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BRIDGING

February 2019

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INTRODUCER

www.specialistfinanceintroducer.com

Champion of the Bridging Professional

Surveying the landscape Arwel Griffith and Gary Feast give their take on the specialist market BRIDGING IN-DEPTH

INDUSTRY COMMENT

PROBLEM CASES

ROUND-TABLE


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Comment

Publishing Editor Robyn Hall Robyn@mortgageintroducer.com @RobynHall Managing Editor Ryan Fowler Ryan@mortgageintroducer.com @RyanFowlerMI News Editor Ryan Bembridge RyanB@mortgageintroducer.com Reporter Michael Lloyd Michael@mortgageintroducer.com Editorial Director Nia Williams Nia@mortgageintroducer.com @mortgagechat Commercial Director Mutton Bond Matt@mortgageintroducer.com Advertising Manager Francesca Ramsey Francesca@mortgageintroducer.com Joanna Cooney joanna@mortgageintroducer.com Campaign Manager Production Editor Felix Blakeston Felix@mortgageintroducer.com Photography Alex Moore Subscriptions Nia Williams Nia@mortgageintroducer.com Printed & distributed in England by The Magazine Printing Company, using only paper from FSC/PEFC suppliers. www.magprint.co.uk

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INTRODUCER Information carried in Mortgage Introducer is checked for accuracy but the views or opinions do not necessarily represent those of Mortgage Introducer Ltd.

February 2019 www.specialistfinanceintroducer.com

BRIDGING

INTRODUCER Some 57% of brokers don’t believe Theresa May can agree a Brexit deal acceptable to parliament by March 29, United Trust Bank’s Broker Sentiment poll has found. Just 31% felt that a deal agreed on both sides of the Channel could be achieved by the time the UK has to officially leave the European Union, unless an extension to the 2-year Article 50 timeline is agreed instead. And as Harley Kagan, group managing director of United Trust Bank, said: “With less than two months until the UK must leave the EU under Article “It looks 50, it looks like Brexit like Brexit negotiations are going to negotiations are go down to the wire.” There is a distinct uncer- going to go down tainty permeating both the to the wire” market and the wider UK and it will be interested to see how things pan out. Speaking to people in the industry it is clear that there are opportunities out there for the taking. The property market is always at the mercy of the markets. Nobody ever knows what is around the next corner. The investor or developer that is afraid of what might happen next will end up in a state of paralysis. But there are ample opportunities out there and more on the horizon. Both Remainers and Brexiteers agree that although prices may fall a little in the short-term they are on a huge upwards trend in the long-run. Large cities such as London always see long term process rise as people flock there for work, lifestyle and city living. This means that short-term drops can be a great chance for an investor that can rise above the panic in the market to buy well. Whatever lies ahead for the UK property market it looks likely that the bridging market will continue to flourish for some time to come.

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09:32

7 Kevin Thomson

Taking a closer look at development finance

9 Bret Jackson

Predicting the unpredictable

11 Brian West

How TV programmes drive the bridging market…

12 Jonathan Newman

Insurance claims rise

14 Feature: Looking to the future

Michael Lloyd looks at new lenders

25 Benson Hersch

The latest from the ASTL

28 Build a Better Bridge

Your questions answered

30 Round-table

This month’s industry debate

36 Cover Story: Surveying the landscape

The team behind Robert Sterling talk surveying

32 Alan Dring

Is it a time for broker confidence?

A reputation that counts to commercial and residential finance providers

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www.specialistfinanceintroducer.com

5 Andrew Hosford

The liquidity merry-go-round

06/12/2017 12:51

FEBRUARY 2019

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9:04

And we’re off! The liquidity merry-go-round We’re one month into 2019 already which is hard to believe. Historically the first week of January is a time to get yourself prepped and ready for the rest of the month and year ahead. A brief period to sort out your admin and sort out anything that you put off in December and over Christmas. I thought I was smart, I spent the week between Christmas and New Year addressing all the boring admin I usually put off. Given I had been so proactive and efficient I decided to take the wife away for her birthday for the first week of 2019. I made a mistake. The final quarter of 2018 was manic, I don’t think I have ever been busier. Deals were coming in fast and actually completing faster than usual too. It was a great final quarter. The usual January lull simply hasn’t happened, at least not for us. Speaking to the lenders we have deals with it sounds like they are flat out too. I’ve written about how busy the market has been and speculated as to why that might be a number of times recently and am keen to not repeat myself, but Brexit is playing a key role. With the obvious uncertainty, not just in property but in every aspect of our lives I suppose, clients are still taking the view that a bird in the hand is worth more than two in the bush. This may turn out to be incredibly foolish, but starting a project now keeps them busy, their team busy and hopefully, when the development or refurb or whatever it is, they are undertaking is complete, there is a level of demand for their product to justify their decision to carry on. The alternative is they sit and wait now and observe the probable chaos over the next 12-24 months. The op01966 (5)

.

Comment News

www.specialistfinanceintroducer.com

portunity for this route is being in a position to capitalise on a distressed opportunity. Anyone holding cash would be in a strong position to negotiate a reduced price from a vendor that is unfortunate enough to be holding too many highly geared assets and not have the cashflow to support their high level of debt. Cash is king and all that. I’ve heard a rumour, and I am still checking my facts so don’t quote me, that the specialist finance sector lent close to £6bn in 2018. That number is phenomenal, the growth we have seen, and I believe will continue to see after Brexit is simply marvellous. My thinking is that a large number of mainstream lenders will either reduce their LTVs or

Andrew Hosford director, head of bridging, Voltaire Finance

increase pricing, or perhaps both. This will create an opportunity for us to reach a new type of client I believe. I have already had calls from clients who have always used high street or private banks to fund their schemes. But they now realise that those funding lines may well dry up later this year and are trying to build relationships pre-Brexit. They are keen to do this now, so that they have funding in place. Or at least a relationship in place so that they can seamlessly continue to work through the turmoil. Adding in this new type of borrower into our part of the market can only help us to grow and develop, even if it does mean that I have no time for sleep, let alone holidays with the wife.

FEBRUARY 2019 BRIDGING INTRODUCER

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Comment News

Developing opportunities Taking a closer look at development finance

Into 2019 and the B word continues to be on everyone’s lips! Some brokers are “waiting for it to be over” while others are making the most of the opportunities that exist and will continue to do so. There continues to be increased competition from lenders for business and as a result there will be innovation and expansion of product ranges as lenders find their particular niche. One such area is development finance, with a number of bridging lenders expanding their offerings to include ground up developments. This also means that there is an opportunity for the property entrepreneur. There is also increased variety with the growing number of lenders offering development finance. Some are set up purely to focus on development, others are bridging lenders or other types of lender who have seen the opportunity to branch out into development. Rates vary, but as with all types of specialist lending, rate can become one of the least important factors. Speed, loan size, proportion of build cost and flexibility can end up being far more important. Depending on the needs of the developer and how experienced they are, sometimes the experienced lender will also offer other help or guidance too. The greater competitiveness within this market means greater complexity and an increased need for an experienced broker with access to the whole of the market. This is imperative to securing the best deal for the client. For brokers just going into this area it can be quite a departure to what they are used to of course. Often money is advanced in tranches and the development lender will work from the GDV (gross development value) and the costs of the build to ensure that the project can www.specialistfinanceintroducer.com

be completed and the loan exited. Some development loans are based on more nebulous things such as the experience of the developer, while, as with the mainstream market, some lenders will only deal with residential developments, others with commercial or semi-commercial. Certainly 2019 has continued on from the latter part of 2018 with increased number of development project deals. One can place development finance into three distinct categories:

Experienced developers

An experienced developer will know that speed of a formal offer, competitive terms and flexibility of the loan-to-cost are all key factors. This is why an experienced developer will want a lender who really understands their business and one which has experience dealing with developments and working together with the developer to resolve any issues that may occur during the build. Even the most experienced developer may not be aware of all

the alternative lenders in the market place and will need an experienced broker to cut through the complexity and obtain the best finance solution for them to maximize their profits. Kevin Thomson sales director, Connect for Intermediaries

Inexperienced developers

One of the biggest issues for inexperienced developers is access to finance and competitive terms. This is because the majority of lenders prefer to lend to developers with past experience as it reduces the risk. However, as the competitiveness of this market increases there are lenders that will lend to an inexperienced developer, for the right project. Details of the team undertaking the project will mitigate some lender concerns and of course the LTV and the amount of “hurt money” being put into the deal by the client will assist in obtaining the finance.

Joint venture

Joint ventures between the developer and the funder, are used by both experienced and inexperienced developers. Experienced developers may need 100% funding because of capital tied up in previous developments and are often prepared to offer a profit share on the development in order to get the project completed. Stretched equity finance or mezzanine finance can also be available to the experienced developer in order for them to achieve a higher return on their capital employed. Whilst inexperienced developers may have the cash to input, lenders prefer to deal with experienced developers and therefore a JV gives them access to more favourable terms as the lender has greater comfort that the project will be completed on time and to budget. FEBRUARY 2019 BRIDGING INTRODUCER

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Comment

Predicting the unpredictable Looking ahead despite having a foggy crystal ball

Uncertainty is certainly the buzzword that is surrounding the financial services industry, not just the short-term lending and bridging markets. The only predictable thing is the continued unpredictability of the economic and political situation we are experiencing. It is a total farce and we must be the laughing stock of the world, particularly in Europe. I have been trying to locate the instruction manual to my crystal ball for a couple of weeks now, without success. I’ve googled ‘resolving a foggy crystal ball’ but it has provided me with very few answers. I have not yet resorted to reading tea leaves or tarot cards but might send a pack and a box of Twinings to Mrs May, as they may be her best and only options. Despite the uncertainty (see, that word again) I have had meetings with a couple of lenders who are still buoyant and surprised by the uptick in enquires and cases going live during January. This could be related to one of two factors. Firstly, the borrowers are thinking that good old resilient Britain will be fine, and it is all scaremongering. Secondly, it could be they are looking to ensure the finance is in place and covered before 29 March. There could be a third option, but with a combination of a broken crystal ball, nobody mentioning another scenario or me thinking of one, I have therefore stuck with just the two. In these times of uncertainty (sorry, that word again) the role of master/leading brokers is going to be essential. Both direct borrowers and intermediaries, financial advisers and mortgage brokers should have a relationship in place with one, if not, they should be liaising with them for future introductions. www.specialistfinanceintroducer.com

These brokers know the market inside out and have excellent relations with many of the lenders, providing them with a distinct advantage. They know where a case best fits the lending criteria, track record and even how they are funded. The last point has risen its head once again. Which method is best. Principal, institutional, private capital, P2P, deposits or a combination of these, all have positives and negatives to them. I have no view or in a position to state which is best, but with so many different models available, the borrower wants clarity and assurances they will be funded. In light of announcements in recent months, it is only natural that borrowers will be cautious, if not scared about a deal going through. Utilising a specialist broker does provide some assurances, as they are able to react with speed and efficiency if something goes wrong. I have seen this happen first hand and recent articles back this up even further. It is not only the understanding of each lender, but it is all the other associated elements for a bridging or development deal to complete. master brokers have excellent relations with solicitors & surveyors who specialise in this market, areas sometimes overlooked by borrowers and introducers alike. Especially if they are new to the sector. Utilising a solicitor who has little or no experience of bridging can result in delays to the process, when speed is often key in this market. Allowing a master broker to handle this, will significantly reduce the risk of a deal collapsing, as they are working on your behalf throughout the process. Education has also come to the forefront again. Should bridging be included within the CeMAP

Bret Jackson head of marketing and communications, BWD

syllabus? Should there be a specific exam for bridging or short-term finance in general? There is reasoning behind both options, but if either of these does come to fruition, the industry needs to be involved as to what is included. The ASTL, FIBA, networks and members of support services groups should be consulted and involved from the outset. If this happens and they get the right outcome, it could be very good for the industry and a further step in the right direction. It will also provide a layer of professionalism to the sector, as it has long fought off its poor reputation and continue the great strides it has made in recent years. Personally, I think it should be a separate exam, as this could incorporate the entire sector. From a recruitment perspective, it would identify those individuals who have sat the exam and are serious about progression. If it was to become part of the wider CeMAP syllabus (or other equivalent qualifications), then we would have to establish when they sat the exam to identify if they have the new version. Exams will not replace experience in this market, but as the market matures and we look for new blood to enter the sector, it will certainly assist.

