BRIDGING
June 2019
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INTRODUCER
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A strong foundation LendInvest discuss their calm and steady approach to lending
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INDUSTRY COMMENT
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ROUND-TABLE
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Comment
Publishing Editor Robyn Hall Robyn@mortgageintroducer.com @RobynHall Managing Editor Ryan Fowler Ryan@mortgageintroducer.com @RyanFowlerMI Deputy Editor Jessica Nangle Jessica@mortgageintroducer.com News Editor Ryan Bembridge RyanB@mortgageintroducer.com Reporter Michael Lloyd Michael@mortgageintroducer.com Editorial Director Nia Williams Nia@mortgageintroducer.com @mortgagechat Commercial Director Matt Bond Matt@mortgageintroducer.com Advertising Manager Francesca Ramsey Francesca@mortgageintroducer.com Campaign Manager Joanna Cooney joanna@mortgageintroducer.com Production Editor Felix Blakeston Felix@mortgageintroducer.com Head of Marketing Robyn Ashman RobynA@mortgageintroducer.com Printed & distributed in England by The Magazine Printing Company, using only paper from FSC/PEFC suppliers www.magprint.co.uk
BRIDGING
INTRODUCER Information carried in Mortgage Introducer is checked for accuracy but the views or opinions do not necessarily represent those of Mortgage Introducer Ltd.
June 2019 www.specialistfinanceintroducer.com
BRIDGING
INTRODUCER Theresa May’s turbulent time as Prime Minister is officially coming to an end. May resigned telling the country it was with “deep regret” that she had failed to deliver Brexit. Indeed it’s to the regret of everyone that she hasn’t been able to get the job done. The task of delivering Brexit now rests in the hands of 10 (at the time of writing at least) hopefuls, who are vying to replace the PM. Among those hopefuls the current favourites to be “Uncertainty is the next Tory leader are bad for the UK Boris Johnson, Michael Gove, Jeremy Hunt and and bad for the Andrea Leadsom. property market” Whomever it is has their work cut out for them. Now is the time to unite people and finally resolve the Brexit impasse. Regardless of your political persuasion or your beliefs on Brexit it is clear that something needs to be done. Uncertainty is bad for the UK and bad for the property market. The time has come to get things sorted one way or another. Let’s hope the next PM is up to the job. On a more granular level the short-term finance space has seen its own share of uncertainty over the past few weeks. After months of teetering, peer-to-peer lender Lendy has finally entered administration. The situation looks like it will rumble on for some time and it’s impossible not to draw comparisons with another bridging lender who met a similar fate. The bridging industry has worked hard to improve its image over the years. It would be a crying shame if the actions of the few was to damage the reputation of the many. The peer-to-peer industry needs to take a good long look at itself. We all know there are some great peer-topeer lenders out there. However, it’s clear that some are not up to the high standards that this industry requires.
5 Andrew Hosford
Lending is easy, getting the money back is hard
7 Kevin Thomson
The medical sector is looking healthy
9 Bret Jackson
Time for certainty
11 Jonathan Newman
Don’t make the same mistake twice
12 Brian West
Peer-to-peer trials and tribulations
15 Lee Carling
Getting to know your partners
16-25 Feature: The results are in Jessica Nangle takes a closer look at the EY Bridging Report
27 Benson Hersch
The latest from the ASTL
32 Round-table
This month’s industry debate
40 Cover Story: Keep calm and carry on
LendInvest talks bridging and development finance
A short-term relationship with a long-term kinda guy. Our Bridging Finance may be short-term but our interest lies in commitment.
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JUNE 2019
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Comment News
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And so it begins, again… Time to stay strong
Lendy has entered administration. The general consensus seems to be that this was inevitable, rumours of some incredibly risky lending practices were possibly true and unfortunately another lender, that had built up quite the visual presence in the industry, is dead. Or dying at least. With the uncertainty over Brexit and politics in general in the UK most, if not all of the people I have spoken to in the industry expect a fair few lenders to go under or leave the market for a prolonged period of time. I’m not expecting any of the bigger, more established lenders in the market to collapse, but I can certainly see three or four lenders following Lendy before the end of 2019. What reinforces this for me is that lending is easy, getting the money back is hard. Our industry has seen so many lenders come into the market, make a huge splash and almost follow the Stratton Oakmont model where they create the image or illusion of success before actually gaining any. I suppose this helps to create a confidence to show the rest of the market that you know what you are doing. But it’s usually a short-lived model and no way to run a successful business. Again, no one wants to see a business fail, but this is another well timed reminder that you simply have to go about writing loans the right way and act in the proper manner that us as brokers and the borrowers themselves expect. Even if you do though, it’s still not a guarantee for success. The next thought I had after I heard the news about Lendy was that this is the start of a few businesses going under, but how do we as an industry combat the inevitable less than positive press www.specialistfinanceintroducer.com
that the bridging industry has unfairly received in the past? In the past, it has been a case of the few ruining it for the many in what has become a saturated market with new entrants popping up all of the time. Many enter the industry without fully understanding the marketplace, encouraged by the promise of profit without undertaking the appropriate research and putting the correct procedures in place. This is turn has created negative press towards the bridging industry which is unfair for those of us who do use due diligence and fair play, and means we have to prove ourselves to rise above the negative press attention. In the case of Lendy, it shows
Andrew Hosford director – head of bridging, Voltaire
us that you can never be too careful and to stay strong in this market you need to ensure that you are making sensible decisions to ensure you do not share the same fate. Despite the fact this is a strong industry with healthy total lending figures, we must not show complacency even when the going is good as you never know what is coming round the corner. I hope to not see any more instances such as these, however the rest of 2019 is set to present the same challenges as last year, and I would not be surprised if some lenders feel the sting. Preparation is key, so let’s try and keep the momentum and collectively stay strong as an industry in these uncertain times.
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Comment News
In rude health The medical sector is looking healthy
Irrespective of what else is going on economically or politically, funding is generally available to GP practices and pharmacies. That is because GP businesses’ revenue is backed predominantly by the NHS, and often supported by a pharmacy, so is seen as low risk as, while the population in an area is stable or rising, they receive almost guaranteed income. So, while lenders may be holding back in certain areas, one they continue to be happy to lend to is GP surgeries, and – to a lesser extent – dentists and pharmacies. While dentists and pharmacies may not have the same level of NHS backing as doctors’ surgeries they are still considered low-risk from a lending perspective.
Competition is high
As a result of its low-risk lending profile, the medical sector has been relatively sought after over the years, so competition for these types of clients is high. However, they are generally “time poor” clients and therefore need a good specialist broker to find the best finance solution for their needs. But, like with any other sector, funding requirements vary and it is important that brokers know the nuances in order to best place the deal.
GP Practices
Funding of GP practices can be quite complex due to the way in which they are structured, and any finance will also need to ensure that future change is taken into consideration. For example, a new partner may join, one may retire and perhaps someone may come in and overlap with a partner who is leaving. Flexibility, therefore, is key. A mortgage needs to enable partners to leave and join the practices and its mortgage without unnecessary www.specialistfinanceintroducer.com
fees - especially if they have chosen a fixed rate deal. If the practice is expected to have a number of partners leave and the loan restricts the movement of borrowers or has early repayment charges, the cost to the practice to change partners may well be higher than taking a more flexible loan, even if the interest rates are higher.
Pharmacies
When it comes to financing pharmacies, lenders tend to be more interested in the track record of the pharmacy rather than the client. Therefore, if a client wishes to buy a pharmacy and doesn’t have a wealth of experience but does have the qualifications, funding will likely
Kevin Thomson corporate sales director, Connect
still be available because of the low-risk of the sector. In terms of finding the right funding solution in this type of case, it is key for the broker to obtain and assess the trading figures of the pharmacy to prove the strength and ongoing viability of the business.
Dental practices
There can be a number of reasons why clients will be looking to fund a dental practice, for example, an associate partner setting up a new practice and funding the initial purchase – but most cases tend to be more about moving to new premises or the expansion or refurbishment of existing premises. Where the funding is to move, expand or refurbish, the amount of money required will generally be comparably low for the business and the freehold value of the premises, which makes it an attractive proposition for lenders. As a result, funding tends to be at the lower end of the interest rate spectrum.
