Specialist Finance June 2022

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SPECIALIST FINANCE YOUR GUIDE TO THE MARKET

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CONTENTS

Taking a leaf out of landlords’ books

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or first-time buyers and those struggling to get into the property market, it would be easy to look with envy at landlords boasting a string of properties – they are the ones, it might be suggested, who are driving up house prices by scooping up the country’s limited stock and soaking up the financial rewards. However, if you have had dealings with those who do business in the buy-to-let market, you will be quick to paint a different picture. Landlords, or at least the majority, have their goals set very much around consumers’ needs. For proof, look no farther than Paragon Bank’s Landlords Report 2022. It found that when expanding portfolios, landlords’ top priority is ensuring that properties are suitable for their preferred tenant type; this was chosen by just over half, or 51 per cent, of the 621 landlords surveyed. The report gave the example of David, a landlord from Durham who manages a 20-property portfolio with his wife Joanne, and who shared that living close to their portfolio meant he can respond quickly to tenant requests for assistance. “I attend every letting viewing with the agent in order to meet all prospective tenants to discuss their needs, wants, and background on the day,” he said. Considering how properties meet the needs of tenants is top of the list of priorities for landlords – somewhat in contrast to the negative perception of profits over people. It’s a lesson that strikes at the heart of every successful business – and one brokers should be keen to focus on amid the ongoing cost-of-living crisis. There has rarely been a time when placing the needs of the customer first has been more important – and with that comes an enhanced reputation and positive word-of-mouth. It’s not about profits vs people; it’s about happy people = profits. Paul Lucas

SoMo_Specialist_Finance_Strip_Ads_126x22mm_May22.pdf

4 Feature: A special year for specialist finance Is now the time for the unique solutions this market can offer to step up and thrive with more mainstream acceptance? 9 Interview with Smartsearch’s Collette Allen 10 Bridging Finance 12 The untapped potential of second charge lending 14 Q&A with Louis Alexander, CEO at SoMo 24 Development finance 32 Commercial finance 36 Buy-to-let 39 Asset finance & Secured loans 4 Classifieds 23/05/2022 11:15 42

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MARKET Feature

A special year for specialist finance A SPECIAL YEAR FOR SPECIALIST FINANCE With the world still reeling from the impacts of the COVID-19 pandemic, hopes of some normality returning in 2022 were quickly stifled by the Russia-Ukraine conflict, the energy bills crisis, and inflation reaching its highest level in 40 years. In the 12 months to April 2022, the Consumer Prices Index rose by nine per cent – a massive single leap from March’s seven per cent level. Meanwhile, in the same month, and with the war in Ukraine significantly affecting global trade and oil prices, energy prices leapt by 50 per cent – and are expected to continue to spiral at a rate 14 times faster than wages for the remainder of the year. With such constant upheaval, does anyone even know what normality looks like anymore? Yet amid the global pandemic, the mortgage market thrived – house prices continued to spiral upward, spurred by an urban exodus as people stopped relying on city living and looked to acquire more space to accommodate their home office environments. So now, in the face of a newly challenging landscape, could the mortgage market thrive again? And what does it all mean for specialist finance in particular? Is now the time for the unique solutions this market can offer to step up and thrive with more mainstream acceptance? Or will these tailored solutions fall by the wayside as budgets grow ever tighter?

market enjoyed an exceptionally strong start to the year despite the challenges facing the economy and global markets due to inflation and the cost-of-living crisis. Wilson explained that there are more lenders than ever in the short-term funding space, with fierce competition driving prices down. “Subsequently, the cost of funding is not such a shock to clients accessing bridging for the first time, as may have been the case in the past,” he said. Wilson added that the auction finance market has been busier than ever in the first half of 2022, too. “This is because the housing market is so frenetic and competition is hot for certain stock, such as family homes. More people are going down the non-traditional route to find such properties and buying at auction,” he said. In addition, the company has seen clients taking on bigger projects than they might have in the past. One example Wilson quoted saw a client purchase a Victorian house that had been converted into three flats, with the intention of returning it to a single dwelling. In another, a massive duplex saw the downstairs section converted so that it could be rented out to cover the mortgage. Despite the economic headwinds and the challenges of a rising interest rate environment, Philip Anderson, lending manager at BLEND Network, concurred with Wilson and said that the specialist finance market has seen significant FIRST HALF OF 2022 growth since the start of the year – continuing Fears of a downturn for specialist finance, it the momentum that had been building for the seems, have quickly been put to rest. last couple of years. According to Amadeus Wilson, director of For example, he pointed out that the bridging 1 was 23/05/2022 SPF ShortSoMo_Specialist_Finance_Strip_Ads_126x22mm_May22.pdf Term Finance, the specialist finance finance industry worth £1bn11:15 in 2011, while

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10 years later it was valued at £7bn. of Mortgages for Business, also stressed the According to Anderson, there are several uncertainty the industry has felt over the first half reasons for this buoyancy, but perhaps the of the year. key is the more flexible nature of this type of “People are nervous that interest rates will finance and the fact that during COVID-19 keep rising and they are not sure if the base rate many property developers, particularly SME will curb inflation enough,” he said. developers, were cut off from more mainstream He added that there is speculation that the and traditional sources of finance. property price bubble will burst, and he believes “While a decade ago the high-street bank we are yet to see the impact of rising mortgage used to be the first port of call for any type of rates on lenders’ stress tests. In addition, he said, mortgage or development finance loan, today’s no-one knows whether levelling up will create developers have a much wider range of finance new hot spots or an election in May 2024 will options to choose from, with specialist finance derail levelling up altogether. offering them the flexibility and agility they “On top of the economic concerns, the need,” he said. removal of Section 21 is making landlords Still, not every sky has been clear for the nervous – perhaps more so than the rising rates,” market – there have been clouds, too. Nick Richardson added. Morrey, technical director at Coreco, said the first six months had been challenging for many CHALLENGES FACING THE MARKET specialist lenders. Looking to the challenges currently facing the He outlined that many non-regulated specialist finance market, Wilson said that while specialist lenders do not have a savings arm and the market is buzzing, there are many issues rely on funding lines from various sources to facing brokers, borrowers, and lenders alike. trade. Those business models, in turn, often rely He explained that with so many new on the mortgages being securitised, enabling lenders offering cheap pricing in order to them to lend to new customers. “With things generate business, it can be hugely tempting like the war in Ukraine, cost-of-living crisis, and to opt for one of these providers, but he said rising interest rates, the markets for mortgage it is important to remember that it does not funding are a little nervous and a mistake could necessarily follow that it will be the best fit cost millions,” he said. for the client – something that can be difficult He said that, luckily, many of these lenders for brokers to explain to clients who believe had diversified their funding streams and were cheapest is best. managing to securitise the loans they have “There is a high risk of brokers who do completed on, allowing them to continue despite not specialise in this market opting for the the recent headwinds. ‘wrong’ lender,” he added. “Competition remains tight among these If it turns out that the lender does not lenders, and now that the tax relief on rental know how to execute a deal, so clients do not income has truly gone and tax returns are being get the funding they want when they need submitted, business for limited company buyit, the likely outcome is disappointed clients. to-let is brisk, as landlords realise it might be the According to Wilson, finding the balance best option right now,” Morrey added. between execution of the deal and price is an SoMo_Specialist_Finance_Strip_Ads_126x22mm_May22.pdf 2 23/05/2022 Gavin Richardson, managing director ongoing challenge for brokers.11:15

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MARKET Feature

While pricing has been rising in the rises occur, as well as the economic backdrop, mainstream mortgage market, this has not which is causing issues for brokers and lenders happened yet in the specialist space – but Wilson alike. As landlords scramble to fix their rates said it is only a matter of time. He believes that before the base rate increases again, Richardson banks offering bridging finance are increasingly said lenders are struggling with a delicate anxious to raise their pricing as the cost of funds balance of maintaining some level of margin and goes up, but no-one wants to be the first to make trying to manage their volumes. such an unpopular move. “This has led to lenders having to pull “At the same time, the many specialist lenders products and bring in new rates at short desperate to get money out the door are keeping notice,” he said. “The high product turnover the market artificially cheaper than the real or is keeping brokers and clients on their toes to natural rate should be,” Wilson added. ensure the rate at the start of the application While mortgage rates have been increasing, process is still there by submission.” resulting in the cheapest deals starting from just Richardson also explained that the over 2.5 per cent, it is still possible to obtain inevitable scramble to secure rates has seen bridging rates at under five per cent – so the gap a rise in applications submitted to lenders between the two has never been narrower. partially packaged, and that is causing more “Bridging pricing is now more akin to a buywork farther down the line. to-let mortgage, which has never been the case “Once [an application is] submitted, it is before,” Wilson said. clear that, for some lenders, the volume is Richardson also believes that a core issue for overwhelming underwriting teams,” he said. brokers is the high street lenders who have tried As a result, Richardson says, lenders are to move into the specialist lending market with looking to more criteria-based underwriting cheap rates. rather than individual focus to speed up their “A few have turned out to have quite vanilla processing times. propositions and, to gain market share, some “It is not just lenders feeling the resource lenders have under-priced with rates that are not pinch – there is a lack of surveyors, and the sustainable,” he said. last six months has seen an increasing demand That has added to a lack of trust in the sector from landlords for brokers to give tax advice, as, according to Richardson, agreed mortgages something we just cannot do,” he said. have been pulled out from under the feet of Anderson, meanwhile, pointed to borrowers right up to the point of completion in challenges in finding the right lender for a some instances. While he noted that this is rare, client’s needs. Richardson said it demonstrates the value of “In terms of challenges brokers are facing, using a broker who knows and understands the when we speak to our borrower network the lenders and the market well. theme that continuously comes up is the In addition, Richardson said brokers challenge of finding a lender who is agile and have had to cope with record numbers of flexible, yet experienced and a serious player applications, driven by rising interest rates and at the same time,” he said. 3 23/05/2022 11:15 the need toSoMo_Specialist_Finance_Strip_Ads_126x22mm_May22.pdf get applications in before further Anderson added that brokers have