FEBRUARY 2019 BRIDGING INTRODUCER

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Comment News

Homes Under the Hammer How TV programmes drive the bridging market…

For viewers with time on their hands and a serious addiction to allthings property related it might now be possible to watch Martin Roberts, George Clarke, Kirstie Allsopp, Amanda Lamb, Kevin McCloud and Phil Spencer continuously around the clock. What a thought! It seems that, a little bit like the relentless advance of football’s Premier League, there is nothing that can check the growth of TV property programmes! Whilst some might bemoan the saturation of such shows there can be little doubt that viewer favourites such as “Homes under the Hammer,” which has been running since 2003, have inspired a generation of property investors and developers in the UK. Whilst the name of the show is a slight misnomer – commercial, industrial and even simply plots of land feature alongside residential lots – hosts Martin Roberts, Martell Maxwell and the rest of the team have most definitely played a significant role in the growth of short-term bridge lending, particularly in the last 10 years since the credit crunch. 2015 was notable for two things in relation to this story. Firstly, former Manchester United, Celtic, Aston Villa and England striker Dion Dublin made his presenting debut on Homes under the Hammer and secondly, then Chancellor of the Exchequer, George Osbourne, declared war on buy-to-let (BTL) landlords by launching a series of what journalists euphemistically refer to as ‘tax bombshells.” During the latter part of his tenure as Chancellor of the Exchequer we shouldn’t forget that Mr Osbourne increased a raft of taxes on property investors including the scrapping of a relief that allowed www.specialistfinanceintroducer.com

landlords to offset their mortgage interest against income tax bills, the introduction of a new annual tax on offshore owners of UK property, exempting gains made on properties from Capital Gains tax reductions, imposing an additional 3% levy on top of stamp duty rates for anything other than the purchase of a main residence and then removing an exemption from this levy for largescale purchases of 15 properties or more. Against this relentless tax onslaught, it’s frankly amazing that the auction purchase and BTL markets have stayed as strong and robust as they have. Of course, innovative products from a new generation of lenders have played a big part in offsetting Osbourne’s legislation but so too have Dion, Martin, Lucy and their colleagues on a huge variety of property shows. TV shows have been instrumental in helping to underpin property demand by educating investors on how they might acquire properties at lower prices, showing how they can then renovate and improve these properties to enhance their value and ultimately achieve greater rental yields or larger capital growth if they sell. By following the acquisition of several properties at auction in each episode, many of which subsequently require refurbishment, the Homes under the Hammer Team has educated and informed potential investors. Crucially for our market, investors have seen on this and many other TV property shows just how bridging loans can resolve the very real time pressures surrounding the financing of successful auction bids. They have learnt that having paid a 10% deposit on the day of the auction, investors usually have just 28 days to pay the balance or risk

Brian Strange Mike West managing director, Central director, Bridging Funding 365

losing their deposit. In addition, they have learned how bridging loans can be used in variety of timeconstrained situations, not just for auction purchases and increasingly come to understand the importance of a clearly defined exit strategy for any loan they take on. Furthermore, the relaxation of planning rules in recent years has seen another interesting trend featured by TV property shows, the conversion of empty office blocks or shops into residential accommodation under “permitted development” rights. Interestingly the declining UK high street is actually facilitating the development of more residential units in the centre of towns and cities. Whilst this is not great for shoppers there can be no denying that it does relieve pressure

“These programmes have encouraged and informed in equal measure” on green and brownfield sites whilst simultaneously recycling existing buildings with all the attendant benefits. In summary then there are many reasons why the short-term lending market has grown to the point where it is now estimated to be worth more than £4bn PA but there can be no denying that property focussed television programmes have played an important role in fuelling a great British housing obsession. These programmes have encouraged and informed in equal measure and we all owe a debt of gratitude to them for helping the bridging and wider housing market weather the storms that have hit and emerge stronger on the other side. FEBRUARY 2019 BRIDGING INTRODUCER

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Comment

Insurance claims are on the rise Should this be a cause of concern for lenders?

Title Insurance has become industry standard. It provides lenders with a reliable means to increase the appeal of their proposition, by reducing conveyancing time spent awaiting certain searches and undergoing full investigation in certain limited areas of the conveyancing process. Originally devised to cover traditional title deficiencies, like restrictive covenant, or rights of way issues, it is now used to cover much wider and far reaching risks like fraud and enforceability. Main players write cover on a bordereaux basis, to make transacting easier, rather than institutional providers who quote and cover on case by case basis. Simply put, if you don’t have a title indemnity insurance relationship in the current market, you are at a disadvantage. The suppliers have been able to operate thus because they know their customers well. They understand their due diligence processes, which must be to standard and the policy terms are prescriptive. The relationship is key to insurers. They understand the culture of every lender; what drives them; and what each lender’s risk appetite looks like. They must be comfortable with underwriting, both in terms of criteria and how that criteria is applied. But the times they are a-changing. There are new entrants to the market; higher LTVs; downward pressure on rates; funding pressures to lend; much increased volumes; significantly higher average loan sizes; and much reduced underwriting experience and expertise. Many of these issues are reminiscent of the subprime market crash of the 80s. And insurers are experiencing higher incidents of claims. Since

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2016, the number of short-term and bridging lender claims has risen 24%, according to Titlesolv, the leading title insurance and property risk solutions provider. Titlesolv looks to settle every valid claim within six months of it being made, but responding to a claim inevitably involves a detailed analysis of the lender’s underwriting and the conveyancing work of their solicitors. Underwriting must adhere to the terms agreed and we expect solicitor’s files to be of the standard required to transact high value high speed conveyancing work. This rise in claims should be a major concern for the whole industry. Reputationally, having spent so many years building the profile of the sector, it must not now be seen as cavalier. Pragmatically, increased claims can only lead to higher premiums, impact policy coverage and in the worst cases, make it difficult for some lenders to secure insurance at all. Commercially, that would place them at a huge disadvantage to competitors. However, lenders who see title insurance as a cure-all for potential issues are sadly mistaken. Likewise, solicitors who view title insurance to ignore basic issues which obviously justify enhanced investigation, do their lender clients a disservice and may affect cover. The rush to speed at all costs, along with the demand to cut costs, may be a single-track marketing play, but is not likely to be applauded by title indemnity insurers who look for security over speed. The latest hankering for dual representation is a case in point. Highlighted as providing the consumer with a cost and time benefit (though not proven to any

FEBRUARY 2019

Jonathan Mike Strange managing Newman director, senior partner, Funding 365Law Brightstone

degree), it poses an increased risk to the lender on enforceability, which presently, with independent legal representation, may be covered under some policies. A significant change in process, like that and to that extent, might make insurers think again about offering cover, or the extent of cover which they do offer. Any withdrawal of insurance by a provider would have a greater impact on transactional speed across the board than any dual, sole representation comparison. Brightstone Law and TitleSolv agree that insurer and solicitor have much in common and a mutuality of interests. Plans are now at an advanced stage for a joint seminar in the first half of 2019 on current trends in indemnity claims, how to avoid them and best practice loan origination and underwriting. The seminar will be aimed at senior underwriters and to existing and prospective clients of both organisations. It is important that all players in the market keep this conversation going, to ensure that both market needs are met and risks are appropriately managed. Doing so will play a central role in helping to protect the hard-earned reputation of the sector.

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Feature

Out with the old, in with the new

T

here’s been much talk about new lenders joining the market with various views. A research company for Charter House Corporate Partners found 106 registered lenders in the bridging market with around 30 that they considered good enough to use with strong funding lines. This shows there’s many lenders in the marketplace, including many small ones, with only a portion of them well-known and well-used, proving it’s hard to join the market and stand out. “There are many lenders already, so unless someone enters with a unique and niche product, it can be difficult to gain attention right away,” Maxim Cohen, founder and chief executive of UK Adviser says. So, we investigated if there’s enough room and opportunities for these new lenders looking to enter and make their mark.

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Michael Lloyd investigates new lenders and whether there’s enough room and opportunity for the next cohort to flourish

New lenders

2018 saw a fair few new entrants into the bridging space including Lendco, Magnet Capital, Interbridge Financial, ActivTrades, Tuscan Capital, Glenhawk, and Catalyst Property Finance launching to the intermediary market. Here we explore a few of them.

Catalyst Property Finance

Catalyst Property Finance was formed in Q2 2017 then opened up to the intermediary market in November 2018. It claims its niche is offering higher LTVs where appropriate, such as lending to 80% LTV on first charge and 75% on second charge and can offer 100% refurbishment cost funded in arrears to maximum 80% LTGDV. Its rates start from 0.65%. Catalyst Property Finance considers all property www.specialistfinanceintroducer.com


Feature

types, lending on some very unusual and complex properties and also lending on land with planning permission. “We called our company ‘Catalyst Property Finance’ as it’s our aim to be a catalyst for change,” Chris Fairfax, its managing director says.

Glenhawk

Glenhawk was launched in January last year by chief executive Guy Harrington with the support of Rightmove founder Harry Hill and has delivered month-on-month loan book growth, culminating with a record month in November, originating £9.3m of loans. It offers rates from 0.79% and its range is across residential, commercial, development, auction finance and second charge bridge loans. Nick Hilton, its director of lending, pinpoints Glenhawk’s niche as being ‘client centric’ and not charging admin or exit fees. “In partnering with us there are absolutely no hidden costs which part of our stated strategy, we are trying to set a new standard for the industry,” he says.

Lendco

Lendco, backed by Cabot Square Capital, is a specialist lender which was incorporated in February 2018 and launched its proposition for specialist buy-to-let and bridging loans at the end of June. It lends on commercial and residential assets throughout England and Wales. Simon Chapman, its relationship director, works

alongside it’s managing director, Simon Knight and says the team is ahead of target at year end with a healthy deal pipeline for this year. Chapman defines Lendco’s niche as having built a strong credit team and actively encouraging broker contact throughout the process especially when a deal is being constructed. “The experience of our underwriters can mean that a deal can be put together in a way that makes good credit sense that otherwise it would have been very difficult to place in the wider market,” he says. “We look at each transaction on its individual strengths and weaknesses with an emphasis on good credit risks with a clear and viable exit strategy.”

Tuscan Capital

After six years as chief executive of Fortwell Capital, formerly Omni Capital Partners, Colin Sanders launched Tuscan Capital in early 2018, becoming its chief executive. “Based on my earlier experiences, I was confident there was room in an already-crowded market for a lender offering to do the basics well,” he says. He adds its first year of trading exceeded expectations, effectively funding twice as much as its original business plan anticipated. Sanders defines Tuscan’s niche as guaranteeing all its brokers direct access to senior mandated decisionmakers and expanding its product offerings into four distinct areas: bridging; mixed-use and semicommercial; heavy refurbishment and auction funding.

