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INTRODUCER www.sfintroducer.com
Development finance round table Bridging in-depth ASTL
November 2022
Disruption can be good for brokers Richard Whitehouse sees opportunity
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EDITORIAL
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A change for the better?
Contents
A
s creatures of habit, humans often fear change. We settle into our comfort zone and, if everything is ticking along nicely, we’re reluctant to alter it. It’s strange to think, perhaps, that a gently rocked cradle calms a baby, yet as adults we’re conditioned to be nervous of something unexpectedly rocking the boat that is our world. There has certainly been plenty of turbulence for the Good Ship UK recently, with an unsettled economy and copious chatter about a downturn, which has filled the airwaves, pages of newspaper columns, and, likely, numerous conversations in homes and businesses the length and breadth of Britain. Arguably, little of it has been positive, which is why it’s been incredibly encouraging to listen to the views of the bridging community over recent weeks. “Business as usual,” “Disruption is good,” and “We’re busier than ever,” are just some of the things that Bridging Introducer has been told. These aren’t the words of an excessively or blindly optimistic Polyanna approach or a head-in-thesand ostrich mentality. They’re the confident views of a resourceful and pragmatic sector getting on with what it does best: providing the funding that borrowers need to realise their dreams. They aren’t recklessly releasing those funds. As experienced professionals, they’re weighing up the risk, taking account of current market activity, and, where possible, saying, “We’re good to go.” Such positivity is inspiring and, as you’ll read in this month’s magazine, there is a considered view that the bridging market could actually thrive in the current economy, as those unable to secure funding in the general mortgage market turn to bridging – a sector that, of course, prides itself on being creative. Few things in life were ever achieved without some form of upheaval. A change is as good as a rest, according to the old English proverb, which optimistically sees a restorative benefit in shaking things up once in a while. So, let’s try not to fear change; let’s embrace it. Change can be good.
4 Donna Wells Specialist lending not slowing 6 Brian Rubins Bridging and development finance 8 Vic Jannels Bridging stands strong in the face of turmoil 10 Turbulent times require a tenacious lender The Sancus team has what it takes 12 Bridging optimism This could be our finest hour 16 Development finance round table Confidence remains high 22 Confident lender assures market Sancus MD Richard Whitehouse says disruption can have benefits 26 “Rising star” on the attraction of mortgages ABC’s Taylor Osunsedo is bullish on the future
Simon Meadows
Development and Refurbishment Finance with a relationship focused approach
sancus.com www.sfintroducer.com
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NOVEMBER 2022 BRIDGING INTRODUCER
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REVIEW
MARKET
Specialist lending still growing Donna Wells director, Envelop
I
t’s been an interesting few weeks for the UK economy and the mortgage market. This is a period that has pushed lending boundaries and really demonstrated the value of advice for all borrowers, and the importance of packaging partners for brokers when it comes to securing a range of specialist solutions in such a turbulent lending environment. In last month’s piece – which seems like an eternity ago, considering all the changes that have taken place across the market – I looked at the momentum being generated in these specialist markets. The past few weeks have further exemplified this trend, and with growing uncertainty surrounding the state of the economy, compounded by the cost-of-living crisis and multiple base rate hikes, an overwhelming 94 per cent of mortgage intermediaries have indicated that they expect the specialist mortgage market to grow further over the next two years. THE CONTINUED GROWTH OF SPECIALIST LENDING
This was highlighted in findings from UTB as part of extensive research for its new mortgage white paper, “Growing opportunities for brokers in the specialist mortgage market.” Within this, 57 per cent of respondents predicted significant growth of up to 20 per cent, whilst a further 17 per cent expect the market to expand even further. The report revealed the specialist niches brokers believe offer the most growth potential in the near future. The top five are: borrowing into retirement – 61 per cent
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self-employed applicants – 52 per cent multiple income applicants – 49 per cent second charges – 43 per cent adverse credit applicants – 38 per cent
The report also found that specialist cases were an excellent source of new business, with brokers indicating that 73 per cent of the specialist mortgage applications they deal with come from new clients. Furthermore, successfully helping a customer with more challenging requirements can lead to greater loyalty. Ninety-two per cent of brokers said that specialist mortgage customers are more likely to approach them again, having appreciated the value they added to the process and the outcome. There was also a higher chance of customers referring friends and family. With a greater number of borrowers, both potential and existing, likely to slip into the more specialist lending bands, these results are hardly surprising. However, they do highlight the opportunities on offer for intermediaries throughout the specialist lending markets, especially for those who are working with a trusted packaging partner. BRIDGING AND THE IMPORTANCE OF PARENTAL SUPPORT
Bridging Finance Solutions (BFS) recently reported a sharp rise in the number of clients securing bridging loans in order to support their children through the purchase of property. BFS suggests that young aspirational homeowners, keen to take their first steps onto the property ladder, are faced with unaffordable house prices coupled with rising interest rates and reluctant lenders. BFS argues that increasing the size of the deposit will inevitably improve the rate, whilst parental support will provide the opportunity for children to take that major leap into the property market, and this represents
BRIDGING INTRODUCER NOVEMBER 2022
an interesting area to follow. As the lending landscape continues to change, it’s evident that all borrowers need access to a wider, more considered range of solutions to meet their present and future needs. Again, this is a trend that only serves to highlight further the importance and value of the advice process. COMMERCIAL FINANCE SUPPORT
Rising costs are not only affecting individual borrowers but – just as many were getting back on their feet following the pandemic – they are also severely affecting businesses across the UK. As a result, more than 40,000 SMEs are likely to lean on finance providers to help support their businesses. This is according to a study from fintech lender Nucleus Commercial Finance (NCF) which found that 15 per cent of small and medium-sized UK businesses expect to need a loan to support the running of their business. While just one per cent of sole traders expect to have to go down this route, this number rose to 16 per cent among smaller businesses employing between 50 and 249 staff. Two-thirds (66 per cent) of UK SMEs are worried about the prospect of rising business costs over the next 12 months – and among small and medium-sized businesses, this figure rises to 74 per cent, with 29 per cent of this group stating that they are “very worried” about costs going up over the next year. However, just 38 per cent of businesses say they are confident about being able to access affordable finance in the next 12 months should they need it. It will take a collaborative approach to help a raft of businesses overcome the many challenges facing them, and I make no apologies for reiterating again just how important a role the intermediary community will play in sourcing the right solutions to help them overcome these financial obstacles. www.sfintroducer.com
Fixing rates to support your clients. Even during turbulent times, our development finance and bridging rates have always been fixed for the duration of a loan. What’s more, once we have issued a DIP, we will hold the rate for 3 months, so make sure you get a deal locked-in with us. Let’s discuss your client’s next project: 0800 470 0430 Sarah Ellison, Relationship Director
0800 470 0430
introduce@assetzcapital.co.uk
Download our full product guide here.
Assetz SME Capital Limited is a company registered in England and Wales with company number 08007287. Assetz SME Capital Ltd is authorised and regulated by the Financial Conduct Authority in respect of its peer-to-peer lending platform only. ’Assetz Capital’ is a trading name of Assetz SME Capital Ltd. Assetz SME Capital is registered with the Office of the Information Commissioner (Reg No: Z3338899) for data protection purposes.
REVIEW
MARKET
Development finance in the bridging world Brian Rubins executive chairman, Alternative Bridging Corporation
T
here remains a severe shortage of housing stock in the UK, and that means continued opportunity for developers. But how many brokers truly understand development finance? The first question is how much can be borrowed. This will vary from lender to lender, but is unlikely to exceed the lower of 80 per cent of the total cost of the project or 65 per cent of the gross development value (the total of the projected sales values). There are loans for developers who need to borrow more, and although they are far less readily available, loans can be as high as 90 per cent of total cost. They are only for truly experienced developers, and will involve some element of profitsharing, such as a higher interest rate or an exit fee. Development finance requires very detailed information to enable the lender to consider the proposal. Below are outlined what is essential if you wish an application to progress swiftly and efficiently. Lenders will want a clear understanding of the prospective borrower. Who is it? Is it a company – and, if so, who are the beneficial owners? Or is it a partnership, or a single person? What experience does he, she, or it have of property development? Lenders ideally look for borrowers to have successfully completed three previous transactions as developers, and so a summary of these projects should be part of the presentation. If the principals do not have this experience, then what is their professional background? Is it as a building contractor or sub-contractor,
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architect, surveyor, or something similar? In these professions, what role have they played in residential development? The lender needs to know. Too often, there is confusion between having experience as a builder or as a developer, and this needs to be clearly defined. It is not uncommon for the developer to also act as contractor, employing the sub-contractors directly, all in one company or in a separate inhouse construction company. In all circumstances the lender will wish to understand the construction procurement route and the nature of the contract. There are a number of different forms of contract, primarily JCT (Joint Contracts Tribunal), and they can include the design function, which is known as design and build. There are lenders for those who are not experienced and wish to undertake their first small project, but then the gearing will be a little less generous and the pricing marginally higher. Often these small projects are for owneroccupiers building their dream homes, and as the borrower will live in the property, the loan will be regulated. Only a limited number of lenders offer regulated development finance. Turning to the property to be developed, is it previously undeveloped (a greenfield site), or is there a redundant building to be demolished (a brownfield site)? If the latter, what was the previous use of the property? There may be contamination on a brownfield site, and, if so, this is a risk that will need careful professional management. For example, the redevelopment of a filling station site with a block of flats will probably require the tanks and hydrocarbons to be removed. This need not preclude the arrangement of a loan, but the extra construction cost must be allowed for. The lender will wish to know details of the professional team – architect, engineer, quantity surveyor, and any
BRIDGING INTRODUCER NOVEMBER 2022
other specialist advisers. Also, confirm whether planning permission for the project has been granted, and provide a copy of the consent and the approved plans. If these documents are not readily to hand, they can be sourced from the planning portal at the local authority. They are in the public realm and can be downloaded. It is also helpful to provide the lender with the local authority’s reference number so that the lender may access additional information as required. Hopefully the developer will have employed a quantity surveyor to prepare a preliminary cost estimate. This, or a detailed estimate if there is to be separate contractor, will add credibility to the proposal and avoid subsequent misunderstandings or delay. An important element of the presentation is establishing the end value of the project, the gross development value (GDV). Obviously the client will have carried out the relevant research and will be able to make it available. Preferably this will involve reference to comparable properties that have been sold, or, failing that, research into what else is available in the market and listed on Rightmove or Prime Location. This is an information-gathering exercise that needs to be presented to the prospective lender in an orderly report, supported by the documents referred to plus an appraisal and a cash flow forecast, which should account for all of the costs and the estimated GDV. Do include an estimate of interest, purchase costs – for example, agents, solicitors, and stamp duty – and professional fees. In the main, loans for development finance are larger than for bridging, and developers are continuously active, thus generating repeat business. Taking the trouble to understand the process, and presenting a professional proposal to the lender, will be generously rewarded time and time again. www.sfintroducer.com
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REVIEW
MARKET
Bridging builds as the mainstream market wavers BRIDGING STABILITY
Vic Jannels CEO, ASTL
I
n a month of eye-catching headlines, from the government’s mini budget to the sad passing of HM Queen Elizabeth II, wouldbe borrowers could be forgiven for missing the news surrounding mortgage availability – but this is something few in the property finance industry are likely to have passed by without note. Data from Twenty7Tec found that in August – a busy month for searches and the second-busiest ever for ESIS documents – product availability in the mainstream market dropped by 11.5 per cent. This makes for the lowest product availability since July 2021, and a far cry from the pre-pandemic high seen in February 2020. September 2022 continued the trend, as the second-busiest month on record for total mortgage searches, but with the lowest number of products since the tech firm’s reporting began, now sitting at 32.6 per cent of the pre-pandemic high. While there are nuances to this, with demand among first-time buyers dipping while remortgage searches ticked up, the picture is clear: The mortgage market is facing a difficult supply-versus-demand dynamic, all while rates rise, prompted by inflationary pressures and the Bank of England base rate. Outside of the residential market, reports are also flooding in of buy-to-let (BTL) lenders pulling products in the face of economic uncertainty, preferring to wait until financial markets level out before launching new ones. Considering the ongoing news around expected baserate rises, among many other market factors, this does not look like it will happen any time soon.
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It is not all doom and gloom, however. In fact, the bridging market remains stable, offering a full and competitive range of short-term finance options, which may become increasingly important as the mainstream market becomes difficult to navigate, and brokers find themselves having to problem-solve for borrowers. Short-term mortgage lending is funded in a different way from the term market, which means that – while not immune to the ravages of ongoing uncertainty – lenders are not affected in the same way by current economic circumstances. This makes bridging an even stronger option for homebuyers facing broken property chains, in addition to its value as a fast, flexible solution. To illustrate this, the ASTL’s figures for Q2 2022 show a strong market, with completions rising 17.4 per cent on the previous quarter, to just over £1.2bn, while applications rose 18.7 per cent to £7.5bn. This is the fifth consecutive quarter to see completions reach above the £1bn mark, while the size of loans books hit a new high of almost £6.1bn. Even with economic instability making headlines every day, we expect our third-quarter figures to continue showing this picture of stability, and even growth, across the short-term lending sector. A PINCH OF SALT
Of course, while the market goes from strength to strength, there will always be nuances and moving parts to consider. Brokers need to have a strong understanding of how these will affect their clients, and need to work with lenders with in-depth expertise, to ensure borrowers go into the short-term market with their eyes wide open. In bridging, the exit route is key. So, while the market may not be affected
BRIDGING INTRODUCER NOVEMBER 2022
by the same economic vagaries as term lending, there may be some knock-on effects. The most notable example of this at the moment would be the drop in BTL products, as well as rising rates. Increased rates are going to take their toll on stress testing, which, together with tightening product availability, will add to an environment in which investors may struggle to find a viable BTL remortgage. With this in mind, it is integral that brokers work with lenders to formulate multiple exit strategies, preparing for various scenarios, so that borrowers will not be faced with a shock when their short-term loan comes to a close. For those using short-term finance to fund refurbishment work ahead of letting a property, there are also various other factors – ongoing supply-chain delays and rising costs spring to mind – which could delay projects, and call for flexibility all-’round. ON THE HORIZON
There is always a chance that continued instability will start to take its toll. If there is anything the pandemic has taught us, it is to be careful when predicting the future. There are also other factors – beyond rising mainstream rates and uncertain exit routes – that might make things complicated for short-term lenders in the coming months. For example, recent mortgage-market regulations apply to bridging, while not taking into account the differences between this and the long-term market, affecting re-bridging in particular. Whether in our dialogue with the regulator, our campaign for education and awareness, or our continued efforts to maintain high standards among the lenders in this market, the ASTL will continue to work hard to keep this market strong in the face of whatever might come our way. www.sfintroducer.com
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FEATURE
SANCUS
Turbulent times require a tenacious lender – Sancus is equal to the task Meet the Sancus team of experienced, dedicated specialists
GARY MEALING (GROUP CREDIT DIRECTOR) Gary joined Sancus in March 2017 as credit director. He has over 30 years’ experience in commercial and corporate banking, primarily at HSBC. He gained experience in various roles at the bank, including corporate, credit, legal, and audit, managing complex lending relationships including acquisition funding, MBOs, and multiphased property developments, with particular strength in managing and mitigating risk.
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BRIDGING INTRODUCER NOVEMBER 2022
JAXON STEVENS (HEAD OF SALES, SOUTH) Jaxon has 25 years of experience in financial consultancy and management roles, with a proven track record in building high-level B2B relationships with extensive knowledge of the specialist lending market. Prior to joining Sancus, Jaxon was at Omni Property Finance, where he was responsible for national business development, and, prior to that, Positive Lending, where he was national sales manager and head of networks. www.sfintroducer.com
FEATURE
SANCUS
CLAUDIA CATALDO (SENIOR CREDIT MANAGER) Claudia has worked in bridging and development finance for over 10 years and has extensive experience and knowledge of the property finance sector. She started her career at Masthaven, and most recently worked at Pivot as a senior underwriter, supporting the head of underwriting on credit decisions and approvals and underwriting loans to completion. She leads the loan delivery team in the UK. GARY: “As a provider of property finance, we know the crucial role that certainty of funding provides our clients. Our business is geared to giving a definitive answer as quickly as possible. The structure and size of the business enable us to move quickly and adjust to changes in the market, which has been particularly useful over the last few months. The sector is constantly evolving and, of course, every loan comes with its own unique set of circumstances, and Sancus is perfectly structured to support this whilst maintaining the momentum and tenacity needed to complete within set timescales. “Many of our competitors offer strictly defined lending criteria, but we look at each case on its merits, so we don’t work to a matrix. That means we adapt to the needs of each client. We are also a close team and actively encourage a culture of open dialogue throughout the company, asking questions, listening to feedback, and adjusting what we do to ensure the best outcome and smoothest delivery.” www.sfintroducer.com
JAXON: “Brokers are extremely important to our business, and working with them is something that forms a significant part of my day and is something I really enjoy. “I see my role as making their lives easier, offering both them and their clients support through the loan application process and applying my knowledge to make it all as seamless as possible. “Certainty of funding and having a reliable lender are paramount to borrowers, and we really get under the skin of a deal, fully understanding the borrower and the exit strategy and completing much of the due diligence up-front, so that when we make an offer, we will always stick by it. “We have found that a call or meeting with the borrower as soon as possible allows us to really understand the business, as it invariably raises points that can be addressed earlier rather than later, which may affect timescales. “Once the loan has been authorised by the credit committee, I then pass it to the loan delivery team.” CLAUDIA: “My team works very closely with business development, both literally and metaphorically – we sit right next to them in the office! “Once the loan has passed through credit committee, we will then pick it up, and it is our responsibility to ensure we complete all necessary due diligence on the case including KYC and review of the valuations and monitoring reports, together with ensuring a robust exit is in place to repay our loan. “Certainty, communication, and trust are big parts of the culture in our company, and to achieve this we like to have all parties involved as early as possible in the loan process. “We are pragmatic when driving every deal, conscious that borrowers will be juggling a multitude of other issues as well as the funding of their project. Our aim is to make it happen within the timescales agreed in collaboration with the client, working closely with them and all parties involved in the deal. “We recently completed our fastest bridging loan ever – two weeks from initial enquiry through to drawdown, at the same time as landing a complex £13m development loan. Not a bad example of what we are capable of as a team!” NOVEMBER 2022 BRIDGING INTRODUCER
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FEATURE
WHAT’S AHEAD
Why bridging could come into its own now Despite the UK’s financial worries, industry professionals say the bridging market has reason to be optimistic, writes Simon Meadows
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n economic downturn, though challenging, could provide new opportunities for the bridging market, lenders suggest. For many, rising inflation and interest rates are cause for considerable concern, but some bridging lenders believe there could be a silver lining to a recessionary period. It’s anticipated that they will pick up business from borrowers struggling to secure funding in the general mortgage market. In spite of the recent economic turbulence, Phodis Maratheftis, Alternative Bridging Corporation’s recently appointed head of sales for London and the South East, remains pragmatic. “Now we’re in a time when the base rate’s increasing and we’re probably going to hit a period when property values are going to decline a little bit before they get any better,” said Maratheftis. “So your traditional mainstream lenders are likely going to be more conservative on things like obscure properties or more unusual transactions. That’s where bridging can take the next step forward to cover that market. “I think the commercial lenders out there are also going to be a bit more conservative. More and more people
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now, I think, who are going to struggle to maybe get a long-term commercial mortgage might start looking at bridging [and] find out that it is actually a lot more useful than they probably think, especially for people who might want to buy or refinance their commercial assets.” He said, “Someone who doesn’t know a lot about bridging, all they see is a slightly higher rate than regular mortgage
“With us, even though we’re a short-term lender, we’re always looking farther than that – a year or two years ahead – because you have to be optimistic in the finance industry” – PHODIS MARATHEFTIS lenders; however, it is a totally different entity, [for when] you need a more tailormade solution rather than your standard mortgage. I think with more traditional long-term lenders, it is a lot of box-ticking, whereas bridging is more of a commercial
BRIDGING INTRODUCER NOVEMBER 2022
mindset and decision-making. And if it makes sense, let’s do it. It’s definitely a more flexible industry. “Bridging nowadays, it’s very wellknown and I would say probably more respected because it offers various solutions. It has always been popular with those who know it well and there’s always room to do more business.” Maratheftis remains focused on delivering innovative, tailor-made property-lending solutions as he contemplates how best to navigate a downturn. “Looking at it from a lender’s perspective, it’s going to be about sensible loans-to-value on the right facilities,” he explained. “So not over-lending in areas where you probably shouldn’t. It’s about being conservative when you need to be and more ambitious when you need to be as well. We actually have a three-tofive-year term facility, which will be quite popular, I think, because of the mainstream market possibly being more conservative.” Does Maratheftis think, though, that some property investors could be deterred, even in the short term, while they wait for the market to settle? “Possibly,” he agreed. “But there’s also the www.sfintroducer.com
FEATURE
WHAT’S AHEAD
flip side, where people will see this as a good time to buy as well. You’re always going to get the two sides to it. People may choose to hold off for a year or two on buying their next buy-to-let or their next project. On the other side, you have obviously got the people who want to take advantage of property prices possibly being slightly lower.” He continues, “With us, even though we’re a short-term lender, we’re always looking farther than that – a year or two years ahead – because you have to be optimistic in the finance industry. I think that optimism comes with experience. So, for example, if you’ve seen similar things happening before – base rate increases, obviously COVID that we’ve all been through – you start to learn that, yes, there are hard times, but we will get out of it eventually. With 30 years of lending experience, we are able to provide brokers with the certainty and consistency they need in the current environment.” For Maratheftis, in uncertain times, clarity remains key. “I would advise brokers to be honest and upfront with their clients,” he said. “Don’t just tell them what they want to hear because that’s not right for anyone.” Challenging as the economy may now be, the bridging market has shown encouraging buoyancy this year. According to the Association of Short Term Lenders (ASTL), in Q2 2022, completions were just over £1.2bn, representing an increase of 17.4 per cent on the previous quarter. Remarkably, completions have been at more than £1bn for five consecutive quarters, and applications have also risen to £7.5bn – an increase of 18.7 per cent on the quarter ending in March 2022. The size of loan books rose, too, reaching a fresh high of just under £6.1bn. “Certainly, the market is very, very strong,” said Jamie Jolly, director of bridging at Hampshire Trust Bank (HTB), which provides specialist mortgages, asset finance, development finance, and savings accounts. “I still think there are some really wonderful opportunities for customers in the marketplace. There is absolutely an opportunity for the bridging www.sfintroducer.com
Phodis Maratheftis
community to transact really strongly through this period. My reasoning for that would be the experience within our lending community. “We’re a very experienced group. If you look at our team, for example, there is an abundance of experience, 50 years-plus; we’ve been through credit crunches, we’ve experienced difficult lending periods, but as term rates continue to creep up, it makes a bridging rate that has historically been that little bit more expensive a more attractive proposition because you’re able to access funds more quickly. “I’m very mindful, and it’s important, that the people who operate in our team are people – whether it’s sales, or underwriting, or credit – who have all got experience within this space. The mortgage market is absolutely feeling the frustrations of time constraints. We’re able to tap into and use the team’s experience to put ourselves in a position where we can evaluate enquiries, we can review lending opportunity and then from there we can make really considered, well-assured decisions, and
furnish the customer, or the broker, or both, with terms within a very short space of time. It’s important that we be able to move along with that transaction really, really quickly.” He added, “I think the biggest challenges as bridging lenders, for us, is negating as much risk as possible and ensuring that we’re as competent as ever – that the customer borrowing the funds can still source an exit, a viable exit. “There’s always a risk, the market changes, but investors will always be there. It’s just understanding where they are and what they’re looking to buy into, making sure at all times that your product best reflects the market in which you operate. I think if you were to look at the more experienced, what I would class as the sophisticated investor, again, similar to ourselves, they’ve been doing this particular type of business transaction for a number of years, perhaps even decades, so they’ll have been exposed to difficult trading conditions within the financial industry.” Jolly draws a comparison to his younger years, when the terms of a
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FEATURE
WHAT’S AHEAD
“There’s always a risk, the market changes, but investors will always be there. It’s just understanding where they are and what they’re looking to buy into” – JAMIE JOLLY
Jamie Jolly
mortgage deal were not as favourable. “You know, we’re used to really, really low rates,” he reflected. “The cost of borrowing is still relatively inexpensive compared to when I bought my first property or, you know, the generation even above us, when we were borrowing money at 15,16,18 per cent. Borrowing money at four per cent, five per cent, six per cent, or eight per cent on a bridge is still a relatively inexpensive cost of acquisition. “You might find that some of your investors, who are mindful of the situation, may pause a little bit, perhaps for three to six months, to see if anything eases off within the property market, to see if prices, property values, come down a little bit. If they could potentially sit on their hands, is there a better opportunity heading into Q1, Q2 2023? But the signs are that that’s not [going to be] the case because demand for property is as strong as it’s ever been.” Although bridging as a solution has been around for decades, awareness seems to be growing among a new generation of property buyers. The
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Financial Times reported earlier this year that purchasers were turning to higher-interest bridging loans to get ahead of rivals in the highly competitive UK housing market, with its ongoing shortage of available homes. It referenced data from 12 UK bridging loan brokers showing that the value of funding, which buyers could use to secure a purchase, had risen by 8.5 per cent in the first three months of 2022, compared with a year earlier. The Bridging Trends report found that loans were mostly used by those buying an investment property and those looking to fund a so-called chain break, for example, avoiding the need to sell one home ahead of another purchase. Borrowers also cited taking out bridging loans to pay an inheritance tax bill while waiting to sell an inherited property, or using the funds to renovate a dilapidated, unmortgageable property. So, buyers are keen, it seems, to explore the potential of bridging – but what is the best advice that brokers might share with their clients in the economy? “Take stock of the situation
BRIDGING INTRODUCER NOVEMBER 2022
and re-evaluate your wants and your desire to potentially use the funds for a purchase,” Jamie Jolly suggested. “Can you still make some margin out of that particular transaction, long-term? What we’re all going through at the moment with regard to rates and inflation, I personally see it as a relatively shortterm situation. If you look at the credit crunch, it was a three- to four-year period of difficult trading and unrest. The main significant factor at that time was there was a lack of liquidity, a lack of access to lenders. Although the rates are going up, access to funds is incredibly strong. Funding is not the issue. Products will change, but the appetite to lend is still there.” Jolly said he likes to live up to his surname in his upbeat approach. “I think it’s important to be positive but diligent,” he shared. “We will transact our way through this. And I think the situation in which we find ourselves is short-term. I don’t see this [involving] a continuation of rate increases for the next two to three years.” Summing up, he’s confident. “Bridging has been around for a number of years, but I certainly feel in the last decade it’s become more prominent in the market, more attractive, [with] more competition, which has led to a really healthy situation for borrowers because rates have obviously come down. What I personally like about working within this space is just the energy and its very fast pace. It’s quite challenging at times. It’s a multi, multi-billion-pound finance space and it’ll continue to evolve and continue to grow.” www.sfintroducer.com
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DEVELOPMENT FINANCE
FOLLOW OUR ADVICE, SEE WHAT DEVELOPS... The UK’s economy is feeling the pressure, but confidence within the development finance market remains high. Simon Meadows outlines Bridging Introducer’s recent round table
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ew could dispute that these are disruptive times in the UK economy. Rapidly rising inflation and interest rates over recent weeks and months, and much talk of a recession, have brought into sharp focus the livelihoods of British businesses. Closer to home, quite literally, many property owners have worried about how they will afford escalating mortgage rates and even whether they will manage to keep their hard-earned houses and apartments. For those behind the financing and developing of such properties, there could be challenging times ahead. Yet, as the government and the Bank of England strive to steady the country’s finances, bridging introducers continue to see development financing opportunities coming across their desks. And within the bridging market, there’s optimism its profile could grow among those struggling to secure finance within the general mortgage space. There is, perhaps, no more intriguing a time than this for a discussion of the development finance sector, bringing together a diverse selection of industry experts to better understand its evolution, what it takes to be successful, and how best to collate and
deliver the information lenders need. To share their insight on development finance and offer a framework for success in a highly competitive market, Bridging Introducer, in association with Sancus Lending Group, brought together six leading industry professionals. The panel featured Jaxon Stevens, head of sales for Sancus Lending Group; Kieran Payne, relationship manager at Aureum Finance; Matt Vincent, director of MCA Finance LTD; James Palmer, associate director of LDNfinance; Ross Wilson, associate director at Naismiths; and Harry Eddery, senior funding manager at LandTech.
“We just need to make sure that everyone’s on the same page; the broker, the developer, and the lender all need to be working together and communicating” JAMES PALMER
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DEVELOPMENT FINANCE RIDING THE DEVELOPMENT WAVE To set the scene for the discussion, they first considered how big a part development finance played in their respective businesses and where the opportunities lay in the current marketplace. Kicking off the conversation was Jaxon Stevens from Sancus Lending Group, which is a specialist in development finance and property bridging. “Development finance is the vast majority of our day-to-day transactions,” he said. “It’s what we do – ground-up residential schemes across the whole of the UK. We receive a lot of our inquiries and business via intermediary networks, mortgage brokers, with some direct clients coming to us as well. It’s busier than it’s ever been, really, for us certainly. We’re seeing an increase in inquiry levels, lots of people trying to get schemes up and running. There’s been a wave of planning approvals, I think over the last six or 12 months, people making sure they can secure their funding and get deals moving forward, and we don’t really see that changing any time in the near future.” Stevens’ positivity was broadly supported by the panel, including Kieran Payne from Aureum Finance, an independent finance broker that specialises in all forms of property finance. “There are going to be buildings to be built, there’s still going to be deals to be done,” Payne agreed. “So I don’t see the economy changing anything that we’re doing in the future.” Matt Vincent, from MCA Finance, which specialises in bridging, commercial, and development finance, was positive, too. “I think there are more opportunities forthcoming, in the sense that there will be a greater need for advice,” he declared. “As lenders adjust their pricing structures or how they’re sourcing their funding, I think this will create the need for people like us to be able to compare the marketplace and really tally up people with the best lenders available to them. There is still a need to build homes. I don’t think there is anything really to panic about.” It was business as usual, according to James Palmer, from LDNfinance, which is a team of high-value property finance, specialist, and protection professionals. “We’re getting lots of inquiries from other brokers who have got clients who are moving into ground-up developments and refurbishments, and it’s just about making sure they fully understand their clients’ requirements,” he said. “Not being frightened to go back and ask for further information.” Ross Wilson, from Naismiths, a niche consultancy providing specialist services and advice to the
“Timescale is everything – allowing yourself the time to go through the process, but also setting the expectation of when you want to complete” KIERAN PAYNE
construction and real estate sectors, offered some perspective in uncertain times. “I’ve seen various effects on mortgage market conditions far worse than we [have] at the moment,” Wilson shared. “We see developers moving from the larger-unit developments into more bespoke projects, focused on residential, primarily, which will typically attract cash buyers in the market, so they’re sheltering themselves from the effects of the mortgage market.” The market was tough but fluid, according to Harry Eddery from LandTech, which uses tech to modernise and streamline development and bridging finance. “We have quite a chunky array of SME developers,” he explained. “I think there’s a lot of opportunity within the build-to-rent and retirement living sectors, and I am seeing more and more applications come in from both.” WHICH SCHEMES ARE VIABLE? The conversation then turned to how bridging introducers assessed the viability of schemes when they were approached with development finance opportunities. What were their key considerations? “The first thing I look at in terms of the viability is the developer’s profile, because at the end of the day, if they can’t build it or don’t have the relevant experience, it can sometimes be a dead duck even if everything else works out,” Eddery advised. “So always look at the developer profile – what they’ve previously done and how big the schemes have been. Do they have the same geographical location, roughly, as the other schemes? Gross development value [GDV] benchmark it as much as humanly possible. All of these things matter.” Vincent chimed in with his set of criteria. “Once you understand the likely project costs or central budget costs and repayment strategies, as well as having a suitable contingency to reflect the market we’re in, I think it’s just a case of matching up the relevant →
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DEVELOPMENT FINANCE
“If you’re starting out, it’s really key to build relationships with your lenders, understand their process, understand where they sit in the market” MATT VINCENT
experience and loan parameters with the best lender.” Understanding a deal and the client behind it was most important to James Palmer. “So, if the developer is inexperienced, is the team experienced?” Palmer questioned. “Can we use the team to enhance the deal? How much cash has someone got to put into the deal? Make sure that the planning permission is what they’re actually developing. Sometimes you get a deal where the planning permission doesn’t necessarily match up with what the initial proposal was. Typically, with experienced developers, they might be able to tweak it and achieve some more units, but it’s good to explain that to a lender.” Profitability was key for Stevens. “Ultimately, the profitability of the scheme is ultra-important for everybody – so will our lender be able to get in and out and get their money back?” he ventured. “Is there enough time to get the project done, and then enough time to find that viable exit as well? We need to make sure that the borrower has the ability to cover cost overruns in the current climate and, of course, assess the build team, as well as the borrower themselves and their experience, really looking at them being the right people specific for those roles.” He added, “Understanding the site is really important, and actually getting on the ground, on site, and understanding and picturing what’s going to be done and how it’s going to be done.” Payne, meanwhile, was clear about his priorities. “In the first conversation, we ask when you want to complete by and how much money you’ve got to put into the scheme,” He told the panel, “You come across developers all the time who have either got little experience or limited money to put into the build, and it completely changes the viability of the scheme and who you can approach. So we’re doing all the due diligence because, ultimately, it’s our reputation at hand
when we’re going out to lenders.” For Wilson, the quality of the information provided was all-important. “Especially in the current marketplace, the most successful schemes are going to be the ones that have been pored over in the greatest detail,” he reflected. “You can broadly split our client base into those who are rehashing schemes – they’ve completed from a year or two years ago, using that kind of data and just putting something together for the purposes of getting another scheme off the ground – and there are those who are looking at new schemes in isolation and looking forward and trying to anticipate inflationary pressures.” ADDRESSING THE PAIN POINTS What, then, were the pain points identified by the panel in their typical communications with clients and the planning process and, importantly, how could these be overcome? “Planning departments are typically understaffed,” Wilson observed. “We’ve had some huge economic and political events that have happened over the last 12 to 18 months. Collectively, these have created huge backlogs. So I think engaging early and establishing good relationships is a way of overcoming these problems, anticipating delays, anticipating a lack of responses, and just being proactive and trying to make sure that you are getting information submitted as early as possible.” Palmer said that ensuring that all requirements were being fulfilled was key. “As a broker, I think we probably have more responsibility from our side to make sure that people are aware of some of those commitments they’ve got and highlight that we need to get these things dealt with,” he suggested. “Lenders, obviously, will set out the terms and conditions and timelines. So we just need to make sure that everyone’s on the same page – the broker, the developer, and the lender all need to be working together and communicating to make sure that there are no delays.” For Vincent, lenders’ and clients’ perceptions often vary. “I think one of the most consistent things is that there’s a different level of expectation from a lender’s view on project experience and our clients’ view on project experience,” he stated. “Trying to really detail what they’ve actually done on previous projects and how that can be transferred into maybe a bigger scheme, or a different type of scheme, is really quite key, and that takes toing and froing away from the application process.”
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DEVELOPMENT FINANCE Timing was all-important for Payne. “Timescale is everything – allowing yourself the time to go through the process, but also setting the expectation of when you want to complete, before you kind of go out to lenders, is absolutely key,” he remarked. “When we send out our initial shopping list, we typically go out for a little bit more than maybe others would at the outset. We like to have it on file.” Eddery, meanwhile, said he was unimpressed to receive information that was scant on detail, poorly presented, and inconsistent. “For me a real pain point is sometimes understanding the developer’s preference and what their primary drivers are,” he reasoned. “Understand their aspirations, realistically, because if you can stick them with a lender that they can grow with, it makes everybody’s life a lot easier.” Documenting relevant experience made sense to Stevens, “whether that’s for the developer themselves or the professionals they are using,” he said. “There are varying levels of planning, and it’s really key to understand the different elements of the planning process. It really does depend on where you are in the country, which planning team you’re waiting on, but these timeframes vary hugely. We need to see that that planning has been fully granted and the scheme can be built out as suggested. I’ve seen approved planning with endless lists of pre-commencement conditions, so it’s [a matter of] understanding these conditions and how you can move forward to put a spade in the ground as quickly as possible.” SETTING MILESTONES Next, the panel turned its attention to the benchmarks that should be set in a project and how the approach to building cost contingencies has changed over the past year. Did our participants in the discussion recommend bigger contingencies now? “We definitely recommend higher contingencies,” Payne asserted. “It’s a safety blanket, ultimately, for the lender and the developer, and they shouldn’t be looking upon any less than around 7.5 per cent, really. Lenders will tell you their comfort spot is in and around the 10 per cent mark. “There are always negotiations to be had, but telling the developer their build costs may vary – some of them will take it on the chin and understand the process, but some of them will not be too happy that you’re questioning what they think because they do this job day in, day out.” The standard contingency now ranges from five to
10 per cent, suggested Palmer. “Some might even be using higher numbers – it depends on the scheme that you’re building,” he said. “It’s being able to discuss with the developer about their appraisal and explaining, as part of your process, that you are part of the team, you’re there to assist and guide them. Brokers who understand the development space should be looking at the appraisals and asking questions as to how they’ve got to their end numbers, because lenders are going to be looking at the GDV, asking, does this deal actually stack up? So you need to make sure that all the numbers make sense.” A contingency should be project-specific, said Eddery. Ten per cent would not be nearly enough for a barn conversion, he estimated. “If it’s an experienced developer, one of the big names in the SME market, you might be able to cut that down a bit more, knowing your developer and knowing the appetite of the lender,” Eddery mused. “The cost-per-square-foot metric, there’s a bit of a feel for that, depending on the geographical location, but you get a feel for what’s realistic and what will get through and what won’t. So that’s a really good benchmark to have in place.” Stevens pointed out that, given that the cost of labour and materials has increased, and procurement takes longer, a contingency of 10 per cent was a good starting point. “Less than that and you need a really strong story behind you, and you should have everything you need already sorted and the people in place to start on day one,” he recommended. “If it’s above 10 per cent, don’t challenge it. It’s there for your protection and it’s there to make sure the scheme can be built out. If there’s room for that, and a lender is prepared to put that in place for you, it’s for everyone’s benefit. There’s been a shift over the last year or two, where we really started to analyse the projects that have been live in the market and the delays that have come into play.
“It’s busier than it’s ever been, really, for us certainly. We’re seeing an increase in inquiry levels, lots of people trying to get schemes up and running” JAXON STEVENS
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DEVELOPMENT FINANCE It’s only sensible to make sure that there’s a sufficient safety net and buffer in place to make sure the schemes get finished and everyone can win at the end of it.” Contingency should only be used for unforeseen costs, and everything else needed to be budgeted, remarked Wilson. “We work with a variety of funders, some will maintain a 10 per cent contingency right the way through to completion and some will allow contingency levels to drop on a ratchet basis throughout,” he elaborated. “That’s one of the changes in approach that we’ve seen to contingencies on projects, which I think is sensible. So, open discussions with a developer about contingency, how it’s used, and what it’s there for. That’s important. You really need to get under the skin of schemes these days. I think the use of a specific contingency level is dangerous. I think every scheme should be judged in isolation. If 10 per cent ends up being the average, then so be it, but I wouldn’t go into anything saying because it’s this type of scheme it needs to be 10 per cent. We’re definitely seeing higher contingencies at the moment, just because of the nature of the market. It is the really good developers who look forward and look at inflationary pressures. These guys are clearly wrapping their heads around what’s coming.” Vincent reminded the panel that there might be valid reasons why a smaller contingency was suggested. “Understand why it makes sense to perhaps have slightly less contingency,” he urged. “The developer may have good assets, good income streams already – they may be able to say, ‘I’ve got two buy-to-lets, I can refinance if need be.’ Also, there may be savings they’ve already established; maybe there are materials left over from a different project, maybe there are genuine labour cost savings. It’s still worthwhile exploring and pitching accordingly.”
“Present the deal well. It doesn’t necessarily need to look like an oil painting, but, at the same time, it needs to be readable and digestible” HARRY EDDERY
WHERE ARE INTRODUCERS SLIPPING UP? The panel then shared their thoughts on what information introducers might overlook in terms of what they collated for lenders. “I want to be as confident as I can be as early as possible when I’m analysing any inquiry,” Stevens stated. “Quite often I’m not aware of the square footage of the new dwellings that are being put up, and that’s really key when I’m analysing build costs and sales costs. I can trawl through 100 documents on the planning portal and maybe find it somewhere, but it would be really useful to actually know what they’re building – what does it look like, what size is it, is there an increase in conversion? These things are often missed out, but they are all very important when it comes to making a decision, certainly.” Eddery agreed. “Sometimes we’ve been lucky to get a CV,” he commented. “I think it’s the most important part of the whole transaction, getting a detailed developer’s CV. Sometimes, you may not even get a detailed appraisal; it might just be benchmark figures, which aren’t overly helpful. I like to get lots of information upfront, and you don’t see comp reports come over that often. The assets and liabilities [A&L] you very rarely see earlier on in the process unless you’re dealing with it yourself.” The level of the detail provided and how current it was mattered most to Ross Wilson. “When we get a programme, it can be very thin, as opposed to a decent proper construction programme, which is very useful for assessing whether the scheme is going to hit its benchmarks,” he asserted. “We often get provided with headline construction costs instead of a breakdown, and it’s very difficult to tell from headline costs whether it is going to do what it says it’s going to do. We are often missing a lot of the secondary and tertiary costs of the scheme, so that includes the professional fees, insurances, section 106 costs. There’s a whole myriad of costs that form the full development costs, but there’s often a lot of focus just on the construction costs alone. Getting formal discharge notices and detailed information on things like the planning is useful for me.” This area of the work can be challenging, Vincent confirmed. “Part of this has to do with relationshipbuilding and the information you’re getting, whether it’s from a direct client or an introducer,” he said. “Sometimes they don’t know the answers to a lot of questions you have, but they’re keen to understand – does it look viable? What are the indicative costs? So, although it can be frustrating, trying to do a more
Tenacity to complete
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DEVELOPMENT FINANCE detailed job and present it perhaps in the most efficient way, you need to try to build that relationship and then eventually get the detail you need at the right time. So I think it’s a bit of a balancing act.” Payne shared that the developer’s information received could be lacking detail, causing problems down the line. “You get some terms, but if there’s not any substance behind them, when you get to credit you find out that it’s not actually what you’re going to get,” he explained. “It can completely change who you go to as a lender. We like to do a lot of the due diligence beforehand. We like to get a fair bit of information upfront, so you really understand who they are, what they’ve done maybe in the last five years, and understand the scheme itself, what type of amenities are in the area. We like to paint the whole picture.” Attention to detail was paramount for Palmer, meanwhile. “Make sure that before you present something to a lender, you fully understand the transaction,” he told his co-panellists. “I think one of the key things that people don’t necessarily expand on too much is the team – so, who’s the contractor? Is it a Joint Contracts Tribunal contract? Have they got their own quantity surveyor who’s verified the numbers? Who’s the project manager, who’s the architect? When we have introducers, we try to get direct access to the developers. Sometimes it may be better to walk away from a transaction if someone won’t give you the information because if they won’t give it to you now, what’s to say they will give it to you when it’s actually required?” PANEL TIPS As the discussion drew to a close, the panel was invited to share a final tip or key takeaway for bridging introducers seeking success in the development finance space. “I think it’s a case of just speaking to lenders and understanding what they actually want,” Palmer concluded. “If you can get as much of the information as possible and understand it, then I think that’s going to help people make the right decisions.” Vincent said, “If you’re starting out, it’s really key to build relationships with your lenders, understand their process, understand where they sit in the market.” Substance in detail was key to every good funder, Wilson emphasised. “All of the lenders we work with – Jaxon Stevens and Sancus, for example – are incredibly knowledgeable,” he said. “The property
“You really need to get under the skin of schemes these days. I think the use of a specific contingency level is dangerous. I think every scheme should be judged in isolation” ROSS WILSON knowledge they have is exceptional, and it’s the expectation for well-presented schemes. If you can know all the aspects of the scheme and get as much of that detail and substance together as possible, you’re going to get more traction with lenders.” Eddery was keen to highlight the importance of good working relationships. “Make friends with your business development manager, because they’ll help you through the deal, especially if you’re newer,” he insisted. “Present the deal well. It doesn’t necessarily need to look like an oil painting but, at the same time, it needs to be readable and digestible. Know your benchmarks and understand the lender’s track record and reputation. That’s probably more key than ever, at the moment, with lots of funding lines moving around and chopping and changing.” Payne agreed. “Really build that relationship with your lender,” he said. “If you’re at an early stage of the game and you get a ‘no’ to an application, really read the feedback as to why, to understand what their criteria are. At the outset, get all the details you can and understand the deal.” Stevens was keen to reassure those newly exploring the sector. “Nothing that’s been said today has been designed to put anyone off moving into the development space,” he summed up. “It’s understanding what goes into the whole analysis piece in deciding whether we can move forward with a scheme. We’ve all been through and are still in a period of uncertainty, with COVID, the Ukraine war, inflation, and rate rises. If we can provide a little bit of certainty in someone’s life while they’re considering what they’re going to do over the next 12, 18, 24 months for some of these development projects, it bodes well. There are fewer surprises as you move through the process if you can get to a level of detail and understanding. It’s about moving to certainty as early as you possibly can.”
Certainty of delivery
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SANCUS
Disruption is good for brokers, confident lender assures market Despite an uncertain economy, there’s reason to be optimistic, says the new managing director of Sancus Lending (UK) Limited, Richard Whitehouse. He tells Bridging Introducer’s Simon Meadows how brokers can thrive
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s the newly appointed managing director of Sancus Lending (UK) Limited, Richard Whitehouse might be expected to be upbeat. But it isn’t simply his promotion that sees him on good form. He is optimistic about the future of the business he now leads, and the bridging sector it serves. Not for Richard, it seems, the despondent navel-gazing that some others might feel in the current economy. As the UK economy navigates choppy waters, he believes there are opportunities for brokers to maximise. “Disruption is good news for the broker market,” Richard told Bridging Introducer confidently. “People who need access to money will find that the routes that they normally travel will be interrupted for a whole host of reasons. So, instead, they’re actually going to use a broker who can scan the whole of the market, who understands lenders of which the borrower perhaps doesn’t have experience, finds the best fit, and can understand how to present proposals to
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those lenders and engage with them.” He added, “This is a boom time, in my view, for brokers because of that ability to facilitate access to funding that borrowers, frankly, don’t have the time and, really, the skills to go and service on their own. It’s a bit like early 2020, when COVID hit. There tends to be a large mismatch of borrowers’ expectations versus what the market will deliver for them. And I think working closely with borrowers to help them understand the change in the landscape will help brokers present them in the right light to lenders.” For over six years, Richard has been a key member of the team at Sancus Lending Group, first as a sales director and then more recently as managing director (MD). The group is a provider of alternative property finance, specialising in development and bridging finance for developers, investors, and professional landlords. The group also has offices in Ireland, Jersey, Guernsey, and Gibraltar, all manned by local teams. For all his positivity, Richard
BRIDGING INTRODUCER NOVEMBER 2022
“We’re a people business. We don’t rely on algorithms or computers to make decisions. Our experienced team are at the core of how we do business – listening, collaborating, decision making and supporting our clients through every level of the journey, from initial enquiry through to drawdown” acknowledges that he is stepping into the role of managing director at a time of change. The war in Ukraine and the knock-on effects post-COVID have had a significant impact on supply chains around the world, and inflation is now a huge factor. www.sfintroducer.com
Richard Whitehouse
INTERVIEW
SANCUS
“The phrase ‘a new normal’ has probably been overused over the last 10 years, but I think there is a period of readjustment coming up,” he anticipated. “Interest rates will stay higher, compared to the 0.1 to 0.5 per cent that people have had for a decade or more. But I genuinely think once people have adapted to a slightly higher cost-of-living, and interest rates at a higher level, their budgets will adjust accordingly. And lenders in the housing sector can still ‘benefit’ from the long-term structural imbalance between housing supply and demand. People will still get married, move for job opportunities [or] families, and their needs will change – people will want to downsize, and that will drive activity.” Richard believes there is some truth in recent figures from Knight Frank and Credit Suisse saying that residential property values will drop 10 per cent and 15 per cent respectively, and thinks a decrease in value is likely. “I think you’ll start to see longer sales periods, and perhaps slightly stickier stock and maybe a little bit of discounting,” he predicted. “I think the fundamentals around employment, wages, and supply of housing are strongly in our favour. When I talk to colleagues, competitors who are in the regulated space, they are very buoyed by the opportunities that this presents. We’ve seen the withdrawal of a number of mortgage products, you’ve got long-term lenders having to reassess their price points and their credit appetite, and while they go through that adjustment period, the bridging space – particularly the regulated bridgers – will be the people who step up and fill that gap and allow activity to continue.” NAVIGATE A NEW LANDSCAPE The downturn could be likened to the sea, Richard reasoned, in a lyrical but apt metaphor. “I think as the tide recedes, inevitably, banks and people who deploy regulated capital will see their credit appetite naturally diminish,” he said. “As that tide pulls out, it leaves
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a lot of wet sand to go and play in. I think that’s the opportunity for a business like ours – to go and service those clients that banks, through no fault of their own, will become unable to service. I think that will be the story of the next two or three years and I think that will suit us very well in terms of our own desire to grow and, I
“One of our introducers described us as being the most tenacious lender he’s ever worked with, and that makes me genuinely proud about the business. I always describe us as a storybook lender. We really listen to the clients’ story to understand what they need and the support we can give them and then make sure we deliver on it” think, the wider bridging market, too. That’s the place where brokers and introducers will come into their own, too, because those borrowers who have been used to being serviced by their existing banking relationships will be the ones with the lowest knowledge of the alternatives available to them. It’s an opportunity for brokers and advisors to go to help those clients navigate a landscape that’s new to them.” The bridging market is somewhat fragmented and diverse, according to Sancus Lending Group’s newest MD, but he anticipates that changing. “I view it as a hyper-competitive environment,” he said. “I think there’s probably an element of oversupply, certainly in pure bridging now, and you see that in terms of bridgers trying to find a way to extend their products to improve returns and to improve their origination levels. Irrespective of economic headwinds, it feels like a
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market that is ripe for consolidation. There’s a lot of lenders with £20m to £30m loan books and they really struggle to break from that to £150m. The steps to get to £500m and then a billion get exponentially harder. If you’re a £100m lender, you’re probably thinking the easiest way to grow is to go and pick up a few of those £30m loan books. I think that consolidation will start to become a story in the next 12 to 24 months.” Richard has over 20 years’ experience in asset-backed lending, property development finance, bridging finance, supply chain finance, and trade finance, including roles in business development, credit operations, and relationship management. But when he pares it down, his attraction to the industry is very simple. “The sector is incredibly relatable,” he reflected. “We focus on residential real estate, the development of it and supporting people who invest in it. Ultimately, everybody has a home, and that relatability, I think, is huge as a starting point. There is something really quite rewarding about knowing that you’re building homes for people. Being able to walk around building sites, see them develop and ultimately turn into somebody’s home, knowing the benefit of the money you’re providing, it gives a real sense of satisfaction.” He pointed to the strong culture of Sancus Lending Group and its staff of around 50. “We’re a collection of very, very experienced people,” he enthused, “extremely energetic. We deliver what we do, using a combination of that energy and expertise, with a genuine desire to deliver great outcomes for our clients and the people who work with them. And I think you could feel and see that in everybody in the business. We’re not a big business, but I think you can meet a Sancus person and recognise them as such, whether you’re in our Gibraltar office or here in London. That’s the DNA of the people, and it makes it a great place to work.” For Richard it’s about sharing a set of common goals, with everyone being www.sfintroducer.com
INTERVIEW
SANCUS
focused on what they have to do every day, while enjoying the company of their colleagues around them. “I’d like to think our clients feel that, too,” he said. “That relaxed, confident delivery that we have, also knowing that when we say we’re going to do something for you, we deliver it. One of our introducers described us as being the most tenacious lender he’s ever worked with, and that makes me genuinely proud about the business. I always describe us as a storybook lender. We really listen to the clients’ story to understand what they need and the support we can give them and then make sure we deliver on it. We have a lot of freedom as an organisation to look at those solutions and then put them in place.” With such a strong, personable culture, the challenge for Sancus Lending Group is finding staff who will be the right fit with its team. “We’re a people business,” Whitehouse declared. “We don’t rely on algorithms or computers to make decisions. Our experienced team are at the core of how we do business – listening, collaborating, decision making and supporting our clients through every level of the journey, from initial enquiry through to drawdown. So, trying to find good people who match our culture and can flourish in our business, that’s probably the biggest challenge. We’re growing, and our need for people is higher than it has been historically, so we’re constantly looking for new personnel. Good people with experience and the right attitude are very much in demand.” He elaborated, “Front-and-centre for me is making sure the people we’ve got are happy and the people we’d like to bring in want to come. It helps a lot that we have got a good environment that people want to be a part of. We spend a lot of time talking to the specialist recruitment agents in the market, talking to people that we think we would like in the business and building dialogue and relationships with them. So, when the time comes, www.sfintroducer.com
they’ve already got an association with us. In fact, if anyone is reading this, think they would be a good fit, and would like to know more about working with us, I am always available for a discreet chat!” COMMITTED TO BROKERS Going forward, the group is to invest in its origination team, with up to four new members arriving over the coming months, ensuring it has faceto-face contact with the people who provide it with continued opportunities to be successful. “We are more than committed to the broker market,” Richard confirmed. “I do genuinely think it’s incumbent on us to make sure that we’re working properly with brokers, that we’re present and available, with more points of contact for them to come and talk to us.” Richard’s enthusiasm and optimism for the business are infectious, but with the responsibility befitting his new role, he’s conscious not to take unnecessary risks. “We’re very focused on contingency levels in projects now,” he assured. “So we’re making sure that a project has got enough room to withstand shocks and unexpected outcomes, and we are careful about the clients we work with. We want to work with borrowers who have good experience, who have got some wealth behind them, whether they’re buying property with bridging loans from us or they’re taking development funding from us.” He added, “From our point of view, we’re incredibly lucky to be backed by a strong, substantial shareholder with very deep pockets and I think that gives us a lot of stability. We also have access to a wide variety of funding lines that are well secured.” The new managing director believes there’s an opportunity for brokers to step up and embrace a changing market. “If you’re an advisor, you get to a period where your own bandwidth and capacity are limited,” Whitehouse shared. “You say, quite reasonably, that you’ll work with lenders who perform for you, and end up with
a bank of 10 or 15 lenders that you know you can rely on, and they become your go-to. Without criticism, I suspect interruption will mean that perhaps those go-to lenders can’t be as reliable as they used to be. So I think for brokers to maximise those opportunities, they will want to engage with the full market, the full lender landscape, and get a refresh on where people’s appetites sit because I think lenders’ appetites will change quite dynamically over the course of the next six months or so.”
“We’ve seen the withdrawal of a number of mortgage products, you’ve got longterm lenders having to reassess their price points and their credit appetite, and while they go through that adjustment period, the bridging space ... will be the people who step up” How key, then, is the broker community to the future success of Sancus? “Hugely important,” replied Richard, without hesitation. “I think at our last check, 83 per cent of the loans that we wrote came from a broker source. As a reasonably small team, for us to have the reach and the ability to cover the whole of the UK, but also for the market to be aware of us, we are reliant on the broker channel to enable us to do that. Without them, we don’t have any success at all. I think it’s about how we present ourselves to brokers – how we make sure that they understand what it is that we’re capable of doing and our appetite to deliver that.” Wrapping up the conversation, he added, “In my experience of working with brokers, they’re keen to find a solution, and they want to help clients. So it’s a key partnership for us.”
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INTERVIEW
GROWTH
BDM’s advice to brokers: Get out of your comfort zone Bridge lender’s “rising star” on the attraction of mortgages – despite the turmoil
Taylor Osunsedo
“C
ommunicate to your clients clearly about what their options are, because there are other ways of finding the solutions the client needs.” So says Taylor Osunsedo (pictured), Alternative Bridging Corporation’s (ABC’s) newest BDM, about how brokers should confront the most testing period in the mortgage industry since 2007. In such a highly volatile and challenging environment, brokers are having to negotiate an ever-decreasing space. Osunsedo is nonetheless bullish about prospects, at least when it comes to the bridging and commercial sectors. “Learn the whole market and communicate that to borrowers,” is his advice to brokers. Described by ABC’s director Jonathan Rubin as “one of this industry’s rising stars,” Osunsedo is also “home-grown talent,” and still in his 20s. After leaving university he spent a yearlong stint in insurance before landing at ABC as a case manager three years ago,
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clear that his future lay in the mortgage industry (“I’ve always had an interest in property and property investment”). Even though his knowledge of finance was limited at the time, what he lacked in experience he made up for in enthusiasm. “I’m always keen to learn new things, so I’ve learned a lot from my peers, ranging from directors to underwriters and case managers,” he told Bridging Introducer. “I shadowed the director James Bloom for a year or so, and we also had a year of working remotely due to COVID, and I think it was sort of the eagerness coming out of that to get out there and start meeting people and start building relationships and contacts that drove me to where I am now – and probably drove me at a slightly higher rate.” Now firmly established in the company, he said ABC had so far weathered the storm better than most rivals, partly due to the current popularity of short-term lending and the fact that the company has not yet been forced to pull products. “We’re quite lucky because we’ve got multiple sources of funding lines, which allows us to offer a wide range of products and gives clients that flexibility to choose what route they want to go down,” he said. Asked to explain why bridging appeared to be less exposed to market volatility than other, more conventional, longer-term products, he said, “Interest rates are increasing, and banks and mainstream lenders are restricting their
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lending criteria and their loan-to-values, but bridging is rising because of that – we’re not as expensive, so at the moment bridging is booming.” A report from the Times in January revealed that office space had shrunk by millions of square feet in England in 2021. The consequence of that is that the number of office buildings approved for conversion to residential housing has increased substantially in the last year (up 24 per cent), up to 1,180 from 950 in 2020, according to a report published in May by wealth law firm Boodle Hatfield. Turning excess office space into muchneeded housing is an opportunity not only for developers but also lenders. Osunsedo agreed. “We are seeing a lot of office conversions and office developments that you weren’t seeing before. That’s where our level of business is increasing,” he revealed, adding that most of the business was centred in big cities such as London, Manchester, and Birmingham. Clearly, boom can turn into bust quickly, and not even bridge lenders can afford to ignore the ripples of a downturn. So is it still a good time to join the mortgage industry? Asked what advice he could give to a young hopeful, Osunsedo said, “I learned a lot from getting out of the office and going to auctions and going to property shows. So, if you’re like me, then definitely try to get out there as much as possible and put yourself out of your comfort zone.” www.sfintroducer.com
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Indicativecriteriaonly,eachloanapplicationisconsideredonitsmerits.SancusLending(UK)LtdisregulatedbytheFCA,firmreference number 593992. Risk Warning: If you are co-funding you could lose part or all of your capital. Indicated returns, unless otherwise stated are shown before any provision for bad debts and may be subject to tax. Sancus do not provide private mortgages. Sancus Lending (UK) Limited (company number 7534003), registered office 3rd Floor, The News Building, 3 London Bridge Street, London, SE1 9SG. Authorised and regulated by the FCA (FRN: 593992). Part of Sancus Group Holdings Limited which is registered in Guernsey.
