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BRIDGING Champion of the Bridging Professional

INTRODUCER www.sfintroducer.com

July 2020

Banking on the future Castle Trust becomes a bank

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0345 241 3079 www.castletrust.co.uk

Our appetite is clear In the current market, we believe that clarity is important in helping you find the right products for your clients. Like many lenders, we have reduced our risk appetite in line with the recent market changes. Where we differ is making our appetite clear, so that you know exactly which cases we're able to help you with. As the market regains its strength, we'll be constantly reviewing our product range and criteria to offer the most suitable solutions. You can always find the latest information at

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 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 Joanna Cooney joanna@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

Consistency in the face of conflict

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rom one week to another, and even on a daily basis at times, fresh reporting seems to come out that paints a conflicting image of our journey out of the COVID-19 crisis. There is endless speculation and argument about growth rates and the dreaded R Number, which on any given day would have us believing that we are either clear to leap into our post-COVID lives maskless and worry free, or that we should batten down the hatches and prepare for the worst. In the bridging market, however, the message seems more consistent and, dare I say, positive. While there are differing views about the shape of recovery, and the kind of market that will emerge at the end of it, the sense is that recovery is indeed coming, and within a relatively reasonable timeframe. In fact, while some businesses have had to make tough calls, many have continued business as usual, or better. Aspen Bridging, for example, approved £294m in loans during June alone, reporting one of its best months on record, while Market Financial Solutions has logged £30m during lockdown. Meanwhile, firms such as Roma Finance have continued expanding both their product offerings and their teams. There will no doubt be casualties as a result of the crisis, as in any industry. But as the future we have speculated about for months starts to form before us, it is increasingly clear that this sector has adapted well. The strength of the specialist and complex lending markets is also unlikely to fade any time soon, considering the vast swathes of borrowers who will now have furlough, unemployment or payment holidays on their docket. There may be a boom on the horizon as more people get shunted off the high street. And with many likely scrambling to get their property chains moving before the end of the Chancellor’s six-month stamp duty holiday, this may come sooner rather than later. B I

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Contents 5 Jonathan Newman The butterfly effect of the moratorium 7 Kevin Thomson Time to learn everything you can about development 9 Nicky Richmond Do you need your own lawyer? 11 Bret Jackson Looking to move forward 12 Harry Hodell Taking advantages of the opportunities available 13 Roxana Mohammadian-Molina Where do you go when the bank says no? 14-23 Feature: Digitalisation and the future of the bridging industry  Jessica Bird considers the growing digitalisation of the bridging market, and where this trajectory might lead in the wake of COVID-19 25 Vic Jannels  The latest from the ASTL 28 Cover: Banking on the future  As Castle Trust becomes a bank Barry Searle, managing director, property at the lender talks through the journey so far

Our appetite is clear As we respond to the current market changes, we’re committed to giving you clarity every step of the way www.sfintroducer.com

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REVIEW REVIEW

RECOVERY XXXXXXXXX

The butterfly effect of the moratorium Jonathan Newman senior partner, Brightstone Law

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here was a story in The Times towards the end of June about a peer-to-peer lender called Growth Street that had given its 116 borrowers three months’ notice to pay back their loans as it was closing the platform. According to The Times, the lender “did not have enough funds as more investors withdrew money”. I raise this, not to poke a stick at peer-to-peer, but to provide just one example of a mismatch between funding and lending requirements that have been accentuated by payment deferrals and the government moratorium. INVESTORS SPOOKED

Peer-to-peer is perhaps more vulnerable to this than lenders funded elsewhere as private investors, however sophisticated, may be inclined to become spooked more easily. That aside, this is a real-life example of how current government policy is resulting in consumer detriment. Change is needed. Lenders across all areas of the market have built a model for their business that assumes a certain recovery rate and when they are unable to achieve this recovery rate for a prolonged period, as is the case currently as a result of payment deferrals combined with the moratorium, the model falls down. Growth Street illustrates that loans called in, is no longer just a lender problem, but also a consumer problem. Policy needs urgent but careful revision and a more balanced approach, but nobody in a position of authority appears to be listening. www.mortgageintroducer.com

At the beginning of June it was announced by the Ministry of Housing, Communities & Local Government that a judiciary-led, cross-sector working group was being established “to address so far as practicable matters affecting litigants and the courts when the present stay on possession proceedings is lifted.” I’ve been trying very hard to participate in this group to help provide a balanced view and insights and expertise from the lending

“Lenders across all areas of the market have built a model for their business that assumes a certain recovery rate and when they are unable to achieve this recovery rate for a prolonged period, as is the case currently as a result of payment deferrals combined with the moratorium, the model falls down” community, but so far, my offers to engage have been unsuccessful. However, we have to get clarity on what is happening within this working group and which interests are being represented. We are at a stage now where consumers are having their loans called in, and it’s really urgent. LEGAL RIGHT

The crux of the issue is this. Going to court, with or without COVID, is about being able to pursue your legal right. Having your case heard is something that should be available to everyone – individual or business. We have faith in our courts system, and rightly so. We trust that judges will act proportionately and within

the discretion provided to them by legislation – they have the power to identify exceptional cases as well as to refuse or extend enforcement, for example. Default claim do not all end with people being removed from their houses – the vast majority are resolved before then. it’s a process. Our judges have the guile, experience and sensitivity to make decisions on the papers and public health risk. CIVIL RECEIPTS

And there would be huge practical benefits to placer-opening the process. According to HM Courts & Tribunals Service, the pre-COVID-19 baseline for civil receipts (which include High Court claims and all possession case types) was 38,521. This decreased to 12,250 during the week ending 5 April, and then fell sharply to 6,656 the following week. The lowest number of receipts was 4,626, during the week ending 10 May. So, a system that is used to processing more than 38,000 each week has dropped to fewer than 5,000 during some weeks and this indicates the scale of the logjam that is waiting to hit the courts system. This logjam, combined with the reduced capacity of the courts as they implement procedures to enable social distancing means that there are going to be huge delays when they do resume, and the situation is only going to get worse by continuing to extend the moratorium. BUTTERFLY EFFECT

The moratorium has certainly succeeded in its primary objective, which was to keep people in their homes, but it is one piece of legislation that is creating a butterfly effect elsewhere, with a detrimental impact on lenders, the courts and, most pertinently, consumers. Now that restrictions are being eased, there must surely be a review of the validity of the original objective against the damage that it is now causing. You would hope that this is one of the tasks of the working group, but without industry representation around the table, we simply do not know. B I JULY 2020

BRIDGING INTRODUCER

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Are You Switched On?

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27/02/2020 10:56


REVIEW REVIEW

DEVELOPMENT FINANCE XXXXXXXXX

Development finance: learn what you can Kevin Thomson sales director, Connect for Intermediaries.

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n 30 June the government made its announcement headlined ‘Build, Build, Build’. In it they announced “the most radical reforms to our planning system since the Second World War”. The cornerstone of the speech was the move to further relax the planning rules so that premises which are no longer being used for commercial can be adapted and turned into residential apartments without the need for planning permission. This all sounds very positive for the developer and the entrepreneur – especially for those looking for below-value premises to turn into profitable residential homes either for sale or to let. It may also be possible for developers to demolish the existing building and build ground up so that it is purpose build for residential. But as always with announcements such as these, the devil is in the detail and without that detail it is difficult to ascertain how all of this will come to fruition in practice. COMMERCIAL CAUTION

Commercial lenders are already being cautious about commercial premises, particularly retail units. This was driven by the competition from online shopping threatening high street shops even before lockdown and now people have become even more used to online shopping, the fall out will be even greater. It must leave you to question the future of the high street as we knew it. However, contradictory to that, plans to convert a retail shop to residential may give more confidence to a commercial lender as there is an www.mortgageintroducer.com

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alternative use for the premises without the need for an official change of use. The need to deliver new homes is nothing new; neither is the need to amend the planning system to enable this to become a reality, but it seems that the pandemic and the potential new ways of living and working this has inspired, has led to the opportunity to speed up this delivery. However merely changing planning laws does not alone solve the issue.

