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Reduce, reuse, regenerate
s we put this month’s magazine together the market was a flurry of anticipation in the lead up to, and activity in the aftermath of the Chancellor’s Spring
Budget. Whether your own predictions – and everyone had some – came true in the end, it’s safe to say potential home buyers, members of our own team included, breathed a collective sigh of relief at the news of a stamp duty holiday extension. Those working in the mortgage market likely conjured up images of continued stimulation to demand and activity as the year progresses to the next deadline, with all the positives for income, and negatives for snarled workloads, that this entails. Either way, there is little doubt that bridging will continue to be a vital resource in order to get transactions over the line. Meanwhile, the vaccination programme continues at pace, and the PM’s roadmap out of lockdown has placed hope firmly on the horizon. On an individual level, this hope looks like a pint and a chance to see the real-life faces of people we don’t currently live with. For the market, it means that thoughts can turn to long-term stability, and tackling societal trends that have fallen by the wayside. Now that the more pressing issues of the pandemic, and arguably to a lesser extent Brexit, are starting to feel more manageable, we are reminded that issues such as the national housing shortage and the global climate emergency have far from lessened while outside of the public eye. Specialist finance and short-term lending have a significant role to play, here, populated as these fields are by nimble lenders, well-placed to put their money behind urban regeneration, SME developers, and sustainable building practices. I hope we can all soon raise a glass to the future, and to leaving COVID-19 concerns behind us in favour of more positive social movements. B I
5 Jonathan Newman Sometimes patience isn’t a virtue 7 Jason Berry A capital solution 9 Chris Biggs Home schooling versus home working 10 Scott Bozinis The UK property sector postpandemic 11 Harry Hodell Is this a thawing or a false dawn? 13 Miranda Khadr Tech – but not as you know it 15 Tom Madden The outlook for complex projects 17 Aviram Shahar Tech is changing the face of bridging 18 Robert Whitton Lending and sustainable building 19 Danny Carter Networks wake up to a new opportunity 20 Feature: Good things in small packages Jake Carter looks at how small and medium-sized lenders are shaping the short-term lending market 34 Vic Jannels What do receivers really do?
MARCH 2021 BRIDGING INTRODUCER
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Sometimes patience isn’t a virtue Jonathan Newman senior partner, Brightstone Law
he end is, potentially, in sight. We now have a roadmap detailing how restrictions will be lifted as we emerge from the virus, accompanied by an overriding message to be patient. But while patience is eminently sensible in returning to life without restrictions, it could prove costly – and needlessly so – for bridging lenders recovering debt. The ban on evictions has been extended until at least 31 March and, given that normality isn’t expected until late June at the earliest, there is more than a good chance that it will be pushed back again. This means that all but the most exceptional evictions have been put on hold for more than a year, and some of the loans that were written during the first lockdown are already starting to approach expiry. LIQUIDITY STRAIN
Expiration increasingly means default. The latest data from the Association of Short Term Lenders (ASTL) shows that the value of bridging loans in default in Q4 2020 increased by 13.9% on Q3, and was 23.8% higher than the same period the previous year. This situation will be putting significant liquidity strain on some bridging lenders, whose capital has been tied up in loans for much longer than anticipated at the outset. With interest rolling up, the longer the situation goes on, the more likely it is that the outstanding debt will erode any equity remaining in the property – leaving everybody out of pocket. This is where it pays not to be patient. The evictions ban may be ongoing, but the enforcement www.sfintroducer.com
moratorium ended last autumn, and this means that lenders can commence formal enforcement proceedings, which serves two important purposes. First, progressing recovery action can encourage or kickstart a dialogue with borrowers. Often, presenting the financial implications of continuing to delay the inevitable – and providing worked illustrations – works to focus the mind of a borrower and inspire them to find a way forward. SATISFACTORY RESOLUTION
Exclusive analysis of our own data reveals that since the end of the moratorium, just over 16% of review hearings have been cancelled due to redemption, extension or some form of agreement reached with the borrower. Nearly a quarter (23%) of possession hearing dates have been cancelled for the same reasons. The ultimate consequence of legal proceedings – possession – may be on hold for now, but the process of moving in this direction is enough encouragement for many borrowers to identify a satisfactory resolution before court action becomes necessary. The second reason why it pays not to be patient is that the courts are dealing with significant backlogs. Currently, the average time for a review hearing is just over 11 weeks, the average time for a possession hearing from the review is just over seven weeks, and the total time from the initiation or reactivation of proceedings is just over 18 weeks. When we analysed this data in January, the total time was just over 15 weeks, so we are seeing timelines start to extend as more cases are being put into a system that is already overstretched. There are a number of reasons for this, one of which is the new process that has been introduced. When issuing claims online preCOVID, a hearing date would be set automatically. However, now there is