The brokers’ role
Due to the low-risk profile of the medical sector, interest rates on loans within this area start below 2% plus bank base rate and, as always, the lower the LTV the better the interest rate. However, higher LTVs are possible with 80% - 100% of the value of the freehold achievable through some lenders. Because of the almost guaranteed income of the medical profession, lenders are keen on this sector, and the clients themselves know they are sought after. This means brokers need to add real value to win the business, which means clearly understanding the sector, including which lenders to approach with which deal in order to secure the right funding for the client. JUNE 2019 BRIDGING INTRODUCER
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Comment
Time for stability The market and the wider country are crying out for it
Having left you in the capable hands of our managing director, normal service has resumed. Since writing my last article, a lot of things have been happening, especially from a political standpoint. Many outcomes are yet to be defined and all impacting the entire financial services industry, including bridging and the wider lending sector. Mrs May has decided to end her reign as leader of the Conservative Party and ultimately as PM, leading to one of the most hotly contested leadership battles ever to commence. As I was writing this article, 13 candidates had already thrown their names into the hat with potentially more to come. Boris is the favourite with the bookmakers and has a large backing, even from across the pond with Donald Trump, which can be viewed as a positive and a negative. This leadership contest is already causing issues within the financial markets. Volatility in the stock markets is very evident, the pound has slumped against the Euro and the US Dollar, savers are getting nervous and mortgage lending figures are down, to name a few. Whoever comes in needs to bring one thing this country is crying out for… stability. Closer to home, the inevitable appointment of administrators to P2P lender Lendy, finally happened last month. As predicted, this has prompted the FCA to take an even closer look into this part of the lending market. I mentioned in a previous article, the return figures for investors/savers in Lendy were unrealistic. To get anywhere close to the numbers stated, the risk undertaken must be extremely high, but was not marketed as. Whilst Lendy was not one of the elite P2P lenders known to the www.specialistfinanceintroducer.com
consumer, it certainly wasn’t the smallest and is in fact the largest collapse in Europe, in a market that is still in its infancy. But was the returns and the risk taken the only reason for the fall of the lender? No. There were a number of red flags issued, hence the FCA placed them on a watch list. Underwriting, operations, compliance all played a part in its downfall, despite work by the senior management to rectify the issues. Then we saw the revolving door of senior people, assisting in hammering in the final nails in its coffin. Prior to the downfall of Lendy, firms like Assetz Capital had already started to evolve, moving away from being pure P2P, to a more diverse lender with multiple funding channels. With the continual uncertainty, I believe this is the right move and can easily see others to follow suit. But do I still see pure P2P lenders remaining? Yes, I do. With the right controls, risk, compliance, marketing and market understanding, they will be able to survive. Any new industry has its teething problems, but hopefully the actions the FCA undertake in their review will make the sector stronger, not the opposite, and see the demise of what has become an important funding channel to the property sector, especially bridging and development. Changing subjects, I want to extend a little further from the roundtable featured in the May edition. A question was raised about recruiting within the industry and how difficult this has been for some firms. I can concur with all the comments about salaries, and the issues they are currently experiencing. As the market continues to grow, only a limited number of staff are available, therefore pushing
Bret Jackson head of marketing and communications, BWD
up salaries, especially for quality underwriters and BDMs. Firms will try to tie up their key staff with new contracts, increased salaries and benefits, but with lengthy notice periods that can deters other firms from trying to hire them. But as firms expand, they need the staff. Some companies are currently paying the going rate, leaving others short of talent. They are then left in a quandary to either train up existing staff to new positions, then replace them, or look elsewhere to get the people they require. Ok, I can be a little biased and state that lenders should utilise a specialist agency to find the right people, but this is not always a viable option, as the costs are pushed up further. Everybody seems to know everyone in the specialist lending market, therefore it sounds easy to get the people you want on board. But clearly this is not the case. Specialist recruiters do have access to tools
“Volatility in the stock markets is very evident, the pound has slumped, savers are getting nervous and mortgage lending is down” to obtain the right candidates, not available to everyone, hence we have been used by specific lenders. On a final note, James mentioned the results of the BDM Quality Census we undertook recently. We have received some feedback and requests if we will take this up for the lending market. Suggestions to myself are welcome and have agreed to discuss this with both Ryan and Robyn at our next meeting, so we will provide an update in due course. JUNE 2019 BRIDGING INTRODUCER
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Comment News
Don’t make the same mistake Lenders warned not to go up the risk ladder twice
For the first time in all my years of practice my firm is turning away new custom. The reason is not lack of capacity. Far from it. These potential new clients appear to have a fixation on price and an appetite for the dilution of service requirements – professional services lite. Why? “For speed”, they say, “or cost to the customer”. In today’s market, should these considerations outweigh a requirement for the right professional resource, to deliver the right professional job, comprehensively and thoroughly? Increasingly it appears that new lenders in the market, some without the benefit of past experience, or some having erased from their own memories, hard lessons taught in the last recession, are seeking to drive down professional fees. But for what gain and to what advantage? To achieve a reduction in costs, they say ‘compromise’ and suggest more limited due diligence - is that wise? Can a professional service provider reduce their liability proportionately? And should they? Is giving them what they want, but not what they require, the answer? These are difficult questions for today’s professional partners. Limiting cost and service might appear to work commercially, on a superficial level, but this can be potentially very damaging for lenders, further down the loan journey. A law firm or surveyor who is procured simply on price, may not have the right knowledge, skills and experience to handle issues and complications that do arise in short-term loans, even in what appears to be vanilla cases. Similarly, if professionals are asked to provide less than a comprehensive service -a lite version - which is appropriately priced, delivery is often provided by less senior staff. www.specialistfinanceintroducer.com
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Inevitably, the lender moves up the risk curve – without messing with LTVs and riskier asset classes. I hear much about lenders and this risk curve – but those discussions centre on riskier lending, not on watered down, professional relationships. More now than ever before, lenders need the right professional partners to protect them, in a market where the pressure is to be flexible and commercial; where the classes of lending are trickier; and where levels of default and areas of dispute remain more common, than in the mainstream mortgage market. Lenders need to balance their appetite for greater distribution share, with minimising risk, not by indirectly and unconsciously increasing it. By way of example, in a recent claim against originating surveyors, lenders sought damages from valuers retained at short notice, to produce a quickfire, limited bricks and mortar valuation for the purposes of lending. The lender did not require and the valuer did not provide, a detailed structural report. As it subsequently turned out, a number of very significant issues concerning the structure and fabric of the building were identified at exit stage by a surveyor attending, who provided the full comprehensive report, which, the lender ought to have insisted on. That lender now regrets their decision to meet the need for speed and reducing customer cost and is looking for indemnity for their losses. That will be a very difficult task indeed as limited responsibility comes from limited reports. From an underwriting perspective, a substantial loan on a unique property project, with a one and only exit strategy, demands more than a cursory pro-forma nod to valuation
Jonathan Mike Strange managing Newman director, senior partner, Funding 365Law Brightstone
and legal due diligence. The bridging market has evolved over the last few years. So has the legislation and regulation. The challenges and issues around loans are more complicated now than ever before. Layered on top of that, there is increasing responsibility for professional firms to deal with their own regulatory issues. All of this translates into greater sophistication and more reliable support being available, but that comes at a cost. So, in an increasingly competitive market, many lenders are looking to increase LTVs and enhance the customer journey. So the very last thing lenders should be doing is yielding on the quality of professional partners. Good choice of professional partners and letting them do their job, is a counter balance to moving up the risk curve. Inadequate professional support and lenders will see their brand reputation and customer trust under threat, as well as their bottom line. All stakeholders must be comfortable with service levels, lender’s minimum needs, price and value for money. It’s not all criticism, though. On a positive not and it says much about the quality of those leading the market, established lenders do recognise that these issues impact greatly on their proposition. Those that understand, have shown themselves to be proactive in their relationships, regularly seeking engagement to ensure that existing fee arrangements and service models are up-to-date and fit for purpose, commensurate with the services needed today. Simply put, they take comfort from our comfort in being able to deliver quality advice, with the right personnel at the right level, at the pace they require. Price is an issue for us all.
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Comment
Backing a winner Why good research is key
With the recent, inevitable collapse into administration of the peerto-peer platform Lendy, around 22,000 retail investors are now left wondering how much of the collective £165m they had invested at the time of closure are they likely to get back? For 2008 and queues outside Northern Rock branches see now the recently formed Lendy Action Group (LAG) on the internet. As the words from the 1997 hit by Shirley Bassey and the Propellor Heads remind us “It’s all just a little bit of history repeating.” The sad fact is that it really wasn’t that hard to foresee these problems. It’s a great shame that only now are the founders of LAG using the power of the internet to gain a collective voice when a little bit of time spent researching a lender that was offering 12% PA returns and lavishly sponsoring Cowes Week might have enabled them to better assess the risk they were taking.
Too good to be true
In a market where some lenders are now selling deals at less than half the rate of return Lendy were offering the maths simply never added up. Never has the old saying “If something seems too good to be true it probably is” been more relevant. If I were to walk into William Hill this afternoon, bet £100 on a horse that I’ve done absolutely no research on just because it’s odds are 12-1 and lose, would I be justified in blaming anyone else? The inescapable fact is that funders, from small private investors via peer-to-peer platforms stretching right up to hedge funds, banks and major institutional backers must all look very carefully at the lenders they invest in. The very best lenders will fight
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tenaciously to protect their funders interests, for its only by doing this that they can build a lasting reputation and long-term success. The key is finding these lenders so what, in the short-term sector, should you look for? Recent days have seen a spate of lender announcements about reduced bridging rates and enhanced loan to values (LTVs). Superficially at least, lower rates and higher LTVs are great news for consumers but against a backdrop of continued macro-economic uncertainty and depressed property prices it is important to consider the motivation behind such moves. There have been enough ‘bad news’ stories in recent days to suggest that the resilience of the UK specialist lending market is in danger of being pushed too far. An ongoing rate war fuelled by a glut of liquidity increases pressure on both newer lenders desperate to gain market share and established but underperforming lenders desperate to maintain their position in the market. The dangers of new lenders with expensive lead generation strategies placing an excessive reliance on lending algorithms and inexperienced underwriters and of established players continuing to write loans to excessively high LTVs in a static or declining market whilst also venturing into areas where they lack specialist product knowledge has been amply demonstrated in recent months. Lenders who have been loss making even in the relatively benign trading conditions of the last two to three years will have had no opportunity to make contingency plans for the harder conditions they are now encountering making them even more vulnerable and a far less
JUNE 2019
Brian Strange Mike West managing director, director,Bridging Central Funding 365
attractive proposition to invest in. Whether you are a small private investor with £10k to invest from your pension pot or an overseas bank looking to plough multiple millions into a lending platform to access the London or wider UK property market, rigorous due diligence is absolutely key. Look closely at the performance of the business, at their accounts, their market longevity and experience.
