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BRIDGING Champion of the Bridging Professional

INTRODUCER www.sfintroducer.com

Castle Trust talks flexibility and stability in 2021

Banking on balance

January 2021

£5


0345 241 3079 www.castletrust.co.uk

Are Holiday Lets going to be this year’s big opportunity? This could be the year of the staycation, and your clients can seize this opportunity with Bridge to Let. Bridge to Let guarantees an exit to a term product if needed, giving your client confidence and certainty from the outset. Whether your client is a seasoned Holiday Let landlord or they’re looking to dip a toe in the Holiday Let market for the first time, we can help them achieve this. For more information, or to find your local BDM, visit www.castletrust.co.uk

Castle Trust is the trading name of both Castle Trust Capital plc (company number 07454474) and Castle Trust Capital Management Limited (company number 07504954) both registered in England and Wales with registered offices at 10 Norwich Street, London, EC4A 1BD. Castle Trust Capital plc is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority, under reference number 541910. Castle Trust Capital Management Limited is authorised and regulated by the Financial Conduct Authority, under reference number 541893. Buy to Let is not regulated by the Financial Conduct Authority or the Prudential Regulation Authority.


EDITORIAL

COMMENT

Publishing Director Robyn Hall Robyn@mortgageintroducer.com Publishing Editor Ryan Fowler Ryan@mortgageintroducer.com Editor Jessica Bird Jessicab@sfintroducer.com Deputy Editor Jessica Nangle Jessica@mortgageintroducer.com Deputy News Editor Jake Carter Jake@mortgageintroducer.com Editorial Director Nia Williams Nia@mortgageintroducer.com Commercial Director Matt Bond Matt@mortgageintroducer.com Advertising Sales Executive Tolu Akinnugba Tolu@mortgageintroducer.com Advertising Sales Executive Jordan Ashford Jordan@mortgageintroducer.com Campaign Manager Victoria Hubbard Victoria@mortgageintroducer.com Production Editor Felix Blakeston Felix@mortgageintroducer.com Head of Marketing Robyn Ashman RobynA@mortgageintroducer.com Printed by The Magazine Printing Company, using only paper from FSC/PEFC suppliers www.magprint.co.uk

Contents

Preparing for the unknown

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irst of all, I’d like to wish all of our readers a Happy New Year. We all likely celebrated in a rather different way this year, but for me at least, the sense of excitement for a fresh start was only amplified by subdued festivities. Not long into 2021 and there is already plenty to discuss. The third iteration of national lockdown may have detracted from the optimism of a new start, but the vaccine roll-out is going full steam ahead. Here in London at least, some GPs have already made their way through the over-80s and are well into the 75-plus list which, for those of us with loved ones in those brackets, provides a feeling of relief with which to start the year. Similarly, whatever your stance, the resolution of a Brexit deal is a further step forward towards – at the very least – some certainty and stability. Nevertheless, there are more challenges on the horizon. There is, at the time of writing, no update as to whether the government will heed the nearunanimous call to extend the stamp duty deadline, while thoughts are also turning to how planned changes to Capital Gains Tax might impact the market. Meanwhile, speculation abounds as to when, and in what form, the nation’s chickens will come home to roost in terms of recouping the cost of the incentives and support systems that have been put in place over the past year. Through all of this upheaval, the role of bridging is only going to increase. For example, it may be the answer for many borrowers looking to complete rapidly amid clogged pipelines and over-strained resources. While there are still concerns over issues such as the certainty of exits, this market has proven to be resilient and adaptable. As we look back to the lessons learned during 2020, the consensus is that personalised service, flexibility, willingness to adapt, and the power of relationships will be the name of the game well into the future, even when the pandemic is a distant, unpleasant memory. B I

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5 Jason Berry Beat the deadline with chain break bridging? 7 Nick Jones It is important to meet every customer 9 Jonathan Newman Behind the scenes of a virtual mediation 10 Roxana Mohammadian-Molina Top three property trends to watch 11 Chris Biggs Preparing for turbulence 12 Jonathan Sealey Left standing in the aftermath 13 Dhaneer Popat The outlook for the advice sector 14 Feature: Looking ahead Bridging Introducer asks the experts what they are expecting, from the fate of the UK to their own business goals 22 New year, new start? Jessica Bird outlines the key points discussed at the first round-table of the year, which considered the trends of 2021 28 Cover: Banking on balance Barry Searle discusses Castle Trust Bank’s plans for the year ahead 34 Vic Jannels Building on Benson’s legacy

Bridge to Let - ideal for your holiday let clients 0345 241 3079 | www.castletrust.co.uk www.sfintroducer.com

JANUARY 2021

BRIDGING INTRODUCER

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For introducer and professional property trader use only.

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With Roma Finance, it’s that simple With an extensive bridging and development product portfolio including auction finance, refurbishment, conversions, commercial bridging, ground-up developments as well as buy-to-let and holiday lets, we’re always looking at ways to improve our commitment to customer service excellence. That’s why our intermediary partners and customers can now enjoy bigger loans, LTVs and smaller rates across the majority of our range.

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REVIEW REVIEW

BRIDGING XXXXXXXXX

Beat the deadline with chain break bridging? Jason Berry group sales and marketing director, Crystal Specialist Finance

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ith the stamp duty deadline sitting ominously on the horizon, we are witnessing unprecedented pressures across all parts of the mortgage process. Upwards of 10 days to review post has become the new norm in both the residential and specialist lending spaces, and we have even seen one lender take over 40 days to look at new business applications. To complicate matters further, obtaining crucial searches is slower than ever, many housing chains are more complex than at any point in time previously, and a huge number of firms are struggling to undertake simple tasks efficiently, as COVID-safe ways are forced upon working environments. In December, research by the Guild of Property Professionals showed that 31% of homemovers in England and Wales were very likely to pull out of the transaction if it was clear that they would not complete before 1 March 2021, while 43% said that they would most likely do the same. The number of transactions this could affect is huge, as Zoopla estimates that there are 418,000 home sales heading towards the end of March deadline, which is 140,000 more than normal. Unsurprisingly, this has led the Association of Mortgage Intermediaries (AMI) and the Intermediary Mortgage Lenders Association (IMLA) to issue a joint statement to the Treasury warning the UK home buying market is at a critical stage, and that “it is now likely that many cases will not complete before 31 March.” Despite all this panic, for some homebuyers, using bridging finance www.sfintroducer.com

to provide a ‘chain break’ solution will certainly be a viable option, and could genuinely be the difference between buying their next home or losing it. Throughout 2020, at Crystal we have been fortunate to see many new brokers contact us with their very first bridging enquiries, and this trend is certain to continue in the new year. Consequently, it is important that much more subject matter information is shared, so at least a better understanding of costs and criteria is a result. We will continue conducting our regular webinars to assist with education, but I thought it might be helpful to provide some quick tips on exactly when bridging finance can assist with chain break challenges. First of all, it is important to note that a bridging loan becomes ‘regulated’ when the loan is secured against a property that is currently, or will be, occupied by the borrower or any member of their immediate family. This type is regulated by the Financial Conduct Authority (FCA) and falls under the same regulation as a residential mortgage. A bridging loan is unregulated when the property secured will not be occupied by the borrower or any member of their immediate family. There are three simple phases to the bridging process: the initial application, the release of funds, and the repayment or ‘exit’. THE APPLICATION

You will need to provide details of the loan the customer wishes to receive, including the amount they need to borrow, how long they need it for, the property they intend to purchase, details of the actual property the funds will be secured against, and the exit strategy to repay the loan. A chain-breaking loan example might, therefore, see £300,000 needed to purchase a new home. This

would be secured on the borrower’s unencumbered existing home, worth £400,000. A term of six months would be agreed, to allow for the existing home to be sold. The exit strategy would be the sale of this existing home with £300,000 of the proceeds used to repay the bridging loan as an exit. Upon providing application information, a decision in principle is usually given within a couple of hours. An independent valuation of the property is then instructed for assessment by the lender. RELEASE OF FUNDS

In our experience, bridging cases can move at a pace determined by the customer and broker. We regularly experience cases taking less than 14 days from application to completion, although the industry average is around 40 days, so the urgency and speed is worth factoring into your decision. Once the money is made available, interest is usually charged monthly rather than annually. Many lenders now offer useful options which include interest ‘roll-up’, which means that loan costs can paid at the end of the term rather than during the loan period. This is often advantageous, because it avoids monthly interest payments and enables the loan to be used entirely for the purchase of the new property. REPAYMENT OR EXIT

The final closure of the loan occurs when the borrower sells their old property. At the completion of the sale, the borrower will need to repay the total loan amount borrowed in full along with any outstanding ‘roll-up’ interest costs. There are a multitude of lenders operating in the regulated and nonregulated bridging space, and at Crystal SF we choose our lending partners carefully. This means our supporting brokers can be confident that the lenders we propose meet strict service standards for both their pre and postcompletion processes. Bridging finance really does not need to be confusing, and this type of short-term funding solution frequently provides speedy results and involves simple processes. B I JANUARY 2021   BRIDGING INTRODUCER

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We’re open for business. The bridging experts you know. Flexible and reliable. But smarter and faster. And maybe, like you, having to do things a little differently – for the time being, at least. But make no mistake; We’re still using our common sense. Still focused on delivering for you. With simpler products than before, All through a select panel of packagers.

And that’s about the long and short of it.

Find out about our relaunched products. togethermoney.com/onwards

For professional intermediary use only.


REVIEW REVIEW

LENDING XXXXXXXXX

It’s important to meet every customer Nick Jones commercial director, Roma Finance

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ridging finance is a type of asset-based lending, much like a mortgage, and the loanto-value (LTV) is therefore, of course, an important part of the underwriting equation. However, the property value or equity level of the project is not the most important factor in our lending decisions at Roma Finance. Unlike many short-term finance lenders, we approve a client’s application based primarily on their ability to repay the loan. In order to assess them, we meet them – in person and preferably at the project site. FACE-TO-FACE BENEFITS

In-person meetings have been a little more difficult with the onset of COVID-19 restrictions, and we’ve had to meet some potential borrowers over video call. However, the majority of our borrowers have still been met in person by a Roma Finance professional, with social distancing measures in place and often outdoors to minimise risks. If possible, we prefer to meet at the property or development site. Clearly, it costs us time and money to do this, but it is an important part of our underwriting process and does not impact the relationship between the intermediary and their client; in fact, it can strengthen it. Here’s why… CONFIDENCE TO LEND

Meeting every applicant gives us a good gauge of their suitability for the loan, which simply cannot be replicated www.sfintroducer.com

on paper. A face-to-face meeting gives us confidence in our decision to lend, because it further helps us to understand the application, property, borrower and essentially, their timeline. Importantly, it can act as a red flag for customers if, on meeting, they may not be as committed or equipped to handle the project, or their expectations for completion and return on investment needs further due diligence.

