BRIDGING Champion of the Bridging Professional
ASTL Bridging In-depth Industry Comment
Reinforced reputation MT Finance on leveraging an established reputation to disrupt a new market
Contents 5 Jonathan Newman Is the moratorium really over? Publishing Director Robyn Hall Robyn@mortgageintroducer.com
7 Donna Wells Opportunities for specialist lenders
Publishing Editor Ryan Fowler Ryan@mortgageintroducer.com
he most recent Bridging Trends data from MT Finance found that funding an investment purchase ranked top among the most popular reasons for taking out a bridging loan. The analysis suggested that this was due to landlords and other buyers rushing to complete before the initial tapering of the stamp duty holiday, but far from worrying about whether this boost might herald a drop off once the incentive eventually reaches its end, prospects seem bright in the long-term for this market. Rates are at an all-time low in both this and the mainstream mortgage market, bolstering consumer interest and contributing to increased application volumes across the board. Although some have voiced concerns about a potential ‘race to the bottom’ undermining lending integrity, most agree that rates have reached a good point at which to level out. In turn, Bridging Trends found completion times had dropped back from their all-time high last quarter, calling for tentative suggestions that bridging might be back on track towards its role as flexible, fast finance. Despite all these positives, and the work that has been done over the past decade or so to reinforce the reputation of bridging finance as a valuable tool – worth a potentially higher cost due to the benefits it brings – it seems there is still a misconception among many outside this industry. To this end, we watch with interest as Vic Jannels and the ASTL embark on their push to open a discussion with the wider media and everyday consumers around their perceptions, and what bridging might be able to do for them. B I
9 Jason Berry Get ready to collaborate and thrive
Editor Jessica Bird Jessicab@sfintroducer.com Deputy News Editor Jake Carter Jake@mortgageintroducer.com Editorial Director Nia Williams Nia@mortgageintroducer.com Commercial Director Matt Bond Matt@mortgageintroducer.com Advertising Sales Executive Tolu Akinnugba Tolu@mortgageintroducer.com Advertising Sales Executive Jordan Ashford Jordan@mortgageintroducer.com Production Editor Felix Blakeston Felix@mortgageintroducer.com Head of Marketing Robyn Ashman RobynA@mortgageintroducer.com CEDAC Media Ltd Signature Tower 42 25 Old Broad Street London EC2N 1HN
11 Brian Rubins Working together 13 Roxana MohammadianMolina Disrupting the market 14 Feature: Under the hammer Natalie Thomas looks at the benefits and drawbacks of buying at auction, and the role of bridging finance in this growing market 22 Adam Tyler Technology in specialist finance 26 Round-table: Trends and opportunities Jessica Bird outlines the recent round-table discussion, covering Bridging Trends, the outlook for regulated bridging, and the future of the market as a whole 32 Cover: Reinforced reputation Tomer Aboody and Raphael Benggio at MT Finance talk about the most recent Bridging Trends data, as well as their view on the business and the market 38 Vic Jannels Time to step outside our industry
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Is the moratorium really over? Jonathan Newman senior partner, Brightstone Law
ere’s a question that’s been bugging me – is the moratorium really over? The technical moratorium may now be behind us, but realtime experience is that we are now experiencing a practical one. There are four basic planks for the hypothesis. First, the creaking logistics of the court and bailiff systems are resulting in longer wait times for possession dates. Some applications made as far back as April currently await dates. Second, County Court bailiffs are showing signs of increased reluctance and nervousness in their approach to execution, with dates being cancelled last minute at the slightest suggestion of COVID-19 issues. Then, defendants buoyed by months of protection, and encouraged by what they read about government and regulator forbearance, are applying for suspensions with increased regularity and in increasing numbers. Finally at hearings, overworked district judges – fighting backlogs and time issues – are deferring decisions for another day. WHAT IS HAPPENING?
During the height of lockdown last year, a system that was used to processing more than 38,000 cases each week dropped to fewer than 5,000 during some weeks. This was an indication of the scale of the logjam that was waiting to hit the courts system when it reopened. According to data from Brightstone Law, prior to COVID-19 there was an average wait of six weeks between claim and hearing – with an average enforcement period of six weeks. So, 12 weeks in total to get the position to seek a warrant for possession. Now, the www.sfintroducer.com
average is 11 weeks to review – a new stage in the process at which not a lot seems to happen other than listing – then another seven weeks to possession hearing, with a similar enforcement period. The enforcement process is taking three times as long, before the final enforcement piece itself. Every borrower has the ability to apply to the court for suspension – and so they should. Typically, they must be able to demonstrate an ability to settle the debt within a reasonable period. Post-moratorium, applications may also include health, personal and public and rehousing concerns, and the district judges are listening. Prior to the pandemic, applications to suspend fixed warrants numbered less than 55% – applications now exceed 80%. Previously, of those applications, less than 25% were successful. Postpandemic, successful applications are less than 19% overall, meaning more applications based on less strong grounds, but resulting in increased enforcement delays. Overall, every enforcement application will be successful; however, claimants now face a quasi-moratorium – in practice not fact – and it’s hard to read which enforcement actions are more likely to succeed. It’s worth remembering that some borrowers with a possession order granted against them at this stage have already had the benefit of a legal moratorium and forbearance that lasted for a year and more. Every defendant has an element of forbearance already built into the process, the time to court, and suspensions tailored to their own personal circumstances, when the district judge makes their order. Defendants must receive sympathetic handling by lenders and courts alike, but on occasion bringing matters to a head quickly and efficiently is in the best of interests of all, financially, emotionally and practically. In bridging, enforcement of loan facilities is seldom about clearing arrears and bringing the conduct of the account back on track. In the vast
majority, it’s about the debt and its repayment in full, term expired. So, it’s easy to see why the present situation is exceedingly frustrating for lenders, who have already had to patiently wait for the end of the moratorium and through lengthy court delays. ARE THERE ANY OPTIONS?
There are two ways to enforce a possession order – either through the County Court system, or through the High Court. Historically, district judges had to be persuaded to transfer claims to the High Court, where the bailiffs enjoyed a reputation for robustness and efficiency. There needed to be good reason to do so, and it took time and money. Now, however, we find that submitting an application to transfer a case is achieving far better success rates. With earlier dates and more efficient execution in the High Court, I suspect district judges are beginning to recognise creaking processes and want to oﬄoad some of the County Court bailffs’ workloads. Brightstone record that 28% of all executions it handled are now being seen at High Court level. There’s another advantage, in that writs for possession can be rescheduled more easly and quickly if the first appointment is unsuccessful, by agreement or suspension. The approach may not suit all lenders, either from a cost perspective, or a reputational risk one, of course. Brightstone advocates intelligently crafted solutions that are built to meet the needs of an individual business and cases, based on the parties, issues and commercial considerations. Some lenders may choose to ride out the storm and chalk off the additional delays to the County Courts. For others, however, frustrated with the continual kicking of the proverbial can down the road and dissatisfied with the County Court, referring an application up could prove effective in overcoming the practical moratorium. B I AUGUST 2021
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Opportunities for specialist lenders Donna Wells director, First 4 Bridging
e entered H2 2021 on the back of what can only be described as a frenetic six months for all sectors across the mortgage market. The main driving force has obviously been a housing market which only seems to go from strength to strength. To put this into some context, the latest Zoopla/Hometrack house price index revealed that the average price of a house in the UK now stands at £230,700, some 30% above the market peak seen in 2007. House price growth was reported to be up 5.4% year-on-year in June, more than double the 2.2% year-on-year growth seen 12 months ago. The data outlined that prices are being propped up, in part at least, by a chronic under-supply of properties coming to market, with a 25% fall in the volume of homes for sale in the first half of the year when compared
Specialist lending is seeing heightened activity
with H1 2020. Transaction volumes have remained strong – up 22% on the average levels seen in 2020. Buyer demand was suggested to have dipped 9% in the first half of July, after the ending of the initial stamp duty holiday, but does remain elevated – up 80% compared with the average for this time of year in the more ‘normal’ market conditions of 2017-19. This slight lull may have been experienced across the mainstream residential marketplace, but a variety of specialist lending avenues are seeing heightened activity levels, as property professionals across the country continue to take advantage of emerging opportunities. SPECIALIST BTL
The importance of the specialist buyto-let (BTL) market, and the benefits attached to using lenders operating within this space, was made evident in research from Smart Money People. This study found complex buy-tolet lenders were rated at 96% for their flexibility by brokers, while mainstream buy-to-let lenders were rated 87%. Overall, lenders across all categories scored a rating of 79% for flexibility. Comparing the two types of BTL lending, brokers also rated the underwriting from complex buy-tolet lenders higher than for those in the mainstream BTL market, with a 50% rating compared to 32%. The overall average across all lenders in this category was 51%. There was a slight difference between how easy brokers thought these lenders were to place an application with, however. Complex BTL lender applications were rated 67% for ease, compared with 80% for the mainstream. This is an interesting area, as by definition such cases are more complex, which means more hoops to jump through and additional difficulties in sourcing the right solution from the right lender. As such, I wonder just how many of those respondents who questioned
the ease of use of complex buy-to-let lenders have utilised a packager, or how well these cases had been packaged by individual brokers. After all, the use of a specialist packager can expediate and simplify this process massively, whilst also helping to manage expectations throughout, from application to completion, however complex the transaction may be. BRIDGING FINANCE
Speed is also a vital component within bridging finance, and a buoyant property market continues to drive confidence throughout this sector. This was outlined in a recent survey from Shawbrook Bank, which showed that more than a quarter (26%) of brokers believe that the bridging market is best positioned to benefit from the current strength of the property market. Semi-commercial was the second most likely area to grow, with 24% of brokers predicting strong growth, followed in third place by BTL at 23%. Two-thirds (67%) of brokers have reported an increase in business volumes since the start of the year, with half reporting an increase of 20% or more in current business levels. The research also found that a substantial 71% of brokers expect to see landlords increase the number of properties in their portfolios this year. Brokers also reported a shift in buying patterns, with 44% noticing a change in the types of residential properties that their clients are looking to buy. More than two-fifths (42%) admitted that the main reason for this swing is because of the stronger rental yields that are currently being achieved by alternative property types. This data helps highlight the benefits attached to the specialist lending market, and I fully expect bridging finance and complex BTL to become even more prominent for a variety of property-related transactions over the next six months and beyond. B I AUGUST 2021 BRIDGING INTRODUCER
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Get ready to collaborate and thrive Jason Berry group sales and marketing director, Crystal Specialist Finance
inston Churchill once said: “A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty.” To be fair, similar wording is attributed to a number of people, but it seems more apt today than ever before as we come to terms with living with COVID-19. Not even the most far-fetched Hollywood movie script could have portrayed accurately the worldwide standstill we found ourselves in during the past 18 months, and it now appears inevitable that COVID-19 may not ever truly disappear. However, whilst the impact on mental health may linger, the vaccination rollout – supported by further medical study success – will ensure that brighter times are ahead of us, and we will certainly learn to live normally despite the dreadful virus. This public health optimism extends into the positive outlook we should also expect to observe in the specialist finance marketplace. MARKET CONTEXT