Proactive relationship
Don’t be blinded by something that looks superficially attractive. It’s not hard to generate a multiplicity of poor-quality leads – the skill for every lender lies in picking the small percentage of these leads that fit sustainable and prudent terms and are worth presenting to a trusted funder and ultimately writing. For this there is simply no substitute for experienced underwriters, risk managers and quality legal partners supported by the sensible use of technology. Crucially, once a loan is written, the best lenders will maintain the proactive relationship they’ve already built with the borrower, regularly reinforcing their awareness of the short-term nature of the loan and the need to maintain an absolute focus on the redemption process. A close relationship allows a good lender to spot any potential problems early and work with the borrowers to resolve these. Diligent underwriting backed by proactive credit management throughout the life of every loan are the hallmark of the very best lenders and whether you are backing a horse at Epsom or investing a part of your pension pot into a peer-topeer platform it really does pay to study the form if you want to pick a winner! www.specialistfinanceintroducer.com
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Comment News
Getting to know your partners Get the best out of solictors by knowing them
Anyone that knows me personally knows that I am a huge boxing fan. A boxing freak if you like. Any decent boxer will always be complimented by a good cornerman. That’s what the solicitor’s role is in our transactions. The cornerman. Have you noticed that whenever a bridging loan completes ‘’quickly’’ or was ‘’quirky’’, the lender and the broker will go out to the press and social media (guilty) stating how good it was that everyone worked together for a successful outcome? The smoke gets blown upwards and in the right place. But, very rarely does the solicitor get a mention. Now I am not sticking up for solicitors. We all know the standard lawyer jokes (and rightly so). Q: What’s the difference between an accountant and a solicitor? Accountants know they’re boring. Q: Why does the law society prohibit sex between solicitors and clients? To stop the client being billed twice for the same service. However, when working a bridging loan, we all rely on the solicitors. We expect them to work conscientiously, effectively and speedily. It sometimes goes unnoticed that the solicitor is there to protect all parties. I recently saw a solicitor being put under so much pressure from a ‘new’ lender to complete a case that I had to contact the solicitor and personally apologise for the lack of respect being shown by the lender. The case was extremely complexed, and the solicitor was quite rightly addressing points that would have caused massive issues should the loan have defaulted. The lenders solicitors are specialists in what they do. Like anything in life there are good ones and not so good ones. But our lenders solicitors are normally very talented. They are specialists. They are not jazzed up www.specialistfinanceintroducer.com
conveyancers working on a high street mortgage, that’s for sure. In my experience (and without trying to state the obvious) it is very important that the client engages the services of a solicitor that understands bridging loans. We have all seen it. The client deals with a local high street solicitor or a solicitor that they have used for years. Typically covered in cobwebs using a tape recorder to compose an email for the secretary to send out as and when. There is no concept of customer service and that ultimately delays completion. Quite simply, the client’s solicitor cannot compete with service levels and the speed set by the lenders legal team.
Lee Carling independent bridging consultant
We cannot recommend a solicitor for a client to use. However, we can provide a list of solicitors that we are aware of who are familiar with bridging loans and will work speedily on behalf of the client. Every transaction will have its own individual nuances but they will find a solution. I have been in our world for more years than I like to remember. The relationships I have with the solicitors I have got to know throughout this time have been of enormous benefit. A few of them have become good friends (not too many). Mind you, they don’t like it when you introduce them as someone who works in soliciting.
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www.specialistfinanceintroducer.com
Feature
EY’s UK Bridging Study – the results Jessica Nangle caught up with the authors of the latest installment of the EY UK Bridging Market Study to gauge the sentiment of lenders across the nation
www.specialistfinanceintroducer.com
Ernst & Young (EY) have published their latest UK Bridging Market Study which has unveiled many interesting themes from the bridging market over the last 12 months. Following the success of last year’s study EY have decided to run this survey annually and opened it to the whole market to track developments and trends within the bridging industry to become a valued source of analysis for professionals and media alike. The study raised interesting points, such as the fact that most respondents (82%) believe that Brexit is one of the key challenges impacting the UK bridging finance industry in the next 12 months, a figure that undoubtedly echoes the current uncertainty of the market. The figures provide an insight as to how the bridging market is functioning and looks at the reasons why more trends are being seen than others. EY compiled an online survey which was conducted between February and March of this year, and saw responses from over 40 UK bridging finance lenders with book sizes from £3m to over £500m. The research emanates positivity from the market, with over half (60%) expecting the market to grow over the next 12 months through a variety of different ways, including raising capital and product diversification. Bridging Introducer looks into the study’s findings and obtains key industry insight into what these results mean for the bridging market moving forward. JUNE 2019
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Feature
Executive summary
further capital was required to support the growth of the sector, there was value in someone stepping in to help support generate transparency and insight. As a result, in early 2018 EY produced a bridging sector paper which we used to put down a lot of what we had learnt about the sector and for which we surveyed around 10 of the leading market players. We had such a positive response to the paper that we decided during 2019 to go further and opened the survey up to the whole market. We were pleasantly surprised to get over 40 responses from a wide range of players and since the survey closed we have had more get in touch wanting to take part in the future. Our intention going forward is to re-run the survey on an annual basis.
By: Nick Parkhouse and Stuart Mogg from EY The bridging finance sector in the UK has seen significant growth in the wake of the financial crisis. As a wave of traditional lenders left the market, so appeared a new wave of specialty lenders and while there have been peaks to the wave, seemingly a month doesn’t pass without a new bridging lender being launched. The financial services corporate finance team at EY has over the last four years been highly active in the market helping many bridging lenders raise finance (both senior and mezzanine), sell their business, conduct diligence on potential acquisitions, review their strategic options and much more. During all of this, the one thing that has puzzled the team at EY is that despite the continued growth in the sector, it has been difficult to get an independent view not only on the size of the market, but what the market felt was happening, key issues, etc. This isn’t totally surprising with an estimated 80+ players in the bridging finance market and a wide spread in size there has been no central entity to step in that was independent and that the market could trust to co-ordinate these views. Bridging The team at EY felt that there were a lot of positive actions being taken within the market and the speed at which many businesses were growing meant that as
Key observations
Loan
For the majority of respondents, broker-related channels are most important for loan originations, as opposed to aggregator websites or third-party (nonbroker) referrals. While on the face of it this appears an obvious statement, we have seen across other financing markets, including SME, the rise of other non-broker sources. The lack of diversification may mean that in the future we see disruptive players look to enter the market here seeking to create new origination channels. Some 74% of respondents believe that the average Purpose monthly interest rate fell over the last 12 months. This is in contrast to only 32% of respondents expecting it to decrease over the next 12 months. This market view ď ľ
3% 16%
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29%
32%
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23%
31%
26% 16%
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13% 19%
26%
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Business Purposes Least popular reason
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Refurbishment Second least popular reason
BRIDGING INTRODUCER
JUNE 2019
Re-bridge Neither popular nor unpopular reason
Mortgage delays
Auction purchase
Second most popular reason
Most popular reason
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Feature
UKbridging bridging finance finance market market trends UK trends––Past Past12 12months months Average monthly interest rate
74%
Average loan size
18%
Average LTV
50%
13%
47%
Proportion of regulated vs unregulated loans
Cost of origination
42%
53%
79%
8%
Average quality of loans
47%
61%
34%
21%
Competition
5%
Foreclosing on properties
5%
58%
29%
No significant change
Educating brokers The last 12 months has been a particularly interesting period for the sector. We have seen increased liquidity in the market, enhancing existing lenders abilities to transact- which is ultimately a positive but also applies pressure to lenders to get funds out the door. This liquidity has also attracted new, potentially Gareth Lewis inexperienced lenders to come into the market. commercial It’s no secret that there’s been a severe spike in director, MT competition due to this influx of new entrantsFinance resulting in product shifts (LTV increases) and rate moves squeezing margins. However, the established lenders are continuing to educate the wider broker market, consistently demonstrating how valuable a tool bridging can be to property investors and homeowners alike. With a slower transactional property market, the strain for purchasers has continued to eat away at consumer confidence, however this has also provided more opportunities for brokers and clients to seek alternative funding solutions like bridging to help smooth over transactions and make opportunistic purchases. This is highlighted in the recent Bridging Trends data, with the increase in regulated lending and more clients turning to refurbishment funding. It would be interesting to look at what changes we have seen in regards to exits.
BRIDGING INTRODUCER
JUNE 2019
21%
66%
69%
Decreasing
20
21%
45%
5%
3%
32%
45%
Average loan term
Average days to completion on loans
23%
26%
Increasing
seems to tie up with a number of other responses, such as people believing that repossessions will increase and competition will fall over the next 12 months. It therefore makes sense that market players will look to reprice upwards in reaction to those market forces. Some 55% of respondents are expecting an increase in repossessions, a significant increase on people’s view on the last 12 months. This is not surprising given increased uncertainty as a result of Brexit and what we had been hearing in the market around many lenders over the last nine months tightening up their terms in anticipation of a worsening market. This question drives an interesting one around why new entrants continue to enter the market and whether those new lenders may end up refinancing poor loans in their hunt for growth. An interesting stat for businesses to follow will be the number of loans funded which are refinanced from other bridging lenders and the performance of those loans vs. “fresh” loans. Respondents have changed their view on competition. Only 39% of respondents are expecting it to increase, whilst 66% believe competition increased over the past 12 months. Again this links together with a number of other points coming out of the survey around an expectation around an increase in repossessions and a stabilisation in interest rates. In terms of current evidence we aren’t yet seeing a slowing down of new entrants to the market and it may need the increase in repossessions to actually feed through before competition actually eases. www.specialistfinanceintroducer.com
OCT
Experience delivers
Every wave is different. So is every loan. To find out more about our #3rdGen, product-less lending call us now on 0345 222 9009 or visit octanecapital.co.uk For use by mortgage intermediaries only. Octane Capital Ltd (Reg No 10481270) and Octane Property Finance Ltd (Reg No 10483453) are private limited companies registered in England and Wales having their registered office at Labs Triangle, Chalk Farm Road, London NW1 8AB.