“We believe that meeting borrowers face-to-face supports our responsible approach to lending” We can get some of that detail from an application, of course, but actually meeting the customer has proven invaluable in getting under the skin of the application – not only vetting the project, but offering our own expertise and support, which helps to keep defaults extremely low. NEW OPPORTUNITIES

Taking the time to meet potential customers in person also throws up new opportunities. For example, sometimes it shows us that we can stretch the lending levels and even work outside of criteria, because we get to know the customer and the application better. It isn’t unusual that – once we have chatted to the customer to further understand their plans – it works out that there is a better way to structure the application, thanks to our multiple funding lines, such as increasing the loan amount to improve the quality of the project by taking a charge on another property. This can help to safeguard the customer, the intermediary, the lender and the project, and possibly create more revenue.

CONSULTANCY AND COLLABORATION

We take a consultancy approach to each application, and borrowers can therefore tap into our experience and expertise in this sector, in addition to that of their own advisers. Members of our team are experienced landlords and property developers, and can provide insight for the journey ahead with the ability to look at the situation from all angles. Meeting in person is therefore helpful for the customer, too. It builds their confidence with the lender they are about to work with, because 12-month or sometimes even longer property projects like these require trust and confidence on all sides – lender, intermediary and customer. Customers have told us they feel like they be can more open and ask more questions about the process and the costs when they meet us face-to-face. PANDEMIC-PROOFING

In the current climate, meeting borrowers has become even more important. We get to know how they have been impacted by the pandemic, and whether they have a track record of overcoming problems or coping with change, which is currently a particularly useful experience to be able to showcase. This is a volatile and unpredictable market, so all of this gives us the confidence to move forward. We are not the only property lender to meet our applicants face-to-face of course, and on large development projects, where the stakes are higher, this frequently happens. The difference, perhaps, is that we always want to see the customer faceto-face on every case – whether small or large. Of course, as a rising lender with an ambitious growth strategy we realise this will pose challenges, but we are committed to our principles and will strive to continue these practices. We believe that meeting borrowers face-to-face supports our responsible approach to lending and pays for itself with extremely low default levels, so we want to find a way to continue it as we grow our volumes. B I JANUARY 2021   BRIDGING INTRODUCER

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REVIEW REVIEW

MEDIATION XXXXXXXXX

Behind the scenes of a virtual mediation Jonathan Newman senior partner, Brightstone Law

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020 was the year when we all learned how to do things virtually, with a whole host of events that would have previously taken place face-to-face now being facilitated through Zoom and other video calling apps. These have been executed with varying degrees of success. The novelty of Zoom pub quizzes, for example, withered very quickly, whereas the slick execution and professionalism of the Association of Short Term Lenders’ (ASTL) conference showed why there is likely to be an appetite for virtual events even after COVID-19. The high standards of the ASTL conference are something we will be building on at Brightstone, when we host our own virtual conference with our colleagues at Westcor in March. Look out for more information on this in the trade press soon. Virtual mediation may not be as exciting as a Zoom wine tasting event – except for lawyers – but it is going to be around for some time, and my initial experience has been very positive. Mediation is a commonly used process where a professionally trained mediator facilitates negotiations between the parties to a dispute, in order to help them find a consensual outcome and avoid the time, cost and emotional stress of a contested trial in the austere surrounds of courtroom. There is no formality, albeit there is a reasonable amount of preparatory work. The parties can discuss issues and numbers in a closed and private environment without prejudice. Often, mediation is the last opportunity to avoid trial. www.sfintroducer.com

Pre-COVID, all parties would get together around the same table for an initial plenary session. They would then split into separate rooms and the mediator would shuttle between the rooms, flagging risks and seeking compromise. So, how would this work in a virtual environment? The first thing to note is that mediation is a process that is appropriate for large, commercially significant disputes – and so is virtual mediation. This particular case was one where a lender was pursuing a surveyor for professional negligence for losses exceeding £1m. The virtual mediation took place over a Zoom meeting, with the mediator in charge of proceedings. There were three separate virtual rooms – one for myself and my client, another for my opponent, his support, his client and diverse representatives from insurers, and a third room for everyone. The rooms were entirely separate and ‘entered’ only when a text invitation was sent.

The format was much the same as a physical mediation, with a plenary session to begin, followed by individual consultations. It was, however, a very different vibe. With people sat behind screens, rather than across a table, it was less personable; however, if some nuances in body language were lost by the virtual environment, then gains were made in productivity. Subliminally, with each attendant ‘at home’, there was an increased feeling of being in the comfort zone, which allowed for the day to proceed in a more efficient – and what appeared to be speedier – manner. In the end, the result was very positive for the lender client, who professed to have had a much more enjoyable and successful experience than in the last mediation he attended, albeit through other solicitors. And there was the additional benefit of facing no prawn sandwiches and curled pineapple! As we move into a world of more normality in 2021, some of the virtual replacements we have introduced during COVID-19 will disappear and some will remain. Judging from the very positive experience of a virtual mediation, this could be one that is set to stay for the long haul. B I

Virtual mediation methods could be here to stay

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REVIEW

ALTERNATIVE XXXXXXXXX FINANCE

Top three property trends to watch in 2021 Roxana MohammadianMolina chief strategy officer, Blend Network

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rying to forecast trends is never easy, especially following a year that saw a tail-wind event hit the world in a manner very few people – if anyone at all – could have predicted. However, I believe that thinking about the trends we are likely or would like to see is helpful, enabling us to steer our business in the right direction for the year to come. So, as we leave behind what was a challenging year that also presented many fantastic opportunities to grow our businesses, I would like to pause and take a few minutes to reflect on the three trends we are likely to see

in the property market over the next 12 months. MARKET STRENGTH

First, we expect the recent strength in the UK property market to cool down, especially in Q2 and Q3 when the unprecedented government support measures currently in place are expected to come to an end. This view is supported by others, too. According to Capital Economics’ November UK Housing Market Focus, while policy support in the form of the stamp duty holiday has likely reduced and delayed the impact of the pandemic on UK house prices, it has not removed it altogether. Consequently, Capital Economics expects the pandemic to take its toll in 2021, with a 5% dip in house prices. However, they also expect the correction to be smaller than in previous recessions, leaving prices

slightly higher at the end of 2021 than they started 2020. In its latest House Price Index commentary, Nationwide also threw doubt into the sustainability of recent house price strength by pointing out that labour market conditions had weakened in the three months to September, with the unemployment rate rising to 4.8%. ALTERNATIVE LENDERS

Second, we expect to see a bigger role for alternative finance providers in the property market next year, especially across development and bridging. We believe that this will likely be supported by a closer collaboration between traditional lenders and alternative lenders under HMRC’s Bank Referral Scheme (BRS), which was launched in 2016 to help businesses which have been unsuccessful with the major banks find finance through alternative lenders. The COVID-19 pandemic has provided an opportunity for alternative lenders to show their worth. Given the success of alternative lenders in channeling funding to small businesses this year, we believe that the collaboration between them and traditional lenders is likely to strengthen over the next few years, starting with 2021. TWO-SPEED MARKET

There will be plenty of opportunities but also numerous challenges ahead

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Third, we expect to continue to see a two-speed UK property market, whereby some pockets continue to outperform others, as has been the case over the past year. In particular, we expect the North West and Midlands to continue to display strong growth and outperform the South and South East following the government’s plan to ‘level-up’ the UK’s economic growth. In summary, we do expect to see a gradual return to normality, both across the broader economy and in the property market, but such path to normality will not be without hiccups. There will be plenty of opportunities, but also numerous challenges on the way back to normality. So, ensure you look out for them to capitalise on the opportunities! B I www.sfintroducer.com


REVIEW REVIEW

BREXIT XXXXXXXXX

Specialist finance must prepare for turbulence Chris Biggs partner, Theta Global Advisors

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ith the confirmation that a new trade deal has been signed between the UK and the EU, Britain has at last completed its exit of the European Union, and a new trading era has begun. However, despite the successful negotiation to reach a trade deal ahead of the 31 December deadline, little has been said about the destiny of professional and financial services in the UK following Brexit. As a result, there has been considerable unrest in the sector; City AM reports that frantic talks have begun to reach an equivalence deal, allowing Britain’s financial services to access EU financial markets. The current Brexit trade deal does not include an EU-wide arrangement for professional services, and as such, fresh talks are required to weave together a patchwork of individual agreements. For the specialist finance sector, this could spell disaster, as financiers rely heavily on professional services firms throughout the financing process. The UK has always been a major player in cross-border professional services, especially in a borderless preBrexit EU, but this stands to change dramatically. There is currently no EU/UK-wide recognition for UK accountancy qualifications, and this is reflected across the majority of other professional services qualifications, too. Furthermore, seismic change in regulations, customs and legal issues resulting from Brexit means that specialist finance providers will resort to putting further responsibility and weight on the shoulders of professional

www.sfintroducer.com

services firms to receive advice and guidance around the new complexities, which the firms themselves may not be fully prepared for. Larger professional services firms are likely to have a local EU presence with EU qualified personnel through their networks already, but small and medium-sized firms may struggle. With this in mind, the specialist finance sector must be quick to adapt to the new regulations and re-examine its partnerships with existing service providers to ensure that they are well placed to operate seamlessly and provide a high level of service over the course of the coming months. This period will also represent an opportunity for adaptable and responsive service providers to capitalise on any lagging on behalf of their competitors. Another consideration that must be made is that, whilst the UK has granted the EU certain financial services market rights, the EU has in no way reciprocated this. Following Chancellor Rishi Sunak’s statement that the UK government plans to ‘do things differently’, the EU

will be in no rush to establish or agree to any rights for the UK, at least not before considerable negotiations. 21 March has been set as a provisional date for the UK and EU to come to a ‘Memorandum of Understanding’ on the future of the financial and professional services sector between the two territories, but there is no telling as of yet what parameters, regulations and stipulations this memorandum could include. In the short-term, the UK’s specialist finance sector must rely on London’s status as a European hub of commerce and finance, and the talent of its professional services, to maintain progress, whilst representatives work fervently to hash out a common understanding over the course of the next three months. However, given that the outcome of the memorandum is at present entirely speculative – and with such a memorandum not carrying the same legal standing as an international treaty or trade agreement – operators in the sector must now immediately look to enter into long-term agreements that are not subject to sudden withdrawal. Working with service providers that can offer a high-quality, crossterritorial service, and having a willingness to adapt and act quickly, will stand the sector in good stead to enjoy long-term benefits and a favourable relationship with their EU counterparts. B I