Is there enough room for new entrants in the bridging market? Competition is important for any market. It provides customer choice and can also help to stimulate demand as more participants can raise awareness of the product. But too much competition can be detrimental for lenders and can even damage a market if high standards are not maintained. At the ASTL, we have been approached by several firms that are new to the market and we are also aware there are some firms that have investigated the sector and taken a step back, deciding that bridging was maybe not for them. Our job is to emphasise that those high standards should be maintained. It is essential that

Benson Hersch chief executive, Association of Short Term Lenders

new entrants have knowledge of the property market and understand the risks. They need to be aware of the current uncertainty and that some potential exit routes could disappear for borrowers if banks retrench their appetite to lend. Funding lines also need to be secure and sustainable to avoid leaving prospective borrowers, and their brokers, in the lurch. We are concerned that some lenders are currently engaging in some practices to win market share that could be considered risky, particularly in this economic climate and there are deals in the market which established lenders have rejected – often with good reason. Rebridging, for example, is inherently more risky than

standard bridging and the reasons for clients doing this should be reviewed with care. The creep of increasing LTVs is also a dangerous strategy that we need to be alert to. My tip to new entrants would be to look for a niche where competition is less fierce and win market share by owning a specialism in that niche. Relationships are still very important in this market, so supporting a lending proposition with the right people can also help new lenders to grow, without over-stretching their risk appetite. The bridging market continues to grow and there will always be opportunities to be taken. This does not mean that this market is risk-free and there’s an uninitiated need to be wary. 

www.specialistfinanceintroducer.com

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Feature

You have to remember people do business with people I’m getting asked a lot these days what it’s like to start a new lender in such a testing, saturated market. My response is that I don’t see us as a new market entrant. Ultimately people do business with people. The Magnet Capital team is obviously a relaunch of a previous business, but it’s great to be able to bring something fresh and innovative to the table. In my opinion the key to succeeding in today’s marketplace is innovation. As a lender, do we dare to do things a little differently? The beauty of development finance is that there’s more than

Ashley Illsen chief executive and co-founder, Magnet Capital

“Also we’ve taken steps to extend our appeal beyond our ‘traditional’ area of expertise - which is London and the South East - and into the Midlands, Wales and northern England,” he says.

Magnet Capital

This new lender’s made up off experienced people from a previous lender Regentsmead. Ashley Illsen, chief executive, and Sam Howard, managing director, both co-founded Magnet Capital, a lender specialising in development finance. It’s widely recognised as a relaunch of a previous development finance lender, Regentsmead, with exactly the same team and a very similar model. They soft launched the business in Summer 2018 and formally launched to the broker market in October. “Since then the uptake on our development finance products has been staggering,” Illsen says. “We are focusing predominantly on the smaller end of the development finance market, which is still poorly serviced in my opinion. “We fund small residential projects that focusses on producing quality housing that is, above everything else, affordable. “In many parts of the country this particular end of the property market is still thriving, especially thanks to government schemes such as Help to Buy.” Payam Azadi, director of brokerage Niche Advice, believes Magnet Capital has found this niche at smaller development deals and know what they’re doing. “A lot of lenders have minimum loan sizes for development loans,” he says. “They’ve marked themselves out there.”

ActivTrades

Launched in April 2018, ActivTrades Bridging offers

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one way to skin a cat. Our approach is deeply rooted in decades of ‘old fashioned’ lending principles, however, we are twinning this with a new style of doing things including technology that allows us to be as efficient and streamlined as ever. My main concern about introducing too much tech as a core part of a lending business is that you run the risk of depersonalising the borrowing experience. As I mentioned, people do business with people, and I think when you’re borrowing money to support the growth of your business it should be done face to face with

individuals you can trust, and not a computer screen. At Magnet Capital we place a big emphasis on meeting every single person we lend to, in our office before the loan starts and then on the development site whilst the building project is ongoing. Aside from being great for building relationships, as a lender I think it’s vital to go and look at what you’re lending on. It’s not rocket science, it’s a bit old fashioned, but it’s amazing how many lenders aren’t too interested in looking at what they’re lending on and meeting the people they’re lending to.

“We have been careful not to bite off more than we can chew because as we know the worst thing any new lender can do is to over promise and under deliver” rates from 0.49% per month for residential bridging, 0.7% for development finance and 0.65% for commercial, while lending with the team’s own money. It looks at loans from £250,000 to £5m with an average size loan of £1.1m and considers all classes of property loans up to an 18-month term on an unregulated basis. “We have been careful not to bite off more than we can chew because as we know the worst thing any new lender can do is to over promise and under deliver,” Stephen Brennan, director of credit at ActivTrades says. “On this basis we have kept our advertising and profile small and currently are dealing with a select few FCA regulated brokers.” Brennan has been involved in bridging since 2003. He has been managing director of Credit & Mercantile Plc., head of underwriting and credit for Masthaven Group and director of lending for Borro. He defines one of ActivTrade’s niches as charging its interest in arrears and not in advance. “One thing that is important to know is that all enquiries come through me personally so the introducer will get a real answer and a proper commitment to support or not, as the case maybe, the loan,” Brennan adds.  www.specialistfinanceintroducer.com


Feature

How Lendco was set up Lendco was set up in February 2018. In collaboration with our investors and funders Lendco built a proposition based on extensive research with brokers, competitor analysis, and drawing on the significant experience of a management team who have numerous years of knowledge and the expertise of distributing in this sector. Lendco lends on residential and commercial assets in England and Wales, there is no particular target area or hotspot geographically and our lending is based upon our policy and guidelines. Together with our funding partners and senior management team a format and process has been designed to deliver a robust proposition

Simon Chapman relationship director, Lendco

“Brokers by and large seem to welcome new entrants but want to find out how their offering differs from the many other, more established lenders” Charter House Corporate Partners’ new lender

Charter House Corporate Partners, founded by industry stalwart Terry Pritchard, is set to launch a lender serving the larger bridging and commercial loans arena (£5m -£200m). “We are launching this because there will be a number of quality distressed assets out there that will need a long-term view,” Pritchard says. “And part of our fund and our funders’ strategy is to look at this area of the market as we are taking a much longer-term view and backing a future upside post Brexit or whatever replaces it with uncertainty.” He says they will concentrate on larger loans from day one but will explore the economics of smaller deals once they are operating properly in the core markets. Pritchard promises rates from 0.5%pm to 1.5%pm depending on size and risk with the term as a factor to consider. “This is not traditional bridging so we will view every case and price every case on an individual basis,” he adds.

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to the market. Appointment of experienced individuals in important areas such as distribution, underwriting and credit have been made to ensure that sufficient knowledge and expertise is available within the business to conduct a sound evaluation of any lending proposal. Currently there is no requirement for us to make a lot of noise around our offering, it speaks for itself and the demand is there to meet our current business plans. We have a panel of bridging specialist intermediaries who are fulfilling our current distribution ambitions. This pool of distributors is pretty easy to manage with that personal touch that everybody craves. We are not

in the business of securing distribution to then fail on service or product delivery. Those intermediaries that have currently been invited to be partners of Lendco have the benefit of having access to a lender that many of their competitors do not. Giving our intermediaries this exclusivity enables us to attract more of their deals. We do not need to take excessive risk to realise our ambitions, our objective is to build a robust and durable lending proposition that adds value for our shareholders and customers. There is a famous quote used by Warren Buffett: “Don’t concentrate on growing your business, concentrate on doing good business and your business will grow”.

Counting a year and a half or more a few other lenders come to mind such as OneSavings Bank and Octane Capital. In May 2017 Octane was founded by Jonathan Samuels, its chief executive, Matt Smith, its director of risk, and Mark Posniak, managing director, who knew each other well from working together at Dragonfly Property Finance. Its niche is a ‘product-less approach’. “We’ll do almost every kind of loan, ranging from the deals that most lenders will shy away from to straightforward loans where brokers need the certainty of a quick completion,” Posniak says. “As one of the new lenders coming through, Octane has certainly made waves and a mark on the industry,” Azadi adds. InterBay Commercial launched its bridging proposition in July 2017 and has introduced a broker portal, dual legal representation and claims they can provide AIPs within four hours.

What brokers think about new lenders

It’s important and interesting to see the views of those who deal with the new lenders, the brokers. The lenders outlined above don’t represent all of the market and weren’t commented on directly with these brokers discussing new entrants in general. Brokers by and large seem to welcome new entrants but want to find out how their offering differs from the many other, more established lenders. “We are always open to speaking with newer lenders and finding out where they see new opportunities within the market,” says Chris Oatway, director of brokerage LDNfinance. “The key thing for any new www.specialistfinanceintroducer.com


Feature

There’s always room for quality lenders It would be easy to say there’s no room for more lenders; the cake is only so big and the more lenders there are the smaller the pieces of cake. However, more people are turning to bridging and short-term lending solutions for their funding needs and so, perhaps, this particular cake is bucking the trend and is actually getting bigger. The most important thing is that the right lenders are coming into the market. There is always room for good quality, specialist, flexible lenders, those that have the borrower’s best interests at heart, and are always looking to improve and collaborate to ensure a good outcome. It’s also important that funding lines are secure, otherwise, as we have found recently, other more established lenders end up having to pick up where

Jonathan Sealey chief executive, Hope Capital

lender is that they have to bring a new proposition to us otherwise they are competing with others who have an established presence in the market with a strong track record.” Chris Whitney, head of specialist lending at Enness, agrees and says as a broker it’s imperative that any new lender is given a chance to explain their offering and how it might benefit borrowers. “With the market expanding and being very fragmented the role of a broker who knows the industry well and keeps up to date with the market has never been more important,” he adds. Cohen says UK Adviser has a panel of trusted bridging lenders and are approached weekly by new lenders, who have slightly different criteria and products. However, Lucy Hodge, managing director of Vantage Finance, says she doesn’t tend to use any new lenders unless it’s for a product not available elsewhere and they have experience or are recommended. “There’s enough in the market and the new ones are doing the same thing so why take a risk on customers’ applications when you have lenders you know very well?” she says. “We’re approached all the time by new lenders but my personal experience is limited. “I’m not being negative about people entering making a name for themselves but I personally feel our panel is well covered unless there’s a particularly www.specialistfinanceintroducer.com

another has had to pull out. When it comes to bridging lending the borrower essentially wants to know that the funds are available, and that they can get funding quickly. When you look at the ‘value’ a new lender can bring, it’s difficult to say, compared to those that have been in the market for longer. Hopefully everyone coming into the market is doing so aiming to add value and, as the interest in bridging products grows, there may be more niche lenders that can offer value where other more broad-spectrum lenders may not. Mainstream lenders have already tightened their lending with Brexit looming, and will continue to do so. Even if clients take a pause to see the effect of Brexit the demand for finance will remain long term. I have no doubt that there will be more new entrants

dipping their toes into the bridging pool this year, it’s a growing market that still offers plenty of opportunity. However, there is certainly something to be said for experience, longevity and trust, which will serve established lenders well in the coming months. It’s hard to imagine any industry in the UK that won’t suffer some casualties while Brexit negotiations continue and thereafter. Therefore, it’s highly unlikely that the bridging market will be immune, but the lenders with strong business models will more than likely ride out the storm. The fact that the amount of bridging lending continues to grow year-on-year shows that there is plenty of opportunity. So, there is definitely a place for a range of lenders that can provide a variety of solutions to the, sometimes complex needs of potential borrowers.

unique product coming through.” Similarly, Phil Mabb from Bridge Development, says he keeps away from new lenders to stick to proven and reliable ones. He believes choice is always positive for potential clients but reckons they’re already serviced by existing lenders. “There’s always room for more but what will the USP be if not simply the same as existing lenders?” he says.

Is there room for new lenders in the marketplace?

This leads on nicely to whether the market is saturated or not. The majority agree there’s room for a new entrant if they’re adding something different, adding value for brokers and borrowers. “If you’re doing the same thing as everyone else, then in a market as saturated as this, with political and economic conditions as they are, you could very well struggle,” Posniak says. 