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07/02/2019 09:33
Feature
Knowledge and experience Despite the continued uncertainty as we head towards the end-date of our current relationship with the EU, there remain numerous opportunities for lenders and advisers operating in the short-term finance market. The demand for bridging lending has soared in recent years, with a record number of applications - totalling more than £5.96bn in the first quarter of this year - up 6.9% on the same period in 2018. Meanwhile, the value of loans on lenders’ books broke through the £4bn barrier for the first time, further underlining the strength of the market. This continuing popularity for this type of fast and flexible finance is reflected in the findings of EY’s latest study. Encouragingly, about 60% of its survey respondents predicted further growth over the next 12 months, despite the continuing economic uncertainty and, as one of the UK’s leading bridging lenders, we agree with this optimism. Much of the study highlights what we already know; that speed, flexibility and service are paramount when it comes to
Marc Goldberg commercial director, Together Money
delivering the best outcomes for brokers and their clients. Nearly two thirds (61%) said the most important consideration when choosing a bridging lender was the speed of execution. We have provided short-term finance for residential and commercial properties - often up against incredibly tight deadlines, sometimes within a matter of days. It is incredibly important to work closely with a team of trusted lawyers (ours share the same building) who understand the complexities of working with a client’s solicitors, when speed is required. Quality is also key. According to EY’s findings, 74% believe ‘high quality service’ is among the two top customer considerations. Providing the best possible service means keeping the broker and their client front and central throughout the lifecycle of the loan. This could mean, for example, supporting and educating brokers on our products to find the best fit for their client or - this is crucial to bridging finance - to make sure there is a clear strategy in place to exit the loan. And, while some processes can be automated, a high quality
service relies on a personal approach, with dedicated and knowledgeable human underwriters (as well as lawyers and valuers) giving each case the attention it deserves while still working together to deliver finance quickly and I don’t believe this situation will change any time soon. In addition, the study reflects the importance of intermediaries to lenders’ bridging business. A huge 84% of survey respondents cited independent brokers (65% cited master brokers) as their leading two channels for loan originations, and they emphasised ‘strong relationships with brokers’, with 66% stating this was the most important capability to remain a successful bridging lender. We will have to see whether the new entrants to the market have the necessary knowledge or experience - or can provide the quality of service needed - to survive long term. What is clear, however, is that those who continue putting the customer at the heart of lending decisions while providing the best possible service, will enjoy the most success in the future, whether we reach a deal with the EU or not.
“We have seen over the past 12 months a notable increase in competition across the sector, as new lenders join a market traditionally nuanced for attractive yields on short duration propertybacked assets” Getting the right people in
Access to talent was one of the most important challenges for bridging lenders and we found it interesting that talent is so high in peoples thinking. On reflection this makes sense given the number of new players that have entered the market. Indeed across many specialty finance markets we are seeing this trend www.specialistfinanceintroducer.com
09:33
JUNE 2019
BRIDGING INTRODUCER
23
Feature
UKUK bridging finance market trends – Next 12 months bridging finance market trends – Next 12 months Average monthly interest rate
32%
Average loan size
21%
Average LTV
13%
Cost of origination
13%
Competition
32%
21%
47%
as lenders seek to hire from a seemingly shrinking resource pool. Finally from a technology perspective, our survey didn’t show up technology as a key focus area for the bridging finance market. We find this surprising as while we extol the virtues of manual underwriting and certainly do not see an immediate trend of lenders moving away from manual underwriting we do feel there is a lot more that technology can do to support improved data, underwriting, origination, etc. One reason may be that there are limited “scale” players in the sector that can afford to invest in new technologies and therefore we would expect as new ways of working are introduced we will see replication and very quick adoption by lenders across the market, however this may mean that the speed of innovation is slow. From EY’s own perspective we have seen over the past 12 months a notable increase in competition across the sector, as new lenders join a market traditionally nuanced for attractive yields on short duration property-backed assets. Our sense is that this growing competition requires some lenders, particularly newer entrants, to be more flexible to borrowers in terms of product terms (e.g. longer term products, higher LTV’s and accepting diverse property types) to build a market presence. This flexibility coupled with growing macroeconomic uncertainty, increased time to foreclose on loans and potential further correction in property prices means we expect to see more stress cases, during
21%
29%
39%
42%
3%
JUNE 2019
37%
66%
32%
BRIDGING INTRODUCER
21%
50%
Decreasing
24
42%
68%
Average quality of loans
Increased competition
37%
50%
11%
Average days to completion on loans
29%
45%
8%
Proportion of regulated vs unregulated loans
24%
50%
18%
Average loan term
Foreclosing on properties
44%
No significant change
55%
Increasing
2019 and those lenders with a lack of experience may experience difficulty. We have heard over the years many lenders state they have never had a loss in the market, however we have had a very benign market and with increasing press reports of a small group of bridging lenders falling into administration a difficulty property market may start to sort the experienced from the inexperienced. Availability of liquidity has improved over the last five years and EY has played a significant part in supporting lenders in the market source appropriate and properly structured capital to support their growth. We don’t see this liquidity going away, however when looking to stay competitive having access to facilities that allow a high degree of flexibility as well as longevity of tenure will be important factors for bridging funders. With all of the above, 2019 and beyond is set to be a hugely exciting year, and we look forward to seeing how the increased transparency we have hopefully shone on the market ends up playing out over the coming months and years.
In conclusion
This data from EY comes as the latest figures from Bridging Trends reveals that total gross lending figures reached £185.32m in Q1 2019 along with the lowest interest rates ever recorded by the data set – 0.74%. Parkhouse and Mogg’s view that technology was not a key focus area in their survey aligns with thoughts amongst the industry that technological capabilities can only go so far. www.specialistfinanceintroducer.com
SPECIALIST LENDING SOLUTIONS REFURBISHMENT BUY TO LET
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Contact your local BDM 0800 116 4385 precisemortgages.co.uk
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Get in touch
With our unique approach, your customer benefits from a single valuer for both the bridge and Buy to Let Mortgage, and one conveyancer with discounted legal fees. Meanwhile, you can enjoy a single application which we key for you, a dedicated underwriter for the entire case and two procuration fee payments.
IN ASSOCIATION WITH
Matt Bond matt@mortgageintroducer.com 07525 456 869 Francesca Ramsey francesca@mortgageintroducer.com 0203 883 9017
www.ssawards.co.uk FRIDAY 28 JUNE 2019 MADISON ROOFTOP ST PAUL’S | LONDON
Comment
Playing the waiting game Positive signs but patience required
The latest lending figures released by the ASTL support the anecdotal feedback we have been hearing from the market for quite some time, that while the funding environment continues to be vibrant, property transactions are very much in the doldrums. The figures, compiled by auditors from data provided by members of the ASTL, revealed that bridging lender loan books reached £4.14bn in Q1 2019, an increase of 7.9% compared to Q4 2018. However, the value of completions during Q1 2019 was £898.5m, representing a 13.1% decrease on the same period last year, even though applications were at record levels, totaling more than £5.96bn. The result is that bridging lender books are at an all-time high as a percentage of quarterly completions. So, what does this tell us about the current market? First, it is worth noting that Q2 figures are often more positive than Q1 figures and so we should expect the value of completions to increase in the next set of results. But, for now, the disparity between completion volumes and application vol-
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umes indicates that some cases are being submitted to multiple lenders as a way of increasing the chance of them proceeding. Often this is the result of unrealistic valuation expectations from borrowers. Price increases may be gathering pace in the regions, but feedback from lenders is that many borrowers are yet to accept that their estimate of a property’s value is significantly higher than the market reality. The April 2019 RICS UK Residential Survey results point to a continuing trend of headline indicators on demand, supply and prices remaining, on the whole, stuck in negative territory. RICS says that Brexit uncertainty and a lack of available stock to purchase remain the key constraints, meaning little change in momentum is anticipated in the near term. Although its expectations are at least slightly more positive for the 12-month horizon. As a result of the faltering market, bridging loans are increasingly being used to bridge the gap between property transactions and it can take longer for borrowers to secure an exit. Loans are therefore staying
Benson Hersch chief executive, ASTL
on lenders’ books for longer. The standard length of a bridging loan used to be around nine months but is now creeping up to 11 or even 12 months. Consequently, lenders are assessing applications with more scrutiny and it is now the norm for a bridging loan to take between six and eight weeks to complete from application. This might be frustrating for brokers, but it is a positive sign that bridging is being identified as a solution over longer terms and there continues to be significant appetite to lend from traditional bridging lenders and new institutions that are keen to invest in the market. It is important that during this period of lower property transactions, lenders resist the temptation to loosen their underwriting criteria and maintain a commitment to robust standards. A positive resolution to the current Brexit debacle could spark renewed liquidity in the market, more transactions and higher volumes. Those lenders that have maintained a strong book during this period will be best placed to benefit from a more dynamic market.
JUNE 2019
BRIDGING INTRODUCER
27
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Comment
Stepping out of the comfort zone Time to show our agility
The NACFB remains a broad church, in that our membership is chiefly made up of brokers from the asset and leasing, buy-to-let, bridging, development, commercial mortgages, unsecured, invoice and factoring and cashflow sectors. We know full well that a broker providing machinery finance for their SME clients will not encounter the same hurdles or issues as a broker operating in the buy-to-let space. But is this always so?
Broader message
For example, over the last 12 months we have seen movements from the regulator that signpost a clear direction of regulatory travel. Although their motor finance
review, published in March, directly pertained to the vehicle finance community, closer examination reveals it contained a broader message for the broking industry. Namely that the FCA has become increasingly proactive in seeking to shape credit markets for the benefit of consumers, regardless of whether the products are for property or machinery. The motor finance review is just one issue that the association will be discussing with an expert panel of lenders and brokers in the conference arena at this year’s NACFB Commercial Finance Expo. If you’re reading this on Wednesday 19th June, you can join the debate at our Asset & Leasing panel session
Norman Chambers managing director, NACFB
from 11.50am - be sure to arrive early to guarantee a good spot. Other panel sessions taking place on the day will examine the impact of technology on underwriting processes in the buy-to-let sector, and challenging broker awareness of the diverse application of shortterm loans in the bridging space. Such issues, although debated within the context of their own sectors, have wider impacts that easily cross-pollinate. We are calling upon brokers from all sectors to step out of their comfort zone and see the relevance of learnings from the challenges - and crucially successes - of the wider broking community.