Little has been said about the destiny of professional and financial services

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REVIEW

MARKET XXXXXXXXX

Left standing in the aftermath Jonathan Sealey CEO, Hope Capital

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he COVID-19 pandemic and subsequent lockdown measures have certainly had an impact on the global economy, as will the UK’s departure from the EU, but what does that mean for the bridging finance industry in 2021? Well, unlike many industries which are struggling to weather the storm, demand for bridging is booming. While there was a significant slowdown at the start of the first national lockdown, from summer onwards the industry saw resilience during uncertainty and an exponential increase in property transactions. The upturn in activity is expected to continue into 2021, with the temporary stamp duty holiday keeping the industry busy until the deadline at the end of March. Therefore, investors need to take advantage of this before house prices rise further. However, will this stamp duty holiday be extended, or will it become the standard threshold? Couple this decision with the potential for rising unemployment, a reduction in disposable income, the criteria restrictions of the mainstream lenders and a potential surge of repossessions in 2021, and it is clear that more challenges and opportunities will hit the specialist lending market. We certainly have some way to go on this journey before we can really visualise the new norm, especially following the latest national lockdown announcement. Whatever the government’s decisions are, they will play a significant role in how the property market performs this year, the tax revenues that it will generate, and the underpinning of the wider economy. The specialist finance industry has proven time and again that it is resilient and can react positively in

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unprecedented times, and 2021 will be no different. INVESTMENT PLANS

Following COVID-19 restrictions easing mid-2020, many borrowers started to look at new opportunities to restart their investment plans. As a result of the pandemic, one of those growth areas was that many homebuyers and renters started to consider moving to a house where there would be more convertible space to support remote working. This created a new opportunity for lenders to meet the changing needs of those investors looking for tailored and timely solutions to assist them with their revised aspirations and plans. In response, Hope Capital started the new year by launching a range of bridging finance products aimed specifically at those who require a short-term finance solution in order to fund their project and improve their investment property, possibly to fit in with the ever-increasing work trend of working from home and increase yield. Renovating can add significant value to a home, especially at a time when well-maintained properties designed to fit this trend are being snapped up, sometimes within hours of coming to the market. The ‘Refurbishment Range’ comprises three products, each one of them providing a different solution tailored to the level of refurbishment the borrower plans to undertake. The products include ‘Refresh’, for relatively minor upgrades, ‘Renew’, suited to moderate repairs, redecoration and refurbishment, and ‘Renovate’, for more advanced projects involving structural work. The range provides loan-to-values (LTVs) up to 75% on non-regulated residential property, and rates starting from just 0.69% for loans on residential properties up to £3m. Hope Capital’s range provides up to 100% funding for a loan term between six and 18 months, and is available throughout England and Wales.

RISE OF TECHNOLOGY

Another trend which arose as a result of COVID-19, and looks like it is here to stay, is the use of technology throughout the buying process. Not only has technology been used more regularly by property buyers – such as the increase in virtual viewings and the usage of apps to manage the process, for example – but the bridging finance industry has also adopted technology to improve its services. During the pandemic, and to ensure it could react to the unprecedented changes taking place, Hope Capital introduced and completed its first ever loan using the automated valuation model (AVM). This is a mathematical and statistical service which provides quick property valuations, and it has taken Hope Capital into the future of bridging finance. Now, not only is the traditional method of physical valuations an option for customers, but cases where funds are needed urgently can benefit from this technology. FLEXIBLE EVOLUTION

Through a flexible and fast approach, innovative changes to work functions and a can-do attitude to adapting and embracing new technologies, companies can evolve to ensure a complete service is available to meet the individual needs of brokers and borrowers, whatever the other side of COVID-19 brings. While the outlook for 2021 remains unclear, with new challenges on the horizon due to COVID-19, the third national lockdown and Brexit, the need for bridging solutions in the future is clearly in demand. This period will ultimately highlight those lenders that have adapted to the changing needs of their customers. It is clear the bridging loan landscape will continue to change, but it will be lenders which have learned from this unprecedented time, and shown that they have the capability to provide bespoke and fast solutions, which will be left standing on the other side of the current pandemic. B I www.sfintroducer.com


REVIEW REVIEW

MARKET XXXXXXXXX

The outlook for the mortgage advice sector Dhaneer Popat head of sales, 360 Dotnet

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ith a buoyant housing market and the vaccine being rolled out across the UK, we have good reason to be optimistic about the next 12 months. Here are some thoughts on what this year may hold. Technology will continue to play a huge role in the way we live and work, and will become central to all businesses. The use of technology has been accelerated during this period, and we are unlikely to return to the preCOVID way of working. The pandemic has pushed people online in a way that nothing has before, and those with the smoothest customer experience have been the most successful as a result. For financial advisers, clients will have higher expectations about the advice and application process. They will want to be fully digital, with as little paperwork as possible, and able to track their applications online. This will require a shift for some to update their systems and processes in order to compete with the direct lenders and bigger players which are already investing in this. Distance sales will continue, as Zoom and Teams have become part of our everyday vocabulary. Face-to-face meetings may not be possible for some time, and there is an expectation now that businesses can provide video calls and conduct matters at a distance. This makes it harder to engage new customers, and businesses may need to use engagement tools to generate information from their clients and build a relationship with them. Mortgage advisers may need to adapt their www.sfintroducer.com

marketing strategies to convert leads more quickly and engage clients earlier on in the process. Meanwhile, the housing market has been surprisingly buoyant this year, helped by the stamp duty holiday. We anticipate that purchase activity is likely to continue to be strong in the first quarter of 2021 as buyers take advantage of the holiday before it closes at the end of March. We expect a rush as buyers seek to get transactions through before the deadline, and then a lull until the market picks up again. There is an expectation that house prices will dip if the stamp duty rules revert to how they were; however, this dip is long overdue, and there is still such demand for housing that it is likely prices will pick up again in the summer months, when the market typically sees an uptick. Assuming demand continues, there will need to be a greater focus on supporting conveyancing businesses and other players included in the chain of a sale, as their resources may continue to be stretched. This may provide an opportunity for intermediaries to increase their referral network, and it is worth investing in these relationships for the long-term. We also anticipate that more of the main lenders will return to the market,

which will hopefully help drive interest rates down to pre-2020 levels. We can already see more confidence from lenders with the return of the higher loan-to-value (LTV) products, which is good news for first-time buyers. Earlier in the year, many of these products were being launched and then pulled just days later, so it is good to see more stability with these. At the same time, we can’t ignore the fact that COVID-19 has had a devastating impact. Mortgage holidays have helped many get through, but as the continued lockdown measures hit more businesses, we may see increased job losses and financial hardship. With this in mind, we expect that borrowers will demand more support from lenders as employment and income come under strain. It is not yet known whether the government will extend mortgage payment holidays further, but there is an expectation that lenders will need to continue to help borrowers who face financial difficulty at this time. No one could have predicted how 2020 would play out this time last year, so I would not want to be overly confident in the outlook for 2021. However, despite such a challenging year, people have continued to remortgage and move home, relying on the advice of qualified professionals to navigate them through this process. One thing I am certain of is that technology will continue to play a vital role in our lives, and that businesses will need to continue investing in their technology in order to succeed and grow. B I

Distance sales will continue in 2021

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FEATURE

THE YEAR TO COME

LOOKING AHEAD TO 2021 As we close the book on the memorable year that was 2020, Bridging Introducer asks the experts what they are expecting in 2021, from stamp duty to Brexit, and from the fate of the UK to their own business goals

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www.sfintroducer.com


FEATURE

THE YEAR TO COME

Confidence for the year ahead Neil King director, Darkwood Commercial Finance

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onfidence…it is all about confidence. Confidence, firstly, in a broker’s own positive mindset and professional ability to navigate their business through the current difficulties. Also, confidence that clients will not simply batten down the hatches and run for the hills, mothballing projects as they go. Finally, confidence that the funding marketplace and the associated professionals continue to show support for good quality small to medium enterprise (SME) lending. Brokers are, for the most part, a hardened set of individuals, and whilst 2020 – and now Q1 and probably Q2 2021 – represents the lowest of the low, we will still be here, ready to support our clients, and indeed our lenders. Certainly, deal volume is down on previous years, but we have the confidence that it will return. One cannot blame clients for their nervousness. Many have fallen foul of lenders renegotiating current deals due to covenant breaches, or simply reaching the end of their loan terms and refusing to consider extensions. This, of course, opens up a refinance opportunity for brokers to assist with – provided that we, and our lenders, receive support from our valuation colleagues. Therein lies a major hurdle. I’m sure that every broker can relay numerous situations recently where a valuation has come in under the perceived value. Valuers have had an extremely challenging role, but they seem to be applying ever higher COVID-19 considerations, when property prices are in fact holding up, with decent demand evident, albeit fuelled by the stamp duty incentive. So, we need our lenders to remain confident in the new business deals in front of them. I am sure that many are concentrating on their back book, but a properly presented deal breeds the confidence that good quality new opportunities still exist. We are increasingly seeing deals being manually underwritten, and each case having to prove itself on its own merits, hence the continued importance of a well presented and comprehensive case. With regard to 2021, the Coronavirus Business Interruption Loans Scheme (CBILS) is helping, obviously, and it is good that the timeline has been extended – although we are seeing lenders experiencing a dearth in BBB allocation. Of course, we no longer need to talk about Brexit as a potential barrier. Regardless of the detail behind the new trade deal, it is a deal. Finally, we cannot forget the vaccine queue, which I am sure will move very fast. So, in conclusion, 2020 was undoubtedly one of the most challenging years in living memory, and 2021 has not started well. However, the resilience and determination displayed by UK businesses, our supportive funding partners and the experienced broking community has only increased my confidence that 2021 will eventually be the start of an exciting and prosperous new chapter for our nation. B I