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noted issues with turnaround times from mainstream lenders. He believes brokers need to be able to provide developers with reassurance that finance will be available to them, so they have the confidence to acquire sites and do not incur unnecessary costs. “We believe this will continue to drive the trend to specialist finance providers, as their turnaround times tend to be quicker throughout the lending process,” he said.

in the right locations can produce yields of over 12 per cent. Elsewhere in the specialist buy-to-let market, Richardson said the gap between average gross yields for HMOs and vanilla properties has narrowed recently. “Our research into HMO trends shows that in 2022, gross yields on HMOs sit at 7.6 per cent compared to 5.4 per cent on vanilla buy-to-lets,” he added. At the time of writing, 27 lenders offer HMO mortgages to individual applicants and 23 to WHAT BROKERS SHOULD LOOK OUT FOR limited companies. The lender market is more Wilson outlined that while pricing is likely competitive than it was – there were only 15 to focus brokers’ minds in the second half of lenders willing to look at HMOs in Q1 2010, the year, they should keep an eye beyond the and Richardson said that the white heat of headline rate. lender rivalry is improving rates overall. “They “There may be hidden fees that are not clear currently start from 1.94 per cent for individuals, to those unfamiliar with the new entrants, such and from 2.69 per cent for limited companies,” as exit charges that are not explained clearly he added. enough to the client and that only become Specialist brokers are also being supported apparent when it is too late,” he said. While by the status of the homeowner market. pricing is, of course, a key part of any deal, Richardson explained that residential buyers Wilson said that brokers need to remember that, are turning to bridging loans to get an edge ultimately, delivery is all-important. over rivals amid intense competition for Richardson, meanwhile, explained that the tiny stock of homes on the market. lenders are increasingly choosing to work He believes homeowners are looking to closely with brokerages to understand what circumvent the need to sell one home before landlords want and need and shape their buying another. propositions accordingly. As competition for homes has stepped He pointed toward holiday lets, caused by the up, estate agents and sellers have favoured boom in staycations, as an area of the market for cash buyers, who can complete a purchase brokers to focus on. more quickly and flexibly than those seeking “We now have over 20 lenders offering a mortgage. Bridging loans, which can be holiday-let mortgages, which between them obtained faster than a mortgage and held in offer up to 80 per cent loan to value (LTV), and readiness for a bid, give borrowers this cash with rates from 3.59 per cent on a two-year fixed advantage in the market. rate, through to 3.69 per cent for a five-year fixed “As buying agent Henry Pryor put it in the rate at 75 per cent LTV,” Richardson said. FT recently, ‘If you haven’t got the money He believes that landlords have recognised in a Samsonite, you might as well go home,’” SoMo_Specialist_Finance_Strip_Ads_126x22mm_May22.pdf 4 23/05/2022 11:15 the opportunity, as well-maintained properties said Richardson.

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MARKET Feature

WHAT HAPPENS NEXT? Looking to the rest of the year, Morrey outlined that uncertainty loomed large. However, he added that demand for property is still high, offering encouraging signs. “The main factor cited for the strength of the property market is low interest rates and, despite the prospect that the base rate may be two per cent by the end of the year, mortgages are still quite cheap,” Morrey said. “So will higher rates cool off the market? Or will the cost-of-living generally cause people to put a move on hold? Or will general [falling] consumer confidence pull the plug on demand?” Morrey predicted that things would carry on as they were during the first half of the year, and if prices do start to fall, then he believes vendors will simply not sell unless they have to. With supply reducing, prices tend to stabilise, and a crash is averted. He also believes that specialist buy-to-let could do well if the property market stalls and investors spot opportunities - so lenders could be well placed to capitalise if they ensure their criteria is broad enough and rates are keen enough to attract the eye of diligent brokers. “Finally, climate change and EPC ratings will be more and more prominent as the year draws to a close as various groups look to tackle the issue affecting us all,” he added. Wilson, meanwhile, outlined that, at some point, there has to be some price compression, because lenders cannot lend at a loss indefinitely. “Pricing will therefore rise in the second half of the year, irrespective of what the Bank of England does,” he said. He believes the challenge will come when the first lender raises rates, with others following close behind. Just as no lender wants to be the first to raise rates for fears of being accused of profiteering, no-one wants to be the last to do so, be the cheapest in the market – and risk being inundated with business, which could negatively affect service levels. According to Wilson, once bridging rates start to rise, there will be much stricter deadlines for cases that are in the system but have not progressed fully. 8

“There will be a pinch point – lenders will lend at a certain price until a pinch point or given date when it will be revised,” Wilson said. “Brokers will be under pressure to get deals across the line before the cost to the client increases.” “Back in January, we published a report titled ‘7 Predictions in Development Finance for 2022,’” added Anderson. “In the report, we predicted that specialist lenders would play a key role in the transition to a greener economy this year, but also going forward.” He went on to say that this is a trend Blend Network has already started to see within the specialist development finance industry. “We have seen a significant rise in demand from property developers building ecohomes, energy-efficient housing schemes, and ESG-compliant residential projects,” Anderson added. This trend is expected to accelerate, and Anderson anticipates the specialist development finance market to become greener in 2022, with specialist non-bank lenders playing a key role in the transition to a greener economy. He added that another interesting trend his company has seen developing and expects to progress further over the course of the year is the flight to the safety of fixed interest rates on development finance facilities. “The question on virtually every developer’s lips over the past few months has been, ‘What happens to my development finance costs if interest rates go up?’” he said. For borrowers using variable rates with a direct link to Bank of England increases, the current rate hike cycle means that their pay rates or total cost of their debt has already increased in line with the higher base rates. “Therefore, amid a fast-rising price environment and inflation hitting a 40-year high of nine per cent in April, as well as the surging price of construction materials, developers have been keen to avoid further sources of volatility by demanding fixed-rate facilities.” Anderson concluded by saying, “We believe this trend will continue in the second half of the year.” 

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INTERVIEW Smartsearch

Exactly who are you doing business with? AML specialist warns businesses to stay alert to a crime that accounts for almost £2 tn globally

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he UK has the dubious things always do, the environment honour of being the has evolved, the technology has second-biggest money evolved, and it means that we laundering country in need to stay at the forefront the world, where an estimated to be able to combat money £88 bn worth is cleaned by laundering,” said Allen, who criminals every year. was the company’s youngest No firms are immune, as the board member at age 30. Collette Allen NatWest bank found to its cost Companies such as Smartsearch last year, when it pleaded guilty provide alternatives to document at Westminster Magistrates’ Court after verification and offer a “much more robust” admitting it failed to comply with anti-money system, verifying document information from laundering regulations. Experian, Equifax and Dow Jones, which is The omission saw almost £400 mn laundered hard to forge, Allen said. by one firm. Not that it should have been that However well intentioned, firms face hard to spot, given that the offending firm on one additional challenges because money occasion deposited £700,000 in cash in black bin laundering regulations can be highly complex bags at one NatWest branch. and companies sometimes fail to understand The bank was subsequently fined £265 mn, their level of exposure to these types of crimes. although the sum would have been much bigger UK governments have repeatedly come had NatWest not pleaded guilty, the judge on under proverbial fire for a perceived relaxed the case added. attitude toward oligarch money, especially It may be a hard fact to swallow for the finance when related to property acquisitions. industry, but, as Transparency International And it’s no small concern. According to says, “banks play a key role in facilitating money Transparency International figures, there’s laundering and feature prominently in almost roughly £6.7 bn worth of questionable funds in every major money laundering scandal.” property alone. A leading UK provider of anti-money Allen noted, “The responsibility is ultimately laundering software, Smartsearch, has developed a collective one. We are a target.... [A]ny large a fully compliant AML verification service that city is exposed to money laundering, so London can reputedly deliver business checks in less than is obviously at the height of that. three minutes. “The UK has some of the most stringent Speaking to Mortgage Introducer, the firm’s regulations, and a lot of the time we lead the way newly appointed COO, Collette Allen, with anti-money laundering [measures, but] the cautioned businesses against being lax in their government needs to do more around taxpayers anti-money laundering practices, as criminals are and British territories overseas, making sure that becoming increasingly sophisticated. we’re removing as many privacy laws that mean “The legacy forms of verifying identity, that people can hide behind corporate structures, such as collecting a passport or driving and they are working to do that, but these things licence, served a purpose at the time, but as take time.”  Guide to Specialist Finance – brought to you by Mortgage Introducer