Product diversity
Pleasingly, we are starting to see real traction in brokers offering greater product diversity to their clients. Asset finance and commercial property brokers are no longer operating in such distinct silos, instead they are applying their experience, knowledge and process frameworks to different lending sectors. The NACFB’s commercial brokers are instinctively agile and historically resilient, most came through the 2009 crash with the knowledge and experience of how to navigate uncharted waters and mitigate outside impacts diversifying product offering is part of this adaptability. We continue to witness such vigour and adaptability first-hand. Informed and dynamic commercial brokers, championed by a strong and independent trade body, can still learn from professionals operating in other sectors - clearly demonstrating that as a commercial lending community we are greater than the sum of our parts. www.specialistfinanceintroducer.com
JUNE 2019
BRIDGING INTRODUCER
29
Build a Better Bridge
Where there’s a will, there’s a way Can bridging be used to help your clients with difficult circumstances? Our experts answer your questions I own a plot of land with planning consent for a large single dwelling. My current home is very large and the mortgage I had was repaid last year. I want to build the new property, sell both and buy a smaller home, generating some cash from the profits. I have gone through ‘hell’ with a mortgage company who my broker was arranging a ‘self-build’ mortgage with, but they ultimately advised they would not help as I couldn’t afford to maintain both properties, this is not a residential mortgage application and as I was selling at completion “my application was outside the criteria” Can you help please? Mel Fordham: This is a situation where bridging can be used perfectly. You clearly have a defined repayment method and the value of the security will be increasing as the funding is used. Because it is your intention to sell both properties at completion, provided the overall loan-to-value is within the lenders criteria there should be little problem in getting this agreed and although the lender will need to be satisfied you are aware of the risks and potential problems, should things go wrong, which obviously they can with any development, I am confident the funding can be arranged. And your personal income will not have a material impact on the proposal, the lender will simply need to be assured you are not financially distressed. The lender will require a charge over the land to make the first advance and will make further payments as works progress. Almost definitely you will be required to enter into a fixed price contract with a builder that is established and qualified. Works will be monitored by a surveyor, costs of which you’ll be expected to pay. In contrast to the “self-build” mortgage lender; the bridging lender will be keen to have the property sold and repay the loan as quickly as possible. Phil Mabb: You are absolutely correct that this is not deemed as a ‘self-build’ mortgage since you have stated you have no plans to live in the finished
30
BRIDGING INTRODUCER
JUNE 2019
Phil Mabb property finance broker, Bridging Development
Mel Fordham chief executive, Centrado
product, so I am sorry to hear that a broker has effectively wasted your time. Not sure of their motives, nor the relevance of affordability measures as they don’t appear to have any relevance, and during the application process all of this would have become clear to a prospective lender. There is quite a lot of important detail not provided i.e. purchase price, current value, planning costs, development costs and gross development value (GDV) of the new build, whether the plot is currently associated with your private residence nor for that matter your own new build track record. Further, you may need to provide security over your unencumbered private residence to make the development transaction work to mitigate the lack of experience and maintain a modest LTV. However, there is almost certainly a lender out there to support you and the answers to my observations above will determine whether how the transaction should be constructed and more importantly whether you actually need a regulated mortgage broker and consequentially a regulated development finance lender. You just need to find a better broker to assist with the same. Good Luck! I bought a large property which was in need of extensive modernisation, in the Midlands around 10 years ago. I lived in the property whilst it was being refurbished and managed to complete all the work, to a very high standard. I now rent the property to an agency as a “corporate retreat” where companies have meetings/conferences. Another property has beome available at £1.65m and I need to raise the money to make the purchase using my existing property (which is no longer my home) to raise the deposit. However as I do not have a full years trading figures, it is not an HMO, not let on any form of tennancy and is not commercial either I can not find a lender that will help, can I get a bridging facility? MF: It seems although you have been very successful in completing this project and have
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Build a Better Bridge
identified a niche in the market you have fallen into a “trap” which is barren as far as funding options are concerned, as you have highlighted because of your scenario you are “below the radar” as far as the majority of lenders are concerned. However, to be specific, bridging lenders will, generally, only offer you a facility of 12 or 18 months and in addition, will almost certainly need to be assured you have a proven method to repay the bridging facility i.e. a mortgage in principle from an alternative source. Given the information you have provided, I feel a facility which fills the gap between a mortgage & a bridging facility with, perhaps, a 5-year term would suit your requirements. The lender would offer you either a second or first charge on your existing property in order to provide the deposit and costs and then up to 70% advance against the purchase of your new property. The lender in question is very flexible and pragmatic and will understand that at the expiry of the term, you will have accounts which will allow you to refinance to a traditional lender who will offer longer term facilities. PM: Firstly you made reference to having lived at the existing property, which for some will ring alarm bells so some lender so we will need to cover off this issue by understanding where you live now, what is currently earmarked as your private residence to ensure we are not potentially mixing regulated and unregulated mortgage business. Bearing in mind it is currently rented as a commercial unit and presumably has the correct certification and usage classification to operate as the same, I suspect that this won’t present an issue – perhaps the usage classification will clear this point up? The fact that you might not quite have a full three years trading history won’t put off some of the bridging lender community – in fact that is exactly why they exist – a pragmatic bunch! Moreover, you could provide security over both properties you are proposing to buy to soften the proposal by lowering the loan-to-value (LTV) which in turn should secure a better rate of interest applied to the loan. It shows commitment! You have not provided any valuation or existing debt figures for the existing property, nor for that matter income streams. So, for the benefit of this reply, I will assume no debt, >3 years of trading history, and imagine a value similar or greater that that you are looking to purchase i.e. c£2m. You could simply look to an alternative lender to source a c65% LTV commercial mortgage over your existing property and use this to contribute towards the new purchase. This will be based on yield trading income and debt serviceability. Once you have broken the three year barrier you could then look to more traditional lender for longer term facilities. However, if time is of the essence you put both properties up as security, develop out the new purchase and then regularise with a term loan thereafter. There are certainly plenty of options both in the short to medium term and long-term.
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I have left my job and with a little financial help from my parents am starting a new career as a property developer and have been offered a fantastic deal on a small house which I can modernise in Essex. The problem is I have very little experience, although my father is a very experienced builder and he will oversee the project with me. I have four or five family members all builders too. I need to raise £450,000 to secure the property I have £250,000 in savings – can you help please? MF: Whilst this proposal is sound “in principle” there will be some significant issues to consider and in the same respect that the lender will need to be satisfied before they are prepared to make the advance to you. Firstly, as your family are offering financial assistance the lender will undoubtedly need to be assured the funding that has been offered by your family is available and it does not involve security over the property you are buying as a condition, as bridging lenders are reluctant to allow second charges to be registered. The lender may require your parents obtain independent legal advice prior to completion too. Providing the cost of the property truly represents good value for the purchase price, the modernisation costs are realistic, there is a good demand for the property in the area and the margins are satisfactory, there is no reason why this facility could not be made to you. However, the lender will be concerned that you have the finance to complete the refurbishment and that you are committed to sell the property within a short period of time once complete, as they will be very anxious to ensure you have a reliable and realistic exit route. Obviously, this response is simplified but in principle the transaction is one that I am confident can be funded, it will involve setting up/legal costs, which ultimately have to be deducted from the development profits, but if you are confident in the returns then I am sure we can introduce you to a lender that would be able to assist you. PM: The lack of personal experience can be offset but both the cash contribution (significant in its own right at >50%) and the ability to draw on the experience within your family. Unlike a new build, this is only the refurbishment of an existing building which lenders would view favourably. As it is a first-time project, it might be of benefit to be a joint borrower with your father, at least to secure the most attractive finance rates. Otherwise if you engage your father and/or the other family members on some form of contract (JCT/fixed price) to conclude the refurbishment, I see no issue in securing funding from the ever-burgeoning lending community. You will also benefit for practical experience along route and come out the other side a more appealing proposition to lenders and be able standing on your own two feet. Options are a plenty!
JUNE 2019
BRIDGING INTRODUCER
31
Round-table
Our experts discusses technology integration and the latest figures reported from the industry
Adapting to change Jessica Nangle: There has been varied commentary of a rise in interest for bridge-to-let as landlords look for other ways to achieve their returns, thanks to its speed and flexibility. Would you say this is accurate? Jonathan Sealey: What is the difference between a bridging loan and bridge-to-let? Terry Pritchard: It is a quick way for those to buy something else using the capital they already have. JSealey: So, it’s a bridging loan then. or facility fees, which is a saving for the client. Jonathan Samuels: If the product’s right, it rolls into a term loan seamlessly. It should not require a second valuation and is with the same lender. TP: We would do it as a bridging loan because we don’t have the term loan behind us. Lee Carling: I think we were the first ones to come up with that, Jonathan at Dragonfly. TP: Jess is referring to a lot of people doing bridging loans calling them bridge-to-let and it’s not really what we would call a bridge-to-let. They are just bridging loans. People call them bridge-to-lets to try to make it more attractive and then they try to arrange a second party loan afterwards when you guys were doing a term loan afterwards, so it is not quite the same thing. Matthew Tooth: I think with some you get offers at the same time and the offers are valid for six months. Phil Mabb: That is a closed bridge then. TP: It just allows the opportunity to charge two sets of fees and a higher rate for a period of time. JSealey: I do not think they charge two arrangement
32
BRIDGING INTRODUCER
JUNE 2019
TP: Some charge an administration fee on completion, from moving to one fund to another. MT: There are a few more of them. There are a couple of lenders doing it reasonably well. It only works if it is light refurbishment works. The more work you need to do on a bridge the less likely the bridge-to-let proposition is anything more than a bridging loan which will exit with a buy-to-let, so it does work, but only if the transition is limited duration. JSealey: I suppose any bridging lender could do a bridge-to-let if they have a great relationship with the broker or packager. JSamuels: Some of the products that have come out have been good, particularly the Precise product. It is probably a reflection on the need for landlords to want to add value as typically they are using it to refurb a property and then put it onto a buy-to-let. They want to add value to the property but also want certainty. They don’t want to come out of the bridge period and not have that buy-to-let option. Maybe that is where we are up to in the market, that people are uncertain they will get the term loan so are trying to protect themselves so it doesn’t surprise me you’ve heard
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Round-table
Terry Pritchard, Charter HCP; Gary Feast, Robert Sterling Surveyors; Mathew Tooth, LendInvest; Jonathan Samuels, Octane Capital; Brian West, Central Bridging; Jonathan Sealey, Hope Capital; Gary Bailey, Hope Capital; Phil Mabb, Bridge Development; Damien Druce, Assetz Capital; Lee Carling, First 4 Bridging
could say it is almost a by-product of the ongoing rate war. People are trying to hook them in for longer with the second product. MT: If you have got a good customer, you want to keep them for as long as possible anyway. Some of our bridging loans roll onto development facilities. You keep good borrowers and if you’ve got the products to transition them, you would do so. There is also now an overlap between bridging and buy-to-let lenders. Paragon have launched some short-term products. that there has been a rise in interest. For the right cases if they can get the leverage, that is key and is probably the right product.