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JANUARY 2021   BRIDGING INTRODUCER

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FEATURE

THE YEAR TO COME

The one thing we can be certain of…

An exciting year ahead for the sector

Miranda Khadr

Kim McGinley

founder, Pitch 4 Finance

director, VIBE Finance

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aking new year predictions is always fraught with risk. Following 2020, it would be mad to make claims about exactly what we can expect in 2021. But we can anticipate what could happen, based on policy decisions and current trends. There are clearly still major question-marks over the economy, the direction of which will be largely driven – at least early in the year – by the fall-out of Brexit and the impact of a further national lockdown. This will influence the health of the property market, as will other government policy decisions. For example, any decision to target property investors with an increase in Capital Gains Tax (CGT) would be a blow to the market, and we must not forget the Stamp Duty Land Tax (SDLT) surcharge for overseas buyers, which comes in from April. This isn’t widely talked about at the moment, but is likely to have an impact, particularly in London. However, amidst this uncertainty, it is important we do not forget that we have seen the market demonstrate tremendous resilience already. The Association of Short Term Lenders’ (ASTL) figures showed the highest ever level for bridging applications in Q3 2020, and most brokers will testify to the fact that the level of activity in recent months has surpassed all expectations. Looking ahead, government policy could also help to stimulate business for brokers. The relaxation of planning rules opens up a great opportunity for permitted developments, while repayments will start on loans under the Coronavirus Business Interruption Loans Scheme (CBILS) in the next 12 months, presenting a refinancing opportunity for intermediaries. One thing that is certain, however, is that technology will continue to play a key role in the market. In fact, I’d go as far to say it’s the only way forward for the specialist lending industry to grow, deliver better customer outcomes and become more compliant. It’s a complex market, which currently no existing technology solution adequately caters for, as lender criteria and cases are rarely black and white. That is, however, until now, as we are looking forward to rolling out Pitch 4 Finance this year, to provide instant criteria matching, underpinned by real-time expert support for bridging, property development, commercial term loans and complex buy-to-let. It’s not a revolution of the market, but rather an evolution – specifically built for the unique characteristics of this sector. Whatever happens with the wider economy, brokers can give themselves a better chance of success by engaging with technology to generate better client outcomes, and that technology is coming soon. B I

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utlining hopes and expectations for 2021 is difficult with so much still ongoing with the pandemic, but we have to keep looking and moving forwards with ambition and hope, and that’s exactly what I am doing with VIBE. Let’s be honest, 2020 did not go how any of us had planned. We’ve had to adapt and overcome so many challenges, both personally and professionally; however, it has built in us a resilience that we never knew existed. As we ended 2020, with the stamp duty holiday fuelling the market, January 2021 was set up to be a busy month, with many parties looking to complete purchases in time to meet the March deadline. In January alone we as a business are expecting to write nearly half of what we did in the whole of 2020, so I’m excited to see how the business grows this year.

“2021 will have its challenges, of that I am sure, but I’m not an overthinker, and so the worry of a clearly unknown time ahead doesn’t scare me. If anything, it excites me” Looking to 2021 for the VIBE team: having recently expanded, we will continue to work between the office and home, which is a great healthy split for us all. The wellbeing of my team is paramount to me as without them, VIBE is nothing. Regular check-ins and meet-ups – when we can – as a team will be vital. We all need that human interaction, and in an industry that is so sociable, it will be great to have the fun side back too! We’re very fortunate to be in a position as a business where we have some very good candidates showing an interest in joining our team. It’s my goal for 2021 to expand the team further when the time is right. 2021 will have its challenges, of that I am sure, but I’m not an overthinker, and so the worry of a clearly unknown time ahead doesn’t scare me. If anything, it excites me. What 2020 has taught us it is that health and family are more important than anything else in the world. We need to all learn to be a bit kinder – not only to others, but to ourselves as well. This is something that the whole of my team will be working on in the year to come. B I

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FEATURE

THE YEAR TO COME

A busy year to come Amadeus Wilson

Phil Mabb

director, SPF Short Term Finance

property finance broker, Bridge Development

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fter a pretty torrid 2020 by all accounts, we remain broadly optimistic about the outlook for 2021. Admittedly, there are potential hazards ahead, such as the removal of the stamp duty concession at the end of March, assuming the Chancellor does not extend it. But with the progress being made with regards to a vaccine, there are reasons to be more optimistic than we might otherwise have been. We expect to see a strong uptick in business in February as it becomes apparent to investors that buy-to-let lenders will be unable to deliver to their tight timelines. Service times are taking so long that if an investor wants to get their deal through before the stamp duty holiday expires at the end of March – in order to save up to £15,000 – then they will need to consider other options, such as bridging.

“We don’t expect to see a mass exodus of buy-to-let landlords” The canny investor may be looking for buying opportunities right now in order to give them time to take advantage of the stamp duty holiday, but if a property isn’t for sale then you can’t force someone to sell it to you. You can only take advantage of opportunities that are available. The potential saving could therefore be a motivation to bridge if it costs less than the amount you could save, and you don’t have enough time to complete using a standard buy-to-let mortgage. We await the Chancellor’s Spring Budget with interest. Undoubtedly, he needs to raise a considerable sum of money to cover the financial cost of the pandemic, with a hike to Capital Gains Tax (CGT) and the introduction of a wealth tax just two measures which have been widely mooted. Even so, we don’t expect to see a mass exodus of buy-to-let landlords, as it is hard to believe that investors will sell up because of a potential future CGT liability. Even if a one-off wealth tax is imposed at 1% on net assets over, say, £500,000, liquidating property investments won’t get rid of that liability. What we may see is a wave of investors incorporating their buy-to-let portfolios from personal names to special purpose vehicle (SPV) buy-to-lets in order to protect their investments as much as possible. If that’s the case, then brokers will find they are in for another busy year. B I

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The long and short of it

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ow, what a year! For many, 2020 will go down as an annus horribilis, littered with an extended and new vocabulary. Like a year of four seasons, 2020 readily breaks into four distinct quarters, initially coming out strongly following the landslide election victory, which allowed lenders and borrowers alike to look forward confidently and with much promise. There was a large shadow lurking with the first coronavirus symptoms identified, but we kept calm and carried on. Come the second quarter, much like the financial crisis of 2007 and 2008, everything fell off a cliff with the advent of the first national lockdown. Lenders pulled loans, changed goal posts and – in several cases – closed shop altogether, with severe consequences for many in our industry. Towards the quarter end, the government introduced support in the form of Bounce Bank Loans (BBLs), the Coronavirus Business Interruption Loan Scheme (CBILS) and the Furlough Scheme (FS). Despite the goodwill, these products took time to come to fruition. The third quarter saw marked improvement, but nonetheless a challenging lending environment with discombobulation evident. The construction industry was fortuitous to have been one of least affected sectors. Perhaps the introduction of lockdown tiers, Eat Out to Help Out and better weather helped – albeit all short-lived? Q4, historically one of the busiest trading times of year postsummer recess, has certainly seen strong activity, and I have filled my boots with CBILS. Not one to dwell, it is clear that out of the COVID-19 debris opportunities will arise. I for one – like many of my clients – have been grateful for implementation and further extension of CBILS. This, together with the approval of vaccines, plays into the hands of specialist real estate lenders, as the high street continues to deal with a wider and more affected audience. 2021 is likely to comprise of two halves, the first – pre-vaccine – struggling along, the second – post-vaccine – seeing a sharp improvement in trading. Wherever it ends, surely it cannot be worse than where we are now? As I write this on Christmas Eve, Brexit trade talks have finally come to fruition with an agreement imminent – a good foundation for the year ahead! Bring on 2021. Perhaps it will be an annus mirabilis – it can’t happen quick enough! Stay slert. Control the virus. Save lives. B I

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FEATURE

THE YEAR TO COME

What to expect from 2021 Ray Boulger

Rachel Geddes

senior mortgage technical manager, John Charcol

business principal and mortgage adviser, Mortgage Advice Bureau – City of London

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ast year ended, as predicted, with annual house price growth at 7.3%, according to Nationwide. However, unless the Chancellor extends the Stamp Duty Land Tax (SDLT) holiday, prices will fall back following a small increase at the beginning of 2021. Not only will there be fewer buyers – because some have brought forward their purchase – but many who are still in the market will adjust their buying levels to reflect the fact that their SDLT bill will increase. However, I don’t expect prices to fall far. Even after 31 March, several positive factors for the market will remain, or emerge, during the year. These will go a long way to offsetting major negatives, such as the ongoing economic impact of COVID-19, and including increased unemployment. One of the consequences of COVID-19 was a sharp fall in both short and long-term interest rates, resulting in lower mortgage rates – except at the higher loan-to-values (LTVs), where a massive reduction in supply pushed rates up. However, the availability of 90% LTV mortgages has improved dramatically in the last few weeks and I expect the current huge price premium over lower LTV rates to narrow as more lenders re-enter this market. Furthermore, 95% LTV rates will start reappearing in the first half of 2021, allowing more potential purchasers to access the market. The December minutes of the Financial Policy Committee provided a strong hint that it will reduce the impact of one or both of its current stress tests – affordability based on the lender’s revert to rate plus 3%, and no more than 15% of new lending to be at 4.5 times income or greater – at its March meeting. This would allow lenders to offer a higher maximum loan to some borrowers. The changes in homebuyers’ requirements resulting from more home working will continue throughout 2021 and beyond. Therefore, the impact on prices of different types of property has further to go, and city centre flats will continue to underperform, which will be particularly relevant for some developers and buyto-let investors. The above leads me to conclude that, on a national average basis, the small initial price rise I expect in Q1 will subsequently be reversed, and prices will end the year 2% to 3% lower, thus still showing an increase of about 5% over the two-year period to end 2021. However, the national averages will disguise greater than usual variations in the performance of different property types. B I

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Hopes, concerns and expectations

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t’s safe to say we’re all hoping for a brighter 2021, and to put what’s been a challenging year behind us. Although many of us will want to forget 2020, there are several positives and learnings we can all take from the year. This is particularly true for the mortgage industry, considering how everyone has pulled together to share and collaborate – including lenders, advisers and the regulator – all with one aim: to do our best for clients. I would hope to see that continue in 2021, so that lenders, the Financial Conduct Authority (FCA) and advisers are all working as one to ensure clients aren’t being penalised. For example, with various lockdowns and a stop-start employment market, some self-employed applicants found it particularly challenging, despite having a stronger year than previously. My hope is that, in 2021, we can start to see more of a consistent market in a post-vaccine world, with borrowers being able to move forward with more certainty. My concerns are mainly centred around lender criteria and trying to overcome client challenges, particularly in terms of affordability, adverse credit and income and stress-testing. We know it’s going to be an even more unstable employment market as we enter the first quarter of the year, and lenders themselves have highlighted that all of the above factors will continue to be a challenge from a borrowing perspective.