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BRIDGING FINANCE Data

53 days Average days to completion in Q1 2022 (vs 56 days in Q4 2021) – Bridging Trends

0.71%

Average monthly interest rate in Q1 2022 (vs 0.77% in Q4 2021) – Bridging Trends

8.5%

Rise in annual contributor gross bridging lending (average charge in Q1 2022: 88.1% 1st charge, 11.9% 2nd charge) – Bridging Trends

26%

Percentage of bridging loans used for investment purchases in Q1 2022 (down from 29% in the previous quarter) – Bridging Trends

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FEATURE SoMo

The untapped potential of second charge lending

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s awareness of second charge lending increases, lenders working in the bridging space are seeing demand grow, too, and this is set to continue as the UK weathers the storm of the cost-ofliving crisis, with interest rates, inflation, and energy bills all rising. The effects are yet to be fully felt, and it will take some time to see how things pan out, but coming out of the pandemic, we’ve been working with many businesses looking to raise funds by way of second charge loans – some to keep their businesses afloat and others to jump on new opportunities, with most enquiries coming from company directors and the self-employed. We’re on a mission to raise awareness of the potential of second charge loans. We believe that many brokers and introducers don’t actually realise that when we say we can lend for any business purpose, we mean any business purpose. When you look at the housing market, landlords – whose credit profiles may have been affected by COVID-related events – may have an appetite for HMO conversions but are hitting barriers when it comes to borrowing. A second charge loan is a good option for them. Coming out of the pandemic, businesses may have struggled to pay tax bills – or even their employees’ wages – and may need to take out a loan against their main premises or other properties that they own in order to cover the temporary shortfall. A second charge loan is ideal for this. And it’s not all been doom and gloom. The pandemic has created countless opportunities for many businesses, and they now have growth and expansion plans. New premises, a new fleet of vans, working capital, hiring new staff, upgraded IT kit, an advertising campaign – the list of possibilities and opportunities is endless. SoMo is able to offer a quick and simple loan based on the LTV of the property. We have a market-leading LTV of 70 per cent 12

against the OMV and rates from 0.6 per cent pcm for all applicant types, whether it be an individual with adverse credit or a business with a short trading history. We’ve seen a 25 per cent increase in our second charge lending over the past year, and these loans now make up almost 50 per cent of all our cases. This isn’t only because of our marketleading interest rates. Brokers, intermediaries, and clients are turning to SoMo because we have the experience, the knowledge, and all the systems in place to provide speedy, nohassle loans in this niche market. SECOND CHARGE LENDING BUCKED THE TREND DURING PANDEMIC Recent data from the Finance & Leasing Association reported that second charge lending has recently returned to pre-pandemic levels – but here at SoMo, we’ve found this loan type remained consistent throughout. It comes as no surprise to us that we’re seeing significant growth in second charge lending because it’s an ideal solution for businesses that already have a mortgage secured against a property and need a simple, no-fuss, short-term loan. Despite the financial turmoil in the UK at present, we feel positive about the future. As a business overall, we’re lending more month-on-month and year-on-year, and we see second charge loans as an important part of our growth strategy. We’ll be opening a new office in London this year and want to work closely with London-based business development managers and underwriters to capitalise on the second charge market. The message starting to come back from our network is that they’re surprised by the demand and delighted that this type of loan can be used for such a wide a variety of purposes – but more needs to be done to spread the good word. 

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INTERVIEW SoMo

Why bridging? Louis Alexander, CEO at SoMo, on second charge lending What do you see as the biggest challenge facing specialist lenders in 2022? What advice/tips do you have for brokers looking to address issues like the cost-of-living crisis, BoE hikes, etc. with their clients?

the year – do you expect there to be a significant uptick in interest (a recent report suggested the market was on track to exceed £2 billion)?

Over 50 per cent of our loan book is second charge loans – we’ve The cost-of-living crisis focussed on second is all that anyone wants charge lending from the to talk about right now – very beginning, and it and it is no surprise, as it comes as no surprise to us Louis Alexander affects everyone, businesses that the market is growing. and individuals alike. New Over 25 per cent of first charge sources of manageable finance are out lenders do not approve the second there, and the challenge is to ensure they’re charge consent, but as we don’t require seen, understood, and becoming normalised. consent from the first charge lender, it gives Brokers need to understand how flexible and SoMo an increased acceptance rate of clients. simple bridging loans can be when they are We accept this risk, and for this reason, we’re used to help people get large sums of money very successful in this area. quickly, for virtually any business purpose. If you’re a broker and you are using a Whether it be an individual or a company, bridging lender for second charge loans, a bridging loan can be used for so many you should only ever use one that allows for reasons, such as working capital, refinancing refused consent. If you’re not doing that, CIBLs loans, paying staff, or funding new you’re not looking after your clients’ best ventures and new opportunities. interests, as many cases – some one in four – When lending, we review the value of will fall at this hurdle, at best slowing the loan the security property that is available, and process down and at worst ruining the chance if the loan-to-value is 75 per cent or below, for a quickly executed loan altogether. then we will make a loan – regardless of the applicant’s credit. Unlike traditional banks, What will drive this market forward? commercial lending means that funds can be with the applicant within a matter of The market will be driven forward by a weeks. If commercial finance brokers really higher awareness of second charge uses understood the power and ease of bridging and benefits as more and more commercial loans versus commercial finance packages, finance brokers begin to understand the then they would be able to help their clients flexibility of alternative lenders in helping far more simply and quickly. their clients. That’s why we recently ran our second charge campaign to enlighten them How do you see the second charge loan on how big a proportion of the bridging market developing for the remainder of market they could be missing out on.  14

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BRIDGING Together

Complex challenges require flexible solutions James Briggs Head of intermediary sales personal finance, Together

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f I were asked to describe the specialist lending market in one word, I’d have to say “diverse.” We recently conducted a survey, and almost one in three people (29 per cent) said accessing mortgage finance was the biggest barrier to realising their personal property ambitions in 2022. Overall they highlighted a wide range of concerns – covering everything from irregular income to poor credit, age, and insufficient deposit. More people would benefit from specialist finance than they might realise. The challenges are indeed vast, but the expertise and experience within the sector are more than capable of rising to meet them. The leading issue appears to be a lack of awareness. Our research found that a similar number of respondents (almost a third) are completely unaware of specialist lenders or the different finance solutions that could suit their circumstances. As the way we live and work evolves, things like a rise in part-time and flexible contracts, more and more self-employed and complex incomes, and longer working lives are only going to become more common. It is intermediaries who hold the key to giving these borrowers confidence. At Together, we’re working closely with our network of packager partners to connect clients to the funding they need; we’ve recently implemented a dedicated team of regional account managers and business development managers who specialise in complex personal finance cases, and our experienced underwriters are empowered to 16

make straightforward, common-sense lending decisions for every individual’s circumstances. The specialist finance sector is home to more than just flexible lending criteria. It provides a wide range of products that are vital to every broker’s toolkit. For example, in such a fast-moving property market, chain breaks are becoming more frequent. At the same time, the increasingly rigid criteria of some mainstream banks could lead to more last-minute mortgage applications being rejected. In such cases, specialist bridging finance can offer an important short-term, flexible finance solution that could be used to repair a broken chain – and help home buyers keep their property dreams moving.

The challenges are indeed vast, but the expertise and experience within the sector are more than capable of rising to meet them Our survey also revealed that many buyers are keen to purchase a property in need of refurbishment, perhaps as a more affordable step up the housing ladder. A regulated bridging loan could let them buy and complete works whilst living in their current property. Then, once their new home improvements are complete, they could exit onto a long-term mortgage – potentially giving them a better LTV and a more competitive rate. Whatever your clients’ ambitions, circumstances, or timescales, the specialist lending market is here to help you keep these cases moving.  *Poll of 2,000 UK participants conducted by OnePoll in December 2021 on behalf of Together

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28%* of Brits say accessing finance is a barrier to their property dreams. With Together’s common sense approach to lending, you could get your clients moving. We’ve been making property ambitions a reality for nearly 50 years. Whether your clients are up against short deadlines, complex incomes or something else, our experience allows us to be flexible in a wide range of circumstances.