JN: Bridging loan interest rates have dropped to their lowest levels since 2015, falling to 0.74% in Q1 2019. What are your thoughts on this?
PM: Is it bridging lenders looking at term loans so they can increase their book to the two, three-year market or are buy-to-let lenders trying to enter into the bridging space?
Damien Druce: Arbuthnot has launched with rates from 1.65% and your initial response is that rates will continue to fall. A year or two ago, Richard Deacon predicted rates would go as low as 0.49%.
Gary Bailey: The actual concept of bridge-to-let has been around for ages. It is one of the key main exit strategies for bridging loans. I think it is becoming more mainstream as part of the buy-to-let and bridging lenders evolving in what they can do. It is all about the confidence on getting the deal paid out for them afterwards and have the confidence the exit is guaranteed. The concept has always been around but has been re-labelled and done by the same lender, while historically two different lenders with different propositions have done it.
JSealey: I think they have for periods of time with special offers.
Brian West: From a bridging lender perspective, is there not an incentive to go down the buy-to-let route? Because if they are cutting the margins to 0.5% a month and paying 2%, 2.5% proc fees to premium introducers as a standalone bridge, there is not a lot of money to be made but if they have got the guarantee and have hooked the customer in, you
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PM: I saw one at 0.25% for less than 50% LTV. BC: I have seen that 0.25% is regularly advertised on LinkedIn. DD: They are just headline rates. JSealey: They are hook rates. I would challenge the transparency of those rates because there would be other fees hidden or disclosed. I would hope they would be disclosed but too many do not. LC: I think lenders can put it on the menu but that doesn’t mean they necessarily serve it. JSamuels: There is a tendency of coming down in
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rates. You could look at it on a positive note that bridging is more mainstream; funding sources and lenders are becoming more sophisticated. This is all good news for the sector, but you could also look at it in a negative way - chasing for market share. Volumes in Q1 may have come down and this is an attempt to lower price to get market share. If the case is funding costs have not come down at the same rate that the loan rates have come down, that means that margins are getting squeezed.
non-utilisation fees and their banks have got lots of money in, or they’re under real pressure to do deals.
TP: Some are going higher up the risk curve and dropping rates.
BC: It is history repeating itself. Some 10 years ago there were new entrants trying to grab market share by offering low rates, excessively high LTV or high adverse type products. As soon as something hits home, they are incredibly vulnerable and they are gone.
JSamuels: It leaves the platforms of lenders exposed if their balance sheets are not strong enough. Going into the market we are in, possibly even getting worse if your balance sheets are getting squeezed – that is not good for the market. I fear people are going up the risk curve and not pricing for that risk and there could be issues. JSealey: I am all for competitiveness in the industry, but there are very low rates like these or there are rates where people are chasing and they don’t like
BC: You only need to look at the accounts of some of those lenders offering very low rates and you can see there is real stress there. JSamuels: In some cases. In other cases they have sophisticated funding and fat margins and there is just a slight tightening, nothing to cause an issue.
JSealey: All new entrants need a USP - whether that is high LTVs, low rates, or a team that has done it in the past and has a good track record. BC: Some rely excessively on rate. JSamuels: This is not a dynamic exclusive to our industry. Right now, the mainstream mortgage market is having the same issue. Rates are falling too fast and funding costs are not falling. GB: I think there is a difference between the headline rate and overall cost. There is a lot of innovation or ideas mixed into the overall costing of the idea making it appear the headline rate is crashing. Some go out there with maybe a headline rate of 0.6% but may step up with their overall cost of 1.1% or 1.2%. The headline rate looks appealing. Ultimately you always get into the overall cost of the loan not the headline rate. It depends where we want to focus. BC: Some may offer a low rate and a few weeks in say ‘we found out some facts about your circumstances and as a consequence, now you’ll be paying 0.95%’.
“If you have got a good customer, you want to keep them for as long as possible” Mathew Tooth
GB: It is probably a fair comment for some lenders. Do they attract them in on the cheap rate, hoping they can get the deal done? The lender sometimes pulls out and says they cannot fund it. BC: Or they say it is due to the timescale – for example if the customer bought at auction and has
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five days before they lose the deposit. BC: With Bridging Trends you have Brightstar, Impact, Clever, Positive et al selling very rate driven products. It is not particularly representative in that regard. TP: And they do not include the smaller bridging companies, so I don’t think the rate is quite that low. JN: Bridging Trends found the most popular reason for borrowers taking out a bridging loan in the first quarter of 2019 was the purchase of an investment property. Do you see this trend in your business? GB: I think that is reflective in what bridging is at this moment in time. The biggest part of bridging is unregulated lending, therefore what people borrow it for will be on investment property. So many people still want to invest in property because they get a better return than virtually any other investment, both for the long-term and short-term gain if they choose the property and do it with a savvy approach.
“We are seeing refurbishments; people adding value with the stock they have” Jonathan Samuels
JSealey: I would be interested to see the breakdown between purchase and refinance of an investment property to see where the market is on refinance and rebridging. If refinances are taken over purchases, then you need to take into account that trend.
the smaller loan sizes. We see a lot of smaller purchase transactions because of the way stamp duty is structured, the way portfolio landlords are acquiring properties and improving them and the larger value transactions are often refinances.
JSamuels: That is not the trend we have seen. We have seen purchases fall dramatically in Q1. People are uncertain right now - buyers and sellers. I saw UK Finance figures saying buy-to-let property purchases were down by nearly 10% year-on-year which was no surprise to me. It is investment properties but not purchases. We are seeing refurbishments; people adding value with the stock they have. Professional landlords are trying to compete with PRS schemes that have upped the bar. They are improving property for yield and the space has become more professional.
JN: What’s the best way for underwriters to improve their processes?
DD: I wonder if those in the investment property space are purchasing commercial, not residential. I think some landlords historically in the resi space are moving into the commercial space.
JSealey: It is the easiest way and we encourage our underwriters to engage and communicate with our brokers. You will get the deal done and quicker, and everyone knows where they stand.
MT: For some of our purchase driven loans on auction products, the key aspect of the transaction is
TP: It is down to the quality of the person you employ.
LC: They have to engage with the broker. I see many underwriters just sending updates on cases rather than taking a more old-fashioned approach - calling to say ‘I have got your case, I’ll call you back in x amount of time’. It is just engagement and a simple service. TP: I am not sure. Many underwriters do not have the personality for it.
Bigger is better For your clients extending a residential property, our Refurbishment Finance can help.
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some formal offer and it is an education piece of ‘we need this’ etc. You can do it by email. We are advocates at Hope Capital of encouraging the underwriter to speak to the broker because they know the deal inside out. Some lenders have a sales team in between which is great but you can also get chinese whispers in between the two, or one question leading to another question and that can confuse it. Underwriters know the deal. JSealey: How many times have we had an email conversation and it has taken hours going back and forth while it would take minutes by call? Tone can be misread in emails too.
Some underwriters are really good but cannot communicate well so can you train them to do that?” Terry Pritchard JSealey: That is down to the lender to make sure they have the quality in personnel. JSamuels: It comes down to experience in underwriting deals well and trusting them to communicate with brokers. It also means they are not hiding away from their decisions and can defend it. TP: I’ve seen underwriters lose brokers because of the way they put something fairly simple across in a complicated manner and the broker does not understand it. Sales support teams put it into a more sales orientated way. It is training. Some underwriters are really good but cannot communicate well so can you train them to do that or have someone in between who can talk to them and to brokers? DD: What kind of broker though wouldn’t be able to understand the language the underwriter speaks? You would not want that broker touching business. GB: We are obviously focussed on communication with the broker and underwriter for the deal but it starts right from the beginning where you get terms out, say clearly what you need, and why from what you know at that point. The next point is going to
JSamuels: We are a more face-to-face industry. The other process point that is useful is lenders having feedback on what is happening with the case and if it goes to plan or runs into problems. That is massively important and does not always take place. People then understand issues, for example with payment, and if they could have been identified in the file originally. Too frequently that does not happen and there is a distinction between underwriting and servicing. I feel feedback from underwriters is very important. MT: It is the business process not just the underwriting process. It needs to be holistic. We are all at fault if our underwriters cannot explain why they are asking for something. It might be the training, or the business might not have articulated why they ask for certain things. It is about: how does the business improve? JSealey: It is continual improvement. If you are not asking your brokers how you can improve, then you will not know yourself. GB: We need to look at the holistic view of the whole life cycle of the loan. Improving holistically means a better journey for the broker, customer, and ultimately the lender as well. JN: Do you think an increased use of technology would improve the bridging underwriting process? What have you been using and what have you found effective? MT: We are doing a pilot of Open Banking in buy-tolet not bridging. The intent is to speed up processes. There is a bridging lender on the record for using
Settle down with a nice guy Haven’t developed any feelings for us yet? Well, we can cross that bridge when we come to it.