“Brokers should know which lenders are operating in this space and what information they require so that they are able to advise potential clients accordingly” We need skilled builders to build for a start. We also need further support for SME builders so that they can carry out the necessary refurbishments or conversions and build the smaller sites. We need to enable these smaller builders to expand, invest in training and grow their businesses. I think it is also fair to say that other tax changes for example, changes to Stamp Duty and VAT would help the housing market to lead the economy out of the current situation. The Chancellor’s temporary reprieve on stamp duty will definitely make a difference here in terms of getting the

market moving, although it may create an artificial cliff edge before March 31 when the previous rates of stamp duty are reimposed. All of the above will no doubt mean an increase in demand for bridging and development funding. The innovative Coronavirus Business Interruption Loan Scheme (CBILS) will be a definite help here providing financial support to SMEs backed by the tax payer. The CBILS gives the lender a government-backed guarantee for the loan repayments to encourage them to lend more. DEVELOPMENT OPTIONS

Development products from the likes of United Trust Bank for developers and house builders who require funding for projects are highly welcome, although they have been adversely impacted by COVID-19. There have been other additional development finance options, and with more lenders becoming CBILS accredited and now the relaxation of planning rules, it will become a definite growth area.This means that brokers should be looking, if they haven’t already, at educating themselves on the development finance market, to know which lenders are operating in this space and what information they require so that they are able to advise potential clients accordingly. Alternatively link up with a company that is already knowledgeable in this area so that you can either get help or refer your client to an expert. Either way, this announcement will only increase the demand so making sure you are positioned for this increase is development business is paramount in order to look after these clients. B I

Will businesses return to traditional office space?

JULY 2020

BRIDGING INTRODUCER

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06/07/2020 08:25


REVIEW REVIEW

REPRESENTATION XXXXXXXXX

Do you need your own lawyer? Nicky Richmond managing partner, Brecher

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t was in the very pages of this magazine that I read an article by the head of a well-known bridging Lender, extolling the benefits of having just the one lawyer for your bridging transaction. I’m not surprised to read this comment. It’s one I come across often. For non-standard bridging transactions there are a number of really good reasons to consider it, including speed of process, cost and simplicity, to name a few. There are also a number of really good reasons not to do it. And there are a lot of firms who will do it for you. But if there could be a conflict, we won’t. WHAT DO THE RULES SAY?

A standard residential mortgage is not a high-risk proposition and it’s normal practice to use one lawyer for both parties. But what about non-standard mortgages and loans which are not related to principal residences? Both the Solicitors Regulation Authority and The Law Society highlight the danger of potential conflict when acting for two parties. As they clearly state: “A conflict of interest means a situation where your separate duties to act in the best interests of two or more clients in the same matter conflict.” Solicitors should not act where there is either a conflict or a risk of one. My own view is that in commercial lending transactions, the risk of a conflict is always high. And that is because I do not believe that One Man, Two Guvnors works, either in the world of drama or real life. I believe that you cannot act in the best interests of both clients where the interests of both clients are not entirely aligned. In the case of the commercial lender/ borrower relationship, whilst the objectives are fairly similar they are www.mortgageintroducer.com

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not completely the same. And when you consider that at day one the lender may well have lent a large proportion of a property’s value, it seems odd that many are prepared to let the tail wag the dog, by relying on the borrower’s lawyers to carry out their due diligence. WHAT COULD POSSIBLY GO WRONG?

1. They’re just simply not that into you Picture this: the borrower’s lawyer has a longstanding client. They get chunky fees from that client, year in, year out. They get asked to act for you, a Lender who they don’t really know and with whom they have no relationship and from whom they might get a small fixed fee for doing the lending work as well. Who are they going to care about more? When the borrower asks them not to highlight a particular issue or worse, to bury it, what do you think they will do? And it happens. A lot. 2. Are you covered? What is the lawyer’s duty of care to you? Are you their actual client and have you looked at their terms of business? If there is a claim for negligence, how will it be dealt with given that the borrower is also likely to be affected? To whom is their duty of care owed? All these questions need to be addressed and understood by the lender. With your own lawyer, there is no ambiguity. 3. Are they any good? All lawyers are not equal. Neither are their insurance policies, if it all goes wrong. If you have your own panel, you know the quality of your own lawyers. Using the borrower’s lawyers is much more of a lottery. And using your lawyers to act for the borrower? Also not a good idea, given that the borrower will have already spent money on their own and doesn’t want a lender’s lawyer forced upon it. And this might be a problem if the loan were to go wrong and the Borrower was to claim an unequal bargaining position.

4. What happens when there is a conflict? A whole world of pain. The duty of confidentiality means that the borrower’s lawyer won’t be able to tell you something you need to know unless the borrower client consents, and why would it? Turkeys don’t vote for Xmas. The duty of confidentiality to the Borrower will trump the duty of disclosure of material information to you. They would need to stop acting for you. No-one ends up happy. One can, of course set up a Chinese wall, or accept a limited retainer from a borrower’s lawyer, so that they can avoid giving advice on what might otherwise be a conflict. For example, they might exclude any advice on the security documents to the borrower. But that makes me uncomfortable as a lawyer and acting for a borrower I would never accept it. Why would you not want to know that your lawyer was batting for your side only? Borrower or lender. 5. Does title insurance make any difference? To a point. It takes away one area of concern (lack of competence/ disclosure) and has its place in relation to smaller, less complicated loans but it doesn’t mean that there isn’t a potential for conflict, if the borrower’s lawyer is doing everything else. Of course, bridging lending is not onesize-fits- all and there are transactions where the risks are small and in an industry which one might argue is inherently risky, the risk on the legals might be another risk that the Lender is prepared to take. But in a statement which will surprise no-one, I would argue the opposite and recommend that where the loan itself is inherently risky, high value or complicated, the benefit of independent and straightforward legal advice will become obvious if the loan goes wrong if nothing else you can be sure that your security package is secure and there are no hidden horrors. B I JULY 2020   BRIDGING INTRODUCER

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Look to the future with bridging finance As the broader property market resumes activity, opportunities are wide open to investors and movers. Bridging finance is ideal for being that one step ahead. With our fast, personalised approach to short-term bridging, we can help you or your clients unlock finance with absolute speed. We approach each and every case purely on its merits, giving your situation the attention it deserves.

Bridging Loans Delivering bridging finance since 2007, we’re proud to have developed a range of products to meet a variety of situations and a reputation for providing a personalised approach to lending. Our extensive portfolio of bridging loans enable the speed and flexibility needed to help get your clients’ projects safely over the line. All of our loans are available as first or second charge, and have no Early Repayment Charges.

Tel: 0333 123 4556 Email: sales@westoneloans.co.uk West One Loan Ltd is authorised and regulated by the Financial Conduct Authority. Firm Reference Number: 510024. Certain types of loans are not regulated, for example loans for business purposes or certain buy-to-lets. West One Loan Ltd is registered with the Information Commissioners Office. Registration Number: Z2651210. West One Loan Ltd is registered in England and Wales. Company Number: 05385677. Registered Office Address: 3rd Floor, Premiere House, Elstree Way, Borehamwood, Hertfordshire, WD6 1JH.