“There’s always room for new lenders that have prepared with a business plan and have done their homework and learned from the mistakes of others” FEBRUARY 2019

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Feature

As a ‘new’ broker we welcome new competitive lenders We launched LDNfinance in May 2017 to bring together specialists in all areas of property finance. As the specialist lending market has grown in disciplines such as bridging and development finance, the need to have advisers in these specialities, working alongside residential and buy-to-let mortgage advisers, has become essential to give clients the best outcomes. At LDNfinance, we have dedicated advisers who are experts in the specialist finance division, allowing them to fully understand this niche market, which is what differentiate us and why clients trust our advice. As the bridging market expands, the opportunities for new bridging lenders to enter the market is ever growing,

Chris Oatway owner and director, LDNfinance

Alan Dring, consultant at Hope Capital, emphasises that new entrants need to be prepared. “There’s always room for new lenders that have prepared with a business plan and done their homework and learned from the mistakes of others,” he says. However, Sanders believes the market is saturated, citing it appears to be flatlining at around the £4bn level for a few years now and has only seen more lenders joining. “The conclusion for me is obvious: there are more of us competing for a slice of the same-sized pie,” he says. “New entrants will simply add to this challenge, particularly if their only answer is to drive down margins by reducing price and increasing risk, by, for instance, raising LTVs.” Furthermore Gareth Lewis, commercial director at MT Finance, adds: “New entrants coming into the sector will just squeeze the market share and cannibalise the margins of other lenders.” Vivek Jeswani, co-founder and chief investment officer at Bridge Invest, says whilst there are low barriers to entry, there’s limited capacity for new entrants as the market is saturated with lenders. “We know of at least 200 bridge lenders in the UK, although there are certainly more lenders that we are unaware of,” he says. “Whilst bridging is a growing market, other areas such as property development will probably grow at a faster rate, given that there are more opportunities for new entrants in that space.”

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offering us more options for our clients. These lenders are providing creative new ways to get a deal done and can be the flexible solution needed in certain circumstances. Nevertheless, the strength of reputation and experience in the market which well-established lenders offer, provides additional comfort a new lender will not be able to compete with in the early stages of their launch. Having strong ongoing relationships with these lenders gives us confidence that we can convey to our clients, which provides peace of mind to all parties. When entering the market, it is important for any new bridging lenders to consider their unique proposition and what they can offer which makes them competitive, outside of pure speed of process. Lenders that can establish a

strong framework around their business, will provide them with the stability to achieve what they promise in the market and grow. Opportunities we see in the current market for new bridging entrants include certain locations and sectors. With a unique status, Manchester has shown a robust demand to both purchasers and those seeking to rent in the City Centre. Where Manchester could be a stand out safer option for a new entrant bridging funder, Belfast could offer the most opportune, but higher risk location. Lenders tend to be put off by the historical political instability and although this should always be considered, the opportunity for savvy investors to take advantage is still prevalent given the expectation of solid growth for the next few years.

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“As we go through the Brexit period high street lenders will probably become more conservative which will drive more business to the bridging lenders that consider cases and lend with common sense” Risk and opportunity

Some spot opportunities to launch a new lender but by launching comes risk, especially at this time of economic and political uncertainty. “We are in the latter part of the economic cycle so personally I don’t think it’s a good time to launch a new bridging lender right now,” Alan Cleary, managing director of Precise Mortgages, says. Jeswani from Bridge Invest believes it’s a risky time to launch a lender given competition is high and yields are generally compressing. “As challenger banks have entered the bridging market, it’s hard for non-bank specialist lenders to compete with their low cost of funds,” he says. However, Pritchard who’s planning on launching a lender soon, reckons there’s opportunity there, learning from what the clever, best people have done. “Every cloud has a silver lining,” he says. “Just looking  www.specialistfinanceintroducer.com

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Feature

“Ultimately, we expect to see consolidation in the bridging space as capital flows to those lenders with a demonstrated track record of prudent risk management and superior risk-adjusted returns” at the previous recessions shows the winners and they were the ones who saw it early and prepared.” Gary Bailey, managing director of Hope Capital, believes the market is buoyant with strong demand and lots of opportunity. “As we go through the Brexit period high street lenders will probably become more conservative which will drive more business to the bridging lenders that consider cases and lend with common sense,” he says. “However new entrants coming into the market face a serious challenge around distribution and brokers look at proven lenders and it’s harder to show you can be used and trusted if you’re new and don’t already have that proven record.”

Value and impact of new entrants

With new entrants comes a variety of opinions on whether they add value to the market, a positive or negative effect. Whitney emphasises that new lenders means more competition, which is nothing but good for brokers and borrowers. “It keeps downward pressure on pricing, drives innovation and gives wider choice,” he says. “It shows existing lenders that there are no real barriers to entry and they cannot be complacent.” Oatway welcomes new bridging lenders and says the influx of them has meant that many niche areas of bridging finance are now catered for much better and for most deals there are normally plenty of options. “Those established lenders with a strong reputation should not really feel the impact when new lenders hit the market as deliverability is one of the most crucial qualities for a lender to ensure they get repeat business from brokers,” Oatway says. D’mitri Zaprzala, head of sales at Octopus Property, says if a new entrant comes along offering what they believe is a service that forces the rest of the industry to sit up and find new ways to improve and innovate, then that should be welcomed. Hodge meanwhile believes we’re near, or at capacity so more entrants may have a negative effect. “Competition is good for the market, but we don’t want to get to the point where lenders have to chase volume and credit risks they shouldn’t be,” she says. Jeswani, however, worries about new lenders that are going up the risk curve because by doing so they play a part in increasing leverage in the economy. “New entrants’ lack of experience, coinciding with

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their taking on riskier loans more likely to default, could also give the wider bridging community a bad reputation,” he says.

Will there be many more new lenders this year?

Brennan, director of Activtrades, says there will always be people who think that lending backed by property is easy and produces a nice return on their investment. “At the moment there seems to be a glut of money available from challenger banks, hedge funds, private equity and wealthy individuals,” he adds. “Rates and terms vary but with this emergence of relatively cheap funding of course there will be new entrants. How many, who knows?” Whitney says he’s still seeing a steady influx of new lenders into the short-term lending market with some of them offering innovative solutions but others no USP. Meanwhile Jeswani predicts new entrants due to many private investors content with lower returns, and also expects some existing lenders to exit this space. “Ultimately, we expect to see consolidation in the bridging space as capital flows to those lenders with a demonstrated track record of prudent risk management and superior risk-adjusted returns,” he says. Chapman, relationship director at new lender Lendco, thinks they’ll be more entrants due to high returns for investors and lenders, while Illsen, from

“As with this year, we expect more specialist lenders and traditional banks to retreat from the sector, therefore, lenders who can fill this gap with flexible, bespoke lending solutions have a big opportunity” another new lender Magnet Capital, believes they’ll be less this year as we may be close to a saturation point in the specialist finance arena. Posniak doesn’t expect too many new entrants this year due to too much uncertainty while Zaprazala expects to see the pace of new market entrants slowing down, especially in H1, due to this uncertainty. “As with this year, we expect more specialist lenders and traditional banks to retreat from the sector,” he says. “Therefore, lenders who can fill this gap with flexible, bespoke lending solutions have a big opportunity.” In summary it could be a risky time to launch a new lender but there are still opportunities and although it’s a crowded marketplace if a lender has a great USP to stand out they can make their mark. “There’s always opportunity to launch a new lender, Brexit or not. However, during times of uncertainty, new and old lenders need to ensure financial suitability,” Cohen says.  www.specialistfinanceintroducer.com


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Comment

Another fine mess But bridging should still flourish

I While the citizens of the UK look on in bemusement, their MPs continue to squabble about how to resolve what the Economist has called “the mother of all messes”. Rather than getting together to resolve what is possibly the most critical period since World War Two, politicians seem more concerned with serving their own career ambitions than serving their country. Neither of the main political parties is inspiring the electorate with confidence. The Conservatives are split from top to bottom and the Labour Party seems determined to follow a far left policy. In fact, many seem to fear the prospect of a Corbynista government far more that a chaotic “no deal Brexit”. Nevertheless, and maybe naively, I do expect that out of this mess a reasonable solution will finally appear. It is likely is that taxes will rise; whatever the political complexion of a new government. For Labour, this may be to fund more social services, industry re-nationalisation and income redistribution. For Conservatives, it will be in order to keep national deficits down to manageable levels. A significant proportion of indi-

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viduals aged 65+; especially those based in major conurbations and particularly within the M25, are accidentally asset-wealthy, as the value of their homes has increased. The average price of property in London has increased from £104,259 in November 1998 to £258,647 in November 2008 and £472,901 in November 2018. Although there is currently an increased inheritance tax exemption when one leaves a family home to children, this may all change if and when a Labour government comes to power. There may also be a so-called Mansion Tax on homes valued over a specified amount. No one knows what measures people will take to combat these issues, but some may well look to take out or increase mortgages, in order to pass assets on to children. Permanent changes in property ownership are continuing. According to the latest ONS Survey, over the past 20 years, the biggest change has been the proportion of 35 to 44-year-olds living in the private rented sector, increasing from 16% in 1997 to 24% in 2017. There were more than three times as many 35 to 44 year-olds

Benson Hersch chief executive, ASTL

renting privately in 2017, compared to 20 years ago, which represents an increase from 331,000 households in 1997 to 1.1 million in 2017. The single largest group of private renters remains the 25 to 34 years age band, which represents 33% of the sector with 1.5 million households, and there is no doubt in my mind that the rental sector will continue to rise, especially as there are no incentives for people to voluntarily downsize. Currently, although tax rules disincentivise “consumer landlords”, many have simply set up corporate entities to hold property. This is not suitable for everybody and specialist professional property tax advice should always be sought before embarking on this route. The outlook for commercial property remains unclear, especially given the ongoing High Street retail woes and some City Councils are seriously considering looking at even more change of use approvals, as retail units could be converted to residential usage. We live in uncertain times and there may be some casualties as a result. Those firms reliant on P2P funding, in particular, need to be wary, as there may well be issues in the non-secured SME funding areas; which in turn may lead to knee-jerk regulation. Regulation per se should not be feared and may well be necessary to protect unwary investors, but it needs to be both proportionate and appropriate. The New Year may prove to be a real can of worms, but it’s precisely this sort of environment that provides opportunity for those who are willing to take it, understand the risks involved and put in the necessary measures to mitigate those risks. With this approach, the bridging sector should continue to prosper.

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Comment

After Brexit Looking beyond the Brelephant in the room

A very Happy New Year to you all and I trust that you have enjoyed a great festive period with family and friends. In aMarch will see the deadline for a formal exit from the EU pass, with such unprecedented levels of uncertainty we thought it best to look to the future without overly fixating upon the ‘Brelephant’ in the room. If everything goes according to plan, the UK will leave the European Union on 29 March 2019. Talk of deadline extensions, general elections, party coups and second referendums are rife, but day to day life continues. UK businesses will continue to trade, grow and require finance. Commercial brokers will still be required to support SMEs with their expertise, saving them both time and money, whilst lenders will continue to introduce dynamic products into a market awash with liquidity. All of us will seek to maintain business as usual. But the buzzword infiltrating

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most business activity in the UK is ‘uncertainty’. Such uncertainty - and talk of it - is ironically an undisputed surety that we will carry with us further into 2019, with the term becoming a byword for political indecision, deadlocked policy initiatives and general business timidity. Given that any industry forecast is entirely dependent on the aforementioned ‘Brelephant’, the NACFB sought the insight and instincts of those with boots on the ground, ascertaining what they view as the outlook for the rest of 2019 - without any mention of the B-word. From a broker’s perspective, Steve Olejnik, managing director of Mortgages for Business, expects 2019 to be a good one for the specialist broker, although this is peppered with some caution. “The feedback we are getting from the business banks is not as bright as perhaps it has been in previous years” he said, before sharing that some lenders are seeking to: “reduce LTVs in both the care and leisure sectors.”