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Open Banking. It will not be an overnight success but over time will change the way we collect information about customers and hopefully speed up the customer journey. It would be odd in a few years’ time if people are collecting bank statements and sending them across. Things that are formulaic that speed up the process and reduce friction are the things we concentrate on. We also try and find ways to consolidate information so the underwriter can have all the information in one place to make the decision. It is still a very human decision. It is reducing friction with technology and making decisions easier by bringing information together.
from submission to completion is always around 48 days and does not seem to come down and change much. I have never seen it below 40 days, so for all the talk of tech enhancements and improvements it does not seem to impact on turnaround times. JSamuels: We have this inherent belief that tech is always good but sometimes it annoys brokers. There is one lender, raised to us by brokers, that frustrates them because it forces them to go onto its system and does not allow them to proceed without adding all the information on that page and they just want to phone and talk about the case. So, tech is not always the answer and can be an impediment to the business.
BC: It is a sensible use of technology aligned with good old-fashioned underwriting and avoiding algorithms if you can.
JN: The average is 40 days according to the latest data.
GB: The key is getting the balance right. Any technology can improve the process if it is the right piece you are applying it to. There is a balance between the two - improving the process and a human decision, common sense approach a computer cannot always make.
Gary Feast: Does technology not allow lenders to undertake more cases? JSealey: If your processes are slick enough, then probably.
JSamuels: Tech can help underwriters’ process in certain ways. You can do searches quicker, manage your workflow a lot better, update third parties and key stakeholders - to some degree that is going on already at some lenders. A lot of us get full valuation reports. How will tech help us spot what is most important in the valuation report? These are things in our industry because it is more complex it is difficult to see how you would get away from human underwriting. You could build a lot of tech in your own business to improve processes, but it will only get you so far because solicitors’ processes are rather antiquated. Tech can help you so far. GB: I know some solicitors who have systems now, such as a brokers logging onto a lender’s system to see things. I think the challenge solicitors are facing is going through the change process of getting their individuals and teams to update it and get the communication right. It will be a slow change process because they are not used to communicating in that way and learning how to do that. I think it will progress and evolve over time, but it has already started.
GB: It can enhance the number of transactions a
“From a bridging lender perspective, is there not an incentive to go down the buy-to-let route?” Brian West
BC: In the Bridging Trends data, the average days
Milngavie We don’t have to be able to say it to fund it. Whether it’s in London or Scotland, we fund experienced developers all over the UK.
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human can do because of the system supporting it. I do not think you can ever replace a human with a system but it can definitely support the process and drive it forward. GF: Technology in connection with the valuation often comes up with regards to the simpler cases like a smaller buy-to-let where you have all the information and you probably don’t need a full rep valuation undertaken for it. But it is different for larger cases, and we are seeing lots of HMOs at the moment. Rule changes that came in mean a lot of HMOs are now un-mortgageable because the room sizes don’t fit with the new rules and you wouldn’t know that unless you went in and measured it. Automation works to a large extent but it is not the whole answer. JN: The Tenant Fees Act comes into force in the beginning of June. How do you think this will affect the rental sector? JSamuels: Letting agents can charge some things but there are other things that they cannot charge for like references, inventories, posting and emails. Inventory fees can rack up. A lot feel they will just pass those costs onto landlords and where possible the landlords will pass it onto the tenants. In some cases the tenants will not pay more so the landlords will have to suck it up, and in other cases the letting agencies will have to suck it up. These are not huge figures, probably £200, £500, £600 depending on the nature of the property. By itself it probably does not hit the landlord too hard but it is on the back of a whole raft of things hitting landlords such as stamp duty changes, PRA stress testing changes, HMO licencing rules and tax changes. It is just another
thing that makes holding your property less profitable so smaller landlords might want to pull back. Maybe that is to the benefit of professional landlords who may push it onto the letting agents and it becomes a more professionalised sector. There is also legislation on energy ratings and HMO room sizes. Many have brought properties, not measured them out, or bought them prior to the rule changes and then have to reconfigure the property and make it mortgageable. There is just more and more legislation coming out against landlords, which makes it unappealing for them to be in the market. MT: It is a painful activity to be a landlord because your time is money and you are spending time trying to understand the new rules. GF: When the energy ratings came out in the original forms 10 years ago, they lasted for 10 years. So anyone who bought an E rated property 10 years ago and has done nothing to it is likely to find it is a G rated property now which is unmissable under the new rules. So, either they have to spend a lot of money refurbishing it to make it qualify, sell it, or get fined for letting unlettable property. JSamuels: Landlords will have to adjust. It is just the way life is. It is becoming an increasingly unattractive sector but when you compare it to other areas people want to put their money into, it is still attractive - just less than what it previously was. GB: And ultimately at some point, this will be passed onto the consumer. JN: Do you believe the bridging sector will continue to adapt and grow or do you think 2019 will present new challenges such as Brexit, which may affect this? BC: I said at the end of last year I thought the market would remain in volume terms, reasonably static, or maybe show fractional growth or decline. I thought there would be more lender casualties by the end of the year but equally new entrants, so the market would end the year leaner and fitter.
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JSealey: The ASTL are saying at the end of Q1 loan books are up 7% or 8%, however completions are down 13.1% from the same time last quarter, and 17.5% from Q4 last year. To me that means a lot of people are extending loans, going over term or going into default which is worrying. TP: From a brokering side that is what we have seen - lots of extensions, but from the lending side as a new lender that is yet to affect us. GF: We are seeing a lot of rebridging going on. We are seeing the same property coming back on a
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regular basis now, but it becomes more difficult to rebridge it because in certain areas the values have actually dropped. The loan-to-values are affected by that. A lot of applicants are distraught that the value of their properties have dropped by 5% or 10% when they’re expecting them to rise. JSealey: They were probably relying on it to go up otherwise they cannot get the refinance. GF: In an increasing market that is not a problem but where it’s static, it is. JSealey: Does anyone think it has been an increasing market in the last 12 or 24 months? I don’t. GF: It is absolutely not. TP: I think we are realistic to know the market has not been increasing. JSamuels: I do not know about the whole market but what we have seen is a few lenders in April announcing record months in terms of completions. ASTL figures have said completions are down in Q1 but some lenders have said they have performed well in April. LC: But it is the quality of cases too. JSamuels: This is a question of whether we will see growth. It is not all bleak if lenders are announcing record months. Let’s see where it gets to. It might be that some lenders will suffer. Lower rates may be part of it. Rates are coming down and people are fighting for business because it has been a hard quarter with purchases down. People might be taking a lower margin. We might emerge at the end of 2019 and find we might have actually grown but that goes back to the point of whether it would be good growth. BC: The ASTL says the market is worth about £4bn. I suspect the bridging market is worth double than that – perhaps £8bn to £10bn. Precise Mortgages and Together are not members. There are massive volumes of business not represented, never mind the lenders that fly under the radar. JSealey: At least with the ASTL they have had roughly the same members for maybe 12 or 24 months so you are looking at data that’s comparable. BC: I guess you can say the same with Bridging Trends. I find it interesting. JN: Half of bridging lenders see Brexit as having a negative impact on the industry in the next 12 months. What do you think about this? BC: Given it is never likely to happen. Is it Brexit or
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“If you are not asking your brokers how you can improve, then you will not know yourself” Jonathan Sealey has it gone beyond that to the incompetence of the politicians? The economy is still performing well, growth is predicted to be 1.8% this year which is faster than France, Germany, and the Eurozone as a whole. I wish they would stop being so negative all the time! DD: Assuming Brexit does happen, it would be an opportunity. While some people would be petrified by the thought of Brexit, I think some of us would think there is a massive opportunity to be had. There is going to be a period of adjustment whatever happens. JSealey: We can shift quickly in the bridging market. LC: Bridging always adapts to circumstances and the environment. Those that do not get left behind and go away. JSamuels: Brexit has had an impact upon the industry already with purchases down because it has led to uncertainty, uncertainty about what would happen to purchases and timing of ‘should I wait until I know what’s going on’. Now it has been pushed out, it will effect the whole of 2019 pretty much. It is not Brexit that we should be worried about because that is already factored in. We should be worried about Jeremy Corbyn. If he gets in, we would see an increase in corporation tax, income tax and maybe a health tax, so people’s properties would be getting taxed everywhere - things like the Tenant Fees Act would seem minimal and totally irrelevant. We can all adapt to Brexit, but this industry and landlords would take a massive pounding if Corbyn gets in. JUNE 2019
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Keep calm and carry on
Leanne Smith and Matthew Tooth
Jessica Nangle sat down with Matthew Tooth and Leanne Smith from LendInvest to discuss their take on the bridging and development market, and how education is a vital tool for success
In recent years the development sector has been viewed as an industry that’s ‘booming’ despite the obvious political uncertainties, where many are still keen to capitalise on the healthy figures that are being seen within the space. LendInvest believes their collaboration of bridging and development is a recipe for success. With three business lines already in play and a fourth on the way, this is a lender which has no signs of slowing, and they remain positive that 2019 will be as successful as the last.
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Competitively placing themselves with good rates for property developers and growing to an 11-strong development team giving the total number of their employees to 200, LendInvest is keen to keep the pace and continue their reputation as key players in the development space. With a Development Academy on the go and a collaboration with the NACFB for commercial brokers, education remains paramount to their success. Matthew Tooth, chief commercial officer, and Leanne Smith, director of development JUNE 2019
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finance and origination, discuss how there is much opportunity to be had in this space; and how the collaboration between bridging and development continues to be a key factor to their ongoing success.