REVIEW REVIEW

MARKET XXXXXXXXX

Looking to move forward Bret Jackson head of marketing & communications, BWD

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nother article I am writing from within the confounds of my own home, but will this be the last one? With the new ‘normal’ coming to fruition and the easing of lockdowns seemingly coming thick and fast, it may well be. With the easing measures coming into place, I am sure many of you took advantage of popping into your local for a beverage. I waited for the hysteria and the novelty of the first Saturday out of lockdown to wear off and had a walk down on Sunday. It had been given a lovely deep clean and looked in pretty good shape, but I was not permitted to sit at my usual spot at the bar, nonetheless, it was nice to be back. BACK INTO THE SWING

In the pub, people were talking about how they are back into the swing of things. Some are builders, discussing how they were back on site near Alderley Edge within weeks, stating how quickly these new builds are shifting. This is another great sign that the property market is moving in the right direction. As I write this article, speculation is rife the Chancellor is going to scrap stamp duty for property of values up to £500k. This would be a bald, but a welcomed move for the industry. It has certainly sparked a conversation in doors, along with a few messages coming through. People who had committed to moving before the lockdown, but couldn’t, are going to feel somewhat aggrieved and furious this is could be put in place now. Will we see a raft of property transactions postponed or cancelled, to take advantage of this offer? www.mortgageintroducer.com

It is only speculation, and nothing has been announced yet. But this move could fuel first time buyers to make the leap of faith on to the property ladder, a fundamental to keep the housing market buoyant. As stated, this would be a major positive to the market, but without feeling the raft of the readers, I feel other sectors could do with a boost first. Both Bridging and Development lenders have continued releasing news of record enquiries and lending. MFS stated they had lent over £30 million during the lockdown period. Hope announced a surge of 189% of enquiries in June, compared to the same month last year. In this announcement, they base this on the optimism returning to the market. But unfortunately, it is not good news across the board. Revver Bank, a new challenger bank specialising in lending within the North of England, is to be wound up. The original funders who were backing the Bank, have decided not to continue during the pandemic, therefore the decision was made to close the bank, rather than looking at other options.

It was only early in the year they received notification of their banking licence (with restrictions) and made a considerable number of key appointments. A very close friend of mine, the leading independent non-executive director of the bank, informed me of this decision. It was very disappointing to hear this, both from a business perspective and for the individuals who had made the move from established lenders. I am pleased this has been kept low key and the bank had not started lending on mass, or the fallout could have been very different. Having spent a vast amount of money on IT infrastructure, application process and testing, they were certainly geared up to take their proposition to market. It would be interesting to know if this technology is available for reuse, as could meet another lender’s requirements. Moving back to more positive matters. FIBA conducted a series of four online live webinars, which saw over 1000 brokers attend. I think this is fantastic to see so many attendees, who are looking to expand their knowledge and the potential products they can offer clients. I have talked about lenders utilising technology during these strange times, with this being another example of the people embracing it to further expand their capabilities. ASSET FREEZE

The property market is moving in the right direction

Finally, it was great to see action is being taken on the former directors of Lendy. It has been widely reported the mess this firm was in, prior to going to the wall, but the administrators have certainly expressed this in detail and have taken steps to freeze all assets. One person who spotted the danger was industry grandee, Terry Pritchard, but it has taken until now for it to come all out in public. With the above and the ban on Mini Bonds by the FCA, I am hopeful that we are seeing the end of these types of firms and the industry can continue. B I JULY 2020   BRIDGING INTRODUCER

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REVIEW

BROKING XXXXXXXXX

Take advantage of the opportunities available Harry Hodell director, Pure Structured Finance

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fter three months of lockdown, 4 July, ironically, marks Britain’s very own independence day of sorts, well at least in England. For the vast majority, the past 100 days or so have condemned us to 23 hours a day of house arrest; without the company of loved ones, without the face-to-face interaction shared in the workplace and between friends and of course without the ability to enjoy a swift pint at the local. FREEDOM RESTORED

Whilst the restrictions continue to loosen and our freedom slowly restored, those in the property world eagerly await the next phase of government measures to breathe life into the market. Up to this point, there have been endeavors to allow the construction industry to begin operating as close to normal as possible, but its not been without its shortfallings. However, the use of AVMs for valuations and the early lift on the travel ban for house viewings has helped provide some continuation throughout this period. In addition, construction sites being allowed to remain open under government guidelines, and construction workers being held as key workers has undeniably helped prevent the stopping of our industry in its tracks entirely. But AVMs do not work for all types of security and whilst sites remain open and workers on-site, house building has slowed and suffered at the hands of added safety measures and delays of both materials and funding. House purchases have also been

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BRIDGING INTRODUCER   JULY 2020

heavily affected by the lack of job security for a number of otherwise would-be purchasers. Current government schemes have helped to ease this to a degree, we can celebrate the furlough scheme put in place to combat unemployment figures and the rent holidays on residential and commercial mortgages which has, in the short-term at least, helped a number of businesses affected by the pandemic.

“All is not doom and gloom. From my perspective, there are some encouraging noises being made in parliament, the ‘new deal’, and the committed £12bn to house building signifies the intent of the government to support the housing industry over the next several years” However, the furlough scheme is expected to end come October and one would unfortunately expect a large number of redundancies when it does finally finish. The mortgage breaks too, are coming to an end and a number of real estate sectors, certainly retail and hospitality, will struggle to adjust to the immediate change in our economic environment and likely, close. Whilst it benefitted a vast number of businesses and individuals in the short-term, it essentially delayed the inevitable. Fear not, for all is not doom and gloom. From my perspective, there are some encouraging noises being made in parliament, the ‘new deal’, and the committed £12bn to house building signifies the intent of the government to support the housing industry over

the next several years. The news that planning reforms will take place will also be music to the ears to developers and property specialist alike - especially considering how they have suffered at the hands of an outdated and unchanged system, which has been in place since 1947. Thankfuly the changes to stamp duty have been implemented immediately. Had the stamp duty threshold been increased to the £500,000 mark, but at a later date, then I expect we would have seen a delay in house purchasing as potential buyers waited to benefit from the increased threshold. PURCHASE INCENTIVE

As it was introduced immediately, we can expect an initial increase in transactions for those purchasing in this bracket. Of course, the reality is this is unlikely to stimulate the property market back to old norms but it may well give those in a position to purchase, the incentive to do so, and as such be another solid step on our road to recovery. There are also plenty of opportunities for property professionals to thrive moving into the back half of this year. The beginning of 2020 saw a spike in inquiries and volumes of transactions, this was cut short by the pandemic and I believe the same demand will return once more normal times present themselves. In the meantime, there are a number of specialist lenders who have continued to support intermediaries and their clients throughout this pandemic period and this shows the immense resilience and potential there is within our industry. As with the 2008 crash, the specialist finance industry has once again proven its worth and looks to thrive in the years ahead. Specialist brokers such as ourselves, have worked closely with developers to manage complex transactions and structure unique lending solutions to deal with client’s requirements in this testing period. As a consequence, we head into the back half of this year with great anticipation to take advantage of the opportunities that present themselves to us and our clients. B I www.mortgageintroducer.com


REVIEW REVIEW

LENDING XXXXXXXXX

Where do you go when the bank says no? Roxana MohammadianMolina chief strategy officer, Blend Network

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lternative finance providers and peer-to-peer lenders have played ‘key worker’, helping small businesses raise much-needed cash during the COVID-19 pandemic. The government’s planned £5bn New Deal will breathe new life into HMRC’s Bank Referral Scheme, and help those borrowers it was intended to serve from the outset. Launched in November 2016, the Bank Referral Scheme was designed to help improve small to medium enterprises’ (SMEs) access to finance and competition in the lending market. The scheme requires some of the UK’s largest banks to pass on the details of small businesses they have turned down for finance to three governmentdesignated finance platforms. These, in turn, are required to anonymously share their details with alternative finance providers, helping to facilitate a conversation between the business and any provider that expresses an interest in supplying finance to it. Blend Network has been one of the providers working under the scheme for the past two years.