an additional step – a review hearing – and so the courts process and set dates manually, further contributing to delays. It’s also important to note that when cases do eventually arrive at court, orders for possession are being made, even in the current environment. Of the hearings that have progressed to a possession hearing, 63% have successfully resulted in an order for possession at first hearing, which is broadly in line with the levels preCOVID. In fact, while the majority of defendants have claim to have suffered some form of impact as a result of the pandemic, we have yet to have a single file marked COVID – and in need of special attention – by the court. Possessions will clearly have to await a better, safer environment, but it’s possible to take cases up to the point, so that when restrictions are lifted, sensible, pragmatic and forward-thinking lenders will be in the best position to move early if there is no alternative. FORMAL PROCEEDINGS
Of course, just as the act of commencing formal proceedings serves to encourage greater engagement from a borrower, an order for possession can also concentrate the mind, and more often than not, is the driver for the borrower to refinance or initiate a voluntary sale. As predicted, the courts are experiencing backlog and delay, but they remain committed to ensuring that hearings proceed – remotely or otherwise – and with results that speak to the case, not the pandemic. This should provide encouragement for lenders to take a more proactive approach to engaging with borrowers in default, in the knowledge that there are open avenues of escalation, even if an eviction ban remains in place. Sometimes, patience is not the right course of action. The longer a debt is left to roll-up, the more of a burden it can become, and in these cases, decisive action to stimulate engagement and encourage a solution can be the most sensible approach, for the borrower as well as the lender. B I MARCH 2021
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Castle Trust is the trading name of both Castle Trust Capital plc (company number 07454474) and Castle Trust Capital Management Limited (company number 07504954) both registered in England and Wales with registered offices at 10 Norwich Street, London, EC4A 1BD. Castle Trust Capital plc is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority, under reference number 541910. Castle Trust Capital Management Limited is authorised and regulated by the Financial Conduct Authority, under reference number 541893. Buy to Let is not regulated by the Financial Conduct Authority or the Prudential Regulation Authority.
CAPITAL RAISING XXXXXXXXX
A capital solution Jason Berry group sales and marketing director, Crystal Specialist Finance
ll the bridging talk this year has been around the stamp duty holiday – indeed, the majority of applications in our system still relate to the 31 March purchase deadline date – but as the property market slows people are looking at options closer to home, and capital raising is showing a huge uplift. First, a caveat: as I write this, we are still a few weeks away from the Chancellor’s March 2021 Budget, and all the signs seem to indicate an extension to the stamp duty holiday. Whether this is for new purchases or those already in the system remains to be seen, but at some point it will end, and the bridging conversation will again widen. Fortunately, pent-up purchase demand still remains extraordinarily strong in our Crystal post-application pipeline, and this continues to be processed to meet the deadline as it exists today. Indeed, this ‘need for speed’ purchase demand represented 45% of the total bridging loans we originated in February 2021. This is showing no signs of abating, plenty of new applications are landing daily, with people requiring an incredibly quick turnaround time to literally save thousands of pounds. Of the remaining bridging loans which we originated in February 2021, we are now seeing a huge percentage shift towards homeowners looking to capital raise. Just over 30% of our February 2021 bridging applications fell into this category, which is double the 15% we received in January 2021, and way above the 10% we recorded in February 2020. So, what are we seeing come through the Crystal system? As has been reported countless times since the first lockdown was www.sfintroducer.com
announced, our relationship with our homes is now closer than ever. The Rated People Home Improvement Trends Report for 2021 has some remarkably interesting figures. INTO THE ATTIC
In 2020, 46% of homeowners made their homes better places to spend large amounts of time. While the larger percentage focused on those DIY jobs most of us severely dislike – or perhaps just me – construction work was allowed to continue throughout. New kitchens and bathrooms, extensions and loft conversions all featured. This is set to endure in 2021. The report found that many of us are looking to add more space to our homes, with renovations planned for the bathroom (18%), kitchen (17%) and loft (10%). This is a trend we are already witnessing with increasing heavy refurb requests – for example, adding annexes or undertaking loft or basement conversions is becoming the norm – plus for those lucky enough to have large garden space, we are increasingly seeing requests for new-build offices or alternative multi-function spaces. But why turn to bridging? There is definitely opportunity coming from impatience, as unwanted bottlenecks generate frustration, plus there is also opportunity when lighter touch criteria is maybe needed, or the purpose of capital raising is outside of standard norms. As per Article 4 of the Mortgage Credit Directive, advisers have a duty of care to ensure that all types of short and long-term financial solutions are considered. Therefore, both first and second charge funding alternatives must be considered alongside further advances. In every scenario it is imperative that suitability is assessed, with solutions provided depending on circumstance. BUSINESS PURPOSES