“I’d like to see the industry holding onto the good habits developed in 2020” As for my expectations, I expect it will be a steady year which will open with a bang as clients aim to complete before the stamp duty deadline on 31 March. We’re also expecting a high volume of remortgage and product transfer transactions, as many clients near the end of their current terms and also look to raise short-term finance to put towards home improvements. Ultimately, what we’re all hoping for in 2021 is more consistency after experiencing a year of COVID-19 restrictions which were tightened, lifted and then tightened again as 2020 came to an end. I’d like to see the industry holding onto the good habits developed in 2020, in terms of always doing right by the customer, and lenders working closely with the FCA to filter important information through to clients. Oh, and I must add one more expectation: Liverpool to win the premier league title for the second consecutive season! B I

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ROUND-TABLE

MARKET

NEW YEAR, NEW START? Jessica Bird outlines the key points discussed at the first Bridging Introducer round-table of the year, which looked ahead to the possible trends of 2021

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he start of 2021 has brought with it a fair amount positive news, such as a Brexit agreement being reached at last and the start of the vaccine roll-out. However, these forward steps have been joined by more negative items, from another national lockdown to unrest abroad, which remind us that we cannot confidently put the turbulence of 2020 behind us just yet. At the start of last year, none could have predicted how the market, country or indeed world would end up. We are all, then, a little more wary this time of making predictions. Nevertheless, Bridging Introducer has gathered key experts from across the market to find out what trends and developments we might expect, in what is likely to be another eventful year. Q1 CONCERNS The first quarter of 2021 looks set to be well-stocked with developments, foremost of which is the impending end to the stamp duty holiday. Ahead of the deadline on 31 March, which at the time of writing has not been updated, the market has been galvanized into high levels of activity. This has proven a boon when it comes to countering the negative effects of market closure during the first lockdown, and

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can largely be heralded as contributing to the relative strength of the sector by the end of 2020. As the deadline draws nearer, and people start to feel the pinch about whether transactions will complete, bridging is coming to the fore as a viable way of avoiding either chain break or an unwanted stamp duty bill. Emma Hall, key relationships director at Movin’ Legal, says: “With the stamp duty holiday coming to an end in March – and looking back historically to the last stamp duty holiday – we’ve found that an increasing number of people look to bridging. “With the pressure on the market because of 2020, I can definitely see that being increased, because lenders, valuers and searches were clogged up. We’ve already noticed an increase in people looking at bridging on our system.” Roger Morris, group distribution director at Precise Mortgages, adds that in what is likely to be an unprecedentedly busy March for completions and home moves, bridging may also be increasingly helpful to those whose plans have been disrupted by the most recent lockdown, allowing them the flexibility to change dates if needed. Philip Dabbs, director of property credit risk at Castle Trust Bank, feels that an extension should be high on www.sfintroducer.com


ROUND-TABLE

MARKET the government’s agenda, saying: “Stamp duty is going to be the big issue for this first quarter, obviously not helped by the lockdown that has just been announced. “[The government] needs to think about it sooner rather than later – we could be in [lockdown] for a minimum of six weeks, and so we need to have a decisive decision on stamp duty, and it’s going to have to be extended.” Brian West, director of Ethica Consultants Limited, says it is likely that a decision will be made within the next couple of weeks, and that the only real question is how long the holiday will be extended for. According to Morris, the likelihood is that the government will announce at the beginning of February that anyone who has exchanged by 31 March will be given a three month grace period to complete, to allow for current delays in the process. He adds: “The other option is that the government really wants to keep positivity going in the economy, and [decides] to extend the stamp duty holiday for another six months.” In either case, Morris says, the most important factor for market players is making sure that customers are informed about the options, the realities around completing within the given timeframe, and whether bridging is a valuable tool available to them. He says: “If you take, say, an older person downsizing who bought the house in 1976 for £38,000 and is selling it now for £500,000, to borrow couple of hundred thousand for maybe six to eight weeks isn’t actually a lot of money. “So, it’s about making sure the customer is in an informed position, and letting them decide what they think – making sure you really evaluate who you’re dealing with and that you’ve looked at all the options.” Jonathan Newman, senior partner at Brightstone Law, says that aside from the build up to the stamp duty deadline, the first quarter of 2021 will likely continue to be shaped by caution and nervousness across the market, which is also affecting timescales. He explains: “A lot of the operational difficulties have now been remedied to a large extent, but because of the ongoing nervousness of customers, businesses, borrowers and lenders, there is now an even more forensic investigation into each and every deal. That is resulting in delays, and the decision-making has slowed

“It’s always critical in bridging that you have certainty of the exit, and that should be the starting place for any shortterm loan” PHILIP DABBS

www.sfintroducer.com

“People will forget what happened, and why or how it happened, but they’ll always remember how they were made to feel” NICK JONES

down. It’s a trend we’ve all got to acknowledge and try and remedy, because bridging finance has been about speed, and we don’t want to see that failing.” Carl Graham, regional director at Tuscan Capital, turns the focus specifically to the commercial side of the specialist lending market, noting how the ramifications of COVID-19 in sectors such as retail and hospitality are continuing to have a knock-on effect in this space. He says: “Something that held great strength 12 months ago – retail and hospitality – is no longer there, and I think there’s going to be a lot of stress amongst those investors who are ultimately coming to the end of their facilities. “There are two schools of thought: are existing lenders going to work with these borrowers, due to the extenuating circumstances we all find ourselves in, or do we look at the positives and maybe see that there’s an opportunity, a trend coming through over the next quarter and the second, if investors start looking at alternative uses for their securities?” For example, he continues, among the increasing number of closed pubs there might be many prime candidates for conversion into houses of multiple occupancy (HMOs), which specialist lenders like Tuscan are equipped to help with. This might be the answer to the issue of counterbalancing the negative effects in these sectors, Graham continues: “I fear that there are countless lenders up and down the UK that have exposure – and in some cases over-exposure – to high risk commercial assets. It is the responsibility of both introducer and lender to actually look at these individual cases to see what can be done. “Whether it’s re-brokering that with a development lender or somebody that offers change in use facilities, I feel a trend coming up over the next quarter or two where there are going to be a lot of high end matters on very expensive bridging loans.” Phil Mabb, property finance broker at Bridge Development, says one development we may see over the coming weeks is the extension of the Coronavirus Business Interruption Loans Scheme (CBILS). At the moment, applications must be made by 31 March, and money drawn down by 31 May. Whatever does happen over the initial months of what is regardless going to be another eventful and → JANUARY 2021

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ROUND-TABLE

MARKET unprecedented year, Nick Jones, commercial director at Roma Finance, agrees with Morris: customer service is the most important factor. Jones says: “It’s all about keeping in touch with the customers that you’ve placed and making sure that they’re informed, and that in three or six months’ time you are not having to put out a lot of fires. “People will forget what happened, and why or how it happened, but they’ll always remember how they were made to feel.” THE THIRD LOCKDOWN When the first national lockdown came into effect in March 2020, the market all but ground to a halt, threatening transaction chains across both the mainstream and specialist markets. For some, virtual and digital avenues, such as automated valuation models (AVMs), were a saving

“With the stamp duty coming to an end, and pressure on the market because of 2020, an increasing number of people will look to bridging” EMMA HALL

grace, and therefore the pandemic became a catalyst for pushing forward the adoption and development of technology. However, for cases that are unique or complex these tend to be less viable, and so much of the problem remained. During the second lockdown in the latter part of the year, and again in the current one, the housing market has been flagged to remain open, and is thankfully not facing the same level of constraint. For example, Connells Survey and Valuation has confirmed that it will continue to undertake in-property valuations, subject to strict safety guidelines. This looks to be the case across the market, and although there will still be those pockets where disruption will take place – because of logistical issues or due to individuals self-isolating – this lockdown will certainly not be likely to cause the same issues as the first. However, Hall notes that there has been a certain lack of clarity around

the commercial side of the market, and whether this comes under the remit of key activity exempt from lockdown rules. The consensus among the panellists is that it should indeed be able to continue as normal, in as much as is possible at the moment. Newman says: “The government has applied a broadbrush approach. What’s in the government’s head is the homebuyer market, because it’s the one winner so we need to keep it going and propped up. The commercial property market is not in the government’s consideration, but there’s been no guidance against it.” Graham goes further, to add that this is perhaps less about omission, and more a case of the markets being inextricable. He says: “Some of the largest residential developments up and down the UK are actually under commercial corporate lending terms. So, to close off that side of the market is to also cause damage in essence to what the government is trying to keep going with the residential sector – you can’t distinguish between the two.” THE QUESTION OF BREXIT Although it fell off the radar somewhat during the distractions of 2020, Brexit is now firmly back on the agenda, with a deal having been reached in time to meet the deadline of 31 December. Although some market commentators have voiced concerns about the seeming lack of clarity around financial and professional services in the deal, the overall consensus from panelists is that specialist property finance is in a strong position, and is unlikely to be substantially negatively affected. However, Jones says: “There’s still massive uncertainty around the outcome of leaving a single community like Europe. Any type of uncertainty spooks markets, and spooks lending, and if you couple Brexit with a side kicker of a pandemic it certainly makes it even worse. The difficulty is no one truly understands what the implications are going to be until they start to roll out.” Nevertheless, this remaining uncertainty about Britain’s post-Europe future may work in this market’s favour in the end, as it is more likely to affect high street lending, which naturally boosts specialist finance. Jones continues: “I think it’ll be months before we truly know what the impact will be, but from a specialist lending point of view, it’ll certainly give more opportunities. People will still want to invest in this country from a property point of view, and it will