Network, which successfully funded the deal. This success story was widely covered in the specialist and regional press, due to its importance in delivering much-needed funding and houses to this part of Northern Ireland. We believe that Boris Johnson’s pledge to “build better, and build greener, but also build faster” and his planning reforms, many of which are targeted at supporting SME property developers and small construction companies, will help breathe new life into HMRC’s Bank Referral Scheme. SECURING FUNDING

This represents an unprecedented opportunity for alternative finance providers to work closer than ever before with traditional lenders and high street banks in order to help build the homes the country needs. Under the scheme’s early reviews, published in August 2018 with data from 1 November 2016 to 30 June 2018, nearly 19,000 small businesses that were rejected for finance from one of the big banks had been referred, and more than 900 businesses had secured upwards of £15m in funding.

This scheme will get renewed traction in the wake of the pandemic, because the success of the government’s push to get Britain building again revolves around developers getting access to finance. At a time when large-scale public borrowing will see an unprecedented deterioration in public finances, there will be increased pressure for the government to consider new and innovative sources of funding, especially peer-to-peer property lending, to tackle the housing shortage. With the number of houses needed to, in Johnson’s words, “level up” the UK being so high, and with so many parts of the country having felt left behind, neglected and unloved, we believe that all avenues must be explored to support the government’s mission of accelerating growth. Due to their nimbler size and the lack of heavy legacy processes, alternative lenders are able to move faster at a time when traditional lenders are being inundated with loan requests, prompting some lenders to warn that they may struggle to cope with the high demand. Anne Boden, CEO of digital bank Starling, recently voiced her concern about how quickly banks could ramp up their lending. The answer, I believe, is for the government to support alternative lenders working closely with traditional ones, to help housebuilders at a time of national emergency. B I

BUILDING FASTER

Early on in 2018, Blend Network funded a project by two veteran property developers who were looking to build apartments in Bangor, Northern Ireland. After being turned down by Barclays, the bank used the government’s Bank Referral Scheme to pass the case onto one of the designated platforms, and referred the developer to Blend

Property developers need unobstructed access to finance

www.mortgageintroducer.com JULY 2020   BRIDGING INTRODUCER

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FEATURE

DIGITALISATION

DIGITALISATION AND THE FUTURE OF THE BRIDGING INDUSTRY


FEATURE

DIGITALISATION

Jessica Bird considers the growing digitalisation of the bridging market, and where this trajectory might lead in the wake of COVID-19


FEATURE

DIGITALISATION

T

he COVID-19 crisis has, if nothing else, brought into sharp focus the fundamental importance of technology, showing that it is those organisations that can quickly adapt and digitalise that will ultimately thrive. However, the pandemic was hardly the starting point of digitalisation and automation in the bridging industry, and it is unlikely to be the end. Steve Swyny, head of sales at First 4 Bridging, says: “It’s important for all lenders, specialist distributors and intermediary firms to realise that technology has the scope to significantly impact many areas of the mortgage market, including the bridging sector, from an internal and external business perspective.” So, where had progress got to in the bridging market prior to the current crisis, and what movements might it make once we return to normal? SPEED AND SERVICE IN THE MODERN AGE Before social distancing became the world’s universal talking point, other factors were driving digitalisation within this sector. Paresh Raja, CEO of Market Financial Solutions, says: “Before COVID-19, we did see the bridging sector look to digitalisation and automation solutions. “With demand for bridging loans rising, lenders have been building new [customer relationship management (CRM)] systems to ensure each case can be effectively tracked and managed. “This may not sound revolutionary, but for a sector once known for being cumbersome with tech adoption, this has been a big step forward.” Much like in any other field, the consumer experience is forever rising in importance. Clients across all industries have come to expect a streamlined, modern service, and in the bridging industry this is only heightened. Kunal Mehta, managing director at specialist lender SDKA, says: “Service is absolutely critical, because one of the key drivers for getting bridging finance is speed. In essence, it’s that we’re able to lend quicker than a larger high street lender.” For Jack Coombs, director at Aspen Bridging, keeping up with the increased expectations of a smooth, digitalised services does not have to mean deploying the most high-tech, advanced – and inevitably expensive – systems. He says: “It’s all about speed and service… it’s about the lenders making it easy on everyone else, who is using bog standard technology, to approach them. “That’s about automatic payment links, editable forms, having a quoting system that actually gives accurate valuation and legal fees. It’s really just about spending time and giving it some thought.” There are a number of practical instances of businesses that were already making strides in terms of automation before COVID-19 made it a necessity.

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SDKA is a prime example. Using proprietary technology, the business has automated the processes for data entry and document generation across the entire lifecycle of the loan. What would previously have been a laborious process – manually building the necessary documentation, keying and rekeying data – now takes approximately 10 minutes. The system was introduced two years ago, and allows the lender to save time, reducing the need for back and forth with solicitors, while also reducing costs for the client. SDKA has also made the move to automate its function for reporting to funders, as well as the systems for monitoring its loan book, freeing up time spent on back-end or administrative jobs. Mehta says: “The benefit to our customers is that we can really do the bits that we enjoy – getting out to site, meeting clients and delivering for our customers – not being bogged down with back-office processes. “One benefit to us is that we know the documentation is correct, because there’s not that human error. The second thing is speed, which is critical for the bridging market.” In June 2020, Lightfoots was the first UK law firm to launch facial recognition ID verification services, through fintech solutions provider Nivo. Providing a WhatsApp-like interface, the app allows ID checks to be undertaken at the client’s convenience. It also replaced Lightfoots’ automated text alert system, allowing for tailored prompts to be sent to the client at each stage of the process. Another firm that is currently using the Nivo model is Bridging Finance Solutions (BFS), which has digitalised the onboarding of all clients via the app, which feeds directly into the firm’s case management system (CMS). BFS also shifted to open banking, and now requires no hard copy applications, vastly reducing the replication of work internally. This is combined with cloud-based workflow management systems, shared with the company’s solicitor partners, which have been in place for several years, cutting out inefficient email traffic while maintaining a full communication history. →

Much like in any other field, the consumer experience is forever rising in importance. Clients across all industries expect a streamlined, modern service, and in the bridging industry this is only heightened” www.sfintroducer.com


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FEATURE

DIGITALISATION

“The bridging industry was on a sturdy trajectory towards increased automisation and digitalisation before COVID-19, which since has only ensured that advancing technology is on everyone’s minds”