As of this moment I hear two very distinct broker arguments: the optimists are looking forward to a market with numerous opportunities, many of which may not have been realised before the pandemic, while the pessimists are looking back at the end of the stamp duty holiday and the risk of 4% inflation, and the outlook is not rosy. However, having spent over 20 years of my career in this sector – and following recent discussions with a number of pragmatic lending partners – I firmly believe that we are in the midst www.sfintroducer.com
of an exciting new cycle, with plenty to look forward to. The current economic climate sees huge private equity investor appetite, as fund managers search tirelessly for ambitious growth on their capital. Similarly, treasury departments across many UK lenders are also looking for the best possible routes and solutions, so they too can deliver meaningful returns from cash held on deposit. This return on investment (ROI) focus means an investment spotlight is already shining on the specialist marketplace, and appetite will only be assisted by the confidence that lessons have been learned following the previous financial crisis of 2008. There is foundation to this point, with lenders’ capital adequacy positions better equipped to stand the rigours of the most extreme stresstesting and much improved governance being demonstrable, meaning riskier fast-track lending is a thing of the past and unlikely to ever recur. When these factors are overlayed with affordability improvements of borrowers – the Association of Short Term Lenders (ASTL) reported that in March 2021 default rates had fallen by 4.5% from December 2020 – we are sure to see mergers and acquisitions for growth, and a much more active and competitive securitisation marketplace evident in 2022. As a result, the specialist finance sector will flourish, with expansive criteria introduced and consumer friendly pricing offered. OPPORTUNITY ABOUNDS
In England, more people now rent their home from a private landlord than from a council or housing association, and there are more than four million privately rented homes which house more than 11 million people, according to crisis.org.uk. Whilst greater criteria flexibility and increased product choice will assist
Collaborate for enduring success
those home movers with blips on their history, the biggest winners will be renters, who will simply find the criteria easing acts as an enabler for them to become bona fide homeowners. CLIENT REQUIREMENTS
I would, therefore, urge all advisers to get themselves energised and organised so that they can thrive in the coming months and years. Lenders and borrowers will need help, and it is brokers who will be able to find the solution for any client’s financial requirements. Qualified information will be required, so lender propositions can be shaped for volume and margin gains. Separately, those borrowers who do have blemishes – in many cases probably due to unforeseen events – will need their circumstances sympathetically but fully understood, so that funding solutions can be attained at both fair loan-to-values (LTVs) and fair prices. Personal experience suggests that we’ve been here before, so the trick this time will be delivering positive outcomes which are sustainable for all parties involved. Another former British Prime Minister, Benjamin Disraeli, said: “The secret of success is to be ready when the opportunity comes.” Collaboration between stakeholders will be crucial for enduring success – embrace opportunity. B I AUGUST 2021 BRIDGING INTRODUCER
& COMMERCIAL CONVEYANCING
Award winning service
Working together Brian Rubins executive chairman, Alternative Bridging Corporation Limited
ummer holidays are starting, meaning new enquiries will slow down, so this must be the best time in the year to review the past, learn the lessons and plan for the future. It is a great time to think about the relationships between brokers and lenders, and what each can do to make their journey together more enjoyable. It helps for the broker and lender to know each other well, and this should extend beyond their respective offices. How many lenders have met their brokers in person?
“It is a great time to think about relationships between brokers and lenders, and what each can do to make their journey more enjoyable” Having lunch, a drink after hours, the odd game of golf or visit to an event are all established methods of bonding. Neither lender nor intermediary should be too busy to do this, and there is no law which says business cannot be discussed during leisure time. INFORMATION HIGHWAY
Lenders spend fortunes on their websites – some more elegant and useful than others – but a good site hosts an enormous amount of product information providing valuable data on terms and pricing. More importantly, it will usually detail what the lender is expecting to see when a proposal is submitted. The more information, the quicker and better the decision. Some lenders supply a preliminary enquiry form to generate an offer in principle. Frankly, this may help the www.sfintroducer.com
uninitiated to start a conversation, but my belief is that it achieves little more. A phone – or preferably Zoom – call will be far more productive and lead to a more meaningful response when the case is submitted. The lender will recognise the case, recall the discussion, and do everything possible to help. LENDERS MUST LEND
It should be an accepted principle that lenders need to lend as much as borrowers wish to borrow; however, in the heat of the deal, this fundamental is often overlooked. There are those loans which can never be satisfied. If lenders recognise this quickly and explain why to the intermediary, it will enable the broker to avoid wasting time going from source to source to no avail. However, before declining any loan, the lender should consider if there is a structure which will work, and make every effort to convert a ‘no’ to a ‘yes’. Personal relationships will help to achieve this. Often, negative decisions are made which could be avoided if the borrower had told the broker more, and had the introducer been able to pass this information on. In this instance, ignorance is not bliss, it just wastes good opportunities. Nevertheless, brokers must be willing to dig deep for information and to review the loan themselves – a mini-underwrite before passing on the borrower’s requirements. Where a deal does not quite fit, often the new business team will be able to work together with the intermediary on changes to the proposal to make it work. For example, it may not be necessary to stretch the loan-to-value (LTV) until it snaps if additional security can be offered. With term loans, debt service or interest cover ratio (ICR) can be a problem. This is particularly the case where the project is in its infancy and the income has not been stabilised. Lenders cannot be expected to lend ‘blind’, but a simple, properly researched business plan may be
sufficient to encourage them to look into the future, and cover the interest shortfall with some retained interest until the asset is self-financing. This is particularly relevant to new houses in multiple occupation (HMOs), where the income is predictable, but not yet there. Recently, Alternative Bridging participated in the refinance of a parcel delivery service which had come through difficult times and needed finance to repay expensive debt while rebuilding its profitability. We agreed to accrue part of the interest while turnover was rebuilt, working closely with the client’s accountant, who provided a good business plan and evidence to support it. SUPPORT EACH OTHER
Development finance is another area where brokers and lenders need to support each other. It is a two-way street, with the lender reviewing the initial proposal and working with the intermediary to complete the story. Development finance is an attractive area for intermediaries, but it often takes a few cases to get up to speed with the nuances. This is where a good relationship with an experienced lender can come into its own. The journey starts with assessing the borrower’s skill set, as well as showing evidence that the forecast cost has been checked against sub-contractors’ priced estimates. In putting forward a development proposal, issues such as planning, access, rights of light, ground conditions and a host of other factors need to be checked. If you do not know all that is necessary, a three-way discussion between client, intermediary and lender will help close the deal. If it is a bridge, a term loan or development finance, co-operation is the name of the game. As an intermediary, you can never gather too much information, and as a lender you can never be too helpful. It is all about working together. B I AUGUST 2021
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Disrupting the market: Faster, better, simpler Roxana MohammadianMolina chief strategy oﬃcer, Blend Network
e are told to use the right tool for the job. Specialist finance requires specialist lenders, while property development needs niche lenders which can get their head around the intricacies, for example, of doing a ground-up development or a conversion. EMERGING SPECIALISTS
Whereas a few years ago we lived in a much more ‘generalist’ society, where we used doctors, salespeople and lenders, nowadays we live in an increasingly ‘specialist’ world where we can access professionals with a high degree of expertise in niche field, such as orthotics, digital marketing and real estate development finance lending. This evolution is nowhere more relevant than in the financial lending industry. Only a few years ago, a generalist lending manager at a high street bank was tasked with assessing loan requests for all types of different purposes, from building or buying a house to purchasing a car or paying for a wedding.
However, the emergence of so-called ‘specialist lenders’ over the past decade has brough a breath of fresh air into the financial lending industry by allowing for a much more tailored service and customised lending solutions. Nowadays, the high degree of specialism in the financial lending industry means that in the same manner as we wouldn’t go to a supermarket to buy a car, we wouldn’t go to a high street bank to request a development finance loan.
THE NEED FOR EXPERTISE
The truth is that building a groundup block of flats, doing a commercial to residential conversion, or even renovating a house into a house in multiple occupation (HMO), involves having a lender that truly understands the property development process and can get its head around how it works. Property development deals are rarely standardised, one-size-fits-all deals. Most often, they will be nonstandard deals with quirky features that require unique structured solutions. For example, HMOs may offer very small capital appreciation to the borrower, with rental income being the main reason for the investment. Alternatively, there may be planning uplift that needs to be taken into account when assessing a ground-up development deal.
The more ﬂexible setup of new specialist lenders means increased eﬃciency for borrowers
Traditional or ‘generalist’ lenders are usually happy to lend on off-the-shelf deals that are easy to value based on market comparables. Yet when it comes to non-standard deals in non-standard locations, specialist lenders are more likely to get comfortable with it, provided that the deal makes sense. Another important factor is that specialist lenders are often staffed with experts with professional expertise in the specific area where the loan proceeds are to be used. For example, at Blend Network our development finance underwriters have years of property development experience under their belt, thus being able to speak the borrower’s language. It is no surprise, then, that specialist finance providers have become the goto lenders for development finance. With their nimble set-up, flexible structure, dynamic approach to lending, sharp use of technology and top-notch customer service, specialist development finance lenders are able to better serve time-poor property developers who have grown accustomed to faster, better and simpler processes with good old-fashioned customer service. However, it is in one primary area where this new generation of specialist lenders has really been able to bring added value: the gearing offered to property developers. In a market where cash is always king and winning a deal may depend on the lender’s ability to move quickly, gearing is one of specialist lenders’ key selling points. Their more flexible set-up compared to traditional lenders help structure deals in a way that works for the borrower. For example, at Blend Network we have structures in place that allow us to go up to 73% loan-togross-development-value (LTGDV), thus effectively blending senior and mezzanine into one loan. In summary, a new generation of tech-powered regulated lenders is disrupting the real estate development finance lending market, and it is easy to see why: it is faster, better, and simpler. AUGUST 2021
AUCTION FINANCE XXXXXXXXX
UNDER THE H Natalie Thomas looks at the benefits and drawbacks of buying at auction, and the role of bridging finance in this growing market
uying a property at auction can be both an exciting and nerve-wracking experience – heightened further by the need to pay within 28 days of making a winning bid. For this reason, bridging loans are an obvious choice, due to the speed in which the funds can be deployed. Just as with the wider mortgage market, COVID-19 has pushed the auction process online, making it more accessible than ever and opening it up to those who have never used bridging or bought at auction before – creating new opportunities for purchasers and brokers alike. AUCTION ADVANTAGES For many, the first thought when considering auction purchases might be of a buy-to-let (BTL) investor on the lookout for a derelict property to develop, with a view to making profits in the long-term. Nevertheless, auctions do not need to be the preserve of the professional landlord, and in recent years this avenue has appealed to a much broader demographic of buyers.
