-on effect for recruitment. “The longer it negatively affects the commercial finance market and the UK economy, lenders and brokers will go out of business, thus increasing the talent pool. If the pandemic ends as quickly as it started, then it will have little or no effect,” he states.

In what seemed like an interminable period of uncertainty in 2018/19, the country and all industries now face another unprecedented time of flux and an inevitable downturn for businesses across the board.

Nick estimates that people will “freeze”— practical obstacles of interviewing and hiring aside—largely due to uncertainty and a preference to remain with their current employer, thus further reducing the apparent availability of active candidates. A conscious effort to maintain, if not indeed reduce, headcount, as well as save on the costs of recruiting, will halt the hiring process for most businesses in the weeks and months to come.

Once the dust settles, however, Katie believes we will see the tables turn as a result of redundancies.

“The balance will shift during this time— there will be more ‘available talent’ in what will become a vacancy-light market, making it more and more important to get the right candidates, rather than just the first one that applies,” she claims.

For a while, the main question for candidates will be, ‘How safe is this business?’, ‘How has it coped?’ “Questions that won’t be answered on a job ad online-[making] the need for a business like us so much more important to correctly portray your messages,” argues Katie. “We can, in effect, be your best marketing tool.”

And, when we’re out the other side of this, Katie is optimistic about the overall impact it will have on how we do business—the idea that we’re being forced into admitting that remote, flexible working isn’t such a pipedream after all.

“We think that this will create opportunity … while businesses come to learn how to work remotely and that things won’t fall apart through the use of more digital processes, we believe it will create a shift in how the finance industry works in the future. But, first, we need to adapt; video interviews will be pivotal in ensuring businesses keep up with speaking to top talent throughout this time and can then be ready to hire as soon as this all ends and the growth returns.”

Complex Scenarios?

We have the expertise to work with:  Sophisticated borrowers  Offshore entities  Corporate and trust structures  Foreign nationals

RATES from 0.65% per month MAXIMUM LOAN SIZE £25,000,000 LOAN TERMS up to 36 months

AWA R D S 2 0 1 7 SPECIALIST PRODUCT OF THE YEAR

WINNER

Richard King Head of Sales M: 07388 993985

AWA R D S 2 0 1 8 SERVICE EXCELLENCE – LENDERS

W INNE R

Jamie Russell BDM — South East M: 07741 196308

Ortus Secured Finance 8 Wimpole Street, London W1G 9SP

0203 397 0237 ortussecuredfinance.co.uk Unregulated loans only. For intermediaries only

5

2

3

4 7

6

1

Limelight a glimpse into (what was) our ever-busy schedule

1 Who: Hampshire Trust Bank Where: Tower Bridge, Southwark What: Starting off the year just right with excellent company, great drinks and an enthusiastic live band, while also feeling somewhat pressured by an oyster man 2 Who: Iron Bridge Finance and Orlandis Capital Where: Home House, Marylebone What: Why Iron Bridge decided to acquire Orlandis Capital, more about their working past, and Martin Gilsenan’s love for Jamaican Blue Mountain coffee 3 Who: Medianett Filmed Roundtables Where: Watson Farley & Williams, City What: What causes cost overruns on development projects and how specialist banks aim to utilise technology in 2020 and beyond

8

4 Who: Crystal Specialist Finance Where: The Belfry Hotel & Resort, Sutton Coldfield What: Possibly the most heartwarming awards we’ve ever been to; this is how you do internal events that honour the real MVPs—your team 5 Who: Peritus Corporate Finance Where: Their office, Soho What: Discussing some interesting joint venture partnerships on the horizon and the right way to do MIPIM 6 Who: FLA Annual Dinner Where: Grosvenor House, Park Lane What: The importance of FLA members contributing towards driving net zero emissions by 2050, and Ed Balls explaining how he found out what a ‘fluffer’ was 7 Who: LDN Finance Where: The Ned, City What: Sam met up with Chris and, considering we don’t have any more information to add here, we assume drinking was involved 8 Who: Sirius Property Finance Where: Lucy Choi Boutique, Marylebone What: An International Women’s Week soiree where we sipped bubbly, bought shoes and heard Lucy’s inspiring tale of success

Backstory

‘The use of open APIs will have a big impact in specialist this year’ The Brightstar Group’s new technology consultant discusses the experience of building a digital lender from scratch, her plans to streamline processes across specialist finance and the ‘next big thing’ in tech.

Maria’s career in the financial services sector spans over 15 years. Having started in contact centres and operation management, she has built an extensive financial resume, which includes roles at Lloyds Bank, Atom bank, Coreco Group and United Trust Bank, where she was recently appointed to the board as a non-executive director. In her new role at Brightstar, she will aim to help the specialist distributor identify new opportunities in developing solutions for its partners and introducers. Maria will also aim to advise and support the senior management team through continuous development and enhancement of Brightstar’s technology platforms.

What has been your biggest achievement to date while working in the specialist finance market?

I think it would have to be the improvements we made to the Business Banking Secured Lending proposition at Atom bank. I inherited the team unexpectedly and we had to make changes to its structure and size quite quickly, which was tough—and included making some very difficult decisions. We got through it though and came out as a leaner, stronger team, with the focus we needed to re-energise the business.