Steve Barber, managing director of BFS, says: “It’s about adding value to the client, making things as easy as possible right the way through. Basically, delivering a fantastic client experience, from onboarding through to redemption of the loan.” Finally, Lendlord’s platform allows portfolio landlords to view and manage the details of all properties, and its newly launched deal analyser function maps the products available across the market, and models how new property purchases might play out in terms of return on investment in the years to come. Although the addition of bridging products to the platform is still in the works, this is a prime example of how some in the market are embracing progress and bringing information to clients’ fingertips. So, digitalisation and automation has been a trend for some time, with some firms having had their products in place for years, while others have put the time and effort into developing systems that are now making a timely emergence into the marketplace. DATA AND DEMOCRATISING THE MARKET Bridging is a complex market in which each deal is unique. At the centre of the push forwards into digitalisation, then, is the need to handle and rationalise complex data. Automated data modelling, as found within Lendlord’s platform for example, can help open up more opportunities, particularly for portfolio landlords. Aviram Shahar, co-founder and CEO of Lendlord, says: “What we hear a lot is that the platform has encouraged [users] to take action – to grow their portfolio, because they see they have enough equity or available products that can help them. “But also from the other side, there’s stress test models, so you can see how much you are at risk. “I would say it’s encouraging our users to grow their portfolios, but to grow them wisely – based more on data and less on intuition.” The benefit of using digitalised data to mitigate risk can also be found on the lender side, according to Roxana Mohammadian-Molina, CSO at Blend

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Network, a peer-to-peer lending platform that allows diversified investors of all types to fund a wide range of deals via an automated, consumer-like online platform. For Mohammadian-Molina, there are various benefits to this business model, some of which are more practical, namely accessibility and speed. More than this, however, it is also a matter of principle, and a different way of conducting business, she says: “The beauty of this is that it’s democratising – it’s opening up the property investment space to a lot more people. “More projects are getting funded… and it’s diversifying risk. We have seen a lot of lenders stop lending because their main source of funding pulled out. But we don’t have one lender, we have many.” THE COVID DRIVERS The bridging industry was on a sturdy trajectory towards increased automation and digitalisation before the impact of COVID-19, which since has only ensured that advancing technology is on everyone’s minds. Indeed, for Lightfoots, although the move towards an automated, app-based process was already in the works, it was the onset of the pandemic that pushed it to the top of the agenda. Whether equipping entire workforces with laptops, or finding ways around processes traditionally done in-person with clients, many in the industry have had to innovate, and fast. Swyny says: “It’s fair to say that this extraordinary period has certainly made us think longer and harder about some of the ways in which we operate – in terms of efficiency, how we utilise technology and the need to plan better for any future potential disruptions. “There has been huge pressure on technology to help us navigate these challenging times and, by and large, it has certainly done this. “However, bridging remains a specialist, complex product that requires someone with expert knowledge to properly take on and underwrite cases.” Barber agrees: “[COVID-19] has accelerated the curve towards the use of technology, for example with things like home working. We were on the curve already, but it’s probably accelerated it by two to three years, which has resulted in firms investing in technology.” For those businesses which found the transition to home working was eased by the presence of existing technology, the effects of COVID-19 may have acted as a reassurance that they were on the right track; for others, the pandemic may well have opened a few eyes. “Something has changed in people’s minds now, technology and online services are going to take a more [prominent] place now, compared to preCOVID-19,” says Shahar. Due to this shift in perception, the rate of change will perhaps continue to accelerate, even once this period of necessity is over. → www.sfintroducer.com


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FEATURE

DIGITALISATION In addition to those universal elements such as Zoom calls and home-office set-ups, there are some COVID-19 challenges that have been the sole remit of the property and mortgage industries, one of which is the move away from physical valuations. Under lockdown, and where they were applicable, numerous lenders embraced automated valuation models (AVMs) and desktop valuations, despite the fact that they had previously been slow to gain traction. Even with the easing of restrictions on 13 May, there are still many people who are vulnerable, sheltering, or otherwise unable to engage in physical valuations of their homes. In addition, the demand for diverse valuation methods which can fit increasingly varied cases may simply be higher, now that they have become a more viable, widespread option, even outside of a COVID-19 context. “Remote working for bridging lenders, handling desktop valuations, having a remote signing process

Is a chatbot right for you? Mark Lusted managing director, Dock9

I

n recent months, we have been asked by many organisations, from multi-nationals to small to medium enterprises (SMEs) to help determine whether a chatbot would be right for their business – and more importantly for their customers, whether they are brokers or consumers. It’s important to note at the outset that chatbots need not be approached with trepidation, and the opportunities and insights that they produce can yield a significant return on investment against the cost of implementation. The first step in assessing whether a chatbot is correct for your business would be in testing an initial use case that you have identified as being relatively low effort to implement, but with clear benefits that can be realised quickly. Having an open mind throughout this process is vital. A chatbot is not necessarily the best solution in all instances – some cases would be

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best dealt with by a human, and so you must challenge yourself early on in the discovery phase as to whether your initial use case is a correct fit for the technology. It is also worth being aware that users respond to bots differently, so be mindful of this and closely monitor how different user groups react. The second your chatbot launches, it is going to be gathering vast quantities of information. You’re going to understand in real-time, and on a much larger scale, exactly what your customers are wanting from you as an organisation. This can have huge benefits, not just for the team that is looking to optimise and refine the bot after launch, but also for other areas of the business. We recently surveyed businesses in the sector and found that 69% of firms are considering using chatbots. With the barriers to entry lower than ever and many of the tech giants providing access to their technology for free, adopting some form of chatbot into your customer journey has never been easier, enabling businesses like ours to provide firms with powerful solutions that need not break the bank.

“Under lockdown, and where they were applicable, numerous lenders embraced automated valuation models (AVMs) and desktop valuations, despite the fact that they had previously been slow to gain traction”

for legals – those things have leapt forward,” says Coombs. “Use of desktop valuations is something that we will continue to do, and the remote signing process [will continue].” However, physical and automated or desktop valuations are vastly different processes, and there is a reason that the market was audibly relieved when home visits were allowed to recommence. “There has been a lot of innovation, both good and bad,” explains Barber. “People are using [AVMs] more because the insurers are taking them on, but in my view because the nature of our lending is so bespoke, from a risk mitigation perspective…it’s not appropriate.” Raja agrees: “We do not support desktop valuations – the risks are simply too high for both the borrower and the lender.” LEGAL COMPLICATIONS There are simply some processes that, at least for now, defy digitalisation. Joe Middleton, managing partner at Lightfoots, says: “As lawyers, we’re so used to having original documents, certain things have to be sent back and forth, and in certain parts of the industry you’re meant to see clients face-to-face the whole time.” Although Lightfoots has made great strides towards modernising its ID processes, the reason this element of the system has been slower to evolve is in part due to valid concerns about fraud. Any progress, therefore, cannot be made lightly or simply for its own sake. Lightfoots’ use of the Nivo app follows careful consideration of the various stringent checks and balances it puts in place to combat potential fraud, rather than just to speed up ID checks for the sake of progress. There are also other barriers to progress, particularly in an industry that interacts so heavily with regulators and government departments. Middleton says: “The Land Registry and Companies House are probably the two biggest stumbling blocks right now. Until they become completely comfortable with non-wet ink signatures on documents, there’s only so far we can go with it.” → www.sfintroducer.com

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FEATURE

DIGITALISATION

“As bridging cases tend to be naturally more complex than mainstream lending, there are many who would argue that digitalisation of the industry can only go so far”