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ROUND-TABLE

MARKET

“Decision-making has slowed down. It’s a trend we’ve all got to acknowledge and try and remedy, because bridging has always been about speed” JONATHAN NEWMAN

certainly give more opportunities for the specialist lending market.” From Newman’s perspective, being a UK-centred market will insulate the property sector, while the move away from the European Court of Justice – and the subsequent likelihood of a trend towards less regulation – may well create a more positive environment. CERTAINTY AND CHANGE One of the key concerns that arose out of the turmoil of 2020 for the bridging market was around the certainty of exits. This stems in part from instability in the mainstream market, and although 2021 should see a shift towards recovery, with lenders gradually moving back into the 90% loan-to-value (LTV) space already, it is an issue that is not going away quickly, according to Dabbs. Graham adds: “The bridging market is very much underpinned on the strength of the high street. If the high street isn’t providing these exits, then ultimately are you ever going to write that bridge?” Some lenders, including Castle Trust Bank and Precise Mortgages, have reacted to this issue by building exits into their own products, particularly in the buy-to-let (BTL) sector. Dabbs says: “It’s always critical when you’re doing bridging that you have certainty of the exit, and that should be the starting place for any short-term loan. So from our point of view it’ll continue to be a trend, and because we have the ability to offer something, it puts us at an advantage.” Graham points out that this issue is exacerbated in the commercial market, where it is perhaps less the issue of a lack of products and appetite, and more about changing opportunities and trends. He says: “The residential side of things is very much predicated on confidence. If they have confidence over

job security etcetera, then those exits are still going to be there. But if you’ve got an empty restaurant on your commercial loan book, who is going to take that on? It may never recover, and the same goes for the retail sector.” Indeed, the retail and hospitality markets look decidedly different entering 2021 than they did in early 2020, with industry giants now in danger of collapse, and the entire sector seeing a greater shift online. Graham notes that this may be changing the type of opportunities that arise in the commercial lending sector, saying: “We’re going to be moving over more to larger distribution centres and out of town sheds, as opposed to a bustling high street. COVID-19 has simply accelerated what the retail market was going to experience in five or 10 years to within 12 months.” This uncertainty within the commercial lending market might tie in well with residential trends, however, as Jones points out that there is still a severe undersupply of residential housing, and that the relaxing of the rules around planning applications for conversion refurbishments may provide a viable route for those properties affected by the changes of 2020. He also adds that the last year has seen a fundamental change in how people view workspaces. Some businesses are seeing the value of remote and home working beyond the pandemic, decreasing their need for large, central office spaces; others have realised the importance of being flexible in an uncertain world, and may want to avoid long, inflexible leases. As a result, Jones says: “People will look at the structure of the commercial premises they’ve got, convert those and actually make them better and get the return on a commercial building to be better. The commercial side of things is actually quite exciting, because people are going to want to borrow money to convert into a new structure and way of working.” →

“There are lenders out there under pressure to take action against their clients because of the way they’re funded. My wish is for someone to take that cloud away” PHIL MABB

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JANUARY 2021

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MARKET

“It’s just about timing – we are in survival mode, come in too soon and it will have catastrophic consequences for the wider UK economy and for our industry” CARL GRAHAM Other trends to be watched in 2021 include shifting priorities among both homebuyers and tenants in the buy-to-let (BTL) sector. Morris feels that people are now less inclined to want flats or city centre locations, instead opting for garden space, and – without the need to commute – are gravitating towards regional hubs. He says: “I definitely think there is a change in the landscape in the way we work and operate. Maybe the biggest of that is London, which has always led the way. This may be the first time it’s exposed into a different marketplace. We’re going to have to see how that whole culture changes, but it definitely will change in the future.” Although demand and preferences may change, the BTL sector as a whole is likely to go from strength to strength in 2021, says Dabbs. He explains: “Some landlords are moving to different types, such as HMOs and holiday lets. Holiday lets are very popular at the moment, as the staycation is here to stay at least for this year at a higher level, and holiday lets can generate significantly higher returns for landlords. It’s a good asset for us to have on the books and it’s a good investment for the landlords. “The BTL market is not going away any time soon. We’re going to see diversification, and this will help the market.” DEALING WITH THE DEFICIT The support systems put in place by the UK government to deal with the effects of COVID-19 on people’s lives and businesses have proven invaluable for many. However, they come with a hefty price tag. With the Chancellor’s Spring Budget on the horizon in early March, there are some murmurings that taxpayers might start to feel the sting. However, the consensus among the panellists is that this is too early for the government to start trying to cut into the deficit,

particularly as the support schemes themselves are still largely needed. Dabbs says: “At some point [Chancellor Rishi Sunak] is going to have to raise taxes and look at Capital Gains Tax [CGT], but this is probably too early a budget to do that, and he needs to wait. The autumn budget may also be too early. “He’s going to have to balance the books, and all the schemes that are in place are going to have to remain for the remainder of this year. He’s going to have to outline a plan going forward, and I don’t think he’s going to be in a position to raise taxes this time round. It’s a difficult budget to get right, but the harsher budget will come further down the line.” Jones agrees that the Spring Budget will likely focus on the positive: “For the middle towards the end of this year, it’ll still be about very positive financial support for the economy. [Anything else] would destroy an entire 12 months of goodwill.” Mabb’s wishlist item for government support is an extension to CBILS, and perhaps a solution to the issue of funding lines. He says: “We’ll pay our dues, but it might not be this year, so I’m not expecting anything spectacular. I’m more concerned that there are lenders out there that are under pressure to take action against their clients because of the way they’re funded. [My wish is] that someone could take that cloud away and give us a bit of clear sight for the future.” Of course, an extension to the stamp duty holiday is also an immediate hope, but when discussing their wishlists for government support in 2021, panellists are relatively united in their hope that the property market simply be allowed to continue to build its strength without negative interference. Hall says: “Over the years, with all the changes to BTL, taxes, limited companies, I think the property

“Whatever business you’re in, value your customer and make sure you’re in regular, embedded contact. The power of that relationship will help your business in the future” ROGER MORRIS

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MARKET market does tend to get hammered, considering it’s a cash cow and [the government needs] it to get money. “I would just like to see [Sunak] leave it alone in this budget and potentially the next, I really don’t want to see him try and take anything away from the property market or the financial sector.” Graham adds: “My wishlist would be more about what isn’t delivered, and that’s CGT, income tax, and even the one-off wealth taxes that are being mooted. It’s just about timing – we are in survival mode, come in too soon and it will have catastrophic consequences for the wider UK economy and for our industry. It’s just too soon, it’s still very much about an open cheque book in the very fluid situation that we find ourselves in, and being reactive as and when required.” The consensus is that the current ‘feelgood factor’ must end, but that the country is far from out of the woods yet and needs to focus on ongoing support. Morris says: “We all know the amount of debt we are building in this country is astronomical, and there is a significant amount to come yet. Whatever [the Chancellor] does, it’s survival mode for the country, because there’s a lot of pain to come, a lot of unemployment, and a lot of stressed people. We must have a social conscience, and we need to come up with a budget that unifies us as a country through what is going to be our greatest era of pain, backed with the uncertainty of Brexit.” Indeed, the most significant problems are more likely to emerge in 2022, when the last of the government support systems are gone and the long-term effects of the pandemic on matters such as unemployment start to really be felt. For West, even the concept of having set budgetary announcements twice a year does not take into account the changes wrought by 2020. He says: “The whole concept is a bit dated now. The world is so fast moving. They’ll probably extend CBILS and stamp duty in some form, but I don’t think we’ll be waiting until the Spring Budget. You have to act on things as they crop up, so let’s have some positive news well in advance of then.” LESSONS FROM 2020 There are many lessons to be taken away from the past year, whether around the adoption of new technologies and streamlined processes, or the need to be flexible and adaptable in the face of change.

Morris says: “My key takeaway is customer contact. Whatever business you’re in, value your customer and make sure you’re in regular, embedded contact. “The power of that relationship will help your business in the future.” Graham agrees: “I’d like to see a lot of lenders in the space refocus – maybe it’s an opportunity for them to lose sight of wanting to be the biggest lender, as opposed to actually being the best. It’s all about the customer journey.

“We have been blessed with this pandemic happening 100 years after the last one. If this had been 10 or 15 years ago, all these things we’ve come to rely on wouldn’t have existed” BRIAN WEST “Refocus on holding their hand from inception, to completion and even redemption.” For others, 2020 has highlighted the need for resilient business strategies above all else. Newman says: “If you run your business in a very resilient, robust, sensible way, then you can deal with emergency situations.” Jones adds: “It’s about adaptability and stability – making sure that you are controlling what you can and reacting prudently to the things you can’t. The culture of a business eats its strategy for breakfast, and having the right culture will certainly see you through the next 12 months.” For West and Mabb, looking back on the events of 2020 is about considering the positives, such as the technology, structures and resilience that have all combined to soften the blow. West says: “We have, in a sense, been blessed with this pandemic happening 100 years after the last one. If this had been 10 or 15 years ago, all these things we’ve come to rely on wouldn’t have existed.” Mabb concludes: “I’m grateful that I work in this sector in comparison to many others. We’re in a good place and should be grateful for everything we’ve got.” B I

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COVER

INTERVIEW

Banking on balance Jessica Bird meets with Barry Searle, managing director – property at Castle Trust Bank, to discuss how the lender managed to balance flexibility with stability through 2020, and how it plans to move forward into the year ahead When Castle Trust Bank last spoke to

Bridging Introducer, it had just become a bank. What has the journey been like since then? First of all, becoming a bank in the pandemic is probably our greatest achievement, in as much as dealing with the Financial Conduct Authority (FCA) remotely wasn’t easy. Since then, our cost of funds has come down, because we’re a deposit taker rather than investment bond taker. This has given us the ability to be more flexible with our products. We demonstrated that in November and December, when we took off 25 basis points right across the range, because we saw there was an opportunity there. When you have the word bank in your title it also makes life easier with mortgage clubs and networks, particularly with their compliance piece. We are now on the L&G Mortgage Club, and we are a member of Sesame. Flexibility was a key word for 2020, has becoming a bank helped with that? The great thing we had prior to being a bank was that we funded ourselves; we had the fortress bond, which was the investment bond, and we’ve continued to do that because we converted it over onto the deposit platform. It’s self-funding, so we haven’t had to rely, and still don’t have to, on funding lines, which gives us control of our own destiny, which is extremely important and will be even more so going forward. Has certainty of funding lines caused problems for other institutions during the crisis? The amount of stimulus that governments around the world have put in has meant that the capital markets and funding lines have stood up better than I think anybody imagined. What does that mean for 2021? I don’t know. With further stimulus, or the vaccine, if we come