A busy year
“The last 12 months have been positive,” Matthew begins. “We have established a third business line – our mature buy-to-let – which sits alongside our bridging and development finance offerings.” It has been a busy year at LendInvest HQ, and the third business line has come with pressure to ensure that all of their offerings are at their best for customers. “I think we are fortunate at LendInvest as now we have those three product lines, it enables us to transition between all three products quickly and efficiently,” continues Leanne. The technology that we are keen to implement and keeping a lot of staff is really important for us to continue growing and scale efficiently.” The numbers in the office have risen from 130 last year, which Matthew explains is due to the new buy-to-let business line but also employing staff to maintain the technological processes to keep business running smoothly. There has been a nervousness felt by many in the industry in the last year. “From a developers perspective, we have certainly noticed that sales are taking longer when they try and edit the loan, so we are quite conscious that our underwriting and risk profile is adjusting a term and that side of things is all in line,” Leanne states. The main message coming from the LendInvest pair however is there is still a huge opportunity in the market. Matthew concludes. “It has been a year where we have been growing but are sensible about things at the same time.”
Successful collaboration
LendInvest make no secret of the success they have had through identifying the complementary link between development
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finance and bridging and have created a business model for property developers that works for them. “When we established the development finance business, it was all about getting a new process established,” Matthew explains. “Over time, what we came to realise is that the bridging and development lines are very complementary. There are many situations where the developers that use us for development finance will use us for bridging finance and we found that the lines were mutually beneficial.” The benefit of having an increased team count and seamless technology is also key. “As we are doing the whole process in-house, it means that we can hold the borrowers hand through the life of the loan,” Leanne adds. “Instead of speaking to numerous people, there is just one contact throughout, which lowers cost as we utilise the same professionals, reports and underwriting process throughout.” This element of efficiency and
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in-house capabilities is what LendInvest prides themselves in, with the ability to complete bridging loans within a couple of days, compared with the three to six month timescale high street banks boast. “We lend against cases of experienced people who have got a track record of achieving planning which is something not a lot of other lenders do,” explains Matthew. “In a sticky market, we are seeing that development exit products are proving popular as the developers are saving a bit of money and, as long as the market keeps moving, those loans are a good risk and reward for us.”
A strong foundation
In 2018, LendInvest’s development team established new funding lines with Nomura and Magnetar, which along with the team expansion, were big internal milestones. “It was a great success when we closed that line and we did it at the right time too,” Leanne states. “We are able to www.specialistfinanceintroducer.com
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lend comfortably up to 70% GDV which is quite competitive, and are very much open to business with a strong and experienced team.” Post-completions are also a selling point for the team at LendInvest with a current turnaround time of 24 hours thanks to use of the latest technology. The new additions and funding lines have encouraged opportunity at the lender, as they continue to capitalise on the development and bridging partnership; Matthew is proud of the success thus far. “It is all progressing well,” he says. “It has taken a lot of investment and, by the nature of development, every year the team is managing more loans on the back book with a lot of work taking place on drawdowns and hauling in new business.” Matthew goes on to ironically claim that LendInvest’s development team now have a ‘strong foundation’ - a fitting phrase for a growing team.
The Development Academy
Back in 2016, LendInvest announced the launch of its Development Academy, designed to educate property developers through module learning, expert speakers and networking sessions. The last two and half years have seen the academy go from strength to strength, and has opened the doors for new collaborations with industry leaders, exclusively NACFB who LendInvest paired with to create a short course specifically for property finance brokers. The academy has had 800 applications to date with over 400 attendees, with 18 academies to date in 18 cities. Pair this with 32 professional speakers ranging from valuers to solicitors; architects to leaders in tech-driven companies, and you have a recipe for educational success. Leanne explains that LendInvest are currently keen to increase their knowledge centre on their website “to bring everyone together” in what Matthew explains can be a lonely profession. “The insight we have had when we have people at these events is that it is quite a lonely profession being a property developer because you www.specialistfinanceintroducer.com
are in charge of quite a few people and only you are making the key decisions,” he explains. “To have the opportunity to talk to other people to validate what you are doing and to get a second opinion from someone who has faced the same challenges is really useful.” This is part of LendInvest’s aim to give back to the industry, hence why their educational events are free to attend which they believe more in the space should be doing. “We are not the only ones who are providing structured educational programmes,” Matthew says. “But all in the industry should give something back by putting some structure and investment in place for more educational opportunities. That is something we have done well in the last couple of years.” Leanne agrees that education is imperative across the board, and in turn could transform the property landscape. “Whether it’s labourers, manufacturers, valuers, solicitors or developers – their skillset is imperative to the housing shortage at the moment and obtaining as much knowledge as possible is really crucial at the moment.” Whether it be structured education such as LendInvest provide or simply more encouragement to learning, LendInvest agree it is paramount to success for not just a singular industry but for the sector as a whole.
The fundamentals of development remain
While the political landscape has certainly had its effect on the industry, the team maintain that opportunities remain for those that can master the fundamentals of development. “We are noticing that an increasing number of developers are holding onto their units in order to rent them to achieve their profits and margins back,” Leanne explains. “Developers need to ensure that they are buying the site at the right price, and that they are looking at the end GDV unit so that all of their margins stack up to ensure that profit.” However despite the circumstances, Matthew argues that Brexit is becoming a forgotten
pastime. “I think a lot of people in our sector are over Brexit and are just proceeding in any case,” he says. “They are just proceeding in any case as there is only so much that one can control. It is our thesis that the way the property market has changed – with increased taxes and regulation – all of those make it difficult if you are not an excellent business person to make money in these markets.”
Coming next
Keeping their foot on the pedal, 2019 is set to be an exciting year for LendInvest, with a fourth business line in the works to add to their proposition. But unlike their current offering, this new proposition will be slightly different. “We will be launching a regulated residential product, which will be our first step into regulated lending,” Matthew explains. “We will start by doing a regulated bridge and then plan on doing a more mainstream product.” This is a step in a different direction for the lender as it is the first time their audience will not be a property professional or investor, instead it will be the homeowner. “Along with this new line, we also want to continue to expand all of our propositions and it is great that we have the markets where we can continue to have scope to go into in order to launch a new product.” Technology and a strong headcount are also important to ensure progression according to Leanne, who argues that both are key to high business flow. Speaking to the pair it is clear that an innovative and pragmatic approach is benefitting LendInvest, who are unfazed by the current landscape by continuing to launch new propositions whilst remaining aware of the challenges that lie ahead. However LendInvest are clear that they are keen to cultivate the recipe they have already created to remain top choice for property developers whilst appealing to a wider audience in the future to expand their market share showing how slow and steady really does win the race. JUNE 2019
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Comment
Reputation, reputation, reputation How strong is yours and the lenders you use?
March saw the culmination of the early year awards programme and all the accolades have been distributed amongst the hundreds of categories that now attract all stakeholders in the lending market to the prestigious venues packed to the rafters with old hands and new hopefuls, all looking for acclaim. There is no doubt that winning an award brings with it boasting rights and the opportunity to populate your home web page with more logos bearing testimony to the success of your business, but do they enhance your reputation to the extent of generating more business? Cynics will say it is the size of your marketing (transfer) budget that determines the trophies in the cupboard. Take the example of Manchester City, but in recent years I have seen many worthy winners who have won on merit and with modest marketing budgets, just like Leicester City. I have just been retained by a
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lender whose current reputation in the short-term market is modest, as intentionally they have operated below the radar choosing to ensure their proposition was strong enough and flexible enough to withstand the competitive pressures that now exist in a maturing market, before they back the reputation they have established with their small number of brokers and other stakeholders with a much more ambitious distribution strategy. I often write and talk publicly about the absence of the word TRUST on many lenders and brokers websites and how that surprises me in a sector when that should be the must word to capture the interest of potential clients. It is no secret that a person’s reputation is based on the trust others have in them and that is equally true about any business. Can they be trusted to deliver to their boasts? In business, as in life, our reputations are made with the
JUNE 2019
Mike Dring Strange Alan managing director, director, MAD Approach Funding 365
people we work with, the people we need to forge relationships with and very importantly the competition we strive to defeat. All the award winners referred to above will have enhanced their reputation and as such will have set the standards for others, but more significantly for their own people who now have an enhanced reputation to live up to. The impact of social media on the reputation of businesses is an increasing influence on their public image and how they rate against the competition. It is an interesting exercise for a lender to ask their coal-face workers two questions 1) What is our reputation in our market and 2) What reputation do our main partners have in that market. The outcome should lead management to appreciate better how strong their reputation is and how best for them to promote (boast!) it for competitive advantage. I am sure if just referring to a balance sheet determined the success of a business then reputation may not be the be all and end all if your product is in demand but in the financial service sector I maintain that trust built on a reputation for honesty, transparency and service will ensure you keep ahead of the competition. My message to lenders and brokers would be, unlike Iago in Othello, protect your reputation at all costs and don’t jeopardise it to get more market share. Do what you did well to gain your award-winning reputation and use it to improve the performance of others in the sector so your clients can have more TRUST in more businesses in a market that does not always come across with the best reputation. www.specialistfinanceintroducer.com
CHALLENGE US TO FUND YOUR NEXT DEAL Fast, flexible property finance • Funds in as little as 5 days* • Loans up to £3 million • DIP within 2 hours of approval** kuflink.co.uk 01474 33 44 88
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*Loans, interest rates and completion times are subject to underwriting criteria. **2 Working hours. This advert is intended for intermediary use only. Failure to meet the repayment criteria of a loan could result in the security being repossessed. Kuflink Bridging Ltd is authorised and regulated by the Financial Conduct Authority (Ref No. 723495) Registered office: 21 West Street, Gravesend, Kent DA11 OBF. Company Registration No. 07889226
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Call us on 0203 846 6886 or visit lendinvest.com/intermediaries. LendInvest Limited is registered at 8 Mortimer Street, London, W1T 3JJ (Company 08146929). ICO number ZA179467. Your client’s property may be repossessed if they do not keep up repayments on their mortgage. For intermediaries only.