Find out more togethermoney.com/get-them-moving

For professional intermediary use only. *Poll of 2,000 UK participants conducted by OnePoll in December 2021 on behalf of Together.


BRIDGING United Trust Bank

Bridging perfect for developers Owen Bentley Head of sales – bridging, United Trust Bank

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ccording to figures from the ASTL, the bridging sector continues to grow, and increasing awareness of the flexibility of short-term lending for property professionals represents a great opportunity for brokers to expand their businesses. And what’s more, lenders are extremely keen to help. Although we have been busy across the traditional spectrum of bridging uses – including downsizing, chain-breaking, and refinancing portfolios, for example – it’s the increase in enquiries from property professionals for support in refurbishments and conversions, as well as ongoing cashflow for developers, that is driving much of our growth. In particular, we have seen a strong demand for bridging finance to fund the acquisition of investment properties that may then undergo a planning gain and a period of light or heavy refurbishment works (often the acquisition and improvement works are funded), or for the release of equity from unsold, newly built homes when developers need the cash to invest in their next project. Following the recent launch of our new heavy refurbishment product, we can now fund substantial improvement projects with up to 75 per cent of the day-one value (net of interest), 100 per cent of works costs up to £1mn, and total facilities up to 75 per cent LTGDV. In addition, recognising there are growing numbers of fledgling property developers keen to get in on the action, we’ll also offer to fund up to 70 per cent of the day-one value (net of interest) and 100 per cent of works costs up to £500,000, up to a maximum of 70 per cent LTGDV on projects from first-time improvers, as long as they have experienced contractors on board to complete the hard work. A great example of a loan used to acquire 18

and improve a property was a £1.3mn facility enabling an experienced developer to add a unique home to their holiday let portfolio. We were approached by a broker with a client wishing to purchase a property with the potential to create an outstanding investment, but the client had to move quickly to secure the purchase. The borrower needed a £650,000 acquisition loan, followed by a works facility once planning had been obtained. On the basis of the proposed works, we provided the borrower with an in-principle agreement for a subsequent additional works facility. Once planning consent was achieved, and a site visit confirmed the £2mn estimated GDV was reasonable, we formally agreed the second stage of the facility to provide 100 per cent of the works costs with the facility extended by a further 12 months to give the borrower ample time to complete the works to a high standard. Cash is king, and smaller developers can frequently find that the profits they need to invest in their next project are tied up in the bricks and mortar of their last one. A developer exit bridging loan enables them to release a good percentage of that money pending their sales. We recently assisted a developer by releasing £400,000 of equity from three completed homes with a combined value of £535,000. The developer was using the loan to settle the remaining development finance facility with another lender at a higher interest rate and putting the rest toward the purchase of their next site, meaning they could move fast and not miss out on their next opportunity. Our loan will be repaid from the eventual sales of the three homes. Increasing numbers of property developers, professional and part-time, are choosing bridging finance to fund their projects because of its flexibility, speed of arrangement, and attractive pricing. What they also receive from established and experienced lenders like UTB is confidence that the funding they need will be available when they need it, even if the case is complex or the timescales are tight. 

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THE SPECIALIST EFFECT

MAKING LIGHT WORK OF HEAVY REFURB Effective solutions for both experienced property developers and inexperienced borrowers

A new ‘Heavy Refurbishment’ product to complement our ‘Light Refurbishment’ options managed by a team of experienced underwriters and case managers, applying a commercial and pragmatic approach catering for both property professionals and inexperienced property developers.

Highlights of the new Heavy Refurbishment product include: For experienced property developers

For inexperienced/no experience borrowers

• • • •

• • • •

Up to 75% day 1 LTV (net of interest) Maximum 75% LTGDV 100% works funding available Rates from 0.59% pcm

Up to 70% day 1 LTV (net of interest) Maximum 70% LTGDV 100% works funding available Rates from 0.74% pcm


BRIDGING Chordis Capital

Chordis Capital fund London property portfolio Rob Lankey Managing director, Chordis Capital

CHORDIS CAPITAL CASE STUDY

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hordis was introduced to this client via one of our well-known referrers. The client has an established portfolio of property in London, which has been built up over a number of years. As well as retaining some to let, he also refurbishes and sells property on. In the past, he has purchased his property via a mix of normal bridging finance, second charge investor funds, and his own cash. On this occasion, Chordis was asked to refinance five apartments to allow further time for them to be sold post-refurbishment. Our loan was required to refinance four existing first charge loans and a single larger second charge loan, which was at expiry. Renewal was going to see the monthly rate double. Our senior underwriter John Pointer was on hand to help, and a loan was agreed within just one hour at 70 per cent LTV, £3.33 mn v security of £4.76 mn, subject to valuation and the usual searches. Whilst the client is a UK citizen, he resides in Monaco, and travels back to the UK a few times each month to oversee his properties. His location hasn’t been an issue, and video calls have often been undertaken between Chordis and the client. This has meant that Chordis was able to fully understand the client’s requirements and what steps were needed to ensure a swift completion. The client has been able to speak with a member of the team at all times, meaning everyone was always kept well-informed of progress. Carter Jonas was instructed to undertake the valuations on this case, and Field 20

Fisher undertook the legal work on behalf of Chordis. Both parties acted very professionally and swiftly to assist and get the deal done in a very short time. The biggest issue with this deal was ensuring that we had redemptions for all elements of debt being refinanced across the five properties. During this process, and at the last minute, the second-charge holder increased the redemption by £60k, which nearly saw the loan fall through – but after a quick conversation and our ability to be flexible, we were able to agree a small increase to the facility to ensure that the refinance could continue. Overall, an 18-month term was agreed, as two apartments are to be held until January 2023 before being sold, but the facility is flexible so that elements can be repaid as the other three apartments are sold. This was a great outcome for the client, and a great deal for Chordis. Following this deal, the team at Chordis is now looking at refinancing two further London apartments for the client, totalling £1.4 mn. However, the client’s debt here is close to 80 per cent LTV. To achieve the client’s requirements, Chordis has been able to work closely with a known investor who is bridging the gap between our new facility and the redemption with a new second charge facility.  This case is a great example of the strength of the team we have at Chordis. We take pride in our approach of getting completely involved in our transactions in order to give the best possible service, always aiming to surpass the expectations of clients and introducers alike. We offer excellent turnaround times and a dedicated underwriter who will deal with a case from start to finish, enabling and ensuring seamless and efficient service. We can offer finance up to £5 mn, loan terms of up to 24 months, rates from 0.6 per cent per month, and up to 80 per cent LTV.

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Specialist finance in harmony with you We offer unregulated bridging loans, including light and heavy refurbishment together with ground up property development finance.

Excellent communication and skilful deal execution Deal direct with decision makers who are property lending experts enabling fast decisions Specialists in shaping solutions for clients who break the mould and have complex needs Innovative partnering approach with top UK brokerages - speak to us to join our panel Finance up to £5m Rates from 0.6% per month 6-24 month term Up to 80% LTV

GET IN TOUCH

0330 202 0109 info@chordiscapital.co.uk www.chordiscapital.co.uk

ROB LANKEY MANAGING DIRECTOR


DEVELOPMENT Kleinwort Hambros

Bridging loan to upsize an entrepreneur with modest income Paul Kearns Head of banking & credit, Kleinwort Hambros

SCENARIO At Kleinwort Hambros, a banker was introduced to an entrepreneur who had set up a tech company that, with the help of early-level investment from the private equity sector, had started to make steady progress in terms of both turnover and market awareness. As the company was very much in the initial stage of growth, the individual was taking a modest income from the business. However, this wasn’t the client’s first start-up, and with a previous success behind them, the client thought that they could afford an upsize in property (£3mn to £7mn) and had already found the dream family home. The property was in high demand, so the client needed to move quickly, and it became apparent that they would need to transact before they sold their existing property. An open bridge was thus required. With most entrepreneurs and business owners, income from ventures is not always uniform or contractual, so obtaining mortgage finance can be difficult through the regular high street channels, as they do not tend to meet multiple underwriting criteria for prescribed income. This entrepreneur had no relationship with Kleinwort Hambros, but the introducer felt that we would be best placed to provide for their personal circumstances and requirements. SOLUTION Time was short, so we needed to direct resource with speed and precision. The banker and a member of our credit advisory team

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met with the client’s CFO, accountant, and solicitor within 24 hours in order to achieve an appropriate level of understanding of their credible income and repayment options. By working as a team with the client’s advisers, and by analysing both personal and business assets and income, we were able to ascertain suitable and appropriate levels of income, and repayment strategies to cover both a short-term open bridge and longer-term mortgage finance. The open bridge was provided over an 18-month term, which provided enough time for the client’s existing property to be sold. The interest rate was variable, and the reference rate was over the KH base rate. No early repayment fees applied. The longer-term mortgage was provided over seven years, which accommodated the sale of the client’s company. The amount was split into variable and fixed parts, which provided the client with an appropriate level of protection from rising rates whilst having the flexibility to repay the variable rate portion without any early repayment charge. The speedy execution of the transaction was such that the client was able to move in within six weeks of receiving our offer letter. KLEINWORT HAMBROS Kleinwort Hambros is a leading full-service private bank, providing financial solutions to HNW and UHNW individuals, families, and their businesses, as well as to charities. We manage the wealth of individuals and their private structures across the spectrum of their financial needs. Our purpose is to simplify life’s financial challenges. From expert wealth planning advice, fiduciary expertise, and award-winning investment strategies to personalised lending products, we offer bespoke solutions to our clients and adapt to their everchanging needs. 