BRIDGING INTRODUCER AUGUST 2021
AUCTION FINANCE XXXXXXXXX
E HAMMER Lee Gilmore, head of business development at Bridging Finance Solutions, says: “Auctions are suited to a range of bidders, from first-time buyers [FTBs] trying to get onto the property ladder to those looking to get a better deal than those available on the high street, including builders and investors.” This rising popularity is a good thing in many ways, but shifting this market into the mainstream might have some less desirable effects. Gilmore adds: “Looking back 20 years, perhaps, there were less people typically buying at auction so there were more opportunities to secure a deal or bargain. Today, auctions are regarded as more mainstream. “More people are moving into property to help boost pension funds and as a long-term investment, whilst seasoned auction buyers are increasingly shying away from the auction room.” Nevertheless, there are still bargains to be had, says Amadeus Wilson, director of SPF Short Term Finance. He explains: “At auction, you come across properties that never make it to the open market; for example, it may be a probate sale where the vendor wants the element of price discovery, or councils selling off council stock. “Selling at auction means quick cash for the seller, rather than having a property on the market for weeks or even months on end.” Gareth Lewis, commercial director at MT Finance, adds that auctions can help to eradicate not just the time spent on the market for the seller, but also some of the more frustrating elements of house purchasing, such as ‘gazumping’ – when a buyer is usurped lastminute by a higher offer. “This is of great benefit to FTBs, who have seen a return of gazumping in recent months,” he says. “When they win the property – it’s theirs.” Lewis adds that there are other benefits to be found in this process, compared with more long-winded traditional routes to homeownership. He says: “Buying at auction is also easy to do – you can turn up on the day with your ID, deposit and solicitor’s details. “It’s as easy as that, and in some cases it can be done from the comfort of your own home. Some people like to attend in person whilst others like to send someone to act as a proxy. Many auctioneers also provide a facility where you can bid remotely either by telephone or your computer.” → www.sfintroducer.com
AUGUST 2021 BRIDGING INTRODUCER
AUCTION FINANCE XXXXXXXXX ON THE DAY Although a bidder will not know if they have secured a property until the hammer falls, it is still vital they lay the necessary groundwork beforehand, and understand their options ahead of time. When it comes to the day of the sale, successful bidders will be expected to pay 10% of the purchase price there and then, but this should not be the only consideration before the big day. Roger Morris, group distribution director at Precise Mortgages, says: “The most important thing is that your client knows what they are buying. “Is the property structurally sound or does it have faults that they’re unaware of? “Because speed is of the essence at auctions, this means there is a fairly short window of opportunity for the successful bidder to arrange a survey of the property and have their solicitor review the legal pack. “It’s essential to plan ahead and have the finance in place, because as soon as your client wins the auction they’ll have to pay the 10% deposit and have the remainder ready within the next 20 to 30 days. “Most clients get pre-approval and a valuation carried out to ensure they are ahead of the game. “Always remember though that it still has to go through the legal process, so have a good bridging lawyer ready to do all the work.” WORDS TO THE WISE Of course, one of the fundamental factors in any auction is uncertainty around the final price. Morris warns that advisers need to ensure their clients understand this and have a plan of action. He explains: “It’s prudent for any auction-goer to set themselves a budget of what they can afford and to stick to it. It’s easy to get swept away with the excitement on the day and go over budget.
“You buy as seen, so buyer beware. If your client made a spur of the moment decision – for example bid too high, or buy the wrong property – then tough, they’ll still have to proceed. “Always enter an auction with the Scout motto of ‘be prepared’ in mind.” To this end, Morris adds that clients should ensure they have the property surveyed prior to the auction, to ensure there is nothing structurally wrong, or that the work needed is at a comfortable level for them. The client’s solicitor should also review the legal pack to head off any issues at an early point. Gary Bailey, managing director of Hope Capital, also recommends that if a bidder is looking to use bridging they talk to a broker before the day and obtain an agreement in principle (AIP). “This comprises a tentative agreement where a bridging loan provider agrees to lend based on an initial assessment of an applicant’s unique financial circumstances,” he says. “By having this in place, it will provide an indication as to how much the borrower can bid at auction and ensure they know what their top-end budget is. It also means when the bid is won at auction, the buyer can quickly progress to the next stage.” If planning to refurbish the property, Bailey also advises calculating costs in advance. He adds: “Before going to auction, it is highly advised a full plan is established, which outlines what costs are expected to occur and how they will be funded. With a bridge, this can be set out from the beginning with a series of staged payments as the renovation progresses.” SPEED IS OF THE ESSENCE According to Wilson, the underwriting process of bridging lends itself to auction finance. →
Bridging used to beat the auction clock Gary Bailey managing director, Hope Capital
e were recently approached by a broker on behalf of their client who had purchased a leasehold property at an auction in London and needed to raise capital quickly to secure the premises. This began as a fairly straightforward loan; however, it became more complicated once
BRIDGING INTRODUCER AUGUST 2021
the valuation was completed, as a number of issues were identified, including damp and structural defects, and consequently investigative works to the foundations were required. While the issues were not ultimately the responsibility of the client, they would have affected the subject property going forward. Our team was in constant communication with the client and worked hard to speed the process up to ensure all the necessary information was in place, so they could beat the clock and enable the client to complete the sale.
We were able to offer the borrower a loan for £288,750 at 75% loan-to-value (LTV), which enabled them to meet the auction deadline and allowed the necessary works to be completed post-drawdown. Owing to having bridging finance in place, the borrower is now in a position where they can arrange a suitable long-term buyto-let (BTL) remortgage once the property is ready to let. When looking to raise funds for an auction purchase, the need for a knowledgeable bridging lender is essential, as often cases can be very complex.
Same-day delivery We instruct valuations on the same day we receive payment and offer deals within 48 hours of receiving the report*, keeping your client’s deal moving smoothly.
Property finance made simple. *Stats based on June 2021. Valuations instructed same day as payment received in 87% of cases. Deals offered in two days after valuation received in 75% of cases.
lendinvest.com LendInvest Limited is registered at 8 Mortimer Street, London, W1T 3JJ (Company 08146929). Your client’s property may be repossessed if they do not keep up repayments on their mortgage. For intermediaries only.
AUCTION FINANCE XXXXXXXXX CASE STUDY
Cross-charge auction purchase Gareth Lewis commercial director, MT Finance
client required funds to complete the purchase of a recently renovated sixunit house in multiple occupation (HMO) at auction. The property presented a high-yielding investment opportunity. The client had been served notice on the auction purchase – time was running out and he faced risking his deposit.
The client owned numerous buy-tolet (BTL) properties and was looking to leverage several of them to raise funds for the purchase. We proceeded to take second charges over the investment assets and our valuers were instructed immediately. However, consent was not granted from the first charge lender on three of the client’s properties. We then restructured the case, offering to take first charges instead and redeeming the existing lender on those properties. We proceeded with first charges over three of the client’s BTL properties and two second charges – which included their main
“Bridging is well suited to buying at auction as it is predominantly an asset-based loan – it does not require a full audit as with a standard mortgage, where the underwriting can take three or four weeks,” he explains. “When buying at auction, you only have four weeks to complete; so the day after the auction we instruct the valuation, the week after we have the documents ready, the week after that we resolve all the legals and then look to fund. “That type of pace is alien to a high-volume mainstream lender.” Oftentimes, in fact, bridging might be the only viable option, due not only to the need for speed, but the nature of the properties in question. “Typically, auctions offer properties in more need of work, to the extent that they may be viewed as unmortgage able to a high street lender,” says Gilmore. “A bridging lender will take a different view on a property and – as long as it’s structurally sound – will look beyond its aesthetics.” This means that a bridging lender can see a property’s potential, with a view to it being mortgageable one day, rather than solely basing lending decisions on its state in the present. This can present the buyer with considerable options in terms of increasing their yield. “If the property purchased at auction is in a derelict or uninhabitable state, many mortgage lenders will simply not be able to lend against the property, which is why bridging finance is sometimes the only option,” Gilmore says. “A bridging loan lender is far more likely to be willing to lend on property which is in disrepair and can be used to both purchase the property within the 28-day deadline, as well as provide funds to conduct the necessary building work.
residence. As we had added the client’s main residence we had to instruct additional valuation immediately. In just nine days, we completed a £868,000 cross-charge bridging loan across five of the client’s properties at 62% loan-to-value (LTV). Interest was retained at 0.89% over a 10-month period, and as with all our loans, there was no exit fee or early repayment charge (ERC). Our loan meant the client was able to purchase the high-yield investment property. What’s more, the 10-month term will provide plenty of time to refinance the asset with an HMO mortgage lender.
“Once the property has been purchased via a bridging loan and the work has been completed, the buyer can then secure a long-term mortgage or sell the property.” LENDING CAPACITY While purchasing at auction is becoming an increasingly widespread method – used by a diverse array of customers – this does not necessarily mean bridging finance is keeping pace. It is arguably still only suited to a narrow tranche of borrowers. David Beard, founder of the Lending Expert, says: “Using bridging finance for an auction is best suited to property developers and landlords who are experienced with using bridging products and carrying out renovation projects.” This is partly due to the speculative nature of the lending in question, as bridging underwriters must get a full picture of not just the property’s potential, but also the skillset and experience of the borrower in bringing such projects to fruition. Beard says: “A house available at an auction may be due to probate or because it has struggled to sell on the open market due its state and condition. “So, a developer who understands potential resale value, has access to good builders and has previously worked with bridging lenders will be in a good position to make it commercially viable. “Someone who uses auction finance as their first project may not always address the finer details to make it a profitable venture.” Dale Jannels, managing director of Impact Specialist Finance, explains that while lenders like to support auction purchases, they are not always keen to lend to FTBs in this scenario. “Clients tend to be seasoned professionals used to upgrading and changing to BTL, or those who → www.sfintroducer.com
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Real world lending 0800 470 0430 assetzcapital.co.uk/bridging Assetz SME Capital Limited is a company registered in England and Wales with company number 08007287. Assetz SME Capital Ltd is authorised and regulated by the Financial Conduct Authority in respect of its peer-to-peer lending platform only. ’Assetz Capital’ is a trading name of Assetz SME Capital Ltd. Assetz SME Capital is registered with the Office of the Information Commissioner (Reg No: Z3338899) for data protection purposes.