Of course, it’s more than just home improvements that we are seeing come
across our desks. In MT Finance’s 2020 Bridging Trends report, ‘business purposes’ contributed 11% of all completed bridging loan uses. This is, amazingly, the same amount as heavy refurbishment. This mandate has continued into 2021, with an increasing number of HMRC requests – and more recently new Coronavirus Business Interruption Loan Scheme (CBILS) demands – needing a bridging solution. In the same report, rebridging accounts for 10% of loan purposes. This is where small, medium or large refurb projects or developments are due to miss their exit and require extra time to be completed. As touched upon by our operations director Kris Corns in February 2021’s Bridging Introducer, more commonly a refurb project has been finished, but new funds are needed to extend the building time or marketing period to maximise sale value. The numbers are backed up by our own experience. Rebridging accounted for 25% of our total bridging originations for February 2021, this is up from 20% in January 2021 and 10% for the same period in January 2020. KEYS TO THE CAPITAL
Bridging will always be a solutions-led product. It is key in helping individuals who need a fast resolution to a property or cashflow issue. The competitiveness of first and second charge products in the market has never been better, and this is mirrored by the appetite of bridging lenders to fund deals quickly. If capital is needed for any business purpose, then first or second charge bridging may be available. If lockdown and consequent population behaviour have shown us anything, it is certainly that ‘an Englishman’s home is his castle’. As more homeowners curb their desire to move and instead look to ambitiously improve their existing surroundings, we simply cannot ignore the solutions bridging can offer. B I MARCH 2021
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Home schooling versus home working Chris Biggs partner, Theta Global Advisors
ver the course of the last 12 months, lockdowns have been an all too familiar reality for people across the UK, Europe and the world. The UK workforce has been subjected to a number of national and regional lockdowns across this period, with the most recent restrictions being introduced in January. With the respective devolved governments across the UK urging people to work at home if possible, a huge proportion of the population could face another good few months away from the office again. On Monday 8 March, schools across England reopened once again, hopefully leaving mass home schooling behind for the foreseeable future. This period since the start of the year – juggling teaching, working, and spending the vast majority inside the house – has left many working parents more than a little burnt out. Testament to this, our research at Theta shows that around two-third of Brits believe that parents have been the hardest hit by the pandemic, as they have had to work, take care of their children and teach simultaneously. More than this, and even more worrying for those of us with children to look after at home, 28% of parents in Britain say that having to take care of their child during the COVID-19 period has set them back more than a year in their career. This has left a huge mark on a whole section of the UK’s workforce, but hopefully, if the Prime Minister’s ‘steady but irreversible’ pledge holds out, it will be the last period of this dual
employment for some time. Or at least until the school holidays. The demands of home schooling and childcare are unquestionable, and something that has been talked about relatively little is the impact it has on other members of one’s team. Those without such commitments have, in many cases, offered to help pick up any slack or urgent tasks that otherwise might have slipped through the cracks. This is not a slight against working parents, but rather a natural result of a working environment that was never designed to deal with our current situation. This has created a way of working that has been increasingly stressful for some, as headcounts decreased due to furlough and workloads increased overall. This has, I feel, created a rather underrepresented section of the workforce who have been perceived to have ‘had it easy’ throughout the pandemic due to not having had
Employer flexibility has been key during lockdown
children to care for alongside their work responsibilities, which others could perhaps envy. This is, however, a reductive way to look at their plight. I don’t know of anyone in the world of business who has had an easy time in the past year – with the possible exception of billionaires such as Jeff Bezos. Business owners have had countless sleepless nights trying to look after their staff, and even those remaining in their jobs have had to deal with one of the most stressful periods in our memories, during the worst recession of the last 300 years, all while being stuck inside.