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DEVELOPMENT Feature

Rate hikes see flight to fixed-term development finance lenders

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ecent interest rate hikes have seen borrowers looking to fixed-rate deals in order to provide assurances of their monthly mortgage repayments. The rising rate environment has highlighted the importance of fixed over variable rates on development finance loans for property developers – a complicated topic, according to Barney Iles, senior lending manager at BLEND Network. “‘If rates go up, will my development finance costs go up?’ This has been the question on virtually every property developer’s lips over the past few months,” he said. Iles explained that the answer is yes and no, as it depends on whether developers are using fixed rate development finance facilities or facilities with a direct link to the Bank of England base rate. The Bank of England raised interest rates to one per cent earlier this month, which represents its highest level in 13 years. Many industry figureheads are expecting the base rate to continue to rise over the course of 2022, which is likely to push more borrowers towards fixed rates over trackers. Iles said that if borrowers are using variable rates with a direct link to the Bank of England rates, then the current rate hike cycle means that their pay rates or total cost of their debt have already increased in line with the higher base rates. “However, if they are using fixed rates, then the cost of their debt remains unchanged throughout the loan cycle, therefore providing them with increased certainty,” he added. Fixed rates have traditionally been more popular than variable rates with property developers because most developers prefer the security they offer when interest rates are forecast to rise, according to Iles. “With the Bank of England warning that inflation could hit 10 per cent by the end of the year and the bank determined to do whatever it can to rein in soaring prices, many 24

developers have raced to the certainty of fixed rates,” he said. UK inflation has risen to its highest level in 40 years, with government figures showing the Consumer Prices Index (CPI) rose by nine per cent in the 12 months to April 2022, up from seven per cent in March. The previous record high occurred during a recession in March 1992. Many industry experts believe if inflation and the economy continue on their current path, another recession is possible. Iles said that not all lenders are able to offer fixed-term development finance loans because a rate hike could mean that the lender’s source of capital becomes more expensive. “BLEND Network’s source of funding, family offices, and ultra-high-net-worth individuals mean the lender has a fixed cost of funds and can therefore offer fixed rates,” Iles said. “Indeed, it recently announced that it had secured £120 mn committed capital from a syndicate of family offices to deploy at fixed rate in the market.” On the issue of a continued rising base rate, Iles said property developers already have enough on their plates with challenges such as the rising cost of materials and skills shortages. The cost of labour was also a factor behind the spike in operating costs due to the ongoing skills shortage that has been drastically exacerbated by the pandemic. “Property developers do not need more added sources of uncertainty, and that is why fixed-rate development finance facilities have become so hugely popular in recent months,” Iles said. Iles said that was also one of the reasons BLEND Network have always believed in fixed rates as opposed to variable rates. He said the firm had a team of experts with backgrounds in property and finance that allow it to understand what developers need and provide some much-needed certainty. “Fixed rates put developers in control by eliminating the uncertainty around the cost of their debt,” he said. 

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DEVELOPMENT Norton Broker Services

A guide to development finance Sonny Gosai Senior sales development manager, Norton Broker Services

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etting the right property development finance in place is essential to the success of any development project. Yet with such a wide range of borrowing options available, navigating the funding choices can be overwhelming for anyone new to the market. Development finance is essentially a form of short-term lending used to provide a cash injection for any form of building or refurbishment project. It can cover the construction or refurbishment of any residential or commercial property, such as offices, hotels, and restaurants, and includes term loans, mortgages, and mezzanine finance (a combination of loans and equity). Due to the complex and individual nature of many of these extensive projects, there are several different development finance options available, depending on the type of project being undertaken. Typically, development finance is used for large-scale residential or semi-commercial projects, such as ground-up builds, which are constructed from scratch, as well as commercial-to-residential conversions. These projects often require large loans that can reach several million pounds, have longer terms of up to 36 months, and have a construction loan draw-down agreement that is signed off in stages as the work progresses. One of the main differences with this type of loan is the way in which the loan value is calculated, with both the value of the land and the cost of the construction considered separately but still accounted for as part of the same transaction. Typically, the maximum gross development value (LTGDV) is often around 70 per cent, with the loan-to-value calculated on the

estimated value of the property on completion, while borrowing for the development work itself can equate to between 85 per cent and 90 per cent of the total value of the cost of development, with some lenders also funding 100 per cent of the works. Given the increased risk to the lender that such projects entail, development finance comes with a higher interest rate than other forms of finance, but once the project comes to a close, there is an option to move to a development exit loan, which will have a lower rate. Typically, this is a short-term bridging option that is used to pay off the outstanding loan on a recently or almost completed development, and repayment is centred on the sale plan for the project. This can be an extremely complex process, particularly when single units are being sold off, and lenders often require detailed plans on potential sales in order to recoup the sales proceeds and reduce the loan value. For those completing a substantial refurbishment of a residential property, including the conversion of a commercial property into a residential property, a refurbishment finance loan can be used with or without the need for planning permission or building regulation approval. This is secured using a first charge loan on the property with the LTV based on the completed development value. Interest can be rolled up and paid in one go alongside the loan when the project is completed, and, in the majority of cases, the maximum term is 18 months. Development finance is extremely complex, and lenders always require a detailed plan of the proposed project, as well as proof that it can be completed and that the loan can be serviced, before any agreement can take place. Using a specialist like Norton Broker Services can help brokers navigate this unfamiliar territory and provide them with the support they need to conduct business in this niche sector of the market. 

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DEVELOPMENT Lowry Capital

Why is development finance so complicated? Richard Basso Managing director, Lowry Capital

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f you’ve ever arranged development finance for your client, you’ll know how difficult and frustrating it can sometimes be. Developers often need to have a long and proven track record. The required supporting documentation can be extensive and burdensome. And the drawdown process can be slow and expensive. At Lowry Capital we don’t think development finance should be this way. So we set out to provide a simplified development product, which makes funds easily available to property developers throughout the UK – helping them to complete projects on time and maximise their profits. Our funding works for developments of all sizes, from single houses to larger projects. OUR FUNDING IS SIMPLE AND EASY TO DRAW We have a unique approach. Our development finance has been designed from the ground up to be streamlined, simple, and easy to draw. Moving away from the traditional development finance model, we provide developers with flexible funding, tailored to fit their schedule of works. Our hands-off lending approach means developers are in full control of the development and no quantity surveyors are required. FUNDING THAT WORKS FOR DEVELOPERS It is crucial that development funding work for the developer. Strong cash flow is vital to moving developments forward smoothly, which in turn maximises profits and reduces stress 26

for the developer. Our funding model enables developers to keep a good percentage of sales revenue on each unit sold, which significantly boosts cash flow. WE FUND FIRST-TIME DEVELOPERS Our development funding is available to firsttime developers, who are often excluded from the development finance market. With Lowry Capital, previous experience is not essential. If a developer has a good team in place and a credible proposition, then we are always happy to lend. After all, how does a developer get experience without the funding to get started? We recognise developers have to start somewhere, and we’re delighted to fund many first-time developers throughout the UK.

At Lowry Capital, our development finance has been designed from the ground up to be streamlined, simple, and easy to draw A FLEXIBLE PARTNERSHIP Our funding can be drawn down in stages, as and when the developer requires it. This helps keep funding costs to a minimum. We understand that developments don’t always run smoothly (indeed, they very rarely do!) and that developers need flexibility and understanding from their funder. We provide a personal approach, and our drawdown process couldn’t be simpler, with a minimum loan of just £25,000 (maximum of £4 mn) available within days. If you’d like to understand more about how our development finance works, we’d love to hear from you. 

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Glasgow Office

Manchester Office

www.lowrycapital.scot

www.lowrycapital.co.uk

0141 471 9557

0161 499 7912

Fast & Flexible Funding for Property Developers £25k to £4million Within Days At Lowry Capital, our development funding is simple and easy to access. We lend on a wide range of developments throughout the UK. Here are a few examples of recent projects we've funded...