Norman Chambers managing director, NACFB

For the SME market, Steve foresees that “retail businesses could find borrowing trickier given recent failures on the high street.” Believing though that this will stand to benefit commercial brokers: “We expect this general outlook to play into our hands. It will become increasingly important for investors and businesses to use the services of the specialist broker.” On the regulatory front, 2018 saw some seismic developments with the roll out of GDPR and FCA confirming greater access for SMEs to the Financial Ombudsman Service (FOS). James Hinch, NACFB Compliance consultant, foresees the regulatory trajectory for the year ahead continuing on a steady course: “If past performance is ever a guide to what lies ahead, it is fair to say that the scope and reach of regulation does not stand still” The importance of a strong trade body The question many are asking is, when the dust settles, what will the relationship between the UK and the EU look like? And, crucially, what impact will this have on the demand for SME growth finance? For now, at least, no one can be sure, but amidst the landscape of unpredictability a few certainties remain. Commercial brokers and NACFB Members are instinctively agile and historically resilient, most came through the 2009 crash with the knowledge and experience of how to navigate uncharted waters and mitigate outside impacts. The NACFB continues to witness such vigour and adaptability first-hand. Informed and dynamic commercial finance brokers - championed by a strong and independent trade body - have a vital role to play in ensuring Britain continues to prosper beyond our exit from the European Union.

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Build a Better Bridge

Finding solutions with bridging finance Can bridging be used to help your clients with difficult circumstances? Our experts answer your questions We live in a beautiful flat in Mayfair which I inherited from my grandparents. The lease is due for renewal and the freeholder who is a huge well known property company has asked me for £500,000 to extend the lease by 30 years. I’m advised in today’s market the flat with the lease extended would be worth in the region of £3 to £5m so it’s all relative. But mortgage providers have advised they will not help – would a bridging lender consider this proposal and be able to help me? I’ve let things drift on and now need to get the issue resolved as a matter of urgency. Mel Fordham: This is a situation in which bridging can be used very effectively indeed and is where the innovative and commercial attitude of bridging lenders can be demonstrated most clearly. As you have found, traditional mortgage providers generally shy away from commercial risk, which is mainly due to the restrictions imposed by their lending criteria, not that they can’t see common sense. Whilst I know several bridging lenders that would be delighted to assist you and provide the funding you require, the question that would be at the forefront would be; how you would be able to repay the facility post the lease being extended. Obviously, the bridging facility, even at the most competitive rates will be more expensive than traditional mortgage rates and will have a relatively short-term. Given the terms of the bridging, you will be required to confirm a realistic proposal for repayment before the facility is made available to you. Obviously, you could simply sell the property and using the huge resultant equity you could buy another property. However, if it is your intention to ultimately remortgage the property to repay the bridging facility; you will have to satisfy the bridging lender that you qualify for such a mortgage and that you have income commensurate to service such borrowings. Whilst this may seem a little paradoxical, given the disparity between the value of the property and your borrowing; today’s

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compliance regulations are focused on affordability and preventing financial stress and hardship.

Phil Mabb property finance broker, Bridging Development

Mel Fordham chief executive, Centrado

Phil Mabb: The good news is there are a few specialist bridging lenders in the lease extension market, with which a broker can help. However, before you start your journey, there are a few items to give consideration to – appointment of a lawyer and valuer to assist with the negotiations since the property company you allude to is likely to be hard to negotiate with for those uninitiated to such transactions. A little bit of prior research to source the same will definitely help. However, these come at a cost, so I hope you have some liquidity to cover their fees? Additionally, we need to cover off a few things before approaching a lender by starting with the day one value and what your intentions are once you have secured the lease extension. Knowing little about your financial circumstance does not help, but on the basis that £500,000 in the approximate debt on a £3-£5m property should allow you to raise a BTL mortgage if retention is your target. The other option is to secure the right to extend and sell to a third party, therefor giving them the problem of raising the £500k. Two years ago I had to raise some money quickly as I had an opportunity to buy the freehold of a large block of flats with further development opportunity, so I took a loan of £800,000 with a bridging company secured by second charge on my home, which is valued at £4,000,000. My mortgage is with a High-Street lender and is £700,000. I have not been able to get the additional planning on the apartment block yet and have my home on the market for sale and now the bridging company has advised if I have not repaid the facility next month they will charge me 5% renewal fee. Do you have any advice please? MF: Given the fact you used the funds to buy a commercial asset, I presume this original transaction was treated as a business/commercial/unregulated matter.

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Build a Better Bridge

As I am sure you are already aware, bridging lenders that will refinance existing bridging lending are a little limited and the scenario is a rather stigmatised, as such this reduces the number of lenders you could approach with this proposal. Bearing the above in mind, the fact you have such a large amount of equity in your property will be a distinct advantage and will be appeal to the lenders that will consider this proposal. However, with recent SDLT changes the property market is cooling and very high end/large/individual properties are taking much longer to sell and valuers are being distinctly more pessimistic in their appraisals. So, to provide you with practical advice, I would suggest the options are: to retain your borrowing with your existing lender, and albeit incur the £40,000 fee, which I presume will be added to your facility and continue with slightly higher monthly payments, as your loan will, obviously, increase by the amount of the fee. Alternatively; explore alternative funding with a new lender. Should you take this route, you will undoubtedly incur a 2% arrangement fee and further legal fees (both your own and the lenders) in addition you will have to cover the cost of a new valuation, which will not be cheap given the value of the property. My concern would be, should the property be down-valued, and the new facility not be offered to you, for whatever reason, you will have incurred substantial abortive costs and maybe in a default situation with your existing lender too. PM: Ouch! There are not many lenders that charge such a draconian fee for the pleasure of an extension. The simple answer is to refinance with another bridging lender where even with a new set of arrangement fees, legals and valuation you will be better off – you could read it as your existing lender wants you to do the same… Based on a <40% aggregate LTV you should find it easy enough to place elsewhere, ably assisted by a broker, and bearing in mind arrangement fees of 2% are the norm, you will be c£34,000 better off on an £800,000.You might even secure a better rate of interest. In the past ‘bridging a bridge’ was not popular, but dependant on the back story, there much more appetite now. We have not explored how the block of flats were funded, and whether additional security is available, but on the basis of what you have told me to date, I don’t think this would be necessary anyway. My mother recently passed away and left her house valued at around £500,000 to my three brothers and me. The property is in a very bad state of repair and is in need of significant works to modernise it. I have agreed with my brothers to remortgage it for £125,000 in my sole name and buy out their interests. However, the surveyor who inspected the property advised there is

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deflection in the rear flank and the property is not considered security for mortgage purposes. My Mother had a structural survey carried out some years ago and the report confirmed the movement was historic and non-progressive. What can I do? MF: Firstly, if you have a copy of the structural report, re-approach the firm that carried it out and ask them if they could update their report. Whilst this may be the most cost effective, easiest and most robust, there will undoubtedly be a charge and the firm may want to send a surveyor out to re-inspect the property. Provided the firm is suitably qualified, has the required levels of indemnity and is acceptable by the lender you have applied to, if the report makes the same conclusion I can see no reason why the lender will not agree the facility. If, however, you are unable to get the original report updated you have a couple of options; Instruct another firm of structural engineers to carry out another inspection and prepare a report. This may confirm the findings of the initial report or may conflict and recommend you complete remedial works, in order the property is bought to a mortgageable standard; costs of which should be considered in the payment to your brothers. Should you feel confident with the original structural report, are absolutely satisfied the property is sound and want to progress matters with your brothers there are lenders that will consider the property in its current condition, and despite the structural integrity being jaundiced, it will still have a value, albeit diminished. The lender will be prepared “in-principle” to advance you around 50% of the current value. PM: Firstly, sorry for your loss. This is a classic bridging transaction, ideal both in terms of the modest loan-to-value (LTV) and how bridging lenders might consider the structural issues identified. As such, a broker should be readily able to secure good financial terms for you. Whilst I acknowledge you have an aged structural survey, it unlikely to be reusable without an update, so another might need to be commissioned (noted the content of which could be used as a platform). That said, if it is as described, perhaps nothing will actually need to be done? Depending on the outcome, remedial work can be carried out as part of your refurbishment program. If any remedial work is carried out, I would recommend it is carried out by a firm that can provide a suitable warranty, with the report made available to subsequent buyers and mortgage lenders. Thereafter, you can get on with the modernisation program. I suspect a refurbishment product based on monthly drawdowns (signed off by a monitoring surveyor or the lenders asset manager) will be ideal. This will keep interest costs to a minimum, and allowing the lender to keep an eye of quality of the builders work.

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Build a Better Bridge

Finding solutions with bridging finance Can bridging be used to help your clients with difficult circumstances? Our experts answer your questions We live in a beautiful flat in Mayfair which I inherited from my grandparents. The lease is due for renewal and the freeholder who is a huge well known property company has asked me for £500,000 to extend the lease by 30 years. I’m advised in today’s market the flat with the lease extended would be worth in the region of £3 to £5m so it’s all relative. But mortgage providers have advised they will not help – would a bridging lender consider this proposal and be able to help me? I’ve let things drift on and now need to get the issue resolved as a matter of urgency. Mel Fordham: This is a situation in which bridging can be used very effectively indeed and is where the innovative and commercial attitude of bridging lenders can be demonstrated most clearly. As you have found, traditional mortgage providers generally shy away from commercial risk, which is mainly due to the restrictions imposed by their lending criteria, not that they can’t see common sense. Whilst I know several bridging lenders that would be delighted to assist you and provide the funding you require, the question that would be at the forefront would be; how you would be able to repay the facility post the lease being extended. Obviously, the bridging facility, even at the most competitive rates will be more expensive than traditional mortgage rates and will have a relatively short-term. Given the terms of the bridging, you will be required to confirm a realistic proposal for repayment before the facility is made available to you. Obviously, you could simply sell the property and using the huge resultant equity you could buy another property. However, if it is your intention to ultimately remortgage the property to repay the bridging facility; you will have to satisfy the bridging lender that you qualify for such a mortgage and that you have income commensurate to service such borrowings. Whilst this may seem a little paradoxical, given the disparity between the value of the property and your borrowing; today’s 28

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compliance regulations are focused on affordability and preventing financial stress and hardship.

Phil Mabb property finance broker, Bridging Development

Mel Fordham chief executive, Centrado

Phil Mabb: The good news is there are a few specialist bridging lenders in the lease extension market, with which a broker can help. However, before you start your journey, there are a few items to give consideration to – appointment of a lawyer and valuer to assist with the negotiations since the property company you allude to is likely to be hard to negotiate with for those uninitiated to such transactions. A little bit of prior research to source the same will definitely help. However, these come at a cost, so I hope you have some liquidity to cover their fees? Additionally, we need to cover off a few things before approaching a lender by starting with the day one value and what your intentions are once you have secured the lease extension. Knowing little about your financial circumstance does not help, but on the basis that £500,000 in the approximate debt on a £3-£5m property should allow you to raise a BTL mortgage if retention is your target. The other option is to secure the right to extend and sell to a third party, therefor giving them the problem of raising the £500k. Two years ago I had to raise some money quickly as I had an opportunity to buy the freehold of a large block of flats with further development opportunity, so I took a loan of £800,000 with a bridging company secured by second charge on my home, which is valued at £4,000,000. My mortgage is with a High-Street lender and is £700,000. I have not been able to get the additional planning on the apartment block yet and have my home on the market for sale and now the bridging company has advised if I have not repaid the facility next month they will charge me 5% renewal fee. Do you have any advice please? MF: Given the fact you used the funds to buy a commercial asset, I presume this original transaction was treated as a business/commercial/unregulated matter.