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back to whatever the new normal is, the funding lines could stay in place. But I think there is a risk – if the world doesn’t recover as quickly and we do have the level of unemployment that people are suggesting, I could see some of those funding lines being a problem, yes. How do you see the bank status affecting Castle Trust Bank going forwards? It has helped first of all getting into the clubs and networks, I think that’s a real step forward, because the certainty of funding does give us an advantage and means we’re able to look at different areas of the market and decide how to move into them. It’s very important that you price for risk in this world, and we’re pretty good at that and understanding that if you are taking a risk – not necessarily a credit risk, just understanding what the customer is about – that you’re pricing for that. We’ve reduced our prices where we were unable to do that quite as easily before, and our range has shifted, as we used to do mainly second charge lending and we’re now doing first charge. Looking ahead into 2021, how do you see the proposition changing, and what will the profile of your customers be? We’ll continue to deliver in the specialist buy-tolet (BTL) market, and I think holiday lets in the UK could be quite a big thing going forward. Even with a vaccine, it’s going to take a while for everybody to be comfortable to go on holiday outside of the UK, so I think there’s a big opportunity there. I think houses in multiple occupancy (HMOs) will continue to be important – there’s HMOs and HMOs, as we all know, but it’s the development of the better quality ones which is where we want to be. For portfolio landlords, we’re good at looking through the whole portfolio and making sure that we are making the right lending decision. www.sfintroducer.com


COVER

INTERVIEW In terms of light refurbishments, after the stamp duty, are people going to want to move? You might get back into a position where people start developing, particularly on BTL properties with a bit of refurbishment needed to get them to the right place.

Barry Searle

How did the business cope during 2020? I won’t lie and say it hasn’t been a challenging year, but we’ve also broken our lending records at the back end of the year, so every cloud has a silver lining. The first thing we did in the first lockdown – and with hindsight it’s a wonderful thing – because we had 300 customers that were due to mature between March and September, and a lot of those we’re on second charges or rolled-up loans, was to extend their maturity date by six months. We spoke to them all and ensured that they understood why we were doing it, but it took that cliff-edge event away. At that time, nobody really knew what was going to happen. That has worked really well with the customer, but also with the broker, because while you can talk about looking after your customers – we’ve all seen the strap line on everybody’s website – in a pandemic you actually get the chance to demonstrate that. What we also did, which is again the benefit of becoming a bank, is create a refinancing programme for those people, and then contacted them and offered them the refinancing. One of our business development managers (BDMs) had been a broker, so we switched him into the maturities team. He couldn’t give advice, but he was used to talking to the customer, so he was the person that spoke to them, encouraged them to speak to an intermediary, and could actually help them think about what they were doing. That’s been quite successful. We became a bank in the middle of all this, so we then decided how to relaunch, and we got back to certainty being the key. What we did was allow the BDMs to price up to £500,000, within some parameters, so we’ve been able to get the terms to the brokers quicker. What about the logistics of working day-to-day through the pandemic? We were able to have all 220 people working from home. We gave everybody a laptop, and due to work that we had put in before, the phone system was able to be used on the laptop and automatically recorded calls. We were able very quickly to seamlessly work from home. From May, we were able to open the Basingstoke office, primarily because most people drive here, and there was enough space to socially distance. We’ve got the majority of our staff back in, while → www.sfintroducer.com

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INTERVIEW following government advice all the way along. What we found is that the mental health of staff has been greatly enhanced by giving them a choice. For people who live on their own and are not seeing their relatives, for all the right reasons, coming to work is the only time they get to see anybody. We’ve been at an advantage. We’ve got a London office as well, which hasn’t been as easy. We’ve had it open but public transport has obviously restricted that. As a board, we’ve been able to have socially distanced meetings in Basingstoke. So, we’ve been able to keep the business going as normally as possible. Do you think the business could in theory be run entirely without being in person? I think there’s certain roles that have to be in the office, particularly call centres. People don’t normally phone up for an easy question, so being able to turn around to someone else and ask for help gives a much better customer service. There are definitely roles which can work in the office or from home – the central functions, finance, compliance – but also I do think people have got Zoom and Teams fatigue. What I appreciate more now is the influence of other people. The partners, families, siblings – we’ve had a couple of people where the family was feeling uncomfortable about them coming to work, so we said they need to work from home, because they were putting themselves under unnecessary pressure. It varies from role to role, but I think with people who are speaking to the customer do it better in the office. There are other roles, however, that are as easily and probably in some cases better working from home, because it’s quieter. The issue is, how are we going to manage people in the future? We’re going to have to learn to manage people by outcomes rather than whether they sit there all day bashing away on the computer when someone else is actually doing more work. There also needs to be a consideration of how to keep everybody together. It’s trying to keep everyone engaged, and to keep people engaged I think they need social interaction. What do you think brokers are going to have to deal with in 2021? With the stamp duty window finishing, every time there’s any sort of cliff edge, what happens is you create an artificial demand, it falls off a cliff, everybody says the world’s going to end, the property market’s going to die. It does for a month, and then everybody starts again. The actual overall demand hasn’t changed, you’ve

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just channelled it into a smaller area – pulled it forward – so therefore you have a natural lull. That’s what’s happened historically, but we haven’t done this in a pandemic – only time will tell. I think brokers are going to need to think, particularly in bridging, about the exit. That’s why the Bridge to Let and being a bank really helps, because we have the certainty of knowing that we can turn you out and therefore you’ve got the exit that you need. I also think, particularly in bridging, there is the issue of certainty of funding, which I think they’re going to have to watch very carefully in the coming months. What was the motivation behind launching the Bridge to Let product? We spoke to the brokers, and it was coming out that what they don’t want is for us to say we’ll term it out, but they still don’t know. So, we said ‘OK, we’ll underwrite it at the start’. We underwrite it as a bridge, we ask the valuer to say ‘here’s the work that’s going to be done, this the rent will be in nine months to a year’, and we can see if that fits our criteria. What I didn’t want to do is create an artificial situation where they’ve solved the issue, and then we have a row in nine months’ time. The first three months has early repayment charges (ERCs), which I think is fair, and after that, there aren’t any up to the end of the nine months. In fact, we’ll switch you over in month nine into the term, but you still get two months without any ERCs. So that if they say they actually really want a 2-year fix, you’ve got that period of time to take the customer away and we’ve had the bridge and we’ll move on. We’re not trapping them, we’re giving them the option. That’s the key: giving the broker and the customer an option – obviously I think we are the best option, which is there and already underwritten. We’re trying to make it as simple as possible. Like everything, you’ve got to make sure that it’s competitive, and I think we are. There will be those that are cheaper, of course, and more expensive. It’s our job to be in the right place. Of course, I want to keep the clients, and I’ve modelled in that I would keep the majority of them, but I’m not going to get the broker’s next case if they think we put handcuffs on them, or they lost the customer because we were not as flexible as we said. It’s all about the broker’s next case. That’s why my mantra is: if it’s a no, tell them quickly, because it’s the long ‘no’ that causes the problem. We’ve designed the product in a way that puts the broker in charge, which is important. Why is this product is going to be important going into 2021? The word is certainty. We’re going to live in an uncertain www.sfintroducer.com


COVER

INTERVIEW world, we’re going into a period of uncertainty, and what I’m offering with this product is that you know in nine months’ time you’re going to go onto a product and it’s going to cost you this much. You’ve got options until that point, but I’m not going to be ringing you up saying ‘you owe me £200,000 and how are you going to pay me back’. You’re in control of your destiny – you may choose a different path, but you don’t have to sell, and that’s the critical thing. How does Castle Trust Bank approach the need to balance certainty with flexibility? You’ve got to be careful with flexibility. Does that mean relaxing risk? Does it mean you say yes to customers with credit problems? I don’t see it as that. It’s about the client’s circumstances and delivering to meet their requirements. It’s about saying ‘what are you trying to do?’ A good example is a first-time landlord who wants to do holiday lets. They have found a property, it needs some work – everybody says you need to have a track record first, and need to prove that it can be a holiday let. We’ll value it and give them nine months to prove that it can be a holiday let. If, after five or six months, they are really rocking and rolling, you can just flick over to the term, you don’t have to wait nine months to roll it up. That’s the sort of flexibility you need to think about. Does the balance between being sensible and flexible come with individual underwriting? Yes. I want to use technology to produce the information easily for the underwriter, but then the skill is having a look at the case seeing whether it makes sense. In the specialist market, you only survive if you do that. You can’t say ‘the computer says no’, or – more scarily for your balance sheet – ‘the computer says yes’. If it’s not priced for risk, you’re putting more cases on, but actually just setting yourself up for a fall later on.

“Brokers are going to need to think, particularly in bridging, about the exit” – in this case the broker – wants. They are getting all these calls, so you need to be slick. How do you see the role of BDMs changing in the future? You can’t get away from the face-to-face meetings because they’re critical to building the relationship, but you can do updates over Zoom and Teams, and you can keep in contact. I think the BDM’s role has changed, and they’ve got to look at how they manage the brokers, because equally I think the brokers have seen it’s actually quite good not to have someone knocking on the door every five minutes. So I think it’s a mixture of face-to-face and using the technology, and making sure that you get the balance right. Do I need to be everywhere face-to-face? I don’t believe that you can do everything remotely, but you’ve got to be very thoughtful of how you communicate. Also, you’ve got to think about what the other person, the broker, wants. Speak to them. What advice would you give to brokers for 2021? I think you’ve got to think more and more about the solutions that will suit your client and think outside of the box. What is it that they need? Don’t pigeon-hole certain product types for certain uses. Bridging can be a stepping stone to something else. You’ve got to make sure that you’re looking at the flexible solution for the client. I do think we’ve had a bit of a renaissance – the property market has boomed which is great for us all. But if it slows down, you’re going to have to be even more creative. What can we expect from Castle Trust Bank in the year to come?