AUCTION FINANCE XXXXXXXXX flip for profit,” he explains. “Lenders are more wary about the first-time auction purchasers unless they are already homeowners.” OPEN TO ALL Despite these caveats, the fact remains that the auction purchase market is becoming more widespread and democratic, not least because of the advent of technology, spurred on by the pandemic. As more auctions move online, the process is becoming slicker and more accessible. Paul Colam, chief operating officer at Whitehall Capital, says: “The pandemic has seen a huge shift in the auction process. “All now run online and virtual events. This has extended the event somewhat from the fast and furious auction hall environment, but has allowed a wider audience to potentially participate remotely and bid as appropriate.” Beard adds that in some ways, the bridging market has followed suit, saying: “Auctions have certainly become a lot more competitive in recent years – as has the accessibility to more bespoke bridging finance products. “The bridging market has grown significantly in the last decade in terms of the amount of deals being funded, the number of brokers, lenders and staff headcount. “So, no matter where the auction and property is based, there is now greater competition for buyers and funders.” He goes on to say: “Technology certainly makes auctions more accessible, since you can review hundreds of properties online and do not even need to be there to bid. “Whether it is liaising with your solicitor or using a bridging lender online, this is far quicker to complete than the historical approach of going to the auction and then going from bank to bank to get funding.” The move online, accelerated by the pandemic as it was for many industries, seems to be mutually beneficial for both buyers and auction houses, opening up new opportunities. Gilmore says: “Auction rooms were forced to make a quick shift to fully online as lockdown came down, albeit with many auctioneers now seeing considerable and far-reaching benefits. “Those that hadn’t invested in tech had to do so quickly if that business was to survive. Now the auction room is opening up to any bidder, anywhere. “Those who cannot afford time to spend several hours in an auction room can dip in when a lot of interest is being sold rather than wait. “They also have the ability to introduce a maximum bid from the outset and see how that plays out.” The move to online can also overcome some of the sources of reluctance among buyers, or indeed issues such as inability to attend an event in person,
BRIDGING INTRODUCER AUGUST 2021
“Auction rooms were forced to make a quick shift to fully online as lockdown came down, albeit with many auctioneers now seeing considerable and far-reaching benefits. Those that hadn’t invested in tech had to do so quickly if that business was to survive. Now the auction room is opening up to any bidder, anywhere” whether due to the pandemic or wider issues around accessibility and location. Not only is this attracting a broader audience in terms of profile and geographics, but Gilmore says it also allows the auctioneers to reduce costs through the outlay of the room, staffing and resources. Chris Stevens, business development manager and bridging finance specialist at Recognise Bank, agrees: “Technology has definitely played a part in the evolution of auctions over the years, with online auctions and internet bidding now an accepted way of transacting. “This has also led to an increase in the number of investors using auctions, people who may previously have felt intimidated by in-room auctions and the bidding process. This has helped open up the market to more buyers. “The impact of COVID-19 has accelerated the use of technology due to social distancing requirements, although I expect a return to in-room auctions as restrictions are eased.” FUTURE MOVES Stevens may expect a return to in-person auctions in the future, but by and large the jury is still out. Wilson says: “Auctions have changed massively; we haven’t been to an auction house in person since 2019. It has all moved online and I am not convinced it will go back to the auction room any time soon, rather like working from home. “Back in the day, auction rooms would often have 200 chairs and several hundred people squeezed in – that’s not terribly appealing at the moment. One wonders whether it ever will be.” Wilson similarly expects the increasingly important role of technology during the pandemic to continue to shape the future of property auctions, and that developments being seen across the property markets are being mirrored in this sector. He says: “Online ID verification, a virtual auction room, virtual tours of the property as opposed to physical inspections and some lenders slowly coming → www.sfintroducer.com
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sancus.com Residential | Semi-Commercial | Mixed Use PRS Schemes | Auctions | HMO’s Light to Heavy Refurbishment | Multiple Assets Indicative criteria only, each loan application is considered on its merits. Sancus Lending (UK) Ltd is regulated by the FCA, firm reference number 593992. Risk Warning: If you are co-funding you could lose part or all of your capital. Indicated returns, unless otherwise stated are shown before any provision for bad debts and may be subject to tax. Sancus do not provide private mortgages. Sancus Lending (UK) Ltd is incorporated under the laws of England and Wales, company number 7534003. Part of Sancus Group Holdings company no 57766 registered office Block C, Hirzel Court, Hirzel Street, St Peter Port, Guernsey GY1 2NL.
AUCTION FINANCE XXXXXXXXX
Positives and negatives Frank Clarke associate, Octagon Capital
here are some real bargains to be made when buying at an auction. Traditionally, you can save up to 20% on the purchase price because the property is in probate or the owner is looking for a quick sale. Using bridging finance is perfect for this, because if you have your loan pre-approved by a lender and have successfully run all the numbers, you are in a great position to complete quickly. You simply pay your 10% upon winning the property at auction and then instruct the bridging lender and your solicitor to pay the balance – with a bit of savings or investment on top. You can complete well within the 28-day timeframe without any chains or delays to hold you back. The negatives are that buying a property at an auction can be expensive. If you think a property has potential value, there is a risk that another 100 people do too. When auction day arrives, you might find yourself being outbid and not winning the property, despite doing a lot of homework. If you end up overspending to win the property, this then moves the goalposts for the bridging lender. Can they indeed offer you the same terms? Do you now have to come up with the surplus amount elsewhere under a tight deadline? Auction finance is going to be wellsuited for property developers, and ideally people with access to quality builders who offer good rates. A lot of it comes down to margins and the numbers. An experienced developer will know the maximum price they can purchase at and understand their building costs and the desired timeframe to complete work, so they can repay their bridge and avoid delays, penalties or refinancing.
Auctions have also become a lot more competitive over the years. Tech has played a part in this – people from all over the country are now bidding on properties because they can see catalogues online. In addition, there are now a lot more brokers and auction finance providers than previously. So, whilst a client used to speak to us and get indicative terms, they are now speaking to several lenders and brokers and going up against lots more people on bidding day. The market is just becoming more competitive – meaning that good service, repeat customers and loyalty come into play.
“If you think a property has potential value, there is a risk that another 100 people do too. When auction day arrives, you might find yourself being outbid and not winning the property, despite doing a lot of homework. If you end up overspending to win the property, this moves the goalposts for the bridging lender” Auctions will certainly continue to be more competitive for buyers and financiers too. It would be great to see more auction houses opening and also see more properties for sale. In some countries, such as Australia and New Zealand, buying properties at auction is very mainstream and pretty much how most people buy properties, often connected with bridging. It is a fast, cash buyer approach and allows people to move in quickly without chains – I would like to see this kind of thing adopted over here.
to accepting digital signatures where possible – these are all positive moves.” Stevens notes that while technology is important, borrowers should still value the human element when it comes to auction purchases. He says: “The use of more digital solutions such as [automated valuation models (AVMs)] to substantiate valuations may become more commonplace, because it brings in another layer of information to the buyer. “However, buyers should always consider suitable professional advice as well when considering the purchase of a property, even at auction.” As with any seismic industry change, the rapid adoption of technology and shift towards remote auctions brings with it the need to focus on security, and consider what new shape fraud might take. Gilmore says: “Auction houses must invest in IT and associated security to ensure their process and all subsequent transactions are carried out in the safest way possible. Communicating to audiences how and why their processes are safe is pivotal if the auctioneer is to retain a sense of integrity.” Another possible future development could be the need for bidders to demonstrate they have the finance in place before the auction. “It would make sense for the seller to have a valuation conducted pre-auction for potential purchasers to see and use to obtain an upfront [decision in principle (DIP)],” says Jannels. Beyond concerns about future security, the market should also consider whether, by the very nature of becoming a more widespread, accessible option, the true value of auctions – namely being able to get a deal that might not be found elsewhere – might diminish. Morris says: “It’s always difficult to accurately pinpoint future trends, but I think with the current demand, properties will sell for higher prices at auction which could see purchasers paying over the odds for them. Of course, there are always bargains for the right property on the right day, but I’d always recommend exercising caution.” Nevertheless, other factors might further add to the rising prominence of this sector, Morris explains: “We may see an increase in the number of properties being sold at auction due to the lasting effects of the pandemic – the end of the furlough scheme, a potential rise in unemployment and more high street or semi-commercial properties becoming vacant.” Colam adds that the format itself may well change: “Due to the protracted nature of the online events and the time they take to run, I can see a more frequent cycle with less properties in each one, but maybe one auction per week rather than a monthly event.” One thing seems inevitable, however, and that is the popularity of auctions and the subsequent high demand for bridging loans to make these purchases a reality. B I www.sfintroducer.com
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Technology in specialist finance Adam Tyler executive chairman, FIBA
t is now impossible to ignore the way in which technology is looking to revolutionise the specialist property finance lending sector. Many advisers might be wondering how the tech revolution could possibly help – or hinder – their businesses. The fear that property investors may have a direct-to-lender offering – a simple end-to-end online solution available from the lender to their funding needs – is completely unfounded. We must not forget that, traditionally, property investors and developers approached their own banks for funding as a logical first point of call; it is only in recent times, over the last 20 years or so, that we as brokers have really become a major part of the funding process. ACCELERATED INVOLVEMENT
The opportunities presented in the past 10 years have accelerated commercial broker involvement, not only by the increase in the number of lenders and funders in the market, but through a variety of circumstances. In addition, the retraction from the market of some traditional sources may have hastened the need for a new technology-based interface to advise and provide process to complete deals. Specialist lenders and specialist finance brokers have done very well in moving the whole market forward by stepping into the vacuum and creating new markets. The ability of the latter to call on increasing numbers of potential lending solutions, thanks to the growth of those new lenders, and ability to tailor make funding solutions, is more often than not eminently more suitable than the one-size-fits-all offering that we were used to in the past.Technology, when adopted by brokers to serve their own needs, is the perfect riposte to the rise
BRIDGING INTRODUCER AUGUST 2021
of robo-advice, which believes that its major selling point is that it has little or no human intervention. With the benefit of 30-plus years in the commercial finance world, many of them as a broker myself, the vital aspect we bring is access to a human expert. Never underestimate the value that you, as a broker, bring to your commercial customers. Backed up by a wide range of lending options, the skills to efficiently ensure safe passage from enquiry to completion – and the priceless ability to provide that vital human contact – is still very much in demand.