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Build a Better Bridge

As I am sure you are already aware, bridging lenders that will refinance existing bridging lending are a little limited and the scenario is a rather stigmatised, as such this reduces the number of lenders you could approach with this proposal. Bearing the above in mind, the fact you have such a large amount of equity in your property will be a distinct advantage and will be appeal to the lenders that will consider this proposal. However, with recent SDLT changes the property market is cooling and very high end/large/individual properties are taking much longer to sell and valuers are being distinctly more pessimistic in their appraisals. So, to provide you with practical advice, I would suggest the options are: to retain your borrowing with your existing lender, and albeit incur the £40,000 fee, which I presume will be added to your facility and continue with slightly higher monthly payments, as your loan will, obviously, increase by the amount of the fee. Alternatively; explore alternative funding with a new lender. Should you take this route, you will undoubtedly incur a 2% arrangement fee and further legal fees (both your own and the lenders) in addition you will have to cover the cost of a new valuation, which will not be cheap given the value of the property. My concern would be, should the property be down-valued, and the new facility not be offered to you, for whatever reason, you will have incurred substantial abortive costs and maybe in a default situation with your existing lender too. PM: Ouch! There are not many lenders that charge such a draconian fee for the pleasure of an extension. The simple answer is to refinance with another bridging lender where even with a new set of arrangement fees, legals and valuation you will be better off – you could read it as your existing lender wants you to do the same… Based on a <40% aggregate LTV you should find it easy enough to place elsewhere, ably assisted by a broker, and bearing in mind arrangement fees of 2% are the norm, you will be c£34,000 better off on an £800,000.You might even secure a better rate of interest. In the past ‘bridging a bridge’ was not popular, but dependant on the back story, there much more appetite now. We have not explored how the block of flats were funded, and whether additional security is available, but on the basis of what you have told me to date, I don’t think this would be necessary anyway. My mother recently passed away and left her house valued at around £500,000 to my three brothers and me. The property is in a very bad state of repair and is in need of significant works to modernise it. I have agreed with my brothers to remortgage it for £125,000 in my sole name and buy out their interests. However, the surveyor who inspected the property advised there is

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deflection in the rear flank and the property is not considered security for mortgage purposes. My Mother had a structural survey carried out some years ago and the report confirmed the movement was historic and non-progressive. What can I do? MF: Firstly, if you have a copy of the structural report, re-approach the firm that carried it out and ask them if they could update their report. Whilst this may be the most cost effective, easiest and most robust, there will undoubtedly be a charge and the firm may want to send a surveyor out to re-inspect the property. Provided the firm is suitably qualified, has the required levels of indemnity and is acceptable by the lender you have applied to, if the report makes the same conclusion I can see no reason why the lender will not agree the facility. If, however, you are unable to get the original report updated you have a couple of options; Instruct another firm of structural engineers to carry out another inspection and prepare a report. This may confirm the findings of the initial report or may conflict and recommend you complete remedial works, in order the property is bought to a mortgageable standard; costs of which should be considered in the payment to your brothers. Should you feel confident with the original structural report, are absolutely satisfied the property is sound and want to progress matters with your brothers there are lenders that will consider the property in its current condition, and despite the structural integrity being jaundiced, it will still have a value, albeit diminished. The lender will be prepared “in-principle” to advance you around 50% of the current value. PM: Firstly, sorry for your loss. This is a classic bridging transaction, ideal both in terms of the modest loan-to-value (LTV) and how bridging lenders might consider the structural issues identified. As such, a broker should be readily able to secure good financial terms for you. Whilst I acknowledge you have an aged structural survey, it unlikely to be reusable without an update, so another might need to be commissioned (noted the content of which could be used as a platform). That said, if it is as described, perhaps nothing will actually need to be done? Depending on the outcome, remedial work can be carried out as part of your refurbishment program. If any remedial work is carried out, I would recommend it is carried out by a firm that can provide a suitable warranty, with the report made available to subsequent buyers and mortgage lenders. Thereafter, you can get on with the modernisation program. I suspect a refurbishment product based on monthly drawdowns (signed off by a monitoring surveyor or the lenders asset manager) will be ideal. This will keep interest costs to a minimum, and allowing the lender to keep an eye of quality of the builders work.

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Our experts consider the outlook for the bridging sector

Bridging the gap Ryan Fowler: Your Move has claimed that up to 25% has been wiped off house prices in some of the UK’s wealthiest areas. Would you say that’s accurate? Do you think this is the natural correction that was due anyway? Mark Posniak: I think in certain areas of the country it was accurate but I also think the activity is at a massive high. I’m not just speaking for myself but competitors too. Despite the correction and uncertainty there are pockets of opportunity appearing everywhere and there’s people looking to capitalise and I think it’s very positive for people here providing they know who they’re lending to and what they’re lending against. Gavin Diamond: It’s been clear for quite some time there’s been a move away from Prime Central London where you’ve probably seen that sort of fall but it’s always a question of over what period of time. Prime Central London isn’t typically where the activity is from what we’ve seen. MP: It depends. If they’re coming to you with something from Prime Central London that’s already had the correction, then absolutely the opportunity’s there. If they’re coming to you with 2015/2016 values then there’s no opportunity because there’s unrealistic expectation of value. But with those savvy investors that say ‘it may have been worth £10m and is now worth £7.5m, can you lend?’, then absolutely. Terry Pritchard: I find a lot of the people out there at the moment are just looking for the opportunity at the reduced correction prices and seeing what people will go with. We get a lot of people come to us and say ‘it was worth £10m and is now worth £7.5m and we want to go back and make that offer and see if these people can live with it because they need to be out of it’. So that’s a great opportunity and every cloud has a silver lining. Jonathan Newman: There has been this 25% correction and it probably started with the uncertainty post referendum.

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Brian West: It started way before that actually. It goes right back to George Osborne’s stamp duty changes and that’s where it really kicked in in high end London. TP: It’s corrected from there and has never gone back up. It’s just stayed there. I’ve rebridged someone this week who had a bridging loan two and a half years ago and the property was valued at £6m in Sloane Square and then got valued at £4.2m and they’ve done £200,000-£300,000 of improvements in that period and made it look smarter on the outside. So this is happening. A couple of agents around there told me they’re not selling anything that’s not a deal now and has something around it that makes it unique. JN: I think if its post-stamp duty, which had a massive effect, and post the uncertainty after the referendum, has the market already factored in the Brexit factor? And if it has are we looking at realistic prices that are plateaued rather than bounce back? Gary Feast: This comes down to down-valuations. Prime Central London is a different market compared to the rest of the UK. In the rest of the country there

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Round-table

Brian West, Central Bridging; Terry Pritchard, Charter House; Gavin Diamond, UTB; Harry Hodell, Fiduciam; Jonathan Newman, Brightstone Law; Mark Posniak, Octane Capital; Benson Hersch, ASTL; Simon Chapman, Lendco; Gary Feast, Robert Sterling

market. You don’t like looking at single unit assets in prime central because they could be valued at one price one day and a different one the next. £10m properties being resold at £7.5m is happening all the time. In terms of valuing you should be looking at it with the evidence on the day. Without a crystal ball you should have the commitment to give a realistic valuation at the time. I think most lenders are realistic and feel the market is relatively soft so are not going to be impressed if something is overvalued. There’s the temptation across the board to just slash 20% of the value. That’s not valuing, that’s just running from the hills. MP: Valuers are looking over their shoulder. We’ve seen it across the board with valuations on our desk. We’ve seen that valuers are scared. When valuers start getting scared and applying massive discounts just because they’re scared of their PI, that’s when it creates the downward spiral. are different hotspots as well but that area is really a ‘golden triangle’ from Birmingham to the South Coast and if you take out the Prime Central then unless you’re looking at higher valued properties, £1m and plus, then although it’s a relatively soft market, it’s not cataclysmic, it’s not falling off a cliff in any way shape or form. We don’t like the term down-valuation. We prefer the term realistic. It’s a realistic appraisal of the value of the property at the time which is what the valuation is all about. Some people have to be realistic regarding where they think the value of their property is. We’ve seen a lot of cases where people are coming out of an existing bridge into a new lend. The applicant often has a situation where it is perceived their property has dropped in value and has not increased. Most people still consider their property is either at the same value or has gone up which isn’t the case at the moment. It’s impossible to say what’ll happen in the next few months which creates a problem in valuing property realistically. I think most lenders would be surprised if a valuer is looking at a property which had been valued maybe 12 months before, and had come up with an increase, unless there was a very specific reason for that. By and large it’ll be the same or a little softer. I’m glad to see opportunities in the Prime Central London

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BW: I recall that happening in the immediate wake of the referendum result. Valuers were introducing clauses which rendered their valuations worthless in a sense. They soon realised the sky hadn’t caved in and one of the legacies of the referendum result is the devaluation of sterling by 15%, which suddenly made it much more attractive for overseas buyers to come into the UK and I think that boosted the high-end London market. GF: And if there’s no deal that could happen again. The UK market could be supported by the fact we have a devaluation of the pound. BW: Overseas investors will still see us as very attractive for all the historic and traditional reasons. JN: So one of your major tools when trying to achieve a realistic and accurate valuation is looking at contemporary transactions. And we know the transaction level has clearly dropped so are there enough contemporary transactions to form that realistic opinion or do you struggle with that? GF: The transaction levels have dropped. I think our  FEBRUARY 2019

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biggest problem in terms of valuations is development finance where their product probably isn’t going to come to market until another nine to 18 months. So where do you pitch what you believe the GDV will be in that scheme? We have to work on the basis the market is still relatively soft so you have to be realistic where you think those levels will be. It’s very difficult to be precise as to where that is. I think the lenders are also being a little more pragmatic as they understand there is a medium-term risk in terms of the out-term values. They often look at maybe changing the LTV. We’re being challenged more by lenders and have more of an open dialogue with lenders now if we want to discuss in more detail about where we think the values will be in the future and how the applicants have to approach their schemes. It’s a two-way relationship for us. We have to talk to our lenders more to find a realistic position, so the lenders are more comfortable with their lending proposition. JN: That’s really interesting in a broader scale. You’re saying on the development finance you have the risk

of what the lender has who bears the risk of the development and the risk of the forward planning property market. Are the development funders pricing accordingly for that double risk? GD: At UTB the bank does development, but my team doesn’t do ground-up and property refurbishment and improvement. Because there’s been quite a lot of uncertainty over final GDV people are reducing their overall facility down to a lower percentage of the GDV where they are comfortable. Benson Hersch: But NatWest for example is increasing its percentage and is taking a risk. GD: Within the specialist market I wouldn’t necessarily think that’s the case unless people are chasing deals. RF: Gary you said you’re speaking to lenders to give them advice about where you see the market going in terms of valuation. Where do you see the market going then? GF: I suppose I was talking about the development asset, whether it’s a longer-term perception of risk or exposure to changes to the marketplace. Generally, on a standard bridge or normal refinancing our feeling is the market is soft. We have to manage the applicant’s expectations and lenders’ expectations on an ongoing basis. I think it’s still a fairly solid market and there’s plenty of lending going on but I think people just need to be slightly more realistic in their approach.