Has service become more important during 2020? Yes and no. A lot of institutions now think it’s acceptable to hang on the phone for 40 minutes to get through. I think we’ve gone backwards in that as a society. I’m passionate about the fact that we have managed to maintain our 48-hour turnaround and we’re answering the phone in an appropriate way and in the right timescale. But I do fear that as a society – particularly in financial services – it seems to be acceptable now to be made to hang on. It’s about looking at the things that the customer www.sfintroducer.com

We’ve now gone on the panel at L&G Mortgage Club and Sesame, so that will open up a wider distribution source. Its more evolution, rather than revolution. We’re in a solid place, and becoming a bank has been massive for us, just in our positioning and status. We’re here for the long run, we’re well capitalised, we are masters of our own destiny with our funding, so I think we’re in a good place to grow. We’re looking to be the thoughtful lender. If you’ve got a case that needs some thought about it, Castle Trust Bank is where you need to come, for a combination of certainty and flexibility. B I JANUARY 2021   BRIDGING INTRODUCER

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IN OUR OPINION

Why you should be working with us in 2021

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hose of you who are familiar with Castle Trust Bank will know it’s a lender that doesn’t stand still for very long. Since its launch in 2012, it has been continually evolving its proposition to meet the changing demands of brokers. Last summer, Castle Trust Bank was granted its full banking licence; so, what difference will the ability to take deposits make, and what role can the lender play in helping brokers to help their clients? “It will clearly provide us with more diversity in our funding, and will naturally influence our product development in the future,” says Martin Bischoff, CEO at Castle Trust Bank. He continues: “One of the many advantages of becoming a bank is that it gives us greater flexibility to make changes to products and pricing where we identify demand in the market, and brokers will have already seen a demonstration of this with our discounted rate offers in November and December. “Traditional financial service providers are often burdened with costly overheads, including expensive branch networks, inflexible technology and huge armies of people. At Castle Trust Bank, we keep our overheads to a minimum and we use savings proceeds to fund and develop our flexible lending solutions.” FLEXIBLE LENDING SOLUTIONS ‘Flexible lending solutions’ is a phrase used frequently at Castle Trust Bank, but what does it actually mean? “At a basic level, we offer buy-to-let [BTL] mortgages, bridging and development finance, available to UK residents, ex-pats, foreign nationals, [special purpose vehicles (SPVs)] and trading companies”, says Barry Searle, managing director – property. He continues: “These loans could be used for a variety of investments, including holiday lets, [houses of multiple occupancy (HMOs)], portfolio loans and property refurbishment. This tells you what we do, but it doesn’t tell you how we do it, and that’s where flexible lending solutions comes in and why a rapidly growing number of brokers are coming to Castle Trust Bank for their clients.”

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Martin Bischoff

BRIDGE TO CERTAINTY One area of Castle Trust Bank’s lending proposition that demonstrates how the lender adapts to the changing needs of brokers is its Bridge to Let product, which has surged in popularity in the last year. Bridge to Let is a clever product that combines a bridging loan and a buy-to-let mortgage. It enables property investors to purchase a rental property that they might struggle to finance with a term mortgage, complete any necessary changes required to make it mortgageable, and then switch onto a pre-approved buy-to-let mortgage once the property is ready to be let out for rental income. With Bridge to Let, the two funding facilities can be approved with one application process, which means certainty of exit funding, no doubling up of work and no extra costs or delays. It saves time and is more efficient for brokers and their clients, and it can be used in some very clever ways. FIRST-TIME INVESTORS For property investors on the hunt for better yields, there is little denying the appeal of a holiday let. However, buying a first holiday let is not always that easy, as many lenders will want a track record of previous holiday lets, or a track record that the property has been used for this purpose. One way in which brokers can help their clients to invest in a first holiday let is to use bridging to buy the property and then refinance onto a term mortgage www.sfintroducer.com


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IN OUR OPINION

The view from Castle Trust Bank on providing flexibility and certainty for borrowers in 2021 Barry Searle

once there is some track record in place. The downside of this is that it can prove expensive if the client is unable to secure a suitable exit route in good time. However, this downside is overcome if the exit route is agreed at the outset with Bridge to Let. Castle Trust Bank has seen a lot of demand for its Bridge to Let product from property investors who want to get up and running with their first holiday let. In fact, if it’s possible to demonstrate the track record of the holiday let before the end of the bridging term, Castle Trust Bank allows customers to switch over to the cheaper rate on the term finance before the end of the bridging loan. The minimum commitment on the bridging finance is three months’ interest payments, and then the customers have full flexibility to switch to the longerterm product. It truly is a flexible lending solution. This approach is a good way for first-time landlords to get up and running in a number of different types of property investment, and Bridge to Let has a range of other flexible uses. LIGHT REFURBISHMENT One way for property investors to maximise their BTL returns is by purchasing a property that requires some work in order to make it fit for purpose, carrying out the work, and then letting the property. Light refurbishment is a good way of adding both capital and rental value to the property, without having to undergo significant structural changes, and www.sfintroducer.com

commonly includes renovations like a new bathroom, new kitchen, redecoration, rewiring or new windows. Castle Trust Bank offers Bridge to Let on its refurbishment loans, and can also factor in the value uplift resulting from any renovations when it comes to agreeing the terms of the buy-to-let mortgage. CONVERSION TO HMO HMOs are another popular way for landlords to increase their ongoing rental income; one way for an investor to increase their returns is to buy a property and carry out work to convert it to an HMO. Investors buying a property with the intention of letting it as an HMO will usually need to carry out some work to make it fit for purpose, and this is where the Bridge to Let loan can come in. The initial bridging loan can be used to purchase the property and carry out the work, before switching it to a buyto-let mortgage when the work has been completed and the building is ready for tenants. DEVELOPMENT EXIT LOANS Bridge to Let can also be used as a development exit loan, putting developers in a position where they have greater control over when they choose to sell, in order to achieve the best price. The bridging element of Bridge to Let can be used as a development exit loan to refinance a scheme that is completed or nearing completion, often at a lower rate than the development finance facility, and can also free up capital that a developer can use to start their next project. Then, when the properties are ready for tenants, Bridge to Let can switch over to longer-term funding. This approach is particularly useful for developers who complete their schemes during a downturn in the purchase market, when they might not achieve as much from the sale of a property as they would have hoped. By letting out the properties, rather than selling as soon as they are ready, developers have greater control over when they choose to sell, so can ride out any downturn and plan their exit strategy at a time when they are most likely to achieve the best price. These are just some examples of how Castle Trust Bank takes the idea of flexible lending solutions and puts it into real life action for brokers and their clients. The lender has been doing this since 2012, and now as we move into 2021 and its first full year as a bank, it’s in a great position to help even more brokers and even more property investors. B I JANUARY 2021   BRIDGING INTRODUCER

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REVIEW

ASTL XXXXXXXXX

Building on Benson’s legacy Vic Jannels CEO, ASTL

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he bridging sector lost a good friend on 3 December, when we learned of the sad passing of our former CEO, colleague and friend, Benson Hersch. Benson was CEO of the Association of Short Term Lenders (ASTL) between 2012 and 2019, during which time annual bridging completions grew from £885m to more than £4bn, and membership of the association more than doubled. Under his tenure, the reputation of the bridging industry vastly improved, and representation with the Financial Conduct Authority (FCA), HM Treasury and other regulatory bodies also increased. HEARTFELT TRIBUTES

Over and above these achievements, however, Benson was hugely respected and liked throughout the industry. He will be sorely missed. The sheer volume of heartfelt tributes, both in the trade press and online, is testament to the impact he had on the lives and careers of so many within our industry. I would like to thank everyone who took the time to say something, with a special mention going to Mortgage Introducer, which included a fitting musical tribute at the end of its awards video with a performance of Rocketman. On behalf of the board, I can say that Benson is the reason why the ASTL is where it is today. He took the reins of the membership and transformed the ASTL into an association that is more representative of the industry, with a clear purpose to improve standards and encourage sustainable growth within the sector. Even after his retirement at the end of 2019, he maintained a close interest

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in the sector and has been of amazing support to me during my tenure. To say that he will be sorely missed is an understatement. He was an incredibly warm and insightful man, and he has played a significant role in the careers of many. My hope now is that we can take the opportunity to build on Benson’s legacy, growing the market for short-term lending and advancing its reputation among both customers and policymakers.

appropriate, with our colleagues at the Financial Intermediary & Broker Association (FIBA), the National Association of Commercial Finance Brokers (NACFB) and the Association of Mortgage Intermediaries (AMI). By working together on specific issues where we have a mutual interest – particularly in lobbying government and the regulator – we can amplify our voice and increase the chances of encouraging change.

HIGH LEVELS

Another way of growing our influence is by increasing our own membership, and I am very pleased to say that, despite the pandemic, we ended 2020 with more members than we had at the start of the year. A key channel for us to present the values of the ASTL is our website, and we will be working on this to ensure that it serves as a more suitable shop window for our association, our members and our associate members. We anticipate that the new website will go live during the first quarter of 2021. So, we have plenty to reflect on, but also plenty to look forward to, with many new opportunities to help support the economic recovery and provide vital funding for customers in the new year.

GROWING INFLUENCE

2020 was no doubt a challenging year, but as an industry we have emerged with credit due for the way we have been able to adapt quickly to meet the changing needs of our customers – both new and existing. We also emerged in a strong position in terms of the business pipeline. Our latest survey revealed that bridging applications hit their highest ever level in Q3 2020, and completions rose by more than 40% as the market bounced back from the first lockdown. According to the data, applications totalled £7.6bn in Q3 2020, representing an increase of 39.1% over the previous quarter and an increase of 25.7% on the same period in 2019. Completions in Q3 2020 were at £680m, which was an increase of 44.8% on Q2, although still down by 27.6% on the same period the previous year, reflecting the influence of the first national lockdown on the previous quarter’s originations activity. In addition, loan books showed a small increase of 0.6% on the previous quarter and 5% on the same period last year – remaining around £4.5bn – while average loan-to-values (LTVs) increased slightly since Q2, but continued to remain at sub-60%. Another area where I believe we are in a strong position is our influence with policymakers. The ASTL has been proactive in engaging with HM Treasury and the FCA, but we have also worked to build greater collaboration, where

PROACTIVE AND COLLABORATIVE

It’s important that we are alert to these opportunities, but also that we continue to proceed with caution. Our survey showed there was a small increase in the value of loans in default in Q3 2020 compared to Q2, but compared to the same period the previous year, the value of loans in default was up by more than 23%. This is an important reminder of the financial impact of the pandemic. However, if lenders continue to underwrite loans sensibly, whilst taking a proactive and collaborative approach to customers in default, then there is no reason why we cannot continue to grow the market and build on Benson’s legacy. B I

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Bridging Introducer January 2021  

Bridging Introducer January 2021