Until COVID-19 hit, this was a promising area of focus for the government bodies, but has now been set aside for more pressing issues; it remains to be seen how and when they will return to the conversation once more immediate concerns have eased. NECESSARY MANUAL PROCESSES As bridging cases tend to be naturally more complex than mainstream lending, a fact that is only going to get more pronounced as people’s finances complicate post-pandemic, there are many who would argue that digitalisation of the industry can only go so far. Kim McGinley, director at VIBE Finance, says: “It’s not a tick-box system and it never will be I don’t think. There are so many different aspects, so the human touch is needed, now more than ever. “In the current climate, we’ve got a lot of clients who were looking to sell who are now looking to retain, so having a broker there to make sure they’ve got exits has never been more important.” Barber adds: “Each individual case is so unique that it does have to have the human touch. By definition, each case is bespoke. “Plus, what we offer is a personal service, so that in itself means I wouldn’t want to go down the route of automating underwriting.” For most of the businesses being discussed here, however, automated processes have not taken the place of the human element, but instead play a key role in supporting people in doing their work. McGinley continues: “When it comes to the use of e-signatures, cutting times down by just being more digital, there’s always going to be room for that, and [COVID-19] has forced some lenders, brokerages and clients down that route when they were initially happy with the more old-school ways of working. I think that will continue into this new era we’re going into.” For Lightfoots, SDKA and BFS, for example, the move to digitalisation has focused around streamlining existing inefficient processes, so as to allow the human, and more customer-centric, elements to come to the fore. Mehta says: “In bridging, it’s about automating the operational aspects, not the decision-making. “I am very much about making sure that we’ve got good quality people in the business making decisions,

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but we automate a lot of the operational processes behind the scenes.” “You’ve got to have a mix of new and old,” adds Coombs. “Take all the tech things that work, deploy those, and then you’ve got to also get hands-on and really understand and talk to people on a sensible and knowledgeable basis.” Meanwhile, Lendlord’s platform seeks to empower landlords with information and modelling to take to their adviser or broker so as to make more educated, informed decisions, rather than looking to replace in-person advice altogether. Shahar says: “We’re definitely disrupting the market by empowering the users and the unprofessional property investors to be more educated, get more data, understand where they’re at – but it’s not replacing the mortgage brokers and financial advisers and real estate agents.” THE (NOT SO) DISTANT FUTURE Looking towards future trends, both immediate and speculative, the subject of artificial intelligence (AI) is always likely to arise. For Mohammadian-Molina, this is a key trend to look out for, even if the data is not there to make it a viable reality yet. Swyny says: “Pre-COVID-19, a number of lenders were looking at ‘robo-underwriting’, where risk assessment, affordability testing and decision-making are done by a computer rather than a person. “It will be interesting to see how attitudes to such functionality may shift with lenders having to evaluate their product offerings, systems and how they can service their borrowers in the ‘new normal’, especially with funding lines under increased fiscal pressure.” However, most are sceptical of the ability of any computer system to make sense of the nuances of the bridging market. McGinley also adds that, regardless of whether the technology gets to a point where AI can make a sound underwriting decision on a complex case, there are other factors at play. “People buy from people – there has to be a trust element,” she explains. “We’re talking about something that’s huge for a lot of people’s lives. Trusting a broker is one of the biggest fundamentals.” In the more immediate future, Middleton predicts a move away from wet signatures, albeit not for perhaps five years, while SDKA has plans to implement facial recognition technology in a greater capacity than just ID verification, and BFS is working towards developing an app to allow clients to gain instant access to their account statements. Each of these developments exemplifies a move towards a more open and accessible market, with greater transparency, ease and streamlining for both consumers and those working within it – not one that seeks to strip out the human element. B I www.sfintroducer.com


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REVIEW REVIEW

ASTL XXXXXXXXX

Emerging stronger from strange times Vic Jannels CEO, ASTL

O

t’s often been said in recent months that we are living through strange times and the bridging market in particular is a strange place to be at the moment. The stasis of lockdown has been followed by a rush of activity and I have spoken to a number of intermediaries and lenders that have been processing record numbers of enquiries. At the same time, it is clear that we are not yet out of the woods. COVID-19 will leave a lasting impression on the UK economy and we don’t yet know the full scale of its impact. In the short-term lending market, the rate of change since March has been immense.

“We have provided a platform for our members to share experiences and best practice, which is hugely important at times like this”

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One of the great things about our sector is that it is possibly the most resilient and adaptable area secured lending, and lenders have been incredibly quick to respond to the changing environment and evolve their processes accordingly. Consequently, we have seen some lenders continuing to lend throughout lockdown, using technology and remote valuations to continue to operate effectively whilst taking appropriate precautions to mitigate www.mortgageintroducer.com

risk, such as limiting LTVs and taking a more cautious approach to groundup developments. Some lenders have pulled back in terms of their appetite for new business, focusing on working with existing customers throughout this challenging period. We now find ourselves in a situation where levels of activity are extremely high and there is some loosening of criteria but caution ultimately still reigns. And this is the correct approach for a number of reasons. PROCEEDING WITH CAUTION

The lockdown has, undoubtedly, been the biggest shock our economy has ever had to endure and government intervention to introduce a furlough scheme for underworked employees, amongst other measures, has maintained jobs throughout this period. But the public sector cannot continue to pay private sector salaries for ever and as the scheme is removed in the coming months there are expectations that unemployment will significantly increase, putting further downward pressure on the economy and any recovery. So, with this in mind, it is right to look forward with caution. In addition to this, another piece of government intervention has provided lender with significant logistical considerations and placed a disproportionate financial strain on short-term lenders. The current enforcement moratorium, which suspends recovery activity for lenders was introduced with the best intentions of keeping people in their homes during the pandemic. But it has been applied with a broad approach and it has been clear to us at the ASTL that there is a need for far more detailed provision in the mortgage market, which is made up of many products, not just traditional long-term owner-occupier residential mortgages. So, we have sought to encourage

HM Treasury to recognise that we are here to help in that regard and that we think it is important to work together on an effective and diverse financial response to the current situation so that we are able to follow a balanced approach that best supports the UK’s economic recovery. I am happy to say that we have made some progress in speaking to the right people and we will continue to push for greater engagement, both on this issue but also any future issues where it would be beneficial to include the insights and ideas of the short-term lending market. In addition to this activity, we at the ASTL have provided a collective voice for the industry across a number of issues throughout, including the importance for customers to recognise their responsibilities regarding their loan commitments, and we have monitored potential opportunities for members and brokers as we start to exit this situation. We have also provided a platform for our members to share experiences and best practice, which is hugely important at times like this and we have maintained a commitment to best practice through our Code of Conduct, which remains a kitemark of quality and is particularly sought after during times of uncertainty. It is perhaps for these reasons, that we have received substantial levels of interest from potential new members and associate members, and we continue the process to grow our membership and influence. The market is performing well and while there may be some challenges on the horizon, where there is demand from customers and an appetite to meet that demand, then these are the ingredients for a healthy market. At the ASTL we will do all we can to help deliver that healthy market. We enjoy close working relationships with our colleague associations and, through working together we can, and will, emerge from these strange times stronger if we accept the necessity of change and use new knowledge to ensure the best sustainable outcome for all parties. Most importantly, the end customer. B I JULY 2020