“The challenge for finance brokers does not lie with threats from technology, but the need for awareness of the range of funding that is out there. If you couple this with the occasional reluctance of property investors or developers to consider a different or new lender, then the work of a broker becomes even more important” This is one of the reasons why the commercial specialist finance broker will still be a great source of new business for our lending community, both now and in the future. I believe that the main challenge for finance brokers does not lie with threats from technology, but the need for awareness of the range of funding that is out there. If you couple this with the occasional reluctance of property investors or small to medium (SME) developers to consider a different or new lender, then the work of a broker becomes even more important. The pandemic is an easy target of course, but there is some general economic uncertainty – allied to concerns over the treatment of SME
developers and property investors during the financial crisis by some lenders – which will add to the reluctance to seek outside funding if we as brokers do not become fully involved on the transaction, to give our clients the confidence in the process and the new lending opportunities that we are presenting to them. THE BEST AMBASSADORS
There is clearly no lack of financing options, and any technology-based sourcing system will certainly provide us with all the options, and most of the time more than we could think of when looking at the full range of lenders. Finance specialists like you are not only the best ambassadors to take the message of how and why the financing opportunities on offer now and for the future are a positive way to borrow for property development, but also to demonstrate how the process of securing the right package can be fast and trouble-free, thanks to your intervention. There is a plethora of platforms that can help you as an adviser and broker, and at FIBA we are currently working with a few and assessing the capabilities of a number of others on behalf of our members. This is not only to help provide the right solution, which helps those brokers new to our industry, but to also help as we face more and more regulation in our sector. In one very simple example, a platform-based search will time stamp the comparison of specialist lenders for a particular deal within a set of parameters made on behalf of the customer. This record can now form part of a customer file and is produced through the platform – a permanent record of who was available and willing to lend at that moment in time. There is a lot more to come on the use of technology in specialist property finance, and at FIBA we are not just monitoring and testing these systems, but introducing them across our membership to help the future of the industry. www.sfintroducer.com
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Trends and opportunities Jessica Bird outlines the discussion from the recent Bridging Introducer round-table, which looked at key Bridging Trends data, the outlook for regulated bridging, and the future of the market as a whole
ccording to MT Finance’s most recent Bridging Trends data, total gross lending in the bridging market has continued to rise, from £144.51m in Q1 to £146.52m in Q2 of this year alone. Meanwhile in June, the Association of Short Term Lenders (ASTL) found that the value of new bridging loan applications was up 25.5% on Q1 2020, with loan books reaching £4.4bn at the end of the first quarter. This all demonstrates a market following a trajectory of strength that has built up both prior to and during the events of the COVID-19 pandemic. At Bridging Introducer’s August round-table, panellists from MT Finance, Together, LDN Finance, Shawbrook Bank, Movin Legal and Brightstar discussed what the Bridging Trends data says about the market, and what might be on the cards for both regulated and unregulated bridging through the rest of this year and on into 2022. FASTER TURNAROUNDS Bridging Trends found that average completion times had dropped from 53 to 47 days over the past quarter. The Q1 figure was not only an increase from 50 days in Q4 2020, but also the highest recorded since the research was first undertaken in 2015. Increased completion times have been a popular topic of speculation, and might be attributed to any number of factors, most of them pertaining to the pandemic. For example, lenders and other market players have faced the added difficulty of undertaking processes while working remotely, as well as reduced capacities, with employees either sick or on furlough, and lockdown restrictions on elements such as valuations and inperson meetings.
BRIDGING INTRODUCER AUGUST 2021
However, this is not to say that the market can simply wait for the pandemic to recede for these issues to be solved. For one thing, many of the effects may be here long-term; for another, there are underlying factors that might be at play in the issue of extended turnaround times. These include the increasing complexity of cases, and the fact that the combination of high demand and a busy market simply means more cases are going through already strained pipelines. Having seen completion times steadily rise due to a combination of these and more factors, in an industry valued largely for its speedy turnarounds in comparison to the mainstream, the Q2 drop highlighted by MT Finance is therefore something of a relief. Tanya Elmaz, intermediary sales manager, South at Together Money, points out that Q1 saw a country still facing lockdown and social distancing, which were likely slowing down processes within this market, and that emerging from this situation may well be the reason behind the Q2 drop. She adds: “Are we going to see a return to faster turnarounds? I hope so, because that is a very important measure for what you’re doing as a bridging lender, whether you’re streamlining your processes, looking at technology, looking at solicitor processes, or doing more [automated valuation models (AVMs)], for example.” Lee Williams, business development manager (BDM) at Shawbrook Bank, agrees that the pandemic has caused blockages, but thinks that there is a positive future for completion times. He says: “The drive of technology to make things quicker, slicker and smoother, as well as the reduction in things being asked for, is going to drive that as well.” However, Rory Cleary, senior BDM at MT Finance, notes that this drop in the data may be misleading in www.sfintroducer.com
MARKET the longer-term, and that temporary underlying factors might also need to be taken into account. “Playing devil’s advocate, it might be that completion times dropped because there was an enforced necessity because of the stamp duty deadline,” he explains. “It might have been because pressure was being applied throughout the marketplace.” Nevertheless, Cleary points out that these figures do not necessarily tell the full story, as lenders such as MT Finance routinely outperform these timescales. Perhaps, then, turnaround statistics are in fact being thrown off by outlying cases. Elmaz agrees, noting that for Together, while some cases might even take only a matter of hours, the lender’s average is closer to 15 to 20 days. For Stephen Watts, bridging loans specialist at Brightstar Financial, there are other reasons to dive deeper into the data. He says: “Regulated bridging is certainly going to skew the average completion time, those applications just generally take longer. “If you could separate the completion times into two sections you would see quite a vast difference.” Raphael Benggio, head of regulated underwriting at MT Finance, agrees: “There’s a lot of red tape and onerous things which come with trying to get a regulated deal over the line, which is why we at MT FInance are trying to get back to the basics. “I very much hope we do go back to faster turnarounds. At the end of the day it’s not a mortgage, and speed is always one of the main reasons for using bridging. As a market, we should be going back to faster turnarounds.” Cleary adds, however, that while it is important to cater for the many clients who do need to complete quickly, some brokers simply are not pushing for shorter turnaround times, as this is no longer the sole reason a client might turn to bridging. STREAMLINING PROCESSES If the market, either regulated or unregulated, is going to work towards getting back to faster turnarounds, the blockages caused by the pandemic first need to become a thing of the past. However, Elmaz adds: “There’s a responsibility on brokers to always work towards the best quality
“In the low interest rate environment we’re in, I can’t see regulated bridging dropping. I don’t see a sharp increase ahead, but I see a consistent, steady increase” RAPHAEL BENGGIO www.sfintroducer.com
“There’s a responsibility on brokers to work towards the best quality information they can. There’s also a continuous onus on lenders to be constantly looking at their processes” TANYA ELMAZ information they can. There’s also a continuous onus on lenders to be constantly looking at their processes. “It’s not just about streamlining a bit and then being done, you need to be constantly looking at it, especially with technology. You need to run just to keep up.” Emma Hall, key relationships director at Movin Legal, says one area that needs particular attention to benefit the regulated side is the search industry. She says: “At the moment you can get a turnaround of four days on a search, but the longest is 175 days, and there’s anything in the middle.” This, Hall continues, is feeding into a misconception that legal processes are slowing down transactions, when in fact it is a network of factors. “Everyone says it’s the solicitor,” she explains. “But you’ve got to look at everything that feeds into the solicitor – the lender, the searches, the valuation. It all has to come together.” Nonetheless, there is work to be done in streamlining the legal processes as well. Indeed, Hall notes that this has been given a push during the pandemic, and that while solicitors prior to the onset of home working were “petrified of going online,” they have seen forcible progress over the past 18 months. This has resulted in some understandable teething problems, which Hall thinks will likely last until Q2 next year when staff are fully returned to work and firms have the capacity to get back to an even keel, but is a step in the right direction. “Technology is something that needs to be looked at,” she continues. “Not getting rid of the human touch, but the more tech that can be used up front to get that case right, the better. “When it comes to bridging, you do need that human contact though, that common sense approach. Tech will only take us so far, but a lot of the blockages we’ve got could actually be solved by technology.” While Benggio agrees that technology has an important role to play in getting the market back on track to faster completion times, as well as coping with high demand, he voices a concern that as it becomes more of a ‘mainstream’ solution, bridging may lose contact with some of the human elements that are at its core. “If it starts getting to a ‘computer says no’ approach it gets away from the essence of that human touch,” → AUGUST 2021 BRIDGING INTRODUCER
“There’s been more education around what you can do with a bridging loan, as opposed to the stigma it carried in previous years, where it was known as an expensive funding option” STEPHEN WATTS he warns. “That’s something that needs to be managed carefully going forward.” RISING TIDES The Bridging Trends data found that, while the unregulated market had taken back a few percentage points of market share over the past quarter, up to 58.4% from 52.3%, ‘regulated bridging’ was in fact the top criteria search term on Knowledge Bank’s system. This suggests that there is a strong future of demand ahead for the regulated side of the market, fuelled by various factors. However, Watts says that the search data may have been skewed by the masses of people attempting to complete before the start of the stamp duty holiday tapering off in June. He adds: “Rather than seeing a rise in unregulated bridging over the next few months, once the stamp duty holiday has ended, I don’t think it’s going to drop but I don’t think it’s going to increase massively. “Ultimately, the same transactional regulated bridging cases that we see will remain as they’ve always been. “There are still going to be people looking to buy before they’ve sold, people who lose buyers at the last minute – whether we’re going to see a rise over the next three months remains to be seen.” Elmaz agrees that there is unlikely to be an immediate rise, even following the tapered stamp duty holiday deadline, which some are still concerned may cause more chain breaks if people fail to complete in time to benefit from the saving. However, she adds that high search levels for regulated bridging might signify a new type of broker looking into bridging finance who may not have considered working within this market before. Williams adds that there are some longer-term trends, outside of the stamp duty holiday, that might be fuelling
the regulated market in particular. For example, he notes that a lack of housing stock means that buyers are under significant pressure to act quickly to secure a property. He says: “Estate agents are putting pressure on purchasers to prove their funds immediately, so perhaps people are using bridging to prove their funds in order not to lose the property. I think we’re seeing an increase in that type of behaviour.” Benggio agrees: “In the low interest rate environment we’re in, where demand is so high and stock is so low, I can’t see regulated bridging dropping. I don’t see a sharp increase ahead, but I see a consistent, steady increase. I can’t see regulated bridging going anywhere, if anything it will see slow, organic growth.” EDUCATING ON CHANGES One element of this steady growth in regulated bridging is a burgeoning understanding of its different uses. Beyond the obvious chain-break scenarios, brokers and their clients are becoming more aware that this is a relatively flexible product. Cleary says: “More brokers are approaching us and being pleasantly surprised that refurbishments can be done with regulated bridging, outside of the standard very quick jobs. “People are surprised that we can go that extra bit than they thought on the regulated side.” This is an even stronger trend considering how many people are now interested in changing or expanding their living space, following the confinement of the pandemic and the increase in home working, which seems set to remain a reality for many. Elmaz adds that Together has also seen a move within the regulated sector towards auction purchases, and agrees that refurbishments are a particular trend within this market at the moment.