“Educating the market makesour lives easier” Terry Pritchard

GD: That’s a challenge we have as a lender at the moment. We’ve had several cases recently where we’ve issued terms based on an estimated value provided by the customer or broker and then the valuer values it considerably less and then the deal can’t go ahead, you can’t give them money and then it’s the big bad lender’s fault. We can only go on what the valuer has provided us with. I think even as lenders we are looking very closely at valuation reports we receive, particularly on comparables in support of the valuation provided. Where it’s not clearly evident how the valuer has arrived at it from the comparables provided, we’ll always push back. GF: The valuation has to tell a story. It shouldn’t just be a list of comparables. It must create a realistic link

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Round-table

between comparables and why they’re relevant to that particular property and valuation. It should always be a story. RF: Overall do we find valuations to be accurate? Simon Chapman: It’s difficult to know whether they’re accurate or not. It’s an opinion of value. You can only assume the valuers are the ones with the expertise, the knowledge of the local market, going to agents, driving the comparables to get their valuation. If you have trust in your valuer there’s no reason why you shouldn’t trust their valuations. They can’t predict the future. The valuation is that point in time. JN: Anecdotally I’ve had significantly more valuations claims in the last six months than I’ve had for a number of years. I’m not talking about very historic valuations, I mean 2016/2017 valuations. There is certainly a trend in increase of PI claims in that. Are they accurate? We’ll find out. But certainly people are looking at valuations very carefully. The market is the best gauge of value and some of these valuations have been quite unsustainable and those valuations have been carried out post-Brexit. SC: But are those valuations blatantly wrong or is it a sign of the times? JN: That’s what my lenders are asserting, and I support that. BW: That could have interesting knock on effects if a few cases are lost. That won’t encourage the valuers to be anything but ultra conservative in their future valuations. MP: There’s one way to deal with it. When you challenge a valuer and find out if they’re just doing it to protect their PI structure. It very quickly comes down to the point where there will be no business until they’re realistic.

“I think people just need to be slightly more realistic” Gary Feast growth in excess of 5% in some areas of the country. Are there still strong opportunities outside of London and where are they? Harry Hodell: We’re seeing opportunities everywhere else. In some of the wealthier areas we’re seeing a 25% drop perhaps but we’re looking for ample opportunities for those who are realistic and know what they’re doing. And in some areas we’re seeing some really good opportunities for those who know what they’re looking for and lenders who are prepared to take a look at it and understand the reason behind it as well.

TP: Unfortunately a lot do.

SC: Growth wise I see a lot of activity in the Midlands. It all falls into this ‘golden triangle’. Some of my clients have moved further afield into these areas because they’ve done their homework into the opportunities out there. There’s definitely a bit of a hotspot around that location but that doesn’t mean there’s no transactions anywhere else. There may be a fall in house price values but that still creates opportunities.

RF: We’ve still seen decent annual house price

TP: I had an applicant who tried tochange the

GF: I think valuers have to be realistic and provide a proper valuation. It’s not acceptable to just carve 20% of the value because you just want to protect your PI.

Over the last 20 years, our team of qualified surveyors have acquired an enviable reputation both for the quality of our work, and the speed of our response, backed by in-depth knowledge and expertise that is second to none. robertsterlingsurveyors.co.uk

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bridging lenders and about 30 are people you can deal with. I think with brokers in general there’s a lack of knowledge of what they’re doing and it’s down to us educating them as well. We get a lot of introducers coming to us and we have to go through a lot of poor cases from them to get to the good ones because of their lack of understanding. We’re quite experienced so I can take business and do it quite quickly whereas others are struggling. Some brokers still don’t understand the product. The specialist ones do. That’s why brokers go through distributors. RF: Benson, aren’t you looking at doing some training with the ASTL on the lender side? BH: Yes we also have regular meetings with FIBA with brokers present.

“It’s better for consumers to find more mainstream bridging lenders” Jonathan Newman

TP: I’ve seen that but it’s the same people attending all the time. I haven’t seen an expansion of the people turning up. Educating the market makes our lives easier and keeps our costs down meaning we can offer it back into the market.

address in the application form to pretend he’s located somewhere else.

BH: You have to basically handhold your introducer and all he’s basically doing is giving you the deal and then you have to flesh out the deal.

GD: Experience counts for a tremendous amount in these sort of markets. Investors and property professionals that have been around for a long time, through different markets and cycles, are very well placed to spot opportunities and we see that all the time. I’m not sure it’s the market at the moment for someone with no experience to get involved with a property transaction. I think they should be asking themselves why.

MP: In my mind the biggest challenge facing brokers is them backing the right horse. When a client goes to an introducer and needs help they don’t know where to go and are putting all their trust into the broker who then needs to pick the right lender and know they’re going to someone who’ll deliver and hold their hand, explaining the process involved, getting the deal over the line. If the lender lets the broker down it’s the broker that’s left with egg on their face.

HH: It’s the professionals who’ve been consistently doing valuations and lending in property over cycles who’ll be able to continue to spot opportunities going forward. We’re looking for that experience and using them experienced people.

BH: The broker has to handle the customer’s expectations because the customer thinks their property is worth more than it is, thinks getting a bridging loan is far easier than it is and expects to get the best rate and highest LTV without understanding the lender is putting the risk profile on that loan and pricing for risk. In some areas it may take nearly a year to sell a property and it’s now taking longer to sell. People expect to sell a property within a week and those days are over. The customer has to have their expectations managed.

RF: What are the biggest issues facing brokers in the current economic environment and what should they be considering when dealing with clients? TP: With brokers it’s always been a lack of knowledge of the bridging market. There’s about 106 registered

MP: Certainty of funds should be more important

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Round-table

than rate. We’ve built our entire business on certainty of funds. It has nothing to do with the rate, it’s all about ‘if you have a problem, can we solve it and if we can, here’s the solution, does it work, yes or no’. RF: Do you think there’s still an issue of some brokers being rate driven? MP: Of course there is. BW: I think some brokers don’t tend to look beyond rate and LTV. I suppose on the internet they’ll find lenders that’ll offer terms fairly instantaneously without much backing and at some point soon further down the line will look to amend those terms. It’s completely wrong. MP: If they’re doing it purely to get it off the market and to then screw the client later on it’s deceitful. It gives our industry a poor reputation that goes back to 2007 and no one wants to go back there. BW: If you’re a reputable lender there’s no reason you can’t do a 10, 15 minute fact find with the client. On the internet you can do searches like on Experian and Equifax. TP: I see this a lot. A lender says they’ll do it at a certain rate but at that point the client is partially committed to the lender. Very seldom do they jump from one to another. I had a client where a lender put it up 0.5% and the client said they can’t afford the time to change it now. It’s wrong but it happens and people do it and think it’s right. We went there for a particular reason, something unique they had which they then didn’t have. JN: I’ve come across in the last 12 months lenders totally under the radar that I’ve never heard of and when you dig deep and find out who they are, what they’re doing, what rates they’re charging and what their documents look like, you find these are not lenders with small contained books. They have substantial funds in excess of £50m and charging at high rates and terms we see as historic as the market’s moved on since then. So it makes you wonder how borrowers are getting to these lenders and there’s a market there. Those borrowers should’ve found their way to what we call more institutional now. They would have easily found their way onto lenders that are ASTL members and would

probably have got better rates, terms and transactions. Brokers have to find why they’ve lost out on that distribution because it’s better for consumers to find more mainstream bridging lenders that we’re more familiar with. I think there’s a substantial market there. RF: There’s also a difference between a low rate and bad service, and bringing someone in, getting them on the hook and then raising the rate. BW: You’re always going to struggle to drive broker standards if you have lenders with that approach. It hardly encourages broker standards. GD: With rate it depends on the type of transactions. For the most straightforward of transactions against the most straightforward property for the individual who can go anywhere for this deal, rate is more important because they want it at the cheapest price. It’s the more complicated deals where it’s more about whether that lender can deliver rather than what the price is. Where people say the average rate for a bridging loan is 0.81%, how long’s a piece of string? What’s the pool of the loan that forms this 0.81%? If it’s straightforward types of transactions I’d say that’s pretty high whereas if it’s for more complex transactions I’d say that’s probably about right. It depends on so many different factors, the security of the property, the exit strategy, whether there’s planning permission or not. HH: Where the exit is a big issue for broker in terms of 12 months’ time. Are there going to be the LTVs available to certain transactions that’s happened historically in 12 months’ time that’ll allow the exit? One of the biggest issues for brokers is going to be how they’ll exit their clients and keep them going after that. MP: I think there’s a larger issue for brokers where when loans don’t exit, how are lenders going to treat their clients? Are you going to have the standard ‘it’s hit the term end date and we’re applying X percentage fee and you’re in default’? Some lenders do it and I talk to brokers and ask them why they go back if that’s the lender’s process. GD: There’s a cynical answer in that a broker could say ‘I can rebridge this and earn again’.  

Over the last 20 years, our team of qualified surveyors have acquired an enviable reputation both for the quality of our work, and the speed of our response, backed by in-depth knowledge and expertise that is second to none. robertsterlingsurveyors.co.uk

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Surveying the landscape Ryan Fowler caught up with Gary Feast and Arwel Griffith of Robert Sterling Surveyors to get their take on the market There have been a raft of lenders enter the bridging market over the past couple of years and you could be excused if some of them had passed you by. But one you will surely have heard of, if not used, is Octane Capital - the lender that bills itself as a ‘third generation’ bridging lender. It’s an interesting time to be in the specialist finance market at the moment. New lenders are launching apace and the sector is changing rapidly. Recent months and years have seen lenders come and go and the transformation of product ranges as the market evolves. But whilst lenders and brokers may grab the headlines there are numerous over stakeholders in the sector that work diligently to ensure the market thrives. And now, more than ever borrowers, lenders and brokers are needing to rely on the experience of professionals to navigate the journey that makes a deal get through. With the wider property market stalling valuations, and the accuracy thereof, has become a topic of conversation for many. In many cases properties aren’t meeting the price expectations of owners as the market adapts to what Arwel Griffith tongue in cheek refers to as “the new world order”.

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We caught up with Griffith and Robert Sterling financial director Gary Feast to get their take on the ever-changing specialist market.

Half full

The term new world order is an evocative one. And, to an extent, it’s also an accurate one to describe the market at present. But for those of you who are about to get your tinfoil hats out let’s be clear Griffith isn’t suggesting that David Icke’s lizard people are coming to take over just yet. In this case it represents the uncertainty that is currently permeating all sectors of the UK and especially the UK’s property market. You can’t pick up a paper without hearing about the B word or how the property market has stalled. Pick your reason And as Griffith says this has led to a situation where “Whoever you speak to it is either glass half full or it is glass half empty.” Indeed, people are polarised about the current situation and opinions, both good and bad, abound about the future of the market. So, what about the seasoned surveyor? He’s looking at the positives. “It’s a great time to be alive,” he says. “Looking back a couple of years ago you could wake up in the

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morning and know exactly what you were going to do. To an extent it was step and repeat.” Understandably Gary Feast, an accountant by trade, points out that he “rather liked that” but admits that the business is “seeing a lot more intense activity”. As Griffith adds: “The uncertainty creates opportunity. We are seeing so much stuff coming in that it really does make things interesting.”

Building the business

That opportunity has seen Robert Sterling increase its headcount over the past 18 months with the recruitment of a number of experienced hires. The surveyor has nine members of its team covering what Feast refers to as the “Golden Triangle”. This triangle extends from the Midlands down to the South East then out to the South West. It was Feast who headed up the recruitment and speaking to the pair it is clear that the overall objective was to ensure that they added the right experience to the marketplace. Feast says: “It’s very difficult to get the right people in and until they are there working at the coalface you never know how well people will work out. “We’ve managed to up our headcount to nine now and have made sure that we supplemented  www.specialistfinanceintroducer.com


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Gary Feast and Arwel Griffith

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ham, Bristol and London. But when pushed on the matter Griffith points to “the fringes” as the place where opportunity lies. Griffith says: “If you look at places like the South Kent Coast there are some brilliant opportunities. Places like Dover and Folkestone are seeing opportunities arise.” One such place is Manston Airport, located some 13 miles outside Canterbury. The site has the potential to provide 2,500 homes, commercial sectors and public parkland which at a time of significant housing shortage would be welcome. “Manston is a massive opportunity and has the ability to provide a large amount of much needed housing in the South East,” Griffith adds.