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ADVERTISEMENT FEATURE

IN OUR OPINION

Banking on more

L

ast month Castle Trust was granted full authorisation as a bank by the PRA and the FCA to become Castle Trust Bank. The journey to become a bank has been long and complex, but receiving authorisation is just the beginning of our journey and signals the start of the next phase of Castle Trust Bank’s growth. Our first priority is to convert our 30,000 existing investment accounts into savings accounts, after which we look forward to launching our exciting new range of savings products. The full banking licence opens up many new opportunities for the business and will mean that we will be able to offer solutions for more customers across both our savings and lending platforms and work with more intermediaries in the specialist lending space. We’ll be revealing details of our enhanced specialist property lending proposition in the near future, which will build upon our existing offering to meet the needs of buy-to-let landlords. Having a banking licence further improves our funding capability, giving us greater flexibility over terms and rates. For now, however, we are going to focus on offering our existing borrowers great deals and expanding the criteria on current products. COMMITMENT Amidst the uncertainty caused by COVID-19 and the stasis of lockdown, we refocused our resources to move quickly and proactively to work with brokers in supporting our existing customers. The first thing we did was to extend the maturity date by six months for all customers whose loans were due to mature between March and September. We understood that this situation would take time to unfold and we didn’t want to create a cliff edge that would plunge customers into default. So, we made this change across the board, and this has bought us time to work with brokers and their clients on an individual basis, to identify the most appropriate longer-term solution for them. This is not just a case of issuing bog-standard forebearance to everyone. For example, in some

Barry Searle, managing director, property, Castle Trust takes us through the banks’ proposition

circumstances it could be in the customer’s interest to convert a rolled-up interest loan to one that is serviced, so that they are not accumulating a larger capital debt than they had initially intended. It’s important that we identify the best route for an individual customer and that we look to work in partnership with their broker to help deliver this. This partnership approach will help a broker to strengthen their relationship with a client and, of course, it helps us to develop stronger relationships with our brokers. It’s these partnerships upon which we will build our future, working collaboratively with our intermediaries to deliver the most suitable solutions. IMMEDIATE OPPORTUNITY The most apparent and immediate opportunity for brokers comes for the temporary reduction to Stamp Duty Land Tax (SDLT). Reduced rates of SDLT will apply for residential properties purchased from 8 July 2020 until 31 March 2021 inclusive. Homebuyers purchasing a residential property during this period only start to pay SDLT on the amount they pay for a property above £500,000. This is likely to drive a wealth of new enquiries to brokers, but perhaps more interesting is the fact that the reduced rates will also apply to investors. The 3% higher rate for purchase of additional dwellings will still apply, but investors will ultimately pay less on SDLT on the vast majority of purchases. BRIDGE TO LET One way for property investors to seize the opportunity presented by the SDLT relief and maximise their buy to let 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. This approach can be particularly effective for property investors in a competitive market, which we can expect for the duration of the reduced SDLT period, as properties requiring work are likely to be less in demand and so will not command such a premium. By carrying out work to a property, an investor can add capital value to that property and also

Our appetite is clear 26

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ADVERTISEMENT FEATURE

IN OUR OPINION

Property value

SDLT rate

Up to £500,000

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The next £425,000 (the portion from £500,001 to £925,000)

8%

The next £575,000 (the portion from £925,001 to £1.5 million)

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The remaining amount (the portion above £1.5 million)

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attract increased rental income. At Castle Trust Bank, we offer a bridging loan that can be converted to a longer term buy to let mortgage to facilitate just this type of approach. Our bridge to let product provides an easy and flexible solution for a number of investments, but there are two that are particularly popular. LIGHT REFURBISHMENT Light refurbishment is the term used for a property renovation that requires no planning permission or building regulations and where there is no change of use to the property. Light refurbishment renovations commonly include new bathroom, new kitchen, redecoration, rewiring or new windows. They have also become very popular for properties that do not meet minimum EPC requirements. A light refurbishment of a property is a good way of adding both capital and rental value to the property with having to undergo significant structural changes. After all, a new kitchen and bathroom and some decorative work can transform an otherwise undesirable property and there are many landlords and homebuyers who are not willing or able to take on this work. With a light refurbishment bridge to let mortgage, an investor can take a bridging loan to purchase the property and carry out the required refurbishments, before switching to a buy to let mortgage at the higher value. It’s a straightforward process that can provide an investor with more peace of mind that separately sourcing a bridging loan and then a buy to let mortgage. CONVERSION TO HMO HMOs are a popular way for landlords to increase their ongoing rental income and so one way for a property investor to increase their returns is to buy a property and carry out work to convert it to an HMO. An HMO is a building that is not entirely comprised of self-contained flats and where the occupants share

one or more of the basic amenities (defined as a toilet, personal washing facilities and cooking facilities). A typical HMO might be a student house that is let to a number of different students, but HMOs are also popular close to city centres amongst young professionals and near to hospitals for medical and maintenance staff. An important consideration for landlords purchasing an HMO investment is think about the location of the property and the potential to let it as an HMO, as some areas will be inappropriate for this type of investment. It is also worth remembering that there is now mandatory licensing for all HMOs that are occupied by five or more people from two or more households. And, as part of this mandatory licencing, there are minimum room sizes for bedrooms in licenced HMOs. Investors buying a property with the intention of letting it as an HMO will usually need to carry out some work to make the property fit for purpose, and this is where the Castle Trust Bank Bridge to Let loan can come in. We are able to advance a bridging loan to purchase the property and carry out the work, before switching it to a buy to let mortgage when the work has been completed and the building is ready for tenants. FIRST-TIME AND PORTFOLIO LANDLORDS Bridge to Let can deliver a solution for both first-time and portfolio landlords, providing the flexibility of a bridging loan upfront, combined with the peace of mind that there is a ready-made exit for this bridging loan, with a buy-to-let mortgage already in place for the longer term. If you have clients whom you think could benefit from a Castle Trust Bank bridge-to-let loan, pick up the phone and speak to one of our BDMs about the solutions we can offer. BANKING ON BETTER These are exciting times for Castle Trust Bank. We have the capability and appetite to lend to provide solutions that help brokers meet the demands of their investor clients today and our banking licence provides us with the opportunity to broaden our range and help more customers in the future. We are building a better bank that provides new opportunities for brokers in the specialist mortgage space and we are looking forward to developing new and existing partnerships with intermediaries as we continue to enhance our proposition. B I

As we respond to the current market, we’re committed to making our appetite clear so that you know exactly which cases we can help you with. www.sfintroducer.com

→ JULY 2020   BRIDGING INTRODUCER

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COVER

INTERVIEW

Banking on the future As Castle Trust becomes a bank Barry Searle, managing director, property at the lender talks through the journey so far Castle Trust has just received its banking licence. How big a change is this for the business? Receiving our banking licence is a key part of our business strategy, which we’ve been working on for the last couple of years. Although there will be no ‘big bang’ changes straight away, having our banking licence gives us flexibility to continue to innovate and grow the business. We’re taking things steadily, so the first thing that we’re focusing on is our savings proposition, but we’ll be making some enhancements to our current specialist lending proposition soon. What new opportunities does having a banking licence open up for Castle Trust? There are lots of opportunities that being a bank provides. One of the most immediate is the access to full FSCS cover for our savings customers, which helps to ensure that we have access to all of the funds that we need from a lending point of view. It will also improve our funding capability, which will mean that we can broaden our offering from a lending point of view. Some of the other benefits are slightly more long term, we’ll be able to expand our offering to serve new market niches and reach even more intermediaries. In the meantime, we’re focusing on helping our existing