Funded: £450,000

Funded: £3,168,000

Funded: £104,000

Funding for the Development of 8 Holiday Homes

Funds to Convert an Office Building into 32 Flats

Funding for a 4 Bedroom Detached House

Location: Remote Scotland

Location: Fife, Scotland

Location: Barnsley, UK

Timeframe: 12 Days

Timeframe: 22 Days

Timeframe: 15 Days

Funded: £2,300,000

Funded: £700,000

Funded: £820,000

Funding in Six Stages to Build a Retail Park

Funding to Complete a Development of 14 Houses

Development Funding to Complete 6 New Bungalows

Location: Dunfermline, Scotland

Location: Lincoln, UK

Location: Morpeth, UK

Timeframe: 26 Days

Timeframe: 14 Days

Timeframe: 10 Days


DEVELOPMENT Assetz Capital

Our real-world lending approach Mark Standley National commercial director, Assetz Capital

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ast your mind back to 2011. We were still feeling the fallout of the global financial crisis, and bank funding for businesses was in short supply. Couple that with the impact of deposit rates slashed to near zero by banks and building societies, and it’s no wonder people were struggling to secure a fair return on their money and protect against inflation. Hard times! There’s always a light-bulb moment behind every great idea – and it was no different for us. With Chris Mellish (now CTO), our head of property David Penston, and CEO Stuart Law, we brought together our collective experience and industry knowledge not only to address the disproportionate grip of the more traditional banks, but to offer a simple and fair way for SMEs, which often struggle to access finance, to borrow through our marketplace. Thus came about Assetz Capital in 2013. Through our development finance, commercial mortgages, and bridging finance, we’ve pioneered what we call real-world lending to meet the needs of modern brokers who increasingly want to drive potential growth for their clients and have a positive impact on the world around them. To date, we’ve lent over £1.5 bn – and are targeting record levels of lending in 2022. In the last couple of years, we’ve funded the construction of around one in every 12 new homes built by SME housebuilders in the UK. This is all driven through our nationwide team of regional relationship directors – technical and highly experienced finance professionals. Change is constant in the lending market. Two years ago, we all found ourselves in the middle of another far-reaching crisis, this time with the COVID-19 pandemic. We were initially approved for accreditation as a lender 28

under the Coronavirus Business Interruption Loan Scheme (CBILS) by British Business Bank, which preceded the Recovery Loan Scheme – both reactive government-backed loan schemes to help the economy through the pandemic. To apply for a loan, all we ask brokers to do is give us a call to discuss their clients’ requirements. Assetz Capital has been and always will be a relationship business, so one of our relationship directors will set up a faceto-face meeting, get to know the borrower properly, and work to design an optimum funding solution for them. Our team of relationship directors is supported by two other highly experienced teams: a seasoned credit team and a dedicated relationship support team. Among them, they look to apply common-sense principles alongside financial metrics. We don’t set the timelines, the customer does, and with a strong support team behind them the relationship director will ensure efficient, timely delivery as required, with regular communication throughout the process. A comprehensive intermediary product guide is updated monthly on our website and emailed directly to brokers, providing a flavour of what we offer – a diverse range of propertysecured loan solutions for business. Minimum contribution and high LTV? Yes, we can do that. Larger borrower contribution and finer interest rates? Yes, we have that covered, too. We’ve always believed that financial success and making a positive social impact are closely linked, a view we share with an increasing majority of brokers. We’re laser-focused on safely growing Assetz Capital this year to provide even more attractive opportunities for property developers and housebuilders, to support the growth of UK trading businesses and job creation, and to provide increasing numbers of energy-efficient homes to those who need them most. Large numbers of our intermediary partners see Assetz as the go-to lender for SMEs, and it’s our real-world lending approach, which we will continue to deliver, that solidifies that. 

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Find funding that fits. • • • • • •

Development Finance Commercial Mortgages Bridging Finance Resi Refurbishment SME Secured Term Loans Buy-to-Let for Landlords

If your client needs to purchase, mortgage, build or refurbish their property, find funding that fits: 0800 470 0430 *Please note Assetz Capital does not offer regulated mortgage contracts

Oliver Ward, Head of Operations & Change

0800 470 0430 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.


DEVELOPMENT Sancus

Sustainability in action to finance will be very much at the forefront of their minds.

Jaxon Stevens Head of sales – south, Sancus

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ustainability: What are the practical implications for residential developers and landlords? Preserving our planet for future generations involves making changes to how we have built in the past and adapting and refurbishing older properties to ensure they fall within acceptable EPC (Energy Performance Certificate) levels. A significant proportion of CO2 emissions in the UK comes from the energy we use to heat and light our homes; the EPC is all about helping to reduce carbon emissions. The average house produces approximately 12 tonnes of carbon dioxide every year; by improving the build and specification of properties, we can go some way to reducing this. Government legislation is now in place to make developers and property owners plan ahead and turn their attention to new EPC rules that will come into force in 2025, ensuring all properties meet an acceptable EPC rating of C or higher. Currently, two-thirds of the private rented sector are known to have an EPC rating of D or lower, which equates to 2.3mn properties across the UK. Fines of up to £30,000 can be expected from 2025 (Lettingaproperty.com, “EPC Certificates for Landlords 2022: EPC”) under the new legislation, with the added complication that it may also become harder for owners or buyers to raise finance against these assets, too. Properties are given EPC ratings when constructed, sold, or let to show how much energy they consume, how environmentally friendly they are, and how much energy bills will be expected to cost. Upgrading a property to an acceptable C rating could cost property owners tens of thousands of pounds, so access 30

How can a property’s EPC rating be improved? Loft and cavity wall insulation: Properties built before the 1920s are more likely to have solid walls. Later than this, cavity walls are common. Solid wall insulation can be installed on properties from either inside or outside. Upgrading heating: Older boilers are considerably less efficient, often floor-mounted and open-flued. Efficient boilers are usually wall-mounted condensing boilers and can be up to 90 per cent efficient. Glazing: Upgrade from single- to double-glazed windows. Renewable energy: This is energy that is generated from natural sources, such as the sun, wind, and water, and that is naturally replenished. Domestic renewable options include solar power and heating, air source heat pumps, wind turbines, and hydroelectric systems. Refurbishment of properties requires less material and therefore produces less embodied carbon (the carbon footprint of a material). While build-dependent, this could show a significant saving in annual operational carbon emissions for a project (Circular Ecology, “The Environmental Sustainability of Existing Buildings: Refurbish or Replace”). With an estimated 238,306 long-term empty homes as of 2021 (Action on Empty Homes), the government aiming for the creation of 300,000 new dwellings a year by the mid-2020s, and a number of active property lenders with funds to deploy in the market, there is plenty of opportunity and activity currently in the property sector. 

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Refurbishment rates from 0.55%pm Fast, people-led, decision making Loans from £150,000 to £5,000,000 Up to 100% of refurbishment costs Day 1 LTV up to 75% excluding interest

Single point of contact Simply email us and one of our team will be directly in touch contact@sancus.com

> Residential > Semi-Commercial | Mixed Use > PRS Schemes | Auctions | HMO’s > Light to Heavy Refurbishment > Multiple Assets

sancus.com Indicative criteria only, each loan application is considered on its merits. Sancus Lending (UK) Ltd is regulated by the FCA, firm reference 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) Ltd is incorporated under the laws of England and Wales, company number 7534003. Part of Sancus Group Holdings company no 57766 registered office Block C, Hirzel Court, Hirzel Street, St Peter Port, Guernsey GY1 2NL.