“There’s a lot of uncertainty, but uncertainty breeds opportunity for investors. They can make the most of that with bridging as a tool to maximise those opportunities and their profits” LEE WILLIAMS
THE FASTER SOLUTION 0203 051 2331 homeloans@mt-ﬁnance.com
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MARKET Watts has also seen an increase in regulated auction purchases, and says that the flexibility of bridging may itself be among the causes. He explains: “Perhaps there’s been an uptick in people realising they can actually buy a property at auction, because of the fact that bridging finance exists as an option to do so.” James Palmer, associate director at LDN Finance, adds that an upcoming potential increase in repossession actions as a result of the end of the moratorium may also fuel the regulated side of the market. He says: “For lots of standard mortgage lenders, people are coming to the end of their terms and lenders are asking for their money back, and not everyone’s got the opportunity to sell in time for those repayments. “Lots of people are going to need solutions, and there’s going to be an influx of enquiries where people don’t know where to go. People will need speed and will be looking for alternative options, and a regulated bridge could be ideal.” Hall points out that these trends mean brokers must continue to educate themselves around the different uses of bridging, in order to be prepared for growing and changing client needs. Watts agrees: “There’s been more education across the market around what you can actually do with a bridging loan, as opposed to the stigma it carried in previous years, where it was known as an expensive funding option. “Generally as an industry, we are going to see more brokers having to increase their knowledge of bridging, regulated and unregulated, to help clients find those solutions that are going to be needed.” He adds: “The best thing that brokers who haven’t dealt with this stuff before can do is actually speak to someone who does this day in, day out. “Historically, brokers have been nervous to ask anyone else their opinion about the bridging industry because it maybe shows they need educating, which not everyone is going to admit. “My first point of call would always be to say phone one of those specialist advisers to find out what can and can’t be done.” This is another area that technology can influence, Watts explains, with educational webinars becoming more common over the duration of the pandemic, allowing people to learn remotely. “Rather than saying to your client that they can’t do something, it’s a case of having a ‘can do’ attitude,” says
Palmer. “It’s also educating people that bridging has changed a lot, even on the unregulated side.” “It’s our responsibility as lenders to educate our brokers and introducers about our criteria and what we do outside of the box,” adds Benggio. “That’s how the market as a whole gets more educated on what bridging can do.” Elmaz agrees, adding that it is important to find interesting, diverse methods of communication, beyond just handing out criteria sheets, as well as involving packagers in the process and helping them gain access to different types of intermediaries. MORE MAINSTREAM As more brokers and consumers come to understand the wide variety of uses of both regulated and unregulated bridging, this market is growing and becoming a key tool rather than a last resort. However, this brings with it some potential pitfalls, such as the aforementioned over-reliance on technology that some fear might emerge. Hall notes that on the legal side, the human touch has to be in place for the foreseeable future, in order to fully protect against fraud and misselling. “I can’t think of a way to get around that without having human contact with the client, that final touch to make sure the client understands the product and the exit route,” she explains. Cleary adds that part of the issue with lenders pulling through from the mainstream market into bridging lending is understanding the difference in underwriting approaches, and that if bridging volumes continue to rise, lenders should not allow themselves to fall into the pitfall of treating it simply like an expensive mortgage. Another issue surrounding the concept of further market growth and greater demand for bridging lending is the capacity of the lenders themselves. →
“The more technology that can be used up front to get the case right, the better. When it comes to bridging you do need that human touch, though, that common sense approach” EMMA HALL →
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AUGUST 2021 BRIDGING INTRODUCER
However, Benggio does not think the industry needs to expand in terms of the number of lenders in order to deal with increased demand. “There are already a large number of lenders in this space, ambitious businesses that have the capacity to grow and the funding behind them,” he says. “It’s about each lender looking at their own internal processes and systems in order to grow with scale. I definitely think the potential and the appetite is there.”
“I think bridging can really help in that market,” he says. “Either helping exits or helping to finish off products. There’s definitely a role to play.” Cleary adds: “Quite a few people have come to us to exercise the simple option of second charges across their portfolio, with the funds being used on ongoing developments. They’re very simple deals.” Williams says that there are some interesting projects happening at the other end of the scale as well. He says: “People are buying, say, industrial sites, where they’ve either got vacant possession or they’re running down the lease and in the meantime arranging a long exchange period, so that they’ve got permitted development [PD] to convert the building, but are perhaps going back to try and get planning to build houses on the rest of the land. “We’re being asked to lend against the enhanced value once they’ve got that agreed. I’ve seen quite a few of those types of opportunities, which is quite an interesting change from the usual bridge. There’s good opportunities in the market there.”
DEVELOPMENT ISSUES One area that has been particularly strongly affected by the events of the pandemic has been property development, with this part of the industry still facing considerable concerns around raw materials costs and staffing, for example. Bridging, in many instances, might be the answer to getting projects moving forward and in turn contributing to increased housing supply in the long run. “What brokers need to do is be very aware of the issues, factoring that into their bridging and development applications,” says Elmaz. “Do they need a longer timeframe? Think about that on day one. Have they added the extra costs for contingency, different timeframes for drawdowns? “With a bridge loan that supports development you have to be very specific and think about your exit more than any other type of bridge, because there are so many other factors that go in before you might sell the end product. “You need to be closer as a broker to your client to understand the challenges they face.” Benggio notes that he has seen an increase in deals where the project was unable to complete on time and extra funds have been needed in order to pay off an expired development finance loan, or to it pay back before a finished property sells.
INCREASED REGULATION As the bridging market grows in prominence and demand, the question has arisen around increased oversight and regulation. This topic is particularly prevalent at the moment, following recent Financial Conduct Authority (FCA) action around undisclosed broker fees, which has led some to question whether the unregulated market is set for some change – and indeed in some instances to promote the idea that the whole market should have been regulated from the start. However, the panel agrees that expanded regulatory oversight is unlikely, and indeed that it would be largely unnecessary. Benggio explains that this is not a new argument: “They’ve been saying for years that the unregulated side is going to see more regulation. I can’t see it happening. “The unregulated side has come a long way in the last decade, and the practices that were probably few and far between five to 10 years ago are probably now industry norms. “The underwriting is a lot better, people are looking into affordability and ensuring customers are being treated fairly. I don’t think there’s a need for more regulation.” Elmaz notes that while increased regulation is unlikely, it would not be something to be feared – not
“More brokers are approaching us and being pleasantly surprised that refurbishments can be done with regulated bridging, outside of the standard very quick jobs” RORY CLEARY “
THE FASTER SOLUTION 0203 051 2331 homeloans@mt-ﬁnance.com
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MARKET least because many lenders are already undertaking the practices that it would promote and enforce. On the other hand, Cleary points out that while many of the big names are already ascribing to the mentality of treating the customer fairly and with transparency, the fact remains that this is an expanding market, and with this comes the chance of an increase in less savoury practices. “The fact that there are so many new lenders entering the market constantly, that could be a trigger to attract more attention from regulators,” he explains. “With more players, of course there’s more potential for bad practices. But my gut feeling is that I’m not sure – if there even is a problem there – that it will be big enough for the regulator to prioritise it. “It might well be that everyone in the market just needs to flush out the problem ourselves by not using those people if and when bad things occur.” CHANGING AGENDAS As the country looks towards the future and emerging from the pandemic, it remains to be seen what trends might affect the bridging market. Having adapted quickly and largely thrived through the pandemic, what long-term movements might emerge as consumers and market players adapt to the ‘new normal’? For Cleary, something that is becoming increasingly important, albeit still only in the early stages for many in this market, is the matter of green finance. He says: “We’ve just made our first step into that place – if a borrower during the term of our loan increases [their Energy Performance Certificate (EPC)] from one level to another, they can get cashback on their way out of the bridge. “We’re planning to develop that area more and we’re seeing the mainstream mortgage market constantly talk about green mortgages from one day to the next.”
“There’s going to be an influx of enquiries where people don’t know where to go. People will need speed and will be looking for alternative options, and a regulated bridge could be ideal” JAMES PALMER
Benggio agrees: “The whole world, including our industry, is waking up to our environmental impacts.” With regards to post-COVID trends in particular, Benggio points to increased home working, having to convert home offices, changing demand for where people want to live, and the overarching question of how quickly society will return to pre-COVID norms, and indeed whether it will at all. Among the trends that panellists predict for the rest of the year and into 2022 are an increase in refurbishments, change of use conversions, downsizing if borrowers’ circumstances have changed, and business borrowing as furlough comes to an end. Hall notes that in the immediate future the stamp duty holiday will continue to be a key concern, albeit with fewer issues than have arisen over the past quarter or so. She agrees that green finance will be important, and also adds that the market must look out for the fallout of the pandemic in terms of repossessions. “There are positives and negatives,” Hall continues. “There could be a downturn, we really don’t know how this is going to pan out. “There’s still a lot of questions and people don’t really want to make plans in case we get locked down again.” Elmaz says that it is difficult to tell what the future might hold, but that despite the challenges of the past 18 months or so, it is clear that the industry has held strong, which in itself bodes well for its standing during an uncertain future. “There’s a lot of opportunities in the commercial space,” says Palmer. “There’s a lot of people moving out of offices, so PD is going to be a big thing. “Looking at repossessions, unfortunately people are going to lose properties, but also investors are going to buy those properties. “Auction transactions are going to go up, and people are going to need speed, so that will be an opportunity for the bridging market. “The mainstream market may be limited because of furlough and Bounce Back or CBILS loans, putting people in a situation where they need assistance. “Whenever there’s a negative, there’s someone with a positive at the end of it. I see the specialist market being bouyant and I see some steady growth.” Williams concludes: “There’s a lot of uncertainty, but uncertainty breeds opportunity for investors. “They can make the most of that with bridging as a legitimate, strong tool to maximise those opportunities and their profits.” B I
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Reinforced reputation Jessica Bird speaks to Tomer Aboody, co-founder, and Raphael Benggio, head of regulated underwriting at MT Finance, about the most recent Bridging Trends data, as well as their perspective on the business and the market as a whole What are the key takeaways from MT Finance’s Q2 Bridging Trends data?