Barry Searle

For our latest updates visit: 28

BRIDGING INTRODUCER   JULY 2020

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COVER

INTERVIEW borrowers and brokers navigate the current market. How important will the bridging sector be to Castle Trust moving forward? Bridging forms a key part of our current proposition, with Bridge to Let being a particular focus. Our appetite for bridging centres around Castle Trust Bank also being available as the exit vehicle. In today’s market, knowing that we can facilitate the exit too will help landlords have the confidence to commit to new projects. There has been a great deal of change as the market adapts to COVID-19. How has Castle Trust adapted? Like all lenders, we’ve had to review our proposition in light of the COVID-19 challenges, but we’re fortunate that we’re not reliant on the markets or third party funders for funds so we’ve been able to be more considerate of the longer term in what we offer and not make knee jerk decisions. Our core focus at the beginning of lockdown was making sure that we supported our existing customers and brokers properly. From an operational point of view, we were all set up and ready to work from home, so we were able to focus on our brokers and customers from day one. We proactively contacted all of our customers with upcoming maturities to help create appropriate plans and made arrangements to extend their terms where suitable. Our strategy throughout has been to prioritise our brokers and make sure that we were providing as much support as possible. That’s why we haven’t been particularly vocal over the last few months, as our attention has been focused there. As you would expect, we’ve reviewed our risk appetite in response to the challenges presented by COVID-19. As the market recovers, we’re continually reviewing our appetite and our proposition and making sure that we keep our brokers informed every step of the way. We’re committed to providing clarity so that brokers know exactly what kinds of cases we can help with. What is your take on the property market at present? How do you see the future of the market? It’s been really interesting to see how the market has

reacted to the recent challenges. No doubt, there are still more challenges to come as the market recovers, lenders define their longer term appetites and brokers start to see new patterns in the types of cases that come through. We’ve seen a great deal of resilience though, which is promising for the future of the market. Lenders have a huge role to play in the recovery of the market, making sure that they take sensible decisions and a pragmatic view on cases. There is a clear appetite from the government to help get the market back on its feet too. The temporary reduction to Stamp Duty Land Tax (SDLT) is something that I think many across the industry will welcome. The fact that it applies to additional properties as well as primary residences is likely to have a positive effect on the buy-to-let market too, presenting a prime opportunity for enterprising landlords and making buy-to-let investment more affordable for first time landlords. We expect to see a particularly competitive market over the coming months as a direct result of the SDLT reduction. That’s where the real opportunity lies for bridging, as landlords will seize the opportunity to invest in the less in-demand properties which require some work. Bridging loans will allow them to take advantage of the reduced cost of acquisition and complete the works required to maximise their rental yield in the longer term. The future of the market will undoubtedly be very different to what we’d have expected this time last year, but there is still very much a need for specialist products and it’s a critical part of the country’s recovery from the COVID-19 crisis. What areas of the market do you see as becoming more important to brokers in the new landscape? Relationships with lenders are going to be critical to brokers in successfully navigating the new landscape. Knowing how a lender can help will give brokers access to a wider range of solutions for their clients and help them to identify where a case will be best placed. Versatility will also be key. We all recognise that there’s been a fundamental shift in the market and demand from clients has also changed shape. Being versatile enough to track the market as it recovers and react accordingly will ensure that brokers aren’t left behind. There’s also huge value in how brokers help their →

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JULY 2020   BRIDGING INTRODUCER

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INTERVIEW clients through the changes. It’s easy for us to see the impact on our industry, but when brokers look beyond that to their clients’ circumstances, there are lots of opportunities to provide valuable support and build client loyalty. What does Castle Trust Bank look for in a bridging case? We’re pretty flexible in what we look at in bridging cases and our products serve a number of different needs. Whether it’s bridging for light refurb or conversion to an HMO, we’ll look at each case individually. The key things that we look for are a clear purpose for, and a suitable exit from, the bridge. Whatever the bridge is being used for, we want confidence that the aim will be completed within the term of the bridge and that the applicant isn’t overstretching themselves. Likewise, we don’t want the applicant to reach the end of the term with no means of exit, which is why our bridge to let offering is so useful. Landlords can take out their bridging loan, secure in the knowledge that we can provide subsequent buy-to-let terms. How has that changed over the years? Although we have offered short-term loans for many years, we only started to offer short term bridging last year. As we planned our entry to the market so carefully and consulted with brokers when developing our Bridging offering, there’s been very little that we’ve needed to change in that time. We’re seeing the right kind of cases come through our bridging products and graduate to our short-term buy-to-let loans. What is the quality like of the information you get from brokers when the submit a case? We have close relationships with most of our brokers, so they know the kind of information that we’re looking for and how to present it for us. The key thing that ensures the quality of information is where the broker has really got to grips with the applicant’s circumstances, so a detailed fact find always helps and sometimes even reveals new ways that a seemingly out of policy case makes a sensible lending decision.

What advice would you give brokers to help get a deal across the line? There are two keys to success in getting a case over the line; information and collaboration. Having all of the relevant information from a client helps to build a really robust case, enabling us to make pragmatic decisions that reflect all of the circumstances. Many of our applicants have quirky circumstances, so the ore that we know about them, the better we can help in providing a product that meets their needs. When brokers collaborate with us to present the key features of a case, it helps us to identify a case’s strengths. Our business development team aren’t just there to sell our products, but to help shape cases and look for new opportunities that haven’t yet been explored. Our wealth of experience means that we can often give a case a new perspective that the broker hadn’t considered. How important is flexibility in underwriting? We believe that flexible underwriting is critical. That’s not to say that policy rules should be ignored, but that having flexible underwriting enables sensible decisions to be made by skilled human beings who are able to take all of the case’s factors into consideration. There will always be some elements of policy that are non-negotiable, but we’re confident that if we say no to a case, it’s for the right reasons. What is the Castle Trust approach to underwriting? Our approach to underwriting begins long before a case even reaches our Underwriters. Our sales and pricing teams effectively pre-underwrite a case before it’s even submitted, saving our brokers keying in time if the case isn’t viable. Specialist lending requires specialist underwriting, so our team aren’t just run of the mill underwriters. They really understand how to get ‘under the hood’ and scrutinise a case to see its merits. Our approach allows them to make decisions based on all of the aspects of a case, whilst still working within our policy, ensuring that we make fair decisions for everyone involved. Finally, do you have a key message for brokers wanting to use Castle Trust?

Where do cases tend to fall over in the process? The main reason that cases fall over in the process is where the applicant has withheld information from the broker. Our approach to underwriting a case means that we have a detailed picture of the applicant and the case and if key information is omitted, it can change our view of a case and mean that it’s no longer viable.

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Our key message would be to get in touch. We work in a very collaborative way with our brokers and do our best to help every step of the way. We’ll talk through your case and be straight; if it’s not something that we can help with, we’ll tell you up front rather than waste your time. We’re constantly reviewing our proposition as the market continues to change, so it’s always worth picking up the phone to review a case. B I www.sfintroducer.com


See the opportunities Offer your client the confidence to start their next project; whatever the property type. With up to 75% LTVs on bridging finance for residential, commercial and land with funding for large and complex deals. Property finance made simple

lendinvest.com LendInvest Limited is registered at 8 Mortimer Street, London, W1T 3JJ (Company 08146929). Your client’s property may be repossessed if they do not keep up repayments on their mortgage. For intermediaries only.


0345 241 3079 www.castletrust.co.uk

Our appetite is clear In the current market, we believe that clarity is important in helping you find the right products for your clients. Like many lenders, we have reduced our risk appetite in line with the recent market changes. Where we differ is making our appetite clear, so that you know exactly which cases we're able to help you with. As the market regains its strength, we'll be constantly reviewing our product range and criteria to offer the most suitable solutions. You can always find the latest information at

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

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Bridging Introducer July 2020  

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