COMMERCIAL Feature

The rise of conversions

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onversion of structures from commercial to residential use has become increasingly popular, according to Colin Sanders, chief executive at Tuscan Capital. As people left cities in search of more space and during COVID, many buildings stood unoccupied as their use as office blocks was rendered redundant. In order to encourage conversions, the government introduced new rules facilitating the conversion of commercial premises in England into homes. The changes meant that full planning applications were not required, and homes instead were delivered through a prior approval process. From April 21, 2021, unused commercial buildings were granted permitted development to be converted into homes via a fast-track prior approval. In addition, a fast track for extending public buildings, such as schools, colleges, and hospitals, was introduced. As part of the new rules, councils were only able to turn down applications on limited grounds, including flooding risk, noise pollution, and inadequate natural light. “We saw a lot of this type of activity in 2021; it was definitely a trend that formed during the second year of the pandemic,” Sanders said. Sanders went on to say that clients were assessing the performance of their assets and they were looking to use Tuscan Capital’s change-of-use product to convert those that were vacant or not providing a decent yield. “In the majority of cases they received a favourable opinion from their local planning authority and were able to make the transition,” he added. Sanders believes that the turnaround in fortunes for the investor could be quite substantial, as he said many commercial buildings have high residential potential. “I know of a failing shop that had a deep footprint – the premises went quite far back, which was not necessarily that beneficial, while it had four flats above it,” said Sanders. He explained that the commercial landlord was able to halve the shopping space and alter 32

the residential configuration. “They were left with a much greater residential area and a smaller but betterpresented shop, which provided a better return on half the retail space,” he added. This type of activity has been seen across the country - for example, BLEND Network funded a town centre rehabilitation project, in order to turn a redundant office block in Great Yarmouth into 30 residential flats at the back end of last year. The conversion has helped retired people as well as those taking advantage of the government’s Help to Buy scheme. Prices for the two-bedroom flats, which are listed on Rightmove, range from £135,000 to £180,000, with the one-bedroom homes selling for £95,000 to £110,000. Morgan Bowker, head of bridging and development finance at Vincent Burch Mortgage Services, explained that prepandemic, the retail sector was always in the headlines. “Independent retailers, alongside big-name brands, were struggling to compete with online giants such as Amazon,” she said. Amazon was able to outperform its highstreet counterparts on almost every level during the pandemic. The rise in the number of online orders helped Amazon achieve record sales, and it then spent large amounts on coronavirusrelated investments – like safety gear for workers and its internal testing initiative, called Project Ultraviolet. Bowker believes that COVID-19 exacerbated the divide between Amazon and retail shops, meaning many were forced to cut costs, often by closing shops in what were once bustling high streets. However, she noted that while this situation left many of the high streets empty, it did present an opportunity to convert these unused commercial buildings into residential properties. “Following these changes, we have seen a number of our established clients take advantage and enquiries have been increasing from other investors looking for a bite of the cherry,” she concluded. 

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COMMERCIAL FIBA

What is coming up for specialist property finance Adam Tyler Executive chairman, FIBA

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ast month we got to enjoy the success of an annual conference again. It was always going to take a few weeks to begin to contemplate and plan for the rest of the year. So what can we anticipate for the remainder of 2022? There have been some record numbers delivered over the last two years by the specialist and commercial finance community. This refers not only to enquiry levels, but to completions in all aspects of commercial lending and structured finance from a widening variety of lenders and funders. There have been some new additions to the community, as well as some we have lost and others that have restructured, but the capacity is there and looking to grow. But what can we really expect from the specialist commercial finance market and its supporters for the remainder of the year? In support of this, what can we add to enhance the abilities of all involved in the funding process, from introduction to drawing down the funds? There is always a need for greater awareness and knowledge through education, and also a need for better access to the widest possible lender community, which we can now combine with the absolute imperative to network together as an industry. FIBA has been leading the charge on the education programme for the specialist property finance industry, and this now has its own momentum. The London Institute of Banking and Finance, with its university status, is in the process of setting the modules and topics to cover initially the specialist property finance syllabus agreed by a panel of industry experts. Whilst we have no indications that the

regulator is interested, it is hugely important that we do everything we can to ensure those operating in our space are doing so correctly. This leads very easily into something quite specific, and this is the FIBA and SimplyBiz Specialist Property Finance Club (SPFC) and the launch of the next phase, with another nine lenders added to the panel. The interest in specialist property finance has been one of the main drivers in the association’s membership growing by a further 50 per cent in 2021, on top of having doubled the previous year. Following our initial launch of the SPFC last year, we have had a lot of activity and interest from all of our broker members, with a number of our lender partners also wanting to join. We are seeing more and more of our members look at these markets as they extend their proposition to their clients. The work that the FIBA and SimplyBiz Mortgages teams have been conducting means that more firms are now seeing the benefits of bridging, development finance, and commercial mortgages. The opportunities are out there, the lender community is well funded, and there is confidence from the funding investor base. There is confidence in what we can achieve as we go through the rest of this year and into 2023, so I am pleased to announce the launch of the Specialist Property Finance Summit in London on 13 October. At that time, we will have brought all of the plans, our commitments, and the programmes together for the benefit of everyone involved in helping our customers fund their commercial property aspirations. While there is an abundance of opportunity in specialist property finance, it requires knowledge, innovation, and perseverance on the part of brokers and lenders to shape the right deal for the right project on the right property for the customer. But this is how our industry has adapted and grown over the last 20 years, and it will continue to do so in the future. 

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COMMERCIAL Hodge Bank

Hodge – expansion of the bank’s commercial lending proposition Kevin Beevers Commercial lending director, Hodge Bank

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f the past two years have taught us anything, it’s that we have to adapt and change if we want to thrive. Hodge has been in the commercial and residential investment and development markets for more than 30 years and seen a lot of change in that time. Kevin Beevers, managing director of commercial lending at Hodge, explains how the past few years have really tested the mettle of both property finance and investors alike. It’s fair to say we’ve been tightly focused on pure residential development during the past two years. However, the impact of COVID on the commercial property market and a realisation of the growing appetite for mixed-use and residential assets have caused us to rethink our target market and review our product offering. We’ve recently made changes to our residential development loans to incorporate lending on alternative residential asset classes, including student accommodation and retirement living, and we also provide the option to convert both residential and commercial development facilities into longer-term investment finance for those clients who wish to retain their assets once development is complete. In addition, we recently launched a new stretch senior finance option to provide experienced property developers with the opportunity to access additional development leverage alongside a Hodge senior development facility. On the commercial investment side, we launched a brand-new product in April aimed at experienced property investors who favour buying a mix of commercial buildings. Our new commercial investment finance product is for 34

those investors looking to buy real estate assets such as office buildings, industrial, retail, leisure, and mixed-use buildings. We believe our new products and changes in criteria show the market that we mean business – that our doors are open to intermediaries and brokers, as well as their clients, who are really looking to shift their property focus. We understand the market is in a state of flux and want to help those trying to stabilise it. WE HAVE A PROVEN TRACK RECORD OF A RELATIONSHIP-BASED APPROACH Hodge prides itself on taking a very human approach to commercial lending. Each client has direct access to a dedicated, experienced relationship manager, and each application is personally reviewed and assessed by a specific underwriter who evaluates its merits and risk. That relationship and our one-to-one method really help to get the best out of the finance product for the investor and are especially suited to active investors who regularly buy, refinance, modify, or sell property, as those types of investors require a close relationship with their funder. We think this is even more important at this time of record-high property prices as well as the diversification of many investors’ portfolios. Personally, I hope the changes will continue to meet the growing and evolving needs of existing clients as well as provide opportunities for new clients. Having worked in this industry for nearly two decades, I know that there’s been a definite shift in the appetites of both developers and property investors over the past few years to more diverse developments and portfolios. We’ve been working closely with our intermediary partners on what their clients want and need, and believe we’ve come up with some great changes and new products. Find out more about Hodge’s commercial offering at www.hodgebank.co.uk/commercial or contact the team at Investmentfinance@ hodge.co.uk. 

Guide to Specialist Finance – brought to you by Mortgage Introducer


Flexible Commercial Lending options from Hodge Offering a range of financial solutions for professional property developers and investors. From Specialised Residential Investment and Commercial Investment Finance, to Development Finance across the UK. Get in touch to find out more

Commercial Lending Team E: Investmentfinance@hodge.co.uk T: 0800 021 7823

Real Estate Finance - Investment - Development - Portfolio BTL Commercial mortgages - Bespoke products - Expert support Hodge is a trading name of Julian Hodge Bank Limited which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority under registration number 204439. Hodge Life Assurance Company Limited is authorised and regulated by the Financial Conduct Authority under registration number 139315. Registered office for both in England & Wales is One Central Square, Cardiff, CF10 1FS (No.743437)


BUY-TO-LET Data

23 months Average length, in months, of tenancy (March 2022, up from 21 in February) – Propertymark, Private Rented Sector Report

£1,091 Average rental price for a new tenancy in the UK per calendar year (April 2022, up by 9.5% from last year, and 1.2% from March’s figures) – HomeLet Rental Index

30% Percentage of all new tenancies in the capital so far this year secured by someone moving from outside of London (compared to 12% from 2020) – Hamptons Monthly Lettings Index (April)

Regional rental growth Growth was led by the South West of England, where rents rose 13.9% over the last 12 months, closely followed by London at 12.3%, then the three Northern regions at 9.4% – Hamptons Monthly Lettings Index (April)

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Guide to Specialist Finance – brought to you by Mortgage Introducer


BUY-TO-LET TMBC

Home-movers rely on renting amidst property supply shortage Jane Simpson Managing director, TBMC