“This period – teaching, working, and being inside the house – has left many working parents more than a little burnt out” Finance teams and finance providers have likely been some of the busiest of all. There has been tremendous demand for financial consulting – especially in alternative forms – as founders strive to keep firms afloat. As such, teams have had to make difficult decisions almost daily on the livelihoods of many. Ultimately, how we at Theta have successfully navigated this period – with both parents and non-parents – is by being flexible. If you need to do some teaching in the day, we are happy to accommodate flexible working later; it’s about what works for each individual as part of the team, not a cookie-cutter approach to business. Despite a huge change in working culture for millions of Brits – both in employment and in education – working from home has presented opportunities to spend more time with family, save time and money on commutes, and create a better work-life balance, helping with mental wellbeing and happiness. However, juggling childcare, work and home schooling has left many parents struggling to cope with the new way of living brought about by lockdown, with many fearing a repeat of this in the coming months. B I MARCH 2021 BRIDGING INTRODUCER
The UK property sector post-pandemic Scott Bozinis CEO, InfoTrack UK
s detailed by Boris Johnson on 22 February, the UK now has a roadmap for exiting the third – and what is hoped to be the last – nationwide lockdown on 21 June 2021. Of course, the concept of ‘normal life’ has irrevocably changed. Most agree that we will not simply revert to how things were before the pandemic began. This is certainly true of the property sector. It raises interesting questions, then, about what the future looks like for the sector. As lockdown measures are peeled away, what trends do we need to be aware of in the coming months? RELIANCE ON TECHNOLOGY
Technology has played an integral role in people’s day-to-day lives during the pandemic. Yet, as offices reopen and people can engage in face-to-face meetings once again, will our reliance on technology recede? The short answer is no. The pandemic forced the hands of businesses in the property sector, making them replace offline processes with digital solutions. From virtual house viewings to electronic signatures and digital client portals, various technologies have been adopted to ensure businesses could keep operating and transactions could press ahead. Biometric verification processes, for example, are being carried out via smart devices, instead of individuals having to physically post their passport. The conveyancing space is a prime example of this. With buyers, sellers and solicitors all involved in a property transaction, the conveyancing process
BRIDGING INTRODUCER MARCH 2021
has historically been blighted by inefficiencies in coordinating activities, providing updates to stakeholders and securing all the necessary documentation. However, when this process is put through a single digital platform it becomes exponentially easier, saving time, money and stress for all parties. Many businesses will have realised how their traditional processes, practices and structures can be streamlined, improved or scrapped altogether by embracing tech. It is unlikely, therefore, that companies in the property sector will be in any rush to discontinue digital transformation projects – rather, we should see even greater investment in technology in the coming 12 months now that firms have had a taste of what can be achieved during the pandemic. MARKET READJUSTMENT
More generally, it seems likely that the UK market is poised to undergo a period of readjustment in the coming year, with one of the more notable trends being the homeowner exodus from cities to rural areas. According