This sounds great for demand, but what can be done to boost the supply side?
Raphael Benggio: In general, the data shows that, following the pandemic and the turbulent times we’ve all had, the bridging market has continued to be stable, which is good for the market as a whole. First charges are up considerably, which was probably to be expected due to the stamp duty rush as people tried to complete purchases. Average processing times hit a two-year low, which is again another positive. This could also be borne out of the stamp duty deadline and the mad rush towards the end of June, which saw lenders, valuers, and solicitors all working together to get things over the line. Despite Q2 being pretty much being all about stamp duty, we also found that investment purchases returned as one of the most popular uses of bridging loans, which does show that the market is still strong and there’s still confidence in the UK property market.
TA: I’ve been advocating for the reduction or removal of stamp duty for downsizers, that should prompt more properties being released into the market. I think by doing that you’ll see a shift, driving supply into the market, meaning more demand can be satisfied. The other thing is to keep building, but there’s only so many flats you can build, and people do want outside space. RB: It’s the pandemic, isn’t it – behaviours change and all of a sudden no one wants to live in a small flat in the middle of London any more. Tomer Aboody
Tomer Aboody: Whilst the banks have got such low interest rates, people are looking for yield – whether it’s houses in multiple occupation (HMOs), or commercial or any other asset class. That’s going to continue for years – I don’t see a dramatic shift in interest rates for the next four or five years. Are there any other trends you predict for the rest of 2021? TA: On the regulated side and the mortgage side, you’re going to see a lot more purchases. People are going to buy to take advantage of the low interest rate environment. With affordability much better than it would have been based on the 3% to 5% mortgage rates, people are expected to optimise on that and even stretch themselves in order to buy their dream home, which they might not have been able to afford before.
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INTERVIEW While the question of supply meeting demand is always there – and I don’t think anyone has the answer – consumers probably want a different kind of supply now. They don’t want the flats in highrise Central London any more.
A1 excellent service, while still completing things in the timescales that clients need.
MT Finance recently launched its regulated bridging arm – what drove this decision?
RB: That is the daily challenge. We’re always trying to marry the process of being as quick as possible, asking the relevant pertinent questions, making sure we have the right evidence on file, asking the right questions at the right time – early on in the transaction – to satisfy ourselves from a regulatory standpoint, so that when we come to starting the legal process we can steam through. We’re finding that right balance, and as we grow the department we are always looking at refining our processes, streamlining them as much as possible, while always adhering to our regulatory responsibilities. We are always thinking of the consumer, the loan journey, our introducers, as well as getting feedback from them and learning as we go.
RB: Obviously, MT Finance had a brilliant reputation in the unregulated bridging space. We have won countless awards for our service, products, and interactions with clients. There was always the thought that, as the in-house skills and processes were there, we could adapt the same ethos into regulated lending. There were obviously well-established regulated lenders in the space already, but there was room for our arrival and a bit of a shakeup. In regulated bridging, there is a lot of red tape and onerous conditions and hoops that introducers and clients need to jump through. At the end of the day though, it’s still a bridging loan, a transactional need which we’re trying to fulfil in an efficient and streamlined manner. We felt that if we used our ethos of speed and impeccable service and took more of a ‘needs versus wants’ underwriting approach, we could really embed ourselves with a reputation that we can do everything we say we’re going to do, even in a regulated environment. We felt there was that gap in the market for a lender that can provide an Raphael Benggio
How do you marry speed and service with an area that naturally has more red tape?
How do you picture the rest of the year for the regulated arm? RB: Regulated bridging isn’t going anywhere. Over Q3 and Q4, that demand for regulated bridging will stay – if anything it will increase. The waiting times on the long-term lending side have never been longer, and people have their dream homes they want to move into. Borrowing is cheap, and people are wanting to take advantage of that. So, it’s about being a lender that can do what you say you’re going to do and commit to those timescales. That’s the biggest challenge, and it’s what distinguishes us from the pack. We tick all the regulatory boxes and can still give the client the loan as quick as they possibly need it, with as little fuss as possible. We are trying to stand out in that market over the next 12 to 18 months, and we’re definitely up for the challenge. Is there anything the unregulated market could learn from regulated bridging? TA: Understanding the consumer is so important, whether it’s unregulated or regulated. The understanding of who they are, what they’re looking to do, what’s their background in terms of assets and liabilities, and historical transactions if they’re developers. This allows us to assess a deal not just purely on the asset itself. Having communication with the client either indirectly or directly is so important. RB: The more due diligence you do, the more it helps to ensure they repay on time and adhere →
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INTERVIEW to conditions of the loan. Overall, I think the unregulated market has come such a long way. The current practices that are industry norms were probably not heard of five years ago. TA: When we started out there were very few institutional funders, it was a different marketplace – not as open or transparent as it is now. Obviously, rates have also gone dramatically low, which has given the consumer the ability to borrow at a much better rate, as well as move away from seeing bridging as a last resort. Because of the institutional funding behind most of the lenders out there, they have to adhere to a lot of underwriting processes, but also making sure they the highest levels of customer service. What role do green finance and ESG have in MT Finance’s proposition? TA: I think environmental, social and corporate governance (ESG) has grown on everyone’s agenda. There are different ideas about what we want to do and how it translates going forward, but ESG is definitely in focus at MT Finance. For example, we have 30% female board members, and we have a good blend of cultural understanding. It gives you good insight into people and allows us to integrate into any marketplace. That can only increase going forward. ESG has so many different facets. Everybody has a role to play in society, whether being green or helping each other. You have to be able to support society as a whole – that’s massively important. RB: The whole world is trying to get more switched on to green finance and green ideologies. It’s still relatively new in our industry, and at MT Finance, we want to be at the forefront. Some things are in the planning stages and others we have already rolled out, such as our credit for enhanced Energy Performance Certificates (EPC). The whole world has a role to play, and we would love to see more people in our industry taking on more responsibility and initiatives. Is the bridging market experiencing a race to the bottom in terms of rates? TA: I think it has more or less petered out. Most lenders are at similar pricing points, it’s just that some are structuring it differently. The market shifted a lot more seven or eight years ago, when lenders were lending at 1.5% to 2% a month, and then certain lenders came in at sub1% – that was a bigger shift than it is now. Don’t forget that a lot of the funding is being given to lenders from the same funding pool – so
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there’s only so much pricing can tighten. A lot of it is just labelling and how people are putting their offers out there. Some are not as transparent as they should be, but that is unfortunately always going to be the case with some lenders. RB: In bridging, rate is always going to be important, but service plays such a massive part nowadays. If you’ve got a client who has to complete a transaction in two weeks, they may pay a higher interest rate to a lender that has a reputation for getting things done, as opposed to opting for the cheapest option. There’s almost a race to provide the best service and be the ‘go-to’ lender that provides the best overall customer journey and experience. MT Finance has had a good reputation with brokers for years now, built with the same introducers we’re still working with today, for delivering and providing excellent service. It was so important for us to carry that through to the regulated side, that MT Finance ethos. TA: The fact that we and other lenders similar to us have been in the market for so long is to our credit and shows that people keep coming back to us because we perform. At the end of the day, you can offer someone the cheapest rate, but if you’re not going to perform it doesn’t make a difference. You live and die by your reputation. Is the market going to continue to grow, and is it ready to cope with increased demand? TA: The market is saturated, and I don’t think you can have many more lenders come in. What kind of proposition are they going to be able to offer? You already have high loan-to-values (LTVs) and low interest rates, as well as big and small loans. To cope with increased demand, you must have an efficient model. Efficiency has always been one of our strongest credentials. As long as you’re able to perform and foresee potential increases in borrowing, that’s fine. It’s when you’re working on the cusp of trying to deliver, but you don’t want to grow or invest more in your infrastructure – whether it’s IT or personnel. We always have an overcapacity in terms of staffing, so we can therefore absorb any increase in borrowing rates. RB: The establishment of the regulated department shows the ambition of the company as a whole. Whatever opportunities the market presents, because of the reputation that’s been built up over the years, we’ve got prime opportunities to take advantage. www.sfintroducer.com
INTERVIEW Do you predict any changes in the bridging market due to the tapering out of the stamp duty holiday? TA: Furlough will be more of a factor that will affect the market when it eventually finishes. Stamp duty of course helped push the market and speed it up, but £15,000 doesn’t make much of a difference at the upper end. I don’t think there’ll be a huge fallout whilst we are still in a low interest rate environment. It’s only when interest rates start moving up and affordability becomes harder, then you’re going to see some sort of fallout, but at the moment any government would be crazy to try and push the interest rate up too soon or too quickly. Are you seeing any shifts in terms of how bridging is being used? RB: On the regulated side consumer behaviour does come into play. There are a lot of people who, instead of buying a new property and moving, are maybe doing a double extension. They are using what they have already to increase their space, without the need to move. Obviously, chain breaks have been the main one over the past few months, but we’ve also seen people paying off tax bills, raising money on their main residences, gifting to children before getting equity release later on. Consumers are using bridging as a tool to do a whole range of different things. It comes down to not only lenders educating introducers and brokers, but then those brokers educating their clients about when they can use bridging. It’s not a dirty word anymore, and that comes down to the growth of the market, the institutionalisation of it, and the education around it. How did MT Finance fare during the pandemic, and what lessons did the business learn? TA: We coped extremely well and were one of the few lenders that actually continued lending. We kept an eye on things, and before we went into lockdown we had people working from home on a trial basis, so that when lockdown did come, we were set up within a day. We had some initiatives for how to deal with not being able to attend properties, for example we underwrote deals subject to inspection – we were at the forefront of that. It was a smooth transition, and I think most brokers would say we were one of the best at that. You’re always going to learn lessons and see how people perform in different environments. I www.sfintroducer.com
can’t speak for everyone else, but for us we took an unprecedented situation in our stride and dealt with it and had good staffing and great team morale across the board – we tried to manage that the whole time. Different lenders had different obstacles they had to manage, and different appetites, but the property market has always been the heartbeat of the UK consumer’s desires – people always want properties and will always buy. The scaremongering that the property market was going to drop by 50% to 60% was unrealistic – it was just a matter of time before people were able to start buying again. What is on the horizon for MT Finance? TA: Diversification is the most important thing as a lender – being able to offer the consumers and brokers opportunities to come to us with most of their financial needs for properties. We’re always on the lookout and engaging with brokers and borrowers on what’s needed, what’s out there, and what’s not out there, and how we can adapt accordingly. There’s always going to be opportunities for us, being one of the main players in the bridging market allows us to have amazing relationships with distributors, and they give us amazing feedback and insight into what’s missing. So, watch this space. What would you say to brokers who have not worked with you before? TA: Reputation is key. Being able to deliver for 13 years now, and being a key lender in the market, working with most – if not all – distributors out there, tells you something. They wouldn’t come back to us year-on-year if we didn’t perform for their clients. The main selling point is that we do what we say we’ll do, we listen, and we want to help. There’s always going to be challenges, but if you don’t lend there’s no point being in the market, so we’re going to be as helpful and flexible as we can be for any borrower out there. RB: I would simply say: try us. We can shout all day about how good the service is and how we’ll do everything we say, but it’s only through our actions and the actual practices in place, especially on complicated cases, that we can show our skills and what we’re good at. That’s working our way around problems and finding solutions. We can make high-level credit decisions very quickly, which helps alleviate any concerns or obstacles. So, I would just say: try us and we will show you how good we are. B I AUGUST 2021 BRIDGING INTRODUCER
IN OUR OPINION
The rise and rise of r Gareth Lewis, commercial director of MT Finance, tells Bridging Introducer about the move into regulated bridging, and why demand will continue after the stamp duty holiday ends
egulated bridging has continued to perform strongly, with many buyers turning to it to secure their onward purchase before the end of the stamp duty holiday. It accounted for 41.6% of all bridging loans in Q2 2021, according to the latest Bridging Trends survey. This was a slight dip from 47.7% in the first quarter, but nevertheless the market remains on course for a strong year. Indeed, ‘regulated bridging’ has consistently appeared as one of the most searched items on Knowledge Bank’s system throughout this year. It is not surprising that buyers – worried that they might miss out on a not-inconsiderable stamp duty saving – have sought alternatives to traditional mortgage finance. HMRC reported that UK monthly transactions hit a record high of 198,240 in June, the highest since records began. The surge in property purchases has meant that high street lenders have been taking much longer than usual to process mortgage applications. Last November, MT Finance launched into the regulated bridging arena after much consideration and planning. We figured that we had mastered the non-regulated bridging space, so why couldn’t we do the same here? We also keenly felt that there was a gap in the regulated arena, with the process not as fluid as it should be. It seemed as if regulated bridging had become a quasi-mortgage, whereas our focus was always on impeccable service and speed of delivery, getting transactions done within tight timescales. When we looked at it, it seemed as though there was an inherent need in the regulated space for a lender which was well priced, but also used the common sense which the bridging industry has built its reputation on. NEEDS VERSUS WANTS When it comes to supporting a transaction, the concept of ‘needs’ versus ‘wants’ comes into play with the underwriting. We ask ourselves: what information do we need to support the transaction?