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he imbalance between supply and demand evident in both the sales and lettings markets is leading to fierce competition for homes, with the current cost-of-living crisis and economic headwinds yet to cool the property market. Chains are often a source of frustration and angst for buyers and sellers alike, but this competition has increased the stakes. This is leading to home-movers turning to the PRS – many as tenants, but some as landlords, too. Recent Hamptons research revealed a rise in the share of prospective tenants who have sold their homes, highlighting how increasing numbers of people are relying on rented accommodation to free them from the burden of the chain and bridge the gap between selling their existing home and securing their next property. We’re also seeing an increase in those who let-to-buy. This works similarly in that homemovers are freed up to proceed with the purchase of their next property, but they key difference with a let-to-buy mortgage is that they are able to take advantage of strong tenant demand to quickly rent out their existing home, which they may keep as a long-term investment if they wish. In addition, with house prices climbing at the fastest rate in over a decade, many people have amassed significant equity, and let-tobuy enables them to tap into this to purchase a new home. This appeal means we could be seeing more small-scale or ‘amateur’ landlords enter the sector. A report by the London School of Economics concluded that as a consequence of changes to taxes and increasing regulation,

many landlords plan to reduce their involvement in the sector in the coming years, with some having done so already. With this and other evidence suggesting a contraction of the PRS, a boost in the number of private landlords would appear to be a positive – but it isn’t quite so simple, unfortunately. The English Private Landlord Survey, last published in 2018 by the Department for Levelling Up, Housing and Communities (DLUHC), found that 45 per cent of landlords own a single property. This highlights the valuable role of small-scale landlords in providing homes for renters, but the let-to-buy landlord I refer to here may be quite different. This is because these landlords are entering the sector for personal reasons – in order to secure homes for themselves – and not to start a lettings business. This means that they are unlikely to have plans to invest further in the PRS, so the number of properties they will inject into the tenure will be insignificant when viewed in the context of the 4.5 million households within the sector currently. And even if let-to-buy landlords do warm to the idea of a lettings business, they may quickly change their minds when they discover the regulations they will be required to meet. The number of such regulations currently stands at 126. The Renter’s Reform Bill is expected to have a significant impact on landlords, and we know that the repealing of Section 21 of the Housing Act 1988 will see no-fault evictions abolished. It seems pretty certain that there will be an increased focus on ensuring properties meet the Decent Homes Standard, too. Add to this the substantial costs for landlords upgrading properties to meet EPC C or above, and we see that the personal benefit of becoming a let-to-buy landlord suddenly seems outweighed. All of this highlights the important role that brokers can have in educating their clients – even if it is just a case of pointing out some of the things they need to consider. 

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BUY-TO-LET Feature

Landlords may lose almost half of annual rents to property damage

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andlords without insurance risk losing as much as 45 per cent of their annual rental income through damage caused by tenants, specialist insurance provider Total Landlord said. Figures from Total Landlord’s parent company, Hamilton Fraser, showed that 15 per cent of landlords have opted not to insure their property portfolios, leaving them susceptible to hefty losses should their property be damaged. The average annual cost of landlord insurance in England is £170 per property while the average annual rental income is £11,228 per property, which means the cost of insurance sits at just 1.5 per cent of income. Total Landlord said that uninsured landlords do make a marginal saving by not taking out insurance, but risk spending substantially more than 1.5 per cent of their rental income if tenants cause damage to their property. It cited as examples a kitchen fire and a bathroom flooding that could cost the landlord at least £5,000, or 44.5 per cent of the average annual rental income. Eddie Hooker, chief executive at the

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Hamilton Fraser Group, stressed that even minor damage to properties is going to cost more than it does to take out an insurance policy. “Should a major disaster happen, rental incomes can be severely affected – a loss that many landlords would struggle to stomach given the challenges with profitability of a buy-to-let investment following recent and future government policies,” he said. Hooker pointed out that any rental property is likely to succumb to some level of damage during its lifetime. “Although this may often be accidental, it can also be the result of a malicious act by a disgruntled tenant, in which case it can be far more costly. We’ve also seen an increase in adverse weather claims in recent years, which in many cases cause a great deal of damage,” he said. “While the vast majority of landlords are insured against such damages, there is a small proportion that runs the risk of remaining uninsured or, worse still, underinsured, which is quite astonishing given the relatively low cost of obtaining insurance in relation to the potential bill for damages caused.” 

Guide to Specialist Finance – brought to you by Mortgage Introducer


ASSET FINANCE & SECURED LOANS Data

Asset Finance

13%

Growth of total asset finance new business (primarily leasing and hire purchase) in March 2022 compared with the same month in 2021 – FLA

10%

Increase in new lending to SMEs in March 2022 compared with the same month in 2021 – FLA

Secured Loans

80.86%

Growth in second charge lending (April, year-on-year) – Loans Warehouse

£7.39 million Daily average lending amount (from £6.76 million in March) – Loans Warehouse

Guide to Specialist Finance – brought to you by Mortgage Introducer

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ASSET FINANCE Feature

Praetura Group celebrates record-breaking start to 2022

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raetura Group’s lending division announced strong growth across all aspects of its portfolio in the first quarter of this year, recording its highest ever lending levels for any year’s first three months since the company was founded in 2011. The combined loanbook of the five businesses in Praetura’s lending division grew from £200 mn to over £251 mn, the group said. Praetura Asset Finance and Kingsway Finance lent over £20.7 mn in Q1 through asset finance and term loan facilities to SMEs across the UK, predominantly delivered through their partnership relationships with broker networks. The North West-based Praetura Group offers SMEs an alternative to traditional institutional lenders, supporting clients across almost every sector and providing funds between £5,000 and £20 mn to help businesses meet their own strategic objectives. Praetura Asset Finance has seen a 20 per cent increase in the number of deals written in Q1 2022, including year-on-year growth of 48 per cent in asset refinance facilities.

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At Kingsway Finance, the funding provided largely centred around delivery of their recovery loan scheme term loan facilities, assisting a 13 per cent year-on-year growth in the number of deals written. This followed its accreditation to the scheme by the British Business Bank in 2021. Praetura Commercial Finance (PCF), which also provides asset-based lending solutions to SMEs, saw a 300 per cent increase in new origination introductions in the first quarter of the year and provided funding totalling £16 mn, using a combination of invoice discounting, property, equipment, and cashflow lending. Total facilities provided by PCF to SMEs are now in excess of £130 mn. After being founded by Praetura Group in the summer of 2021, Praetura Invoice Finance’s first Q1 saw over £4 mn of funding go to SMEs across a range of sectors including engineering, manufacturing, forensics, electric vehicles, and even artisan spirits production. Over half of the deals written included collaborative funding solutions with other companies within Praetura Group’s lending division, combining invoice discounting and factoring with asset refinance and commercial loans. Recently, the Praetura Group added to its SME lending offering when it announced the acquisition of Chester-based Zodeq, an invoice finance business specialising in the recruitment sector. Peadar O’Reilly, managing director of Praetura Group’s lending division, said that the range of businesses its funding is assisting continues to expand. “The record figures are proof that our relationship-led approach to funding is valued by SMEs and the brokers and advisers we work in partnership with,” O’Reilly pointed out. “Now more than ever, SMEs need the support of funders that can adapt to specific individual circumstances. We have built talented teams throughout the Praetura Group that provide exactly that.” 

Guide to Specialist Finance – brought to you by Mortgage Introducer


ASSET FINANCE Feature

Spring Finance relaunches second charge mortgage product

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pring Finance has announced the relaunch of its second charge mortgage offering and introduction of its bespoke, interest only, buy-to-let product up to 75 per cent LTV. To serve an increasing number of borrowers, Spring has significantly widened its product offering by introducing a prestige range to complement its existing products. The new prestige products, with reduced rates of up to two per cent, will focus on mid-prime borrowers and will be offered at Spring’s lowest-ever rates. The buy-to-let second charge range will focus on landlords who want to benefit from the equity in their investment property. All buy-to-let mortgages come with an interestonly option. Graeme Wade, head of sales for secured loans at Spring Finance, said the lender has always looked to innovate, and the newlook two-tier product offering will give introducers more options when looking for a

solution for their applicants. “The second mortgage market is growing month by month, and with processing times at the forefront of service levels, we have made a number of positive enhancements to our underwriting requirements, which includes moving to a demerit-based point system,” Wade said. “These changes will have the effect of significantly reducing the time it takes to complete each loan. Our aim has always been to enhance the product offering to our introducers, and this new product relaunch does exactly this.” Andrew Bloom, owner of Spring Finance, said that the new products, backed up by the simplification of Spring’s underwriting process, will further enhance the value that they can add to their brokers. “This product relaunch, along with our recently launched bridging proposition, prove our continued commitment to the specialist finance market,” he added. 

Guide to Specialist Finance – brought to you by Mortgage Introducer

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CLASSIFIEDS

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SG Kleinwort Hambros Bank Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. It is incorporated in England and Wales under number 964058 and its registered address is 8 St James’s Square, London SW1Y 4JU.


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DEVELOPMENT

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COMMERCIAL

Flexible Commercial Lending options from Hodge Get in touch to find out more about our commercial investment and development solutions W: hodgebank.co.uk/commercial E: Investmentfinance@hodge.co.uk T: 0800 021 7823