The new norm

the team with people that have been around for a while and have experiences that complement ours. “They’ve been there, done it and seen it all.” This recruitment drive has also allowed Griffith, both a chartered surveyor and chartered engineer, the opportunity to increase the firm’s exposure to more complicated construction projects. The dual hats that Griffith can wear as both a surveyor and an engineer is relatively rare in the sector and something that he believes adds an “edge”. An edge that Feast was also looking for when he recruited the new surveyors to Robert Sterling. “There are a lot of very competent surveyor ‘plodders’ out there,” says Griffith. “However, what we have tried to do is bring people in that have something different to offer to the market. “Our market needs that edge. The sector is changing constantly and as a business you need to adapt to it. That’s something we are always trying to do.” An example that Griffith gives of the ability to adapt relates to development valuations. With some

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sites having significant expenditure but limited starts there are two ways that a value can be garnered. It can either be seen as a steep uplift at the end of the project or a gradual uplift over time reflecting the investment in the site - on site infrastructure etc. Robert Sterling looks at it with a longer view helping lenders and borrowers reassure investors during the course of the project. Something that is possible because the firm has the experience to understand the intricacies of the deal from the surveying and construction side and, with the experience of Feast, the finance side.

On the fringes

As with any business that has a large intake of data surveying firms are able to take a wide view of the state of the market. Whilst Robert Sterling operates throughout the afore mentioned golden triangle there must be some areas that seem more open to opportunity than others. It would be easy to assume those opportunities would lie in the big cities and towns. The obvious answers being the likes of Birming-

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Over the eight years that Robert Sterling has been running in its current form the bridging market has seen a great deal of change. Whilst the surveyor was initially a bridging finance specialist Feast admits it is now “rare to see a pure bridge”. The pressures facing the firm have also changed. “In the past there was intense pressure for the turnaround of valuations as lenders strove to get deals done quickly,” Feast says. “However, deals are now taking a long time to come to fruition. “It’s a different type of lending now and there are so many new lenders in the market. The market is considerably different to the one that it was.” These new lenders have been much maligned by some quarters of the industry. And in diplomatic fashion Feast refers to the quality as “variable”. However, Feast is not critical of the new lenders coming to market. He says: “We’ve found that the better lenders stick around. There were a lot of lenders who entered the market thinking it was an easy way to make money. Many of those lenders have found that it is not. “From our perspective it is all about relationships. We work with new entrants to help nurture them www.specialistfinanceintroducer.com


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and to ensure that they are able to do think both accurately and in the right manner. “We work closely with our clients and help them with instruction processes and other systems. For us it is a two-way process and it helps us do our job effectively.” One of the points that Feast returns to when it comes to relationships with lenders is the need for open and frank dialogue. “For us communication is key,’ he says. “It is probably the most important thing in the lender surveyor relationship and as such we are accessible.”

Working in tandem

One of the areas that Robert Sterling does have issue with is the lack of understanding that some lenders have for the risks involved for surveying businesses. The RICS Rules of Conduct for Firms makes it mandatory for all RICS regulated firms – whether trading as a sole practitioner, limited company or LLP – to carry adequate and appropriate insurance in the

form of professional indemnity insurance. However, when one compares the renumeration received by others in the chain to that received by surveying firms it is disproportionate to the level of risk carried. As such a claim against a surveyor can lead to the end of a business as there is no safety net in place. Griffith says: There is a large risk for surveying firms. If something doesn’t go right in a deal the surveying firm is the first part of the chain that is looked at.” What Robert Sterling would like to see is a centralised fund, contributed to by the brokers and lenders, to help ensure that a surveying firm would not be at risk under the weight of a significant claim. Griffith has been in the market for 40 years and says that it is “the hardest PI market I have ever known”. That in mind there is a significant risk that the shortage of surveyors that is already being experienced in

some sectors could be exacerbated. “It’s really short sighted not to see that some short of levy, be that from brokers or lenders, would help mitigate this risk,” says Griffith. “Solicitors used to have a similar fund that helped protect them. A communal safety net would help everyone.” Of further interest for lenders is the fact that notifications are damaging surveyors chances of renewing their PI. Should a lender makes a spurious claim then it will still affect the surveying firms ability to get PI despite it being unfounded. “It doesn’t matter if you are 100% right all of the time but if there are notifications against you then you can find yourself in real trouble when it comes to renewing your PI,” Griffith adds. In these uncertain times maybe now is the time for the market to look at how it can support the firms that ensure the sector keeps moving forward. If not then the specialist market runs the risk of eventually losing the specialist surveying knowledge on which it so heavily relies.

The B word

Be it a new normal or the new world order one thing that has had a massive impact on the market is Brexit. We’ve all spoken about it and we’ve all tried to work out what is happening. None of us are any closer to that answer. “There’s a risk of over doing this Brexit stuff,” Griffith says. “Opportunity continues to be out there and people are taking a longer term view on the development front. It is, and will remain, a very interesting time to be in the specialist finance market.” And who can argue with that. Maybe we all need to adapt to the new world order and look to seize the opportunities ahead. Speaking to Griffith and Feast it looks like there will be plenty of opportunities for both Robert Sterling Surveying and the wider specialist finance market in the years to come.  www.specialistfinanceintroducer.com

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KEEP CALM AND CARRY ON By Arwel Griffith, Partner at Robert Sterling FRICS

As we career towards Brexit with no greater understanding of what will happen and what it will mean for the state of the nation, there does at least seem to be a fairly marked change in the state of the play within the industry.

new jobs seem to be over. Although we are fairly fortunate in so far as we still receive many enquiries every day, the wheat still needs to be sorted from the chaff, or else filed away in the ‘maybe one day’ tray.

We are finding that longer-term projects that will realise their full value in a few years’ time when our exit from the EU has hopefully settled down, are much more stable and are continuing almost regardless. The shorter-term, smaller projects, perhaps comprising only a handful of units, however, are those that seem to be being delayed. There is a certain nervousness among those whose loans are due to be repaid around the end of March; you can sense the jitters even now.

That said we are by no means complacent. We are having to work much harder to secure any work from what seems to be an ever-diminishing pot. And it seems to me that there are ever more people fighting over that pot!

One example leaps to mind. I was in Rock near Padstow recently looking at a development and the owner was remarkably upbeat. He felt that because Cornwall is always a desirable location for holidaymakers, and because his accommodation was of a certain quality, that it was a fairly safe bet that no matter what happens with visas (perish the thought) or border controls, tourists will still flock to the area. The times are a changing My first job as a Surveyor was in 1981. When I visited one site in Shepherds Bush they immediately asked my age – and at the time I was the youngest in the business at 22. But those heady days when we used to go into the office and have a pile of new enquiries that were on the verge of being confirmed as

Whilst in Acton quite recently an area I have covered for nearly 40 years, I had a real sense of Déjà vu. I visited the same property I’d seen all those years ago. Since then, the job has changed immeasurably in terms of the methodology used and the legislation we need to keep abreast of, not to mention the technology everyone has at their fingertips, but if you stick to what you’re good at then the opportunities still arise. I seem to be an old dog in a changing world, willing enough to learn new tricks but not at the expense of old-fashioned quality service. Sticking to our guns While there has over recent years been an obsession with completing a job as quickly as possible, that focus seems to be changing. There is a greater appreciation of the need for accuracy of the reports we produce. Cost is no longer the greatest driver, but rather who can deliver the most reliable and dependable service. There has been an acceptance that

The addition of £20 million in PI cover has given the industry confidence that they can talk to us about the bigger projects. This was not a small outlay on our behalf but it shows the confidence we also have in ourselves. We are one of only a handful of specialist development finance valuation surveyors with that level of cover.

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The external and internal auditing and training that we regularly undertake ensures we always have our finger on the legislative ‘pulse’, and are aware of any changes being made, which are always frequent and many. This constant reviewing process is one of our core strengths and one that keeps us at the top of our game. The addition of £20 million in PI cover has given the industry confidence that they can talk to us about the bigger projects. This was not a small outlay on our behalf but it shows the confidence we also have in ourselves. We are one of only a handful of specialist development finance valuation surveyors with that level of cover.

it has to be right rather than quick. In my experience rarely can they be both fast and accurate. We are fortunate to have a great support team at our offices whose value to us as a business cannot be quantified. Without their help, and some 50 plus years of industry knowledge, we really would not function as well as we do. They are an essential cog in the machine and ensure our surveyors out in the field are equipped with all the relevant information they need.

The recent collapse into administration of Amicus – a good business partner of ours and many others, which seemed to be in pretty rude health – goes to show that anything can happen. There is a renewed determination from the remaining players in the market to stay as active as possible to avoid a similar outcome. There are an awful lot of good people in the Bridging world. Although I personally wouldn’t want to be starting out now, there are some hugely talented people that know the best course to get through this current malaise. With a steady hand on the tiller they will be able to continue through the fog, dodging any icebergs along the way.

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Comment

Should brokers be confident? The data suggests there will still be an advantage

2018 figures released by the ASTL recently reflected a 21% increase in funding by its members giving an aggregate loan book just short of £4bn, a 16.6% average increase in its members loan books and a 9% average increase in applications. In what had been a challenging year with several lenders going to the wall and new entrants entering the market to impact on the ever, strengthening competitive nature of the sector, I think these figures show that 2019 is looking good for those lenders who are prepared for an even more challenging year than the last one. Competitive advantage is what keeps a business ahead of the market and how you achieve that status is what drives your growth ambitions but what do you need to get to this stage in your strategic planning and subsequent action programme? The answer?... DATA. The Mad Approach works with like-minded clients who realise that they must source their business by capturing data that enables them to target those relationships that will bring benefits to both parties and

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generates the cost- effective repeat and referral business that drives sustained growth. We work on the premise that knowing your competition better than they know themselves is the strongest position to be in. That is achieved by the quality of the data you capture but more importantly how you use that data to achieve competitive advantage. There is no denying the importance of your software capability in refining the data not just to fit in with your proposition but more importantly to modify your model to accommodate changing markets. It is data that drives markets…who wants what, what does ‘what’ look like and how does a lender or broker get ‘what’ to the end user. This has always been the challenge in any service industry and so what data needs to be collected to build that confidence that when you cross the white line you have the belief that you will be a winner? Leeds United have recently been criticised for ‘spying’ on their

FEBRUARY 2019

Mike Dring Strange Alan managing director, director, MAD Approach Funding 365

opponents. I say you need to do, within a regulated or unregulated market what gets you to the top, Leeds as I write are at the top of the Championship and what they did may be seen by some as unethical, but it was legal. Lenders and brokers will determine what is ethical and what is not. Any astute football manager will, on match day, have a very comprehensive dossier (their data bank) on the opposition (the competition) and in the weeks leading up to the match will have worked with their whole team not just the playing squad (coal face sales people) to ensure the data they have on the opposition will give them the confidence that as they cross the white line they will be winners (a leading broker or lender). For forty-five years I have been surprised by the limited number of my competitors whose data has not been sufficiently refined to enable them to challenge the propositions I was responsible for, thus I was able to achieve award winning results over that period because I was able to sustain my competitive advantage So, I hope many of you reading this piece will be confident the growth plans you have agreed with your targeted clients will deliver in 2019. You will have that confidence because through collaboration, communication and education you will have captured a mass of data that will have refined your proposition to deliver business in a challenging environment where as ever knowledge is power. Bielsa had the knowledge, but just like him, a broker must ask, do I have the talent around me I need to get that ‘white line confidence’? I wish you all the best in your own Championship in 2019. www.specialistfinanceintroducer.com

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