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The lender needs to take an objective view, truly understanding where we can utilise bridging to serve a purpose, without asking 101 questions. It should be about ease of use and providing a service. This is while embracing the rules and following procedures, as you would expect, but it should not be overly onerous. We are finding that more brokers and introducers come to us on this basis – they know MT Finance will make sure their clients don’t miss out, as we provide funds with speed and agility. CHAIN-BREAK SCENARIOS The stamp duty holiday, introduced in July last year by Chancellor Rishi Sunak in order to stimulate activity in the housing market following the first lockdown, has undoubtedly been the main reason behind much of the recent activity in the regulated
Gareth Lewis www.sfintroducer.com
IN OUR OPINION
f regulated bridging space. With transactions soaring and service levels suffering as solicitors struggled with their workloads, as well as local authority searches taking forever, bridging increasingly became the go-to for those in chain-break scenarios. Buyers keen to take advantage of the full stamp duty saving of up to £15,000 turned to regulated bridging to get those deals across the line. However, regulated bridging is about much more than just chain-breaks, which is why we believe the prospects for the market are good, even when the stamp duty holiday finally ends. While there has been a lot of activity with regard to chain-breaks, there are many other demands made of regulated bridging. As the stamp duty holiday tapers off until the end of September, there are other transactional trends coming through on the regulated side, and quite a diverse volume of business, namely in the stop-gap funding and self-build and development space. STOP-GAP FUNDING MT Finance will also look at situations where the client’s profile isn’t quite right for a refinance at that moment in time, but where within a couple of months they will have turned that around and be ready for a mortgage. Essentially, the client is looking for stop-gap funding, which is where we can help. For example, they may have management accounts but not finalised accounts, so a high-street lender won’t lend. However, we can see that the client can back up what he or she is saying and will be in a position to remortgage in a couple of months’ time, once their accounts have been finalised. DEVELOPMENT OPPORTUNITIES Many clients are spotting opportunities in this market when it comes to self-build and development projects. They are not just looking to buy a property, but with the ‘race for space’ they want to add more room and subsequently value. Big conversion projects, such as commercial premises into residential, are proving popular with more people working from home and not needing or wanting to go into the office as much. As long as the property is wind and watertight, then we are happy to look at it. MT Finance is prepared to take a subjective view on the security if we know it can be refurbished within a period of time in order to be refinanced. www.sfintroducer.com
LOOKING FORWARD While the proportion of regulated bridging compared with the market as a whole dipped slightly in the second quarter, MT Finance enjoyed a record month in July. This enhances our belief that it will be a strong year for regulated bridging. Given that we have not been lending in this space for long – and have grown this side of our business via word-of-mouth – we are very happy with that performance. In many ways the regulated bridging market is largely untapped, and we believe there is an opportunity to significantly grow this side of the business. We are continually evaluating our products to make them even more efficient. Pricing is relevant, of course, but the ability to complete a transaction in the timeframe required and the suitability of the lender when it comes to the client and that particular deal are, we would argue, just as important. Looking forward, there is much speculation as to where the housing market is headed as the stamp duty holiday ends, with major estate agencies reviewing their forecasts for house price growth upwards. Much will depend on consumer confidence, which is everything when it comes to buying property, and how strong that is as the furlough scheme finally winds down. As we move towards what is hopefully the back end of the pandemic, there is a lot playing out in terms of where to invest money, time and energy. For example, refurbishments, renovations, barn conversions and the like remain popular. WHY MT FINANCE? At MT Finance, we are committed to building strong relationships and delivering the very highest standards of service to our clients. We have stripped back to the essentials of bridging finance, offering a service proposition where we make an initial assessment and come back within one working hour with approval or indicative terms. Within two working hours of receiving an application and supporting documentation, we aim to produce a loan contract and mortgage illustration. Our reputation in the market excels for delivering fit for purpose short-term loans at speed, and our approach to lending is something we have been consistently recognised for within the industry. We are a lender you can rely on and trust, and we are here to help. B I AUGUST 2021 BRIDGING INTRODUCER
Time to step outside our industry and promote the interests of the shortterm mortgage lending sector and our members by investing in helping to raise understanding, awareness and consideration amongst customers.
Vic Jannels CEO, ASTL
ow often do you read about bridging in the personal finance press, or hear people talk about short-term mortgage lending on the TV or radio? It doesn’t happen frequently, and rarely provides a fair reflection of the sector. I was reminded of this when I recently read a piece on the This Is Money website about six options for home movers to consider if their chain breaks. Bridging finance wasn’t listed as one of the options, even though we all know that this has been an increasingly popular option for clients who have been keen to beat the stamp duty window. Bridging did receive a small reference at the bottom of one of the points, but it wasn’t altogether positive, saying only: “Another option, though one to be wary of, is to use bridging finance – a short-term, high-interest loan which you can use to buy the home and then pay back when your own property is sold.” One of the ASTL’s core objectives is to protect and promote the interests of the short-term mortgage lending sector and of its members. This includes many diﬀerent aspects, of course. We educate intermediaries about how they can use short-term finance to provide solutions for their clients, and why they should choose to work with an ASTL member. We engage with policymakers and seek to keep our members informed of upcoming changes to regulation that may impact them. We run regular events that share knowledge and best practice. One area in which we haven’t been as proactive in the past, but where we will do more in the future, is to protect
VITAL AND FLEXIBLE
It has become increasingly clear that, while the bridging market has grown considerably in recent years and continued to prove a vital and flexible source of finance for many customers, we could open up even greater potential for the market if we are able to raise levels of consumer education.
“We educate intermediaries about how they can use short-term finance to provide solutions for their clients, and why they should choose to work with an ASTL member. We engage with policymakers and seek to keep our members informed of upcoming changes to regulation. We run regular events that share knowledge” Through the good work of the ASTL and other trade associations, as well as that of the vast majority of lenders and brokers in the market, we have successfully managed to raise the profile and reputation of the bridging sector within the lending industry. Now it’s time for us to look at how we can do this with our existing and potential customers. This is a subject I have spoken about with my executive committee at the ASTL, and we have committed to a progressive programme of consumer research and education. Over the coming months and beyond, we will be taking a more proactive approach
to working with mainstream consumer journalists to encourage them to understanding more about bridging and its uses, so that they may in turn help to raise understanding amongst readers. We will start by undertaking research amongst the general public and property investors to gain insights into their attitudes towards bridging, how likely they are to consider it for a variety of uses, what obstacles would prevent them from considering using bridging, and what would encourage them to give it greater consideration. This will give us the information we need to challenge misconceptions, and we will use the results of the research to issue a white paper later in the year. Then, over time, if we repeat the research, we will have a benchmark against which we can measure the progress we have made. AWARENESS AND UNDERSTANDING
The objective, of course, is to achieve a significant uplift in awareness and understanding. We hope to see bridging finance given more positive coverage in the press, and we hope to be able to identify an increase in the number of people who would choose to use short-term finance to meet their funding requirements. We are currently in the process of writing the brief for the first wave of research and, in this regard, we invite your input. For this initiative to be as successful as possible, it should represent the input of all parties with an interest in our sector. So, if there is any element of customer knowledge or behaviour that you would like to better understand when it comes to bridging, please do contact us, using the email address: email@example.com We cannot guarantee that we will be able to include every question that is requested, but we will ensure that our research brief, and therefore the subsequent research, reflects what the market wants to know. Increasing the profile of bridging finance with customers will not happen overnight. It will be a process. But it’s a process that we are committed to and one in which we are about to take the first step. B I www.sfintroducer.com