You recently took up the position of technology consultant at The Brightstar Group. How were you approached for the role?

I’ve known Rob, Clare and the Brightstar team for a number of years and we share a lot of the same values and aspirations for the industry. Rob had first-hand experience of the work I’d done with Atom bank and other contracts I’ve worked on, so when he wanted someone to review his current technology and provide some ideas on what they should look at next, it was an easy conversation to have.

How does your previous experience help you in this particular role, and what are you aiming to help implement first at Brightstar?

My start in contact centres and operations management means that I’ve got a broad experience across a number of industries. Working in contact centres is one of the best places to get a grounding in technology and change, as it’s such a fast-moving environment, but, of course, setting up Atom bank from a blank sheet of paper was the best experience imaginable. Building a new digital lender from scratch, while working with cutting-edge technology, has equipped me with a lot of knowledge and contacts.

I’ll be taking that knowledge into Brightstar and looking at how the business can be more efficient, using technology to do the heavy lifting.

You are also a NED on UTB’s board, and a non-executive adviser at Coreco. How do you manage to juggle the workload at these very different companies?

It’s one of the things I love most about what I do.

Having a portfolio which is diverse and covers

a variety of company types is fascinating, intellectually stimulating and keeps me on my toes. I do have days where I feel like Worzel Gummidge (for anyone else old enough to remember him), but it’s amazing how connected the companies are. I often find great opportunities to introduce people to each other and to create little pockets of collaboration.

One of your aims at Brightstar is to set new technology standards in specialist distribution. Why do you think this is needed, and how are you planning to do this?

Specialist distribution is well established and fills a clearly defined space in the market, but the systems and processes have tended to develop organically in the same way as the wider lending market.

This usually means that you find a lot of manual keying and rekeying of data across systems that don’t easily integrate with each other, and this can create high levels of inefficiency. Creating interfaces between systems and removing time-wasting manual processes will free up time and resource, which can be better spent with customers and brokers.

How do you go about identifying new opportunities in the world of technology to help companies within the specialist finance sector, and what do you think will be the ‘next big thing’?

Most of the technology that would benefit our sector is already well proven in other industries and is gaining traction here.The use of cloudbased solutions, open source code, application interfaces and data analytics are identifying new customer and user experiences and improving how businesses provide their services. For me, the use of open APIs will have a big impact in specialist this year, as firms start to see the benefits in sharing data and enabling processes in a frictionless way.

What one thing does the industry not know about you?

Most people know I’m a passionate football fan, but not many know that I am a qualified football coach and managed a team when my son was younger—and I also sponsor one of Newcastle United’s women’s teams.

72 Bridging & Commercial

What did you spend your very first pay cheque on?

I had a number of Saturday jobs from the age of 15, but the first proper pay cheque I remember spending was on tickets to see a band at The Mayfair in Newcastle. It was a ballroom, famous for hosting live music, especially rock bands.

What is your favourite venue for meetings?

Skylon in London’s Southbank Centre. I also love early evening drinks or lunch meetings by the Quayside in Newcastle in either the BALTIC Centre for Contemporary Art or cocktail bar Tiger Hornsby.

Most memorable moment from your time in the industry?

Winning at the firstWomen in Finance awards for my services to banking. It was such an honour to be recognised by the Bank of England and industry experts for my contribution to banking and diversity.

What is your favourite industry event of the year?

My favourite event ever was the Mortgage Sleep Out, which Rob Jupp, Will Lloyd and I set up in 2018. It was inspiring to see over 1,000 industry colleagues come together and raise over £100,000 to tackle homelessness.

Dream job—if you weren’t doing this what you do?

Growing up, I always wanted to be a psychological profiler as a result of watching too many episodes of ‘Cracker’ and films like ‘Silence of the Lambs’. But now, I think I’d be happy to set up a small business near my home in Spain, maybe teaching Spanish in a little language cafe or bookshop.

Desktop Valuation Products 2020 Flat Rate - Residential LTV

Rates

62.5%

0.89%

Stepped Rate Product Rates Initial Rate

0.59%

Initial Term

6m

Total Term

12m

Secondary Rate

1.24%

Exit Fee

1 months interest

Key Info Loan Sizes

£200k - £1m net

Borrowers

UK & Foreign

Timescales

Sub 10 day completions

Desktop Valuations

62.5% LTV

AWA R D S 2 0 1 8 SPECIALIST PRODUCT OF THE YEAR

WINNER

AWA R D S

Contact us: 0845 318 0001 enquiries@aspenbridging.co.uk

2 0 1 9 SPECIALIST PRODUCT OF THE YEAR

H I G H LY COMMENDED

Purchase l Capital Raise l Developer Exit l Refurbishment

YO U R T R U S T E D PA R T N E R Bridging Finance you can depend on Paul understands that you are looking for a partner you can depend on to provide funding tailored to individual needs.

Approachable | Adaptable | Knowledgeable

Paul Delmonte | Key Account Manager T: 020 3862 1002 E: pdelmonte@utbank.co.uk

we understand bridging finance