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INTRODUCER Information carried in Mortgage Introducer is checked for accuracy but the views or opinions do not necessarily represent those of Mortgage Introducer Ltd.
July 2019 www.specialistfinanceintroducer.com
INTRODUCER It’s been a good month for the specialist market. June saw the industry once again descend upon the Birmingham NEC for the NACFB Expo. The show has grown massively over the years and was at its best in 2019. The volume of lenders, brokers, service providers and everyone else who makes this industry great that were in attendance is a credit to Graham Toy and the team at the NACFB. Well done guys. If this year was anything to go by “Let’s hope a next year should be great. We’ve also had the SFI change in Prime Awards 2019. It was a great Minister can opportunity for the team draw a line to meet up with some of the best that the industry under the Brexit has to offer. omnishambles” It was interesting to hear what people think of the market at present. Overall there was a great deal of optimism about what lays ahead. However, Brexit continues to have an impact on the market. It’s three years now since the vote was carried out. Hopefully a change in the powers that be will help put this to bed for everyone. It’s time to move on. Boris Johnson, who looks destined for Number 10, has been vocal about housing. He plans to reform stamp duty and seems to be aware of some issues the market is facing. Let’s hope a change in Prime Minister can draw a line under the Brexit omnishambles and help inject some much-needed confidence back into the country. BoJo seems to like to picture himself as a Churchillian figure. Now, more than ever in recent history, is the time when the UK could do with a unifying figure. Much like when Churchill took over from the lacklustre Chamberlain in 1940 the country needs someone to get behind. Could Johnson be that person? Time will tell. But here’s hoping.
5 Andrew Hosford
Flexibility and security are essential in our market
7 Kevin Thomson
Bridging for business purposes
9 Harriet Smith
11 Dave Pinnington Guidance is key
12 Brian West
To value or not to value
15 Jessica Nangle
Reflecting on the PII roundtable
17 Bret Jackson
Looking back at the awards
20-27 Feature: Recruiting the future Michael Lloyd takes a closer look at recruitment
28 Benson Hersch
The latest from the ASTL
This month’s industry debate
40 Interview: The view from the top
Castle Trust talks bridging finance
Bridging you can trust
Still evolving Flexibility and security are essential in our market
The bridging or short-term property market is constantly evolving. The idea of short-term finance is to be flexible enough to unlock the potential and of course profit from a deal. Voltaire has established itself as a market leader in this space, putting a large emphasis on our relationships with the key lenders, as well as some more obscure and creative ones. At Voltaire Bridging we have worked with a number of lenders in the market to develop products specific to our client’s needs. The short-term market has evolved drastically in the last three or four years and as a result lenders appetites for bigger deals and even full on development requirements has grown. Though the market average deal size is c. £500,000 a number of the lenders that we
“Speed is a key factor in the short-term market and lenders are placing more and more emphasis on this” work with are comfortable with requirements up to £100m, some even bigger still. These requirements are not typical for the market, but knowing that these lenders have such strong funding lines has certainly helped to grow the confidence and image in this sector. Credibility and confidence in the market has certainly helped us to place deals and come up with complex structures that allow our clients to either maximise their gearing or perhaps complete on deals in under a week. Speed is a key factor in the short-term market www.specialistfinanceintroducer.com
and lenders are placing more and more emphasis on this. Given how competitive the market is, being able to move quickly is a prime concern for our clients, which is also true for the lenders. There are a number of lenders who have based their business on speed and are well aware that if they start letting clients down due to speed there are a number of lenders waiting to move heaven and earth to win their business going forward. The competitive nature of the key lenders in the market has truly worked in our favour. In the last couple of years rates have dropped to as low as 0.5% per annum (and a few times I have seen them lower that that) and we can now realistically achieve a loan-to-value as high as 85%. Between the 15 or so lenders we work with regularly we have the right mix of pricing, gearing and speed as well as specialist asset classes. Having a variety of lenders specialising in a wide range of asset classes, locations, gearing levels and price points has allowed us to utilise this type of finance to offer as much flexibility to our clients as possible. As we have a large mix of clients who focus on varying property asset classes we have to have access to lenders that cover all of these variables. The bridging and short-term lenders cover off a large amount of solutions for our clients. They are also, typically, the first step in a wider deal. Where the client is looking to buy a site, prior to planning, with a view to working up planning to develop, a bridge is the best solution to unlocking the deal. Rather than using the clients’ own cash, we can raise a shortterm loan to allow him to purchase and cover the cost of the planning process. Then, after planning is
Andrew Hosford director – head of bridging, Voltaire
granted we can either increase the short term loan to carry out the works. The more traditional route would be to refinance with a traditional development lender. There are a number of factors that will determine which route we will advise our clients to go down, but having a number of options that are made available by the flexibility of the bridging lenders only help the deal and the client. Through our focus on developing relationships with the most active lenders in the market, as well as advising and developing product offerings alongside them, we are well placed to assist with the majority of financial requirements. These relationships have allowed us to utilise the most appropriate and efficient funding for our clients with a view to maximising their profit and creating new relationships for the client with the lender. Though the industry lent over £4bn last year it is still seen as junior to the more traditional lenders in the market, particularly for development deals. That being said, it offers a level of flexibility and security that we and our clients are happy to utilise.
JULY 2019 BRIDGING INTRODUCER
Business borrowing The increasing popularity of bridging for business purposes
The bridging industry has seen significant growth over the past few years. Half of the respondents to the latest EY UK Bridging Market Study - which surveyed 40 bridging finance lenders - estimate the size of the market to be between £3bn and £5bn with almost a third estimating it to be in excess of £5bn. The growth of the market is down to a number of factors, but one of the most significant has to be the fact that bridging is no longer seen as a niche form of finance. Whereas in the past, the main uses for bridging were for mortgage delays on residential purchases, according to the EY study, the main use now is ‘business purposes. A third of respondents said ‘business purposes’ is the most popular reason why borrowers now obtain a bridging loan, while less than a fifth said mortgage delays. In fact, mortgage delays were given as the least popular reason. This shift towards bridging for business purposes is also supported by the fact that the average loan size for lenders responding to the survey is now between £500k and £800k, with 29% of respondents saying they expect the average bridging loan size to further increase over the next 12 months. So, what does this mean? Well, firstly, it may well say something about the fact that standard mortgages are now less likely to be delayed! But more importantly, it says a lot about the type of lender commercial borrowers are now turning to for business finance. The study does not specify what these ‘business purposes’ are, but we have certainly seen a huge increase in the number of landlords and developers who are looking to brokers to help them access bridging finance. www.specialistfinanceintroducer.com
For example, often, developers and investors need to move quickly on a deal or risk losing the opportunity. So, fast finance can offer a solution, while others may turn to bridging to fund refurbishment before moving onto a longer-term deal. The EY study found that refurbishment is the second most popular reason why borrowers are obtaining bridging loans. From a business point of view, bridging can be a useful option if certain refurbishments need to be made – for example, EPC requirements – before long-term finance can be obtained. As bridging starts to play an increasingly important role within commercial borrowing, brokers will be absolutely key in helping borrowers access this type of finance. According to the lenders surveyed by EY, broker-related channels are the most important for loan originations, with 84% citing ‘independent brokers’ and 65% citing ‘master brokers’ as their top two
Kevin Thomson corporate sales director, Connect
channels. Furthermore, more than nine in 10 short-term lenders say ‘strong loan origination’ and ‘strong relationships with brokers’ are the most important capabilities in running a successful business. Brokers not only play a key role in terms of helping lenders find leads but can also add a huge amount of value to their clients by doing as much fact-finding as they can on both borrower and lender to find the best match. Whilst business lending is becoming more common as a reason for obtaining a bridging loan, there are still fewer lenders willing to lend when there is a commercial element to the deal, or if the entire loan is being used for business purposes. Therefore, it is vital that, as a broker, you do your due diligence and know which lenders to approach. It is also important to remember that there are alternatives like unsecured business loans if a bridging loan isn’t suitable.
JULY 2019 BRIDGING INTRODUCER
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Conversation, conversation An honest conversation is needed to improve outcomes
There’s no denying that the recent ASTL figures make for interesting reading, and not for all the right reasons. As applications are going up it shows that bridging as a finance option is becoming more accepted, but such a large drop in completions clearly shows that the product is still not completely understood. At CSF our internal figures show that bridging applications are up 15% and completions increased by 5% in January to March 2019 compared to 2018, so while better than the ASTL numbers, it still follows the pattern that applications don’t relate to an equal increase in drawdowns.
Focus on the positives
The industry has done a very good job in raising the profile of bridging finance, and as such this is now a product accessed by more-andmore brokers. However many still believe that a bridge is a one dimensional product offering when in fact every lender has different processes which will ultimately impact on an application. The huge variety of products on offer means there is a solution to most clients’ requirements, but brokers
“It’s important that brokers understand the lender they are working with – or partner with a specialist distributor in order to give the case the best chance for completion” www.specialistfinanceintroducer.com
processes that lenders now have in place these will be uncovered and will either stall or terminate a submission. Naturally no-one wins in this scenario.
need to know exactly where to turn. It’s important that brokers understand the lender they are working with – or partner with a specialist distributor in order to give the case the best chance for completion.
Warts ‘n’ all
The process of discovery has always been an issue in specialist finance and even more so in bridging. Lenders are more flexible than in many other financial sectors and can take views on various scenarios, however they still need to know all the required information from the outset. There is still a tendency to withhold information that may be perceived unhelpful to an application, but due to the far more diligent
The professionals Harriet Smith head of bridging finance, Crystal Specialist Finance
Make sure you are working with the right partners and here one cog in the chain stands out above most – aside from the stunningly important specialist finance distributor – the solicitor. A solicitor with experience in short-term finance will understand from the outset exactly what is required to get the application completed in a timely manner, one that does not will most likely delay any transaction unnecessarily. We have our own panel whom we recommend, but this is not always heeded advice. As recently stated by Richard Deacon from Masthaven in our recent CrystalCast Podcast, technology can only help so far for bridging and so specialist distributors are great to work with as they help you as a broker get the case completed quickly and easily. At CSF we thoroughly research the market daily for the best products and benchmark ourselves against lenders to ensure our service is the same or better than what you could receive directly.
Bridging finance is a great solution to a number of clients’ problems, but it is only by working together with all parties involved that we can bridge the gap between applications and completions. So let’s have an open and honest conversation with brokers and their clients, because if we can address these issues then everyone’s a winner. JULY 2019 BRIDGING INTRODUCER
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A solid foundation Treating every case with specialist know-how and guidance is key
The specialist market is filled with possibilities, where the impossible is made possible. After being in the market for a while, you become aware of trends that form across products, and how different offerings can merge together to create an excellent proposition for the customer however unique their case. Complex cases are commonplace in this part of the market, vanilla is very much out of the ordinary. At F4B we see a vast range of cases come through the door that require the ultimate combination of experience, knowledge and service to get a positive end result. We always seek to provide a truly bespoke solution, drawing on our own internal expertise as well as semi-exclusive offerings that set us apart from an over saturated crowd whilst maintaining complete honesty and integrity. Once looking at our suite of products, we began looking in-house and found that two parts of the specialist market go hand in hand â€“ bridging and development. Bridging and development finance work together in excellent ways, particularly as we see a rise in development exit products. Bridging as we know allows access to a shortterm loan quickly and seamlessly and is particularly useful for an aspiring property developer or even an industry stalwart who faces the inevitable last minute challenges within a project. Quick purchases can be vital for a developer who is either keen to sell or re-finance, and could make or break a portfolio. A developer could find the perfect property and lose it just as quickly because of a lack of access to the funds. Bridging finance allows for speedy borrowing thanks to being a short-term solution thus working well for deadline, and if the right lender is used then the transaction is www.specialistfinanceintroducer.com
a seamless one. That is where having the right team and correct procedure in place is key, as some of the time frames developers work to can be very tight, particularly with those who are purchasing a property at auction. Speaking to someone who asks the right questions, who is able to advise on the validity of an exit strategy and who understands the circumstances is vital. Flexibility is one of the key positives of a bridging loan, and developers should and can feel the full effect of this. Complex cases can often mean complex circumstances, and when it comes to the collaboration of bridging and development finance this rings true. The property could be above a commercial premises, commercial units aspiring to be a block of flats â€“ it could even be a property on the 23rd floor of a city skyscraper. The flexibility and terms most lenders provide means that this mix of two specialist finance solutions allows developers to acquire the finance they need for any type of property and with experience in less than vanilla cases, this makes
Dave Strange Mike managing Pinnington director, of director Funding 365 intermediary relations, Finance 4 Business
for an encouraging end result. With this in mind, it also allows more scope for an exit strategy and allows more options to the customer. We have seen this cross-product offering help many developers run their projects on time without the worry of delays and complications, and there is no better feeling than knowing that you have ultimately helped someone reach their end result â€“ whether it be a project overrunning that reaches the finish line thanks to quick access to funds or allowing a developer to grow their portfolio with a new property for a marketleading price. We are certainly not the only ones using this product collaboration and will not be the last, however the combination of the two is proving particularly successful in a number of cases that we have encountered. Having that integral team in place within the company is key to a successful outcome, but treating every case with the specialist know-how and guidance is just as important in creating a solid foundation and a happy customer.
JULY 2019 BRIDGING INTRODUCER
To value or not to value? That is the question
Anyone involved in the shortterm lending industry attending last month’s NACFB Expo Event couldn’t have failed to notice the sheer volume of bridging and development lenders exhibiting. At a record-breaking show with all 138 stands sold out it was noticeable that nearly half of these and a much bigger percentage of the most lavish stands belonged to bridging and development lenders. On face value this can be viewed as a barometer of the short-term industry’s rude health but look beyond the lavish facades and large marketing budgets and maybe it’s just another manifestation of an ongoing battle to either gain or maintain market share? In crude terms it could be indicative of a fight to survive in an ultra-competitive market that’s already claimed its first high profile victims. This battle has seen rates driven down to levels that were unthinkable only a couple of years ago and loan-to-value (LTV) limits increased, despite the backdrop of a very subdued and, in places, declining property market. Now another trend is emerging that brings back memories of 2006/07, that of streamlined underwriting. Welcomed by brokers but less so by funders, we are now starting to see the first mainstream lenders eschewing the need for a valuation, particularly on selected lower loan to value cases. Before the credit crunch and recession at the end of the last decade many lenders placed an increased reliance upon automated valuation models (AVMs). This trend started at the lower end of the risk curve, typically on low LTV remortgages and further advances and undoubtedly helped ease delays caused by a shortage
of valuers. In specifically selected cases where there was enough comparative data to yield robust results AVMs worked well but as is typically, the case, reliance upon and the use of this new technology quickly exceeded its limitations. Ultimately, in 2008 and 2009, many funders paid a heavy price because of the excessive use of AVMs in the preceding years. Fast forward a decade, technology has raced ahead, and the valuation process is set to become ever more automated. Blockchain will store the full details on increasing numbers of new builds, drones will replace the drive by with the fly by, giving external imagery in 3D, whilst machine learning and artificial intelligence will provide ever more accurate local data analysis. Valuers today can call upon continually improving technology but in an era of increasing regulatory focus on the conduct of all lending institutions, prudence would suggest that several basic conditions should be satisfied on all loans. As a short-term lender of nearly 10 years standing, vast operational experience tells us that carrying out a detailed and comprehensive valuation report should always underpin any lending transaction, whatever the LTV, ensuring maximum protection is afforded to a lender and their funders, whether private or institutional. Put simply, a RICS (Royal Institution for Chartered Surveyors) survey backed by PI (Professional Indemnity cover) can highlight any number of potential anomalies with a property, whilst the surveyor’s commentary on their visit can also give an invaluable insight into the potential borrowers, an insight which no desktop
Brian Strange Mike West managing director, director,Bridging Central Funding 365
appraisal can ever provide. For us the rigour of the relationship we have with our valuers is akin to that we have with our solicitors and borrowers. We rely upon a report on title from our solicitors and of course on the independent legal advice given to our borrowers. Equally, we rely upon the valuation for many things. Surveying can be a complex process requiring multiple calculations, the review of many documents, including planning applications, Land Registry information and much more besides. Beyond providing us with the two key aspects of a valuation, namely the value of the property we are loaning against and confirmation that the structure is strong and durable, an internal inspection offers so much more. Of course, obvious defects will be highlighted such as dampness, wiring issues and the structural damage often wrought by an over-zealous, under qualified DIY fan! Where appropriate the surveyor may even recommend that a more detailed report is obtained. No desktop assessment is ever going to give you an insight into the mind of a potential borrower, let alone the likely condition of the property if you are forced to take it into possession. Technology may be great, but can it ever replace the unique feedback that only an experienced human eye and a high-quality digital camera can give? The pressures of a competitive market to innovate should never compromise the integrity of risk and underwriting processes and ultimately investor security. That’s why at Central our answer to the question posed in the heading is simple. We will keep on valuing! www.specialistfinanceintroducer.com
Ready when you are
Octane has lent over ÂŁ500 million in our first two years in bridging, buy-to-let, developer exit and refurbishment loans. To find out more about our #3rdGen, product-less lending call us now on 0345 222 9009 or visit octanecapital.co.uk For use by mortgage intermediaries only. Octane Capital Ltd (Reg No 10481270) and Octane Property Finance Ltd (Reg No 10483453) are private limited companies registered in England and Wales having their registered office at Labs Triangle, Chalk Farm Road, London NW1 8AB.
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A closer look at PII issues Reflecting on the professional indemnity insurance (PII) round table
VAS Group and Howden UK hosted a roundtable event on the subject of professional indemnity insurance (PII) which highlighted key developments in the short-term finance market since the financial crisis of 2008. Hosted by Howden UK, a specialist insurance broker with the largest PII division in the UK and attended by Crystal Specialist Finance (CSF), it was identified that while shortterm and development finance had become sophisticated lending sectors this was not fully appreciated by the insurance market. VAS Group and CSF presented the current state of the short-term lending market, with bridging alone seeing an annual growth surpassing 20% year-on-year since 2013 meaning it now accounts for in excess of 10%, or £4bn, of total lending in the UK. Other topics included the creation of major trade bodies and new associations which are bringing more responsible lending, lenders and specialist finance firms who are bringing greater transparency and the education of brokers in their client facing roles. Stephen Todd, co-founder and managing director of VAS Group, said: “Over the last 12 months, through VAS Panel, we have seen that our valuers are finding it increasingly difficult to source a competitive PII policy and it made complete sense to partner with Howden to identify why this is happening. “VAS Panel sees a significant amount of first charge bridging lending and LTVs are very sensible at a maximum of 70-75%. Coupled with all other elements it is important that insurers understand the marketplace when assessing PII risk for valuers because www.specialistfinanceintroducer.com
the valuer should not be punished.” Greg Harrison, senior account executive at Howden UK, continued: “We recognise that short-term lending is becoming a more prominent feature in the UK property market. “This roundtable was brought together to provide a platform for key stakeholders in the short-term lending sector to engage with the insurance market to highlight how the sector has evolved over the last 10 years, and ultimately to determine whether insurers’ perception of short-term lending is one which is outdated. “Insurers felt the roundtable had provided assurances in a number of areas, particularly around the added context relating to the due diligence and underwriting assessments of short-term loans, as well as clarity around regulated and unregulated transactions. “Importantly however, much of the risk level will rest with the insured to properly assess their suitability for any work they are considering to undertake. Many of the claims we see are where firms have taken on work falling outside of their expertise and resources, where they have not
Jessica Nangle deputy editor, Bridging Introducer
carried out proper due diligence of their client or sufficiently understood the contractual terms being entered into.” Kris Corns, operations director at CSF, added: “Bridging is a major part of the specialist finance space, and the onset of increased regulation alongside the sophistication and professionalism of the majority of the market means the sector is here to stay and needs support. “The perception outside of the industry is obviously not reflective of the market we live and breathe daily, so it is essential that we continue to take it upon ourselves to push the sector forward for the benefit of all.” The VAS Group consists of three divisions. VAS Panel provides a full valuation panel management service which ensures the most relevant companies are instructed based on location, deal type and value, while VAS Audit provides valuation auditing services to reduce property specific lending risks. VAS Software is a cloudbased valuation panel management framework system which allows lenders to better manage their own panels.
JULY 2019 BRIDGING INTRODUCER
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A time for reflection Considering the positives and negatives
Award – a prize or other mark of recognition given in honour of achievement. This is the definition provided by Google. In the midst of award season, across the financial services industry, it is excellent to see the buoyancy and enthusiasm that exists. I have seen articles and commentary about the number of award ceremonies, the category list, which are the preferred to win, the format etc, the list goes on. Regardless of this list, personally, I think it is great to see the industry having a variety of awards and people talking about them. The recent Specialist Finance Introducer Awards, held at Madison One New Change in London, were the latest to celebrate the industry. Whilst I could be accused of providing bias, as they are associated with this publication, I have been an advocate of the format since they were incepted four years ago. They have continued to make improvements and tweak where they can, to ensure they remain at the forefront and an event to attend. The ability to network, catch up, socialise throughout the event is at the heart of the awards. People are in suits or informal business attire, providing a very relaxed vibe, rather than the traditional black-tie events. The same week of the SFI Awards, I was at a black-tie event, seeing the contrast first hand. Whilst I believe there is a place for both formats, the shift is certainly apparent, with the SFI being at the forefront of this. A huge congratulations to all of the winners, very much deserved. Award categories are, another subject of debate. On a positive note, handing out awards such as Best Broker: Sole Trader of the Year is brilliant for the industry. Small, one broker firms are often overlooked, www.specialistfinanceintroducer.com
as they are unable to compete on every level with the major players in the market. Others such as BDM of the Year, Best Surveyor, Legal etc demonstrates all the additional elements associated and rightly recognised. On a slight negative note, are there too many awards? Can the Best Broker: Bridging and Bridging Distributor of the Year merge? If we have Best London Broker, why not have Regional Broker of the Year awards? Or even not have this category. Granted, more awards do reap in additional sponsorship money and more opportunities for firms to win, but I certainly think the organisers could reach out and ask opinion. This will enable the continual trend of tweaking these excellent awards. As I was completing this article, I was also writing another census report, this time on salaries and benefits. Whilst this is not directly aimed at the specialist finance market, we did have mortgage advisers and an array of BDMs complete the survey. The roles covered are: IFAs BDMs Paraplanners Administration Compliance We are all aware IFAs are becoming more prominent in this industry. The average salary of an adviser has reached £99,798, citing increase in clients and product offerings for this. In total, 874 financial professionals completed the survey, providing an excellent insight into a range of items from salaries, bonuses and benefits, through to optimism on future earnings and what can influence these. BDMs are the most pessimistic, with 24% believing their earnings
Bret Jackson head of marketing and communication, BWD Search
will fall by up to or in excess of 10%, with IFAs again being the most optimistic. Political changes and regulatory changes are the areas that are most negative towards earnings. 40% of all respondents believed these two will have a negative impact, with only 5% believing this would have a positive influence on future earnings. This certainly emphasises points myself and others have made in recent months, uncertainty and a period of consistency is required. We also asked how the housing market can impact. There is a very neutral bias with 84% stating this, with only 6% believing it will have a positive influence. This has been very consistent for the three years we have asked these series of questions. As mentioned previously, we are working with the publishers of this publication, along with Mortgage Introducer to look at creating something similar and the feedback received has been positive. I will arrange for links to the final report to be made available in due course. Once again, congratulations to all the winners and excellent to catch up with people at the awards. Also, great to hear news announced that Terry Pritchard is on the mend and Benson is out of hospital.
JULY 2019 BRIDGING INTRODUCER
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A different approach Introducing Arbuthnot Latham Specialist Finance
Launched late May 2019, Arbuthnot Specialist Finance Limited (ASFL) is the short-term property finance arm of Arbuthnot Latham, a private and commercial bank serving clients since 1833. The Arbuthnot Specialist Finance team jointly led by Shoaib Bux and myself, provides real estate finance solutions for purchase, refinance and construction projects throughout the UK.
ASFL offers competitive products across three core areas – residential, commercial and heavy and conversion refurbishment – with rates starting from 0.65% pm. As not all risk factors are exactly the same, ASFL offer pricing not based on LTV but reflective of the overall risk of the deal. There are many headline grabbing rates from lenders in the market, rates that contain hidden costs and associated fees which ultimately means that the overall cost to the client ends up being higher than
what was originally expected. ASFLs product offerings is clear and transparent from the outset with the added feature of having no exit fees, default charges or early repayment charges.This makes it easy for the client to understand the total cost of the facility.
Residential investment: up to 70% LTV (below market value - up to 95% of purchase, not to exceed 85% of 90 day value) Commercial property: up to 65% (below market value – up to 95% of purchase price, not to exceed 85% of 90 day value) Light refurb and heavy refurb: Up to 70% LTV, Up to 100% of build cost cap by 70% LTGDV
The nine dedicated Specialist Finance team members have decades long experience combined with more than 185 years of Arbuthnot’s banking heritage
Yasin Patel managing director, Arbuthnot Latham Specialist Finance
enables them to provide a full range of property finance facilities from purchase and refinance through to large construction funding. This enables clients to experience shorter reporting lines and dedicated specialist finance credit functions from a highly experienced lending team. In less than two weeks of their official launch, ASFL completed their first loan agreement and auction purchase transaction. The joint managing directors alone total 25 years’ experience in the specialist lending industry, having previously both been divisional directors at Amicus, in addition to launching Mayfair Bridging back in 2007.
ASFL has been built on the ethos of the Arbuthnot name, aiming to build long-term relationships with clients and introducers in the UK, bringing Arbuthnot Latham’s relationshipled service to the specialist finance market.
JULY 2019 BRIDGING INTRODUCER
Recruiting the future
he summer transfer market is open in the world of football, where players come and go to different clubs for huge fees and salaries. This can be likened to the bridging industry somewhat, with people warranting high salaries and getting tied down into contracts with long periods of gardening leave. Hiring the right candidate who performs well and wants to stay for the long-term is difficult, especially in the bridging sector where competition is rife. Payam Azadi, director of brokerage Niche Advice, says that the industry is a small, people-orientated industry where a lender recruiting a great salesperson with great relationships could bring in a lot of business. “Your people are your biggest asset, therefore getting your recruitment right is an essential part of a good business,” says Karen Bennett, partner at specialist brokerage FinanceWell and former head of sales and marketing for commercial mortgages at Shawbrook Bank. “There are a lot of talented people in the bridging market, however it can be incestuous, people may choose to stick with firms where they have relationships with key individuals.”
Michael Lloyd takes a closer look at recruitment in the bridging market Where companies hire
Hiring people through word of mouth is one key trait among lenders. Gemma Taylor, director of Rocket Bridging, has recently hired a director for the business by going through word of mouth and meeting him at events. It was then that she found he was a fit for Rocket, sharing its ambition. “We’ve had some amazing people come in through word of mouth, however this requires a little bit of luck too,” says Ashley Ilsen, chief executive and co-founder of Magnet Capital. He says that finding a good recruiter is hard and Magnet Capital has had a preference for hiring individuals new to the sector. “That way we avoid taking on people that come with bad habits, especially as we have a very unique and particular way of working,” he adds. John Hardman, head of sales at Bridging Finance Solutions (BFS), says his firm has had an awful lot of connections within this industry so word of mouth and platforms such as LinkedIn are really good for attracting candidates. Bridge Invest has advertised on social media, www.specialistfinanceintroducer.com
university career sites and occasionally through recruitment consultants, while LDNfinance has hired mortgage advisers and trained them in bridging. Sonia Shortland, director at Apex Bridging, says it has used recruiters because as a small firm it is not easy to filter through lots of candidates. This comes after the lender recently narrowed down from 30 applicants to appoint Andy Bayes as head of marketing. Mike Aitchison, client director for specialist finance and lending at specialist finance recruitment firm BWD, says that recruiters have to know the market and which personnel are happy and unhappy, but emphasises that people are hiring opportunistically at the moment, instead of running through the proper processes. “There’s an opportunistic hiring policy in the market with people generally seeing CVs of established bridging finance individuals and taking the path of least resistance,” he says. “Firms are getting people who can make money from day one. It’s tricky to get clients who want to run the proper procedures and attract someone who may not deliver in the first three months.” James Bloom, head of short-term lending at Masthaven Bank, says before seeking external candidates, it looks internally to promote from within. It has used recruitment agencies and LinkedIn previously, and generally recruits from other bridging lenders. However, Masthaven has had people move across from the general mortgage market too. Shortland says mortgage advisers are used to qualifications like CeMAP and with nothing similar in bridging, they may be put off from entering the sector.
“The industry could do with an equivalent qualification, along with a full training competency scheme like what mortgage advisers have,” she says. “I think it could make people from the mortgage sector come into this sector. “If you have those fundamental underwriting skills you can adapt them from one lender to another. There’s probably a lot of talent out there that’s untapped.” Jo Breeden, managing director of Crystal Specialist Finance, says he has seen more candidates approaching them through social media. He says all vacancies are offered both internally and externally. “There is nothing better than promoting from within but talent is scarce, so one has to be prepared to pay to retain the best… just like the Premier League,” adds Alan Dring, director of The MAD Approach. Clare Jupp, director of people development at Brightstar, says Brightstar advertises in house first, meaning the team comprises of many relatives, friends and recommendations from existing team members. “Who better to provide new team members who are the right cultural fit but our existing team?” she adds. Jupp says being named Best Small Company to work for in the UK by The Sunday Times has made hiring people easier. One big hire this year was Gary Bailey joining Hope Capital as managing director in January. Bailey said this was due to having a good relationship with Jonathan Sealey, the lender’s chief executive. He and Sealey had known each other for some time from different industry events and kept in touch, even when he stepped out of the industry to pursue other business interests.
Quality, training and knowledge are more important than ever Competition amongst bridging lenders is high, and it’s not just market share that lenders are competing for, it’s also the best people. A report by EY into the bridging market last year identified three trends that have emerged as a result of increased competition amongst lenders. These are that lenders are experiencing margin compression, stretching to higher LTVs, and introducing more flexible product terms and features. It’s important for any lender to manage these risk factors, but amidst an environment of high competition and some significant economic challenges, this is a particularly
Benson Hersch chief executive, Association of Short Term Lenders
sensitive period for bridging lenders, and it requires expertise. The result is that experienced individuals are in high demand and recruiting the right skills can be a challenge. Firms therefore need to focus on knowledge and training of people already within the business as well as the recruitment of new talent. This will be the only way they can have true confidence that they are mitigating the threat of a skills shortage. There is good reason to argue at this time that lenders should put more focus on investing in their people and their technology so that skilled people have reliable data with which to work. Knowledge is power, particularly in times of uncertainty.
Reliable market intelligence and trusted insights become more crucial when the risks of making incorrect decisions become more pronounced. It is important that key individuals at lenders remain tuned in to the sector and understand the dynamics of the shifting market around them. This means engaging with industry associations and attending events and conferences to stay in touch with developments and best practice. Recruiting quality people is important for any bridging lender, but in today’s environment it’s not enough. Investing in the training of those people and the continuing development of knowledge is as more important now than it ever has been.
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Hire character, train skill The opportunities within our industry are myriad, the trick is to attract the right people and then to make sure they are nurtured and given the chance to achieve their own goals, whilst also achieving your company’s goals. Henry Ford, founder of the Ford Motor Company, said: “The only thing worse than training your employees and having them leave is not training them and having them stay.” At Fiduciam we want our employees to stay for all the right reasons. When recruiting, whether it’s a graduate, an intern, or someone with years of experience, the most important thing is to ensure the people you employ have the right attitude and fit your
Victor Tang senior underwriter, Fiduciam
“After discussing the managing director role in depth and meeting the chairman I was persuaded to attend some internal strategy meetings, allowing me to see the business in action, get a feel for its strategy and meet the team,” Bailey says. “We were able to establish a mutual cultural fit, with shared values and beliefs.” Mark Posniak, managing director of Octane Capital, says Octane hasn’t struggled to find experienced people but it has become challenging to fill more junior roles. “This shouts out that the industry needs to become better at promoting itself to graduates as a great career path to take up,” he highlights.
Posniak explains that attracting young talent and new blood to the sector is crucial to the future of bridging finance. “Graduate training schemes are a fantastic way of attracting young people, and the industry should probably be doing more to introduce these types of initiatives,” he says. “I think among many lenders, including ourselves, there is a tendency to veer on the side of experience and, whilst understandable, the industry needs to be better at promoting itself to a new audience. We have a great industry and we need to shout about it more.” Michael Strange, managing director of Funding 365, reveals that in recent years he has focussed purely on hiring new graduates. He recognises it takes some dedicated time to train and develop them but says they can become as good as experienced employees. “It is our strong belief that after a fairly short training period, new graduates in an underwriting role, www.specialistfinanceintroducer.com
business. With the right attitude you have the foundations for someone to build a career, rather than just turn up for work. For career progression to be valid you need to provide explicit support to allow your staff to thrive and develop. You can then uncover potential and assist your employees to progress to more senior roles. Structured training is therefore vital. Here at Fiduciam, for instance, we have a training and development programme that is designed with career progression as the ultimate goal. However, there are other benefits including increased motivation and engagement and most importantly a reduction in staff turnover. Giving employees the tools to upskill throughout their
careers also means you can reduce supervisory needs and enhance satisfaction and confidence. The way we run our training programme is on a module basis using the talents of existing employees in every department to carry out the actual training. This not only showcases the experience of existing team members, it gives them an extra sense of worth as they pass on their knowledge to new team members and help them rise through the ranks. The key thing with recruiting is that when you get the right person you never let them forget that you believed in them enough to hire them, and that you continue to believe in them throughout their career.
provided they have a supportive team, can be every bit as valuable as an experienced underwriter,” he says. In addition, Aspen Bridging has a similar attitude on hiring graduates and training them as underwriters. “We are very selective about who we choose and only target the brightest graduates who are fastest to pick up the role and confident in handling themselves,” Jack Coombs, director at Aspen Bridging says. “We hire people without recruitment agents using LinkedIn, contacts and university offices. “As there is a dearth of trained and experienced underwriters in the market, lenders who want to have a skilled staff base must employ intelligent graduates.” He says attracting such people is easy but lenders have to give them the opportunity to progress and show they are interested in developing them. For example, Aspen’s trainees visit more than 40 sites before being promoted. Ronak Ruparell, chief executive at Bridge Invest, says all its hires so far have been young, with the company adopting the approach due to the competition in the industry. “Given the overcrowding of the space it is important to always be giving young workers a pathway into the industry, otherwise we will continue to have this bottleneck of skilled workers,” he says. “We are also supporters of the Woman in Finance and so are always looking for ways in which we can encourage women to get into the property finance space.” Brightstar has a young learners programme in place which involves the provision of support for young people via careers events, school events, work JULY 2019
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placement opportunities, taster days and also its sponsorship programme. “As an industry, we absolutely need to attract new blood and new talent into the industry, and especially more women.We believe that we certainly ‘do our bit’ in this respect,” Jupp says. “But let’s not just focus on young people – diversity is important. Any forward-thinking business should aspire to greater diversity, across all areas including age and gender.” Meanwhile Paresh Raja, chief executive at Market Financial Solutions (MFS), says that experienced personnel know the specialist market inside out while young people generally bring a fresh and creative perspective to the table. The challenge he says, is striking the right balance between the two. “The rising popularity of bridging loans has meant that we need more and more people to ply their trade in this sector,” he says. “Ensuring young people pursue a career in bridging is therefore of great importance.” Dring says more training schemes are required, and trade bodies such as the Association of Short Term Lenders (ASTL), the Financial Intermediary & Broker Association (FIBA) and the National Association of Commercial Finance Brokers (NACFB) should be constantly trying to improve the attraction of a job in the specialist market. Bennett believes training schemes are a good idea yet says she wouldn’t limit them to graduates only, but for people with a genuine interest in the sector and a desire to build their skills. “I think trying to bring young people into the industry as early as possible is the key to building a successful company and helps to make the industry thrive,” adds Chris Whitney, head of specialist lending at Enness Private Clients.
Hiring the right candidate
More important than making sure you hire young people is making sure you hire the right person, someone with the relevant skillset and attitude who would fit into your company’s company. “When it comes to recruitment, finding candidates who are a strong cultural fit for the business is the most important consideration,” says Miranda Khadr, founder of Yellow Stone Finance. “You can train technical skills, but you can’t teach attitude.” Aitchison describes an ideal candidate as having recognisable names of businesses on their CV and a track record of delivery. Shortland says she looks for someone who is open and transparent and has the ability to communicate well, while one of the main things Posniak looks for in a candidate is someone who is hungry to learn and has the desire to progress in their career. “Personality, work ethic, and fit are essential,” Breeden sums up. Jupp describes how hard companies have to work at creating and maintaining a good culture at work and then recruiting the right people who fit into it. www.specialistfinanceintroducer.com
“You may come across very talented candidates, but if they don’t fit your culture, they’re not right for the role,” she says. “The good news is that once you have a strong culture, it helps to inform your recruitment decisions. I am often quoted as saying, ‘we hire for attitude and train for skill’.” Bailey distinguishes the difference between what to look for in a business development manager (BDM) and underwriter. He says lenders want an underwriter who can look beyond the obvious when dealing with a case and a BDM who not only understands the market but knows that relationships are key. Bloom sees people job hopping from one job to another and says these are the candidates a lender doesn’t want to hire. “We want people with a fairly solid background,” he says. “And it’s important you make yourself an attractive place to work at whether through opportunities, money or culture to attract the right people.”
It’s important to hire the right person for both the company and the individual’s development, and doing so can prove incredibly difficult, with many lenders pointing to the increased competition in the industry contributing to this. “The growth of the bridging sector in the last decade has meant there is greater competition for the best talent, including underwriters to BDMs,” Raja says. “While there is still plenty of talent out there, the challenge is finding the right type of person for the job – a person who embodies the values and principles of your organisation.” Due to this competitiveness and raising expectations, Dring observes that a significant number of new hires have fallen short with their delivery. “The industry, in some respects, has grown faster than it can recruit,” Posniak adds. “There is alot of competition for the bigger names in the sector.” Breeden echoes the fact that competition can make recruiting the best candidates more difficult but points out that it’s easier hiring someone through your contacts and relationships. In February, Harriet Smith joined Crystal Specialist Finance as head of bridging which Breeden, says was an quite an easy decision as she knew her already. D’mitri Zaprzala, head of sales at Octopus Real Estate, says that it’s growing ever harder to hire good quality underwriters, BDMS and senior management but
“When it comes to recruitment, finding candidates who are a strong cultural fit for the business is the most important consideration” JULY 2019
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The recruiter’s view As the sector continues to grow, the availability of talent is reducing, pushing up salaries and benefits. This has certainly been the case for BDMs and a couple of other roles are following suit. Whilst the industry is very close knit, working with a specialist consultancy enables the building of a relationship, helps them gain an understanding of your plans, positions you will require and the intricacies of how the business operates. This will assist in finding the right employees far quicker and efficiently. Hiring the incorrect individuals can be very costly for the business, either affecting existing staff who leave, or they genuinely don’t fit in and so you must go through the process again.
James Walker managing director at BWD
competitiveness has created opportunities too. “As competition has increased in the sector the industry has seen a lot of movement of staff, creating opportunities to find great people,” he says. Ruparell says this competition is driving salaries up, making the top talent in the market hard to come by and expensive. Many have cited these high salaries as a barrier when recruiting talented individuals, with Bloom saying he’s even had people come for interviews and then return to their existing lender and get more money from them to stay. “The top tier of talent will always warrant the higher salaries. However location, career progression, the hiring firm and job duties all form barriers to hire workers,” Ruparell says. “No doubt talent carries a premium cost but just like in the football arena many are overpriced, especially in the underwriting and risk markets,” Dring adds. Aitchison also says he’s seen the notice periods for good key salespeople be comfortably higher than three months with six for some top performers. “Businesses are trying to protect themselves from a recruiter saying they can earn more and make transition,” he says. Another barrier that came up from different lenders is location, an issue Shortland says Apex Bridging faces when hiring people, as the lender is based in the East Midlands. She says Apex Bridging is about to advertise for an operations manager with underwriting experience. “We want to take on someonewho has industry www.specialistfinanceintroducer.com
Recruiting can be a lengthy and laborious task, especially when you are a growing business. Irrespective of the size of an organisation, you do not want to be sifting through multiple CVs in the hope of finding the few that are suitable. By partnering with a specialist, this is all done as part of the service. View it as an extension of a HR or procurement department. Certain positions can be very sensitive and advertising these roles is a big no. Competitors would utilise this information and can look to counteract. Undertaking a retained search for these positions is a way of ensuring this does not get released into the marketplace. This type of approach is used more frequently in the wider
financial services market but is now starting to become an option in the specialist lending market. With new banks and lenders still coming to the market, or in the pipeline to do so, the competition is only going to increase. Having a recruitment partner and discussing the market enables better planning and you are resourced in all key areas. Regulation is another hot topic currently and firms are keeping an eye on what the FCA will do. Specialist compliance individuals often come at a premium and budgeting for these individuals is sometimes underestimated but is a necessity if a lender chooses to become regulated, even if this is via a support services group or network.
experience, contacts, but in order to attract away from London, we will find it quite tricky,” she says. “Until we put out a job advert and see what feedback we get, we might find we haven’t advertised a high enough salary, so we’d then have to tweak it.” However, Aitchison goes onto say hiring can be easy if lenders wait a while when making an appointment, but many are just hiring opportunistically which is not necessarily the right solution. “Hires should be made on an informed basis comparing a number of people,” he says. So, it’s difficult to hire the right candidate, particularly if you’re located outside of London. There is a select number of experienced skilled underwriters and BDMs in the sector, hence why headhunting them can be tough. An alternative approach is looking to the next generation of candidates and bringing in young blood to the industry. Experiences of recruiting varies, something Brian West, director of Central Bridging, likens to football managers. “Much like football managers we tend to remember our inspired signings and quickly forget the flops!” he says. Businesses hire through recruiters, adverts, LinkedIn, social media, previous relationships and word of mouth but whatever the route a lot of work is needed to ensure they are right for you, have the relevant skills and fit your company’s culture. “Many CV’s I have seen look to fit the bill, but the reality at interview has been somewhat different,” Hardman adds. JULY 2019
Tread carefully, timing is everything Consider sustainability when thinking about customer outcomes
The May 2019 RICS UK Residential Market Survey results has painted a slightly more stable picture of the property market, with new buyer enquiries holding steady, while the downward trend in sales, new instructions and prices is slowing. RICS has said that sentiment suggests a modest recovery is on the cards for sales and prices over the next 12 months. This is good news for the market, but it certainly doesn’t leave room for complacency. Bridging lending by ASTL members may have grown by nearly 15% last year, but the number of lenders also grew and there are still firms looking to come into the market. There’s a lot of
money that has been earmarked for the bridging market and a lot of investors who have built budgets around anticipated returns. In order for them to achieve these returns, the capital must be lent out and at the right margins – but with a surfeit of funding in the sector, this is more easily said than done. The risk here is that commercial pressures will drive irresponsible lending where risk is not properly assessed or priced as part of the underwriting process. With lenders operating on such narrow margins, the impact of incurring any significant losses could prove ruinous. You only need to look to the recent example of Lendy going
Benson Hersch chief executive, ASTL
into administration to see that there are some lenders that operate perilously close to the brink. With a modest recovery in transactional activity forecast for the future, now is the time for lenders to hold their nerve. As we all know, past performance is not necessarily an indication of the future and if lenders get carried away with writing risky business today, there is every chance that this could undermine tomorrow’s opportunity. Brokers also have a responsibility in this environment. With so many lending options available to their clients, it can be tempting to push for greater leverage in the search for larger returns, but again sustainability must be a key consideration when thinking about good customer outcomes. As with most things in life, timing is everything, and now is the time to tread carefully. Lenders in this market can still write good business, but it will take attention to detail and a commitment to high standards to ensure this business is written in a way that supports the growth of the market. We are still operating in an environment of uncertainty but we also have access to a vast amount of information. The industry press, expos, trade associations and conferences all provide a means of gathering insights, sharing ideas and plotting a course for the future that can benefit everyone. It is important that lenders stay plugged into these resources and plan their strategies in the context of the industry around them. Those businesses that go out on a limb in this environment and attempt to buy market share with risk and pricing could find they are exposed and don’t have the support they need to benefit from any modest recovery we see in the next 12 months. www.specialistfinanceintroducer.com
Keeping the door to finance open What does raising awareness to finance actually look like?
There has never been a better time for an SME to be seeking finance. There are numerous ways for a business borrower to access growth capital from an ever-expanding array of funders – all seemingly awash with liquidity. But, when speaking to our commercial broker members, one thing remains clear, the single biggest barrier to finance lies not in the access to business loans but in their awareness of the alternative options available. A June report from law firm Smith & Williamson revealed that 70% of small businesses fail to secure finance at the first attempt, with 40% of companies saying that they had been turned down for funding more than three times. The governments own bank referral scheme (BRS) seems to have failed the very small and medium-sized enterprises it was designed to help. In an open letter
to the Chancellor Philip Hammond, Christoph Rieche, co-founder and chief executive of SME finance lender iwoca, slammed the scheme which he said had ‘failed to deliver any meaningful impact’. The BRS was launched in 2016 to help make finance more available to small businesses by referring those rejected by mainstream banks to alternative lenders. Figures revealed just 902 loans have been completed through the scheme, of which iwoca had financed more than half. This all forms part of the bigger picture and awareness remains at the centre of it. It is always surprising how many enterprises believe that - outside the traditional banks - there are few alternative options to consider. You can try it yourself, mention crowdfunding, short-term loans, merchant cash advances or invoice financing to a small business owner
Nicholas Murphy business engagement officer, NACFB
and gauge their reaction. There is typically a vague acknowledgement that they have heard of such sources but often very little beyond that. This is to be expected, a business owner who is stretched in terms of both time and resource does not need to be au fait with the latest finance products and categories available to them. There has long existed a UK network of experienced finance professionals capable of helping them navigate the complexities. Enter the broker. In an era when some lenders are scaling back their face-to-face operations, the modern finance broker has inherited and enhanced the role of the local bank manager. The UK’s community of commercial finance brokers are well placed to act as trusted advisors for the SMEs who hit a dead end when exploring avenues to growth capital. As part of our efforts to ensure the door to finance is left open, here at the National Association of Commercial Finance Brokers (NACFB) we have developed an enhanced online portal, findsmefinance.co.uk, offering UK businesses access to the trade body’s membership of commercial brokers. The free directory simply enables UK businesses seeking finance to filter their funding requirements by loan size, type and location. They are then presented with a range of the association’s commercial brokers to approach. The site provides a lifeline to those left behind by providing access to a wide range of brokers, all of whom adhere to an industry recognised Code of Practice. If a potential business borrower uses a broker with the NACFB logo, they know they’ll be using a knowledgeable, experienced and trusted advisor.
Build a Better Bridge
Securing the deal with bridging finance Can bridging be used to help your clients with difficult circumstances? Our experts answer your questions I am a property developer and own a third of the business with my two partners. We have been offered a site with full planning consent and its ready to start. We have funds to be able to make the purchase but need to raise the development funding which is £600,000. I have considerable equity in my home and my parents and business partner’s parents have offered their homes as security too, can we raise the money against of all of our properties? Mel Fordham: Well the short answer is yes, there are lenders that we work with on a regular basis that would consider this proposal. However, there would be some issues which the lender would want to ensure you and the parents offering their properties as consideration have fully considered and been independently advised about. Because your joint parents are offering their homes as security for this facility, it is highly likely the proposal would be considered as a regulated deal. This would mean they would both need to have their personal situations assessed by a qualified advisor who would be required to talk through the risks/implications and ensure the facility was suitable, met their needs and was the best option economically. Although the lender would not be taking security over the development they almost certainly would want to be satisfied that the development which you are undertaking is viable, your financial planning is sound and there are no unacceptable or onerous conditions as the sales from the completed development would obviously be the exit/repayment route. Finally, and almost without doubt both parents and your respective wives/partners would also need to obtain independent legal advice from a solicitor prior to completion, this would ensure that all parties concerned are fully aware of the implications of entering into this transaction. I have seen these arrangements work very well but are fraught with problems and would strongly advise you to have a simple but written agreement which all parties agree to prior to proceeding. 30
Phil Mabb property finance broker, Bridging Development
Mel Fordham chief executive, Centrado
Phil Mabb: You have several options – raise cash on existing assets, those owned by others or look to a development financier to fund the scheme based on security over just the development asset itself. If you are putting in cash to buy and have a development track record, you would be an appealing opportunity to most development financiers. Raising equity from your owner-occupied homes, whilst possibly cheaper has limitations based on affordability and likely to be slow to materialise, so it may be simpler to base finance on the subject development scheme. What is missing is specific detail on the scheme itself. The market for development finance is flexible and is able to support up to 70% LtGDV and 90% loan-to-costs (LtC) albeit factoring in the cost of finance. If, after review a lender is unable to support the deal in isolation, they could look to additional security by way of second charges and or possibly personal guarantees from family members. On the face of it though, the world is your oyster, but as stated previously, more detail will need to be provided to work out your options. I own the freehold of a house in London, which I converted to two flats and sold on long leases. I have just discovered one of the leaseholders has carried out structural alterations and effectively made a one bedroom flat into a three bedroom flat using part of the kitchen as a bedroom, subsequently sub-letting it to a family of five. I have seen a solicitor who advised the lease is very strong and there are clear, gross breaches. However, litigation is likely to costs £18,000 to £25,000 which is almost 100% recoverable as part of the claim for damages. Can I get a bridging loan to fund the litigation? MF: My experience is that law and litigation regarding freeholder action against the leaseholder can be extremely complicated, protracted and expensive. This can be magnified greatly if you are dealing with a tenant/leaseholder who has the financial resources and constitution to defend any
Build a Better Bridge
action through the courts. In this respect I would urge you in the strongest possible terms to seek written explanations of the proposed actions and time scale from your solicitors prior to proceeding. Whilst you have not confirmed, I presume the freehold is un-encumbered and is not used for security as for any other borrowing. If my presumptions above are correct, the proposal will be dependent on the value of the freehold. Generally, the value of the freehold will increase as the length of the leases decrease. Obviously with property prices in all parts of London steadily increasing over recent years freehold values will also be appreciated which should make your proposal more attractive. The value of the freehold will need to be independently assessed by a surveyor and there will need to be comparable recent sales of similar freeholds for the valuer to base his confirmation. Providing this information is available then we have lenders who would be prepared to make a short-term facility to you. PM: Not quite sure what you are hoping to achieve here – is it to remediate and have the flat put back to how it was before or, secure a payment from the leaseholder as would have been the case if they had sought your permission in the first place? I’ll assume the later. Right now I would be more concerned with the living conditions of the occupants and whether the leaseholder has the requisite certification and licences. Perhaps start with talking to the local authority – you never know they may shut the flat down and it will give you further leverage to attack the leaseholder. As for raising what is a modest sum on a bridging loan, I am not sure what you are offering as security other than perhaps the freehold element of the property which may not have sufficient value – being dependant on ground and any potential lease extensions. You can of course offer something else as security, perhaps a second charge bridge on your own private residence to fund the case. A letter from your solicitor providing the likelihood of success will help, but even if you won, what certainty will you have that the leaseholder will be able to pay costs. That said, I doubt they would want to forfeiting the lease. I have a large property which stands in a very large plot with almost no mortgage. I recently obtained planning consent to build another two three-bedroom houses in the garden. I applied for a self-build mortgage, but the lender advised the application related to more than one property and it was my intention to sell the completed properties as soon as they were built and pay off the self-build mortgage but my application was declined. The problem I have is that I have entered into a contract with the builder and works are programmed to start. What can I do? MF: This is an issue I’ve seen several times recently, there seems to be a very fine line (which can be
difficult to define) between self-build mortgages and bridging facilities. With some self-build mortgages available with no early redemption charges at all and rates which are as low as anything in the market, mortgage advisors and clients alike can get caught in a trap, simply by trying to get the very best deal. However, it’s clear self-build mortgage providers, understandably, are intent on not providing “cheap bridging” as you have found. Given the undoubted pressure you are now under to make payments to the building contractor, I would suggest your best option would be to seek a bridging facility secured against your existing home with a staged draw down facility as the new build progresses, thus reducing interest costs. If you have not already addressed, it there may be an issue splitting the titles but I’m sure you will find the bridging lender more flexible in the respect too. Obviously even with the most competitive terms bridging is going to be more expensive, but I’m confident the pragmatic and commercial approach to the underwriting bridging lenders employ will be a consideration during what I’m sure is a stressful time. PM: Not sure how there seems to have been a misunderstanding in the application process, but since you have clearly stated your intention is to sell and the fact that there is more than one property involved, this is not a ‘self-build’ mortgage. Also, you can only have one nominated private residence for tax break purposes. Self-build mortgage lenders often don’t lend in the commercial space– hence the application decline, but all is not lost! Here, you have potentially three units and would therefore require a ‘commercial’ development finance facility. You have not stated whether you own the existing building and land, but I will assume the same – and is therefore subject to a regulated mortgage contract. With time of the essence a couple of options spring to mind: 1. Source a lender who works in both the regulated mortgage space (take out the existing regulated mortgage) and can provide development finance for the new units or 2. look to a development finance lender and ‘carve out’ the land to be redeveloped, which will need the existing mortgage lenders permission and possibly a reduction in the mortgage debt – that said if it is a small LTV, they will probably allow the carve out leaving the debt as is. There is quite a lot of important detail not provided i.e. current value, planning costs, development costs and gross development value (GDV) of the new build, nor for that matter your own new build track record. There is almost certainly a bridging lender out there to support you and the answers to my observations above will determine whether how the transaction should be constructed and more importantly whether you actually need a regulated mortgage broker. Before doing anything, you would be we well advised to speak to an accountant to talk through you plans and mitigate the tax liability the profits of such a scheme will create.
Our panel discusses Brexit, bridging and the P2P sector
opportunity Jessica Nangle: Permitted Development Rights have been in the news recently with questions raised about whether it encourages poor quality development. Additionally, we’ve seen recent data from Land Registry and the Ordnance Survey revealing that rooftops in Zone 1 and 2 in London, have enough space to provide 40,000 new homes. What’s your take on PDR? Ashley Ilsen: We’ve gone from one extreme to another with PDR. The issue with it is you don’t have the exact cost of it from day one. You just have a rough estimate. You’ll have to push and pull between the top down pressure from the lender to make sure you’ll get the works done in a reasonable time, and the builder trying to build to a reasonable amount of quality. I think there’s a little clash there. Brian West: I’m inclined to agree. It seems most bodies and charities are up in arms. It’s probably been relaxed a little too far. There seems to be precious few rules around it and there’s potential for damage to the market when people are allowed to build as they please. This is particularly noticeable with aerospace and upwards construction. I think in summary some of the PDR is a step too far. Marcus Dussard: Permitted Development Rights still require building breaks, so they have to go through certain steps.
Development Rights can completely change your residential area by creating different types of housing which may affect the fabric of the community. You want to be next to a house of multiple occupancy of certain classification of tenant types. The Article 4 direction is making big headway in changing that. Alan Dring: I think there’s also greater opportunities for relationships. I don’t think enough is done, particularly by lenders, to forge relationships with local authorities to see where the opportunities are. Different local authorities respond in different ways. Lenders need to work with developers and local authorities to see how they can overcome the challenges in their areas. There’s potential but it can only be delivered with stakeholder relationships.
AI: Absolutely but there’s no restriction in size and various rooms when converting an office into a flat, for example. There’s so much demand for this.
Gary Feast: There’s also a conflict with commercial space as it’s basically disappearing. In Enfield the majority of office space that could’ve been converted has been. It’s interesting to see that the rents for office space are going through the roof because there’s such a limited supply.
Roger Morris: One of the things we’ve seen councils fight back quite successfully with is with the Article 4 direction. You’ve seen it with university cities suddenly saying no more HMOs. Without control the Permitted
Mark Posniak: We’re seeing a lot of enquiries for PD schemes in the wrong locations, non-residential areas. People are trying to be opportunistic because they can’t find land anywhere else. They think it’s’
BC: It’s fairly limited though.
(From L to R) Ashley Ilsen, Magnet Capital; Marcus Dussard, Castle Trust; Roger Morris, Precise Mortgages; Mark Posniak, Octane Capital; Arthur Cole-Fontayn, Aspen Bridging; Alan Dring, The Mad Approach; Steve Allen, Hope Capital; Andy Bayes, Apex Bridging; Phil Mabb, Bridge Development; Damien Druce, Assetz Capital; Ashley Ilsen, Magnet Capital; Gary Feast, Robert Sterling Surveyors; Brian West, Central Bridging
against net receipts. I bet when you put it down to actual purchases, the figure would drop quite dramatically, because the typical house in London costs more than elsewhere. MP: I agree with HMRC’s statistics. Transactions are down. However, following the end of the last Brexit negotiations we’ve seen transactions pick up. People are just fed up of waiting and we’ve noticed a huge uptick in the last couple of months of people wanting things to happen instead of continuing to sit on their hands. much easier to get PD than full planning and think they can just build micro units as compared to larger units with the intention to build up the yield. You have to make sure you understand the area in which the subject property is located and what kind of market there is. JN: Residential property transactions saw a year-on-year decrease of 11.3% according to the latest UK Property Transaction Statistics from HMRC. Are you surprised by these findings? MD: It’s definitely not surprising. People aren’t moving at the moment. I’ve recently moved myself but only through necessity. There is a mentality that if you can hold on you will. As such people build up, left, right, down, rather than move so that will cause issues with transactions going forward as well. RM: One of the things to take into context is Scotland’s 4% increase in stamp duty in January this year. And their legislation with things like HMOs and the Housing Act is ahead of ours and we tend to follow them at times. On the buy-to-let landlord side it depends where you are in the country because in Birmingham and the North, activity is really strong. When we look at this 11.3% statistic, I think that’s
Andy Bayes: You can see it with the mortgage approval numbers starting to pick up. That’s an indicator of what is to follow. AD: There is an opportunity here for brokers. There’s a split between broker business and high street business. If the market’s reducing the proactive brokers should capitalise on the opportunity that a reduced market offers. They need to be positive and see what the market offers for them. It’s still a big market out there. One place they can be looking to earn additional revenue from is the specialist market. RM: It’s the highest year ever for product transfers so the average broker is making more money than ever before, so it’s not focused on stimulating sales and bridging. Next year will be starting to simulate that as we move towards 5-year terms. AB: The most popular mortgage term is now 5-year terms. Brokers have been trading on 2-year fixes for a long time. Customers aren’t coming back as quickly as they were. MP: People have been locking in the 5-year buy-tolets for the last four years. The remortgage market is going to be alive and kicking just with the remortgages of 5-year deals.
GF: Also, there’s no coincidence the heavy refurb market has strengthened considerably in the last 24 months. We’re seeing a lot more heavy refurbs with people staying put. JN: Moving forward, we all know the Bank of England’s base rate was held unanimously at 0.75%. Do you see this changing anytime soon? MP: Not unless there’s a genuine prospect of a no-deal Brexit which looks like it’s going to happen. If that does happen the BoE could drop it. It won’t have any effect other than giving a bit of a boost to the economy and instill some confidence while we have a rocky period. I think the UK economy is resilient enough and we’ll bounce back from whatever will happen. MD: The only direction it can go from here is down. CPI indicators are one thing they have to look at but consumer confidence is huge. Any movement up would be catastrophic for many families. Going down is the only way it can go until we get some certainty in the market.
“With another housing minister you have another viewpoint and someone who may change things for the better for the buy-to-let market” Marcus Dussard
AB: Mark Carney is due to leave in January next year so there will be a change in Prime Minister and Bank of England Governor and maybe we’ll get Brexit. There are different players around the table. It’ll be interesting. RM: 5-year money is at the best price it’s been at for a long time. The argument is as soon as there’s a definitive on Brexit and what party will be in power, and as soon as it erodes back into a positive situation, they’d like interest rates to rise by 2%. What that would drive in the market is very disproportionate to where you’re based in the country. People in the south would be much more affected than people in Manchester. I don’t think anyone could’ve predicted the situation the country is in, but Britain is resilient. JN: The change in Prime Minister looks likely the UK will see it’s 19th housing minister since 2000. What would you like to see the new minister and government implement to improve the housing sector? Damien Druce: I think they should create a collaborative, cross party, policy that’s legally binding so that any future government has to adhere to it. This is the challenge. You have the capitalist movement at one end that wants bigger private dwellings and the Labour Party which wants social housing stock. You have to meet in the middle and create settlements for the future. And that’s only going to be done by cross party collaboration and legally binding targets. It’s 19 housing ministers in 19 years. It’s crazy. RM: As a landlord I’d ask what kind of confidence do we have? And we’re a very significant part of the housing market. There’s no connection with our housing policy and no long-term incentive to remain in the private rental sector. If every private landlord when Section 24 kicks in, says they’ve had enough suddenly, we’d create the biggest housing crisis the country’s ever seen. Both Labour and Conservative have hidden messages for housing, and I think we need to engage with the private sector and give us some confidence to remain. DD: I think the housing issues are as big of a threat as the climate change threat which Theresa May has been on record saying she wants legally binding targets for that future governments will have to
Bridging you can trust… 34
commit to. I think that’s where that needs to be. AD: But we have to help as much as we can on driving that on to manifestos. DD: We have some politically savvy people in this industry. People like Christian Faes from LendInvest has the ability to speak to the right people. AD: Rob Sinclair does a lot too. DD: You need to combine those attitudes and talents to lobby government hard rather than just doing it individually. Otherwise it falls on deaf ears. AD: The trade bodies have a huge job to do regarding this and education. If it doesn’t get onto the manifesto of parties, it’s not going anywhere else. Phil Mabb: Isn’t there a promise the government will look more inwardly after Brexit? AD: Yes, allegedly. But I think Roger makes a good point about Scotland’s stamp duty. We should lobby against stamp duty on a constant basis. BC: It’s too easy a tax to collect. I think you’d be banging your head against a brick ball.
“It’s interesting to see that the rents for office space are going through the roof because there’s such a limited supply” Gary Feast green belt. Those in the surrounding areas were up in arms but it’s been passed. I think local authorities will be addressing this.
MD: I suppose with another Housing Minister you have another viewpoint and someone who may change things for the better for the buy-to-let market. People can’t afford to move or buy for the first time so you’ll need more people having buy-to-lets so people can rent. The youth of today believe they have to rent and have no other choice.
MP: We see so many of the planning approvals are for flats. But that’s not all we need. We need family houses for people too. People don’t want to live in flats for all their lives.
AI: My issue with the housing system at the moment is the lack of availability of land. I think this is something that’s heavily ignored given every housing minister has had a leaning towards relying on the major landbankers, housebuilders as the main source of building houses. They supply an overwhelming number of homes but it’s completely ignoring the SME developers. Because there isn’t any land available, it just kills their margins. It’ll never happen but it needs to be addressed. We’ve seen a lot of clients move further out of London.
MP: It will create even more issues when it goes because people won’t be able to afford to repay their loans and all it’s done down here is boost the prices up. So when it’s coming to sell or refinance people are finding they’re almost in negative equity.
AD: I was reading the planning authority in Staffordshire approved to build 260 units on the
RM: Help to Buy has stimulated a lot of opportunity. That goes ends in 2023.
JN: The recent NACFB expo was populated with a number of new lenders. How crowded is the market and what impact does the increase in the number of brokers and lenders have? PM: I walked the circuit and ended up seeing the same people. I’d say there was less than a handful of new entrants.
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lenders without a track record and the experience to lend. It’s easy to lend but it’s the old cliché. Anyone can put money out the door but getting it back is the hardest thing. And in this particularly applies in the market and cycle we’re in right now. You have to be very selective on who you lend you, you have to understand the borrower, the asset, the property market and what the real exits are out there. The kind of returns people are looking for are there if you’re willing to take excessive risk. This isn’t the market for excessive risk. MD: I agree, and brokers have to look at lenders and think whether that lender will be able to lend the money. It’s down to their funding lines.
“My issue with the housing system at the moment is the lack of availability of land” Ashley Ilsen RM: It seemed to be much more exciting and positive, especially for commercial and development where people get involved with changing the country for the better. I walked around thinking I wish I was a commercial broker again. I felt so empowered. AD: What’s interesting is a lender like Apex Bridging, who are an established lender for a few years and have seen the success of this, are now putting their head above the water. It’s definitely the most vibrant event and my suspicion, although it’s down to Andy, is Apex will be exhibiting next year. The opportunities exist for the smaller lenders now in a credible industry that’s going places. RM: I was there in 2009 and it was a pretty sorry state whereas now it’s very impressive.
MP: And you have to understand the rates offered because so many people will offer you a rate which is discounted and will sell incorrect terms. It’s just unbelievable. People need a little more education and brokers need to understand who they’re putting customers with. A lovely headline rate may be amazing but when you offer a discounted rate and give people incorrect terms with the sole purpose of being able to go into default and take the cream of top, you’re doing everyone a disservice, including everyone who wants to build long, tangible businesses. I don’t know how people get away with it and sleep at night. AI: The most frustrating part is as a lender you get presented with competitive terms by a broker from another lender but you know those terms aren’t cheaper. You’ve then lost the deal on pricing to a lender not doing the right thing. JN: With the change of Prime Minister increasing the likelihood of a hard Brexit, what impact do you think this could have on the housing sector and can you see any situation where we get a Brexit bounce?
JN: What impact does an increase in the number of lenders have on brokers and borrowers?
Arthur Cole-Fontayn: I think in the short-term if and when it does happen, I think we’ll see a spike in transactions as everyone who was waiting will no longer be. In London residential wise I think it’s broadly priced in so I don’t think we’ll see a massive drop.
MP: I think competition is good for everyone. Where it’s not so good is where you have inexperienced
BC: Whatever the outcome there will be greater clarity and a positive impact.
AD: I think the NACFB is very focussed as well.
…to deliver on time 36
Steve Allen: We just need to settle down. You can’t make decisions if you don’t know what’s happening and people won’t commit. AB: If you get Corbyn in power that’s probably of greater concern. DD: That’s a bigger threat than Brexit. This country’s very resilient and has great bounce back ability. There will be some form of Brexit bounce. What it looks like remains to be seen. A Jeremy Corbyn government is a massive threat to this country. BC: Housing has always done well under a Labour government but this isn’t Labour. JN: We had the same conversation before with people saying Corbyn is a bigger threat than Brexit. DD: Brexit’s out of our hands now. The country’s spoken and it’s down to the politicians now.
P2P’ and rephrase it as typical example of poor credit risk. MP: It doesn’t make a difference if it’s P2P or not. If you don’t have a good credit background and expertise you’ll make decisions that will come back to bite you and when you do make those decisions, you need the right economic experience in place to help you get through it. BC: We’ve seen two major failures in the last six, seven months. They’re two completely different companies. There’s a continual string of new entrants desperate to gain market share in a market awash with liquidity. Marketing initiatives seem to pretty much focus on ever lower rates and ever higher LTVs. AI: When you’re on the tube and you look at wider commuter adverts, they say ‘invest in bricks and mortar, invest in property, what could go wrong’. I don’t think the risks are really laid out properly. When you go into really complex development schemes and someone’s putting their savings into that, there has to
JN: There’s lots of thought leadership pieces about a recent report commissioned by Labour that came up with some controversial claims about how they want to see the housing market such as increasing the way we should all be renting rather than buying. It’d be interesting to hear what your biggest fears are should Labour get into power. RM: As businesses we have to try to take the opposite view. Whoever comes into power and wherever the cards lie we have to work out where the opportunities are. Lenders and brokers have the ability to change and come up with solutions to take the best positivity from the economy. We could build our way out, transform the country. We’re not the biggest lenders in the UK but we can make a difference in our own little world. The opportunity will come but it’s whether we are quick enough to seize it. Nobody can second guess what will happen. JN: It’s been seen that Lendy was a typical example of poor peer-to-peer lending. What represents a good P2P lender and what lessons do P2P lenders have to learn from the demise of Lendy?
“If every private landlord when Section 24 kicks in, says they’ve had enough suddenly, we’d create the biggest housing crisis the country’s ever seen” Roger Morris
DD: I’d take out the term of ‘typical example of poor
…to help with light refurbishment www.specialistfinanceintroducer.com
be better communication about the actual risks involved. MP: I’ve seen some of the TV adverts for P2P and it left me thinking ‘oh my goodness if people investing in this actually knew what they were investing in’. Ryan Fowler: That’s a regulatory issue though. They stipulate what the minimum is that companies need to put out in their terms and conditions. P2P terms and conditions in adverts are no different to those of other investment firms. It would be unfair to say they should be putting out considerably more than those other platforms. BC: Also, it’s a personal responsibility to an extent. If you’re investing thousands of pounds into a P2P lender do some research before you invest in them. Whatever type of funder you are you have to do your due diligence. DD: There’s a broad difference between different P2P lenders. Some will provide an extract in the valuation report on their platform and that’s all the investors get. And others produce the full valuation report and the credit notes. There’s lots of different practices. I believe the difference between P2P and traditionally funded lenders is the broad range of practices that exist in the P2P place. AI: But how do you explain the more technical aspects like if someone’s investing in a development and a certain issue comes up?
DD: In our environment if there’s an issue we give as much information as we can and we go to a lender vote to find out if they want us to stay in the loan and extend it. We try and give as much support and information to allow the investors to make a decision to the best of their knowledge. But that’s not typical of every P2P lender. PM: Do you encourage your investors to seek any form of professional advice? With stocks and shares you can use a fund manager. It used to be a closed shop but then it became more open. If I bought a share with BP they wouldn’t give any level of credence or detail, you have to go and find out yourself. I’m not saying that’s right or wrong but how far can you go? DD: The regulator has got some blame to shoulder here in my opinion. They want P2P lenders now to determine the level of sophistication of the investor. If you’re an unsophisticated or new investor and haven’t done anything like that before, they want to put protections in place to stop people falling foul to bad practices. PM: Is that not then forcing you down the IFA route? DD: That’s probably where it should go. It probably needs some kind of investment advice behind it. But you can’t blame the P2P lenders for that. That’s where the regulator needs to shoulder some responsibility. And it’s then down to different P2P lenders with different ranges of practices, some good and some not. JN: Previously there was a lot of bad press and people had to fight to show it’s an industry full of good practice. So, would you say practices like this are dangerous for the reputation of P2P lenders? DD: There’s a range of P2P lenders, what they do, their practices, and the size of their businesses, it varies. One bad egg doesn’t always make them all bad.
“I believe the difference between P2P and traditionally funded lenders is the broad range of practices that exist in the P2P place” Damien Druce 38
MD: It goes back to certainty of funds, whether it be a P2P lender or not.‘How are you funded’ is the key question brokers need to ask. They need to ask whether they are able to last the length of the loan to get the money back. We have a huge shareholder sticking with us and getting us through the banking license and putting money into a box, so we don’t have to fund it ourselves. It’s all about how you’re funded. DD: I don’t think we’ll see many new P2P lenders, which is probably a good thing. I think that ship’s sailed.
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View from the top Bridging Introducer caught up with Martin Bischoff, CEO of Castle Trust, to discuss his first 12 months with the lender Martin Bischoff joined Castle Trust as CEO in April last year and since his appointment the lender has evolved its proposition and announced that it is in the process of applying for a banking licence. So, how has he found his first 12 months at the helm and what is his vision for the future? We caught up with Martin to get the inside view of life at the top of Castle Trust. Let’s start at the beginning. Prior to taking this role you held senior positions at Virgin Money and Santander, so what attracted you to the role at Castle Trust? I think the thing that really excited me about Castle Trust was joining a business with such potential and opportunity. Castle Trust has been one of the most exciting and innovative lenders in its space since day one. The proposition has evolved over the years, but it has always offered something different to other lenders, and something that those lenders have tried to follow. This approach, combined with the prospect of a banking licence and the benefits that brings, made for a very exciting prospect. And, has it been exciting? How have you found your first 12 months in charge? Absolutely. Castle Trust is better funded than it ever has been, it is better capitalised, and it is
profitable. That’s a good place to be! We are well on the way with our application for a banking licence and we are developing the infrastructure to support our future plans. It is important that any applicant for a banking licence does not take the process for granted. It’s a serious undertaking and should not be taken lightly. We believe that if Castle Trust were to become a bank we would be in a strong position as we already have a track record of holding customer money and providing innovative lending solutions The application for the banking licence is exciting, but I want to make it very clear that we aren’t looking to change Castle Trust beyond recognition. This process is more of an evolution than a revolution. We will continue to offer first and second charge bridging loans and medium-term finance to buy to let investors, ex-pats, foreign nationals and high net worth individuals. We intend to remain as experts within the industry that we operate and have no intentions of diluting our offering or making our proposition homogenous; our aim is to make this part of the industry our own and evolve our proposition to better serve brokers and their clients. A banking licence would give us more diversity in our funding and this is something that any forwardthinking lender should be looking JULY 2019
to achieve. What changes would brokers have noticed at Castle Trust in the past 12 months? Probably the most notable, and the most popular, change has been the launch of our new bridging loan product. We have always been in the short-term lending market but, in recent years, we have noticed growing demand from brokers for straightforward bridging loans. You only need to look at the recent figures from the Association of Short-Term Lenders that said the bridging market grew by 15% in 2018 to see that there is a huge amount of demand from brokers and their clients. There has been a particular surge in demand for refurb lending, as landlords investigate new ways to achieve more value for their investment and our bridging can be used for a whole range of refurbishments, from cosmetic enhancements to permitted development. This opens it up for quite a lot of uses, especially www.specialistfinanceintroducer.com
environment, but there is still plenty of opportunity. We expect to see the trend continue for more landlords to turn to more complex investments that deliver better yields, like HMOs, multiunits, holiday lets and student accommodation. With growing numbers of new businesses, we also anticipate more appetite from entrepreneurs who want to tap into the equity in their property to invest in their business, and the demand for development exit loans is only likely to increase in the current environment. Within these niches there is still room to innovate and develop products to meet market demand and that’s what we will continue to do. Has the uncertain political landscape has affected business?
given the extension of Permitted Development Rights. The main characteristic though is that it’s a quick, uncomplicated loan with simple pricing, supported by expert underwriters who understand the market. This straightforward approach complements our existing range and means we are able to offer brokers with a more complete set of tools to help clients with different circumstances. We have also invested in developing our digital platform, with an improved website and new instant quote calculator for loan values up to £1m. This has a
dual benefit as it provides a slicker journey for brokers who are looking for loans of less than £750,000 and also gives our underwriters more capacity to deliver a fast turnaround on larger deals – we can lend up to £15m. What product development can we expect in the future? I think it’s fair to say that we will continue to deliver and enhance our offering of bridging and mediumterm finance for property investors, entrepreneurs and high net worth individuals. We operate in a competitive
There is no doubt that uncertainty over Brexit has had a dampening effect on property transactions. You only need to look to the monthly RICS Market Surveys to see the change in market dynamics immediately following the vote in 2016. However, the great thing about short- and medium-term funding is that it provides brokers and their clients with a flexible tool to help manage challenging environments like the one in which we currently find ourselves. So, we have seen continued strong demand, particularly for products like our development exit loan that provide investors the flexible funding they need when they need it most. That’s a really interesting product actually as it’s available on a 3-year term with a 2-year ERC. It gives clients the flexibility to transition from development at their own pace, and it also includes the flexibility to sell an agreed percentage of the properties during the ERC period. What are your thoughts on the current status of the buy-to-let sector? There’s no area of the mortgage market that has attracted more www.specialistfinanceintroducer.com
speculation in recent years than buy-to-let and countless predictions have been made about how landlords would react to the unprecedented combination of regulation and tax clampdowns. While purchase business has been muted, so far there is no evidence that the changes have sparked a mass exodus from the market. But there is evidence that many landlords are responding to increased costs by investigating new ways to generate better returns on their property investment. Brokers and distributors that we work with at Castle Trust, say they have seen a marked increase in enquiries from landlords who are looking to invest for the first time in alternative areas, such as holiday lets, HMOs or multi-units. These are much more involved transactions than the traditional high-volume approach to buy-to-let that we have seen in the past, and this presents an opportunity for smart intermediaries to work with their clients on developing strategies and develop long-standing relationships. Buy-to-let is a competitive market, what can Castle Trust offer that is different to other lenders in the sector? Our products enable borrowers to roll up some or all of the interest on a loan, for payment on redemption, and this means that we can provide intermediaries with genuinely tailor-made solutions for their clients. One of the most popular uses of this approach has been to tackle ICR on low yielding properties by rolling up some or all of the interest. With a roll-up mortgage there are no monthly payments required as interest is rolled up to redemption and it serves many of our borrowers as a tool to finance high quality low yield assets. Rolling up all of the interest on a loan can ultimately reduce the amount an investor is able to borrow however, as the payment of rolled up interest will need to be factored into the maximum LTV. www.specialistfinanceintroducer.com
So, for landlords with low rental yields, a blended product can be the ideal solution. This is effectively a loan that is structured so that some of the interest is serviced, but the interest on the remainder of the loan is rolled up. Because there are no monthly payments due on the rolled-up part of the loan, this element is not subject to a stress test. The roll-up element offers the opportunity for a client to maximise their loan amount and the serviced element offers a lower rate than the roll-up element. When the two are combined, the rates can be aggregated to give one set of loan terms. Castle Trust has spoken about the opportunity in short-term lets previously. Do you still think this a market that brokers and their clients should be looking at? Absolutely, you only have to look at the success of platforms like Airbnb to see there has been a fundamental shift in the way that people take short breaks, holidays and even travel for business, and any property investor can benefit from this trend. But it’s not a light touch investment – a property let on a short-term basis is essentially a trading business and it is taxed as such. There are many considerations, such as the high turnover of guests, marketing, void periods etc. But, for those investors who get it right, short-term lets can be very lucrative and so brokers need to be alert to the opportunity for their clients. There has been coverage in the press recently about some notable large loan completions by Castle Trust. Why do you think you have carved a niche in this area? The problem many lenders have with large loans is that they have a hierarchical decision-making process. So, while they may be confident about a case at DIP when it is agreed with a junior mandate holder, the progression of the case through the hierarchy can be
fraught with indecision. Often, it can be the case that the questions asked throughout this process do not enhance the credit decision but are necessary for the higher mandate holder to justify their position, and it all takes time. There are many lenders that claim to be able to underwrite large complex cases in a timely manner, but still have to put large loans through this cumbersome, multistage process. At Castle Trust, we do things differently, with a flat decision-making structure and a daily focus on progressing complex cases. We can also offer brokers real confidence when it comes to certainty of funds thanks to our strong backing and ability to raise retail funding. Certainty of funds is important on any deal, of course, but can be a particular sticking point on larger loans. What have been the biggest challenges you have had to overcome and how did you deal with them? One of the big challenges has been focusing attention on so many different areas at once. Businesses like Castle Trust don’t move slowly and so we have been busy growing our mortgage and bridging lending, with new product and technology launches, continuing to raise retail funding through our Fortress Bonds, and building scale into our point of sale lending business, all while applying for a banking licence. But we wouldn’t be in the position we are in today, with such a bright future ahead of us, without the dedication of such a skilled and committed team. They have been the key to overcoming the challenges and they will be key to the continued success of Castle Trust. What are your plans for the next 12 months? In many ways, more of the same. We want to grow our lending businesses, continue to strengthen our team and, of course, secure that banking licence. JULY 2019
In Our Opinion
Bridging but better Marcus Dussard, director of sales at Castle Trust, on what sets Castle Trust apart from other lenders Castle Trust has always been a bit different. The company launched in 2012, with a ground-breaking proposition that provided an equity loan to homebuyers. This proposition developed soon after with the launch of a buy to let equity loan that helped property investors to achieve greater leverage. As the market evolved, so did Castle Trust’s offering. With more subdued house price inflation, the equity loan was no longer the attractive proposition it once was, so the product was retired to be replaced with a range of short- and medium-term mortgages built for medium and large sized buy to let investors, entrepreneurs, business owners and high net worth individuals. These products brought something new to the market with tailor-made products for each case and the option to roll up some or all of the interest for payment on redemption.
a loan can ultimately reduce the amount an investor is able to borrow however, as the payment of rolled up interest will need to be factored into the maximum LTV. So, for landlords with low rental yields, a blended product can be the ideal solution. This is effectively a loan that is structured so that some of the interest is serviced, but the interest on the remainder of the loan is rolled up. Because there are no monthly payments due on the rolled-up part of the loan, this element is not subject to a stress test. So, with a balance of serviced interest and rolled-up interest, it is possible to build a loan that fits the required stress test. The roll-up element offers the opportunity for a client to maximise their loan amount and the serviced element offers a lower rate than the roll-up element. When the two are combined, the rates can be aggregated to give one set of loan terms.
Flexible solutions to tackle ICR
Introducing buy-to-let bridging
One of the most popular uses of this approach has been to tackle ICR on low yielding properties by rolling up some or all of the interest. With a roll-up mortgage there are no monthly payments required as interest is rolled up to redemption and, any interest which is capitalised is not subject to a stress test, so this can increase the client’s borrowing capacity. Rolling up all of the interest on
This approach has helped Castle Trust to develop a strong reputation for structuring creative solutions to help solve complex cases and bespoke products that are individually priced to meet the specific circumstances of a client. The nature of these cases means they are often more involved and, while Castle Trust offers terms up to 5-years with many products available for 12 or 24 months, the
approach it takes to underwriting larger complex deals doesn’t always sit neatly alongside more straightforward bridging loans. As the demand for short-term finance has grown, however, Castle Trust recognised that an increasing number of brokers are looking for more straightforward bridging loans for their clients. So, the lender developed a new product and service proposition to deliver just that – a quick, uncomplicated loan with simple pricing, supported by expert underwriters who understand the market. This straightforward approach to bridging complements Castle Trust’s existing range and means the lender is able to provide brokers with a full range of tools to help clients with different circumstances. Castle Trust’s buy-to-let bridging product is available for a flat rate of www.specialistfinanceintroducer.com
0.67% pm, on a nine or 12-month term and can be used for first charge buy-to-let cases up to £1m. The product is supported with a streamlined application process and a dedicated team focused on delivering the fast turnaround times you would expect from a leading bridging lender.
One of the great things about the criteria on Castle Trust’s buy-to-let bridging loan is that it can be used for all types of refurbishment that do not require planning permission, including refurbishments that include building regulations and permitted development. A growing number of investors are choosing to generate better returns by buying a run-down property and renovating it to achieve a higher resale price or increased rental income. Traditionally, property refurbishment falls into two main categories – light refurbishment, where no
planning permission and building regulations are required, and heavy refurbishment, which requires planning permission or building regulations. Light refurbishment typically includes re-wiring a property, or fitting a new bathroom or kitchen, whereas heavy refurbishments are more involved and can include converting a property to residential use, creating multiple units from a single building or converting multiple units to a single building. Permitted development provides the middle ground, with the scope to add more value than light refurbishment without the demands of heavy refurbishment. Permitted development rights are an automatic grant of planning permission to allow certain building works and changes of use to be carried out without having to make a planning application. These works can include single storey rear extensions, which could extend terraced and semi-detached
houses by up to six metres and detached houses by up to eight metres, as long as the extension is no more than half the area of land around the original house. There are even proposals to extend the scope of permitted development rights to include upwards extensions, so it’s likely to become a popular option amongst property investors.
Opening the door to new opportunities
The launch of Castle Trust’s buy-to-let bridging product is the next step in the evolution of a lender that has built a reputation on doing things beyond the scope of other lenders. It’s a straightforward bridging product, with great pricing and service levels, but it also enables investors to access a flexible range of refurbishment options. It’s this approach that can open the door to new opportunities for you and your clients.
The broker toolbox Here’s a quick round-up of the different products offered by Castle Trust that can provide the tools to help your clients. Castle Trust’s buy to let bridging product is designed for clients with short term buy-to-let finance needs. Time is of the essence for these cases and the buy-to-let bridging product is bridging that can be trusted to deliver on time. Ideal for light refurbishment, including Permitted Development projects, the roll-up interest basis means that monthly payments won’t impede the project’s progress.
income will not service the loan, blended products offer a great alternative to top slicing, with the flexibility to maximise borrowing without having to subsidise the loans from personal income. The roll-up element offers the opportunity for the client to maximise their loan amount, regardless of their rental yield. The serviced element offers a lower rate than the roll-up element. When the two are combined, Castle Trust aggregates the rates to give one set of loan terms, keeping things simple. Blended rates are available for buy-to-let clients on a bridge or term basis, so there’s something to suit every type of landlord.
Roll-up, serviced or blended rates
Low rates on larger loans
Castle Trust offer the option for no monthly payments required, with interest rolled up to redemption, interest serviced monthly and the ability to combine the two on a single loan that provides the best of both. For landlords with low rental yields, whose rental
Castle Trust’s large loan products for loans of £1m or more offer some of its best rates to date and are ideal for landlords with large portfolios. All property types are considered, including HMOs, holiday lets and multiple flats on one title. Available on a
serviced basis from 4.99% for loans up to 70%, Castle Trust’s specialist team will create bespoke terms based upon a client’s requirements. To add further flexibility, Castle Trust also offers the ability to combine these rates with its standard roll-up rates to create a unique blended product. If your client doesn’t quite fit the large loans criteria exactly, Castle Trust has the flexibility to look at their circumstances and tailor a product to suit.
Development exit products Where clients are looking to use their loan as a development exit, Castle Trust can help with development exit products that are available on a 3-year term with a 2-year ERC. This gives clients the flexibility to transition from development at their own pace. The products also include the flexibility to sell an agreed percentage of the properties during the ERC period, giving the client a product that works on their terms.
The values that matter How honest and trustworthy is the short-term market?
In the six years since I heard a very prominent broker/packager say at an event at the Barbican that he would not touch a bridging loan with a barge pole I believe that the sector has done a great deal to shake off its ‘lender of last’ resort image and I do believe that same packager now does good business in the sector. However, my belief was seen to be possibly misplaced when this week we found out that one lender is imposing a 4% penalty rate for default. The disproportionate rate was quite rightly shown for what it is in a post on Mark Posniak’s (Octane Capital) LinkedIn account where many posted similar comments about how damaging such penalties can be to
“In preparing this piece my thoughts turned to the cultures that must exist to ensure that lenders deliver to the many boasts that their promotional material and websites proclaim” the reputation of the sector, that is getting ever closer to being a mainstream provider of funds, to a growing number across many areas of short-term secured lending. This disappointing revelation started me thinking about how robust the reputation of lenders is when closely scrutinised. My last feature in this publication focussed on reputation and how winning industry awards can enhance a
lender’s standing amongst the broker fraternity. In preparing this piece my thoughts turned to the cultures that must exist within lenders’ businesses to ensure that they deliver to the many boasts that their promotional material and websites proclaim. I undertook a random website and product sheet review of several prominent well-respected lenders and compiled a list of the words that help potential clients form an opinion of what their values are and how they have shaped their culture and reputation: FLEXIBLE TRUST TRANSPARENT DEDICATED RELIABLE CARING TEAM COMMITTED OUTSTANDING SERVICE COMMON SENSE EXPERIENCED HONEST The challenge for the lender and the broker for that matter, if they promote themselves in a similar fashion, is for them to be confident that all their staff have a common understanding of what is expected from them if the client is to believe that everybody understands the impact on the business of all these ‘comforting words’. My experience tells me that if you do not establish what management means when it goes to market with a statement that highlights for example “we are flexible” and ensure that the whole business is consistent in its interpretation, then you could run the risk of being seen as inflexible as the more interpretations you have the less flexible you can appear.
Mike Dring Strange Alan managing director, director, MAD Approach Funding 365
Many marketing departments script a culture statement without the input of all staff and then promote it believing that because the words commonly included (see list above) are, in their opinion, not open to misinterpretation, then everybody will interpret them in the same way… no, never. The 12 words listed above are exactly what the client wants to see and hear but any of them can mean something different to many staff in the context of the working environment. I have just undertaken an exercise with Apex Bridging, a small lender admittedly, but one with a very enthusiastic approach and commitment to growth. All staff were asked to write a culture statement from which they finally agreed on one they all could commit to, but only after some quite exhaustive sessions that assured the management that everybody was on the same page regarding interpretation and message to the market. Every lender will interpret as they think fit, what I would say is that please do your due diligence on interpretation, because if a lender who is imposing a 4% default rate purports to be transparent and had adapted a process of staff involvement, then perhaps, just perhaps, their transparency may have been questioned. I do believe the sector has made great strides in building its reputation as a TRUSTED, FLEXIBLE. TRANSPARENT and CARING provider of very much needed alternative funding. What it must do is COMMIT to ensuring that through HONEST, COMMON SENSE, TEAM-work it continues to learn from the EXPERENCES of what is still a market in its infancy and strive to continuously improve its CUSTOMER SERVICE. www.specialistfinanceintroducer.com
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Castle Trust | Belvedere House, Basing View, Basingstoke RG21 4HG | Tel: 0345 241 3079 | 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). Castle Trust is authorised and regulated by the Financial Conduct Authority, under reference numbers 541910 and 541893. Registered oďŹƒce: 10 Norwich Street, London, EC4A 1BD. Registered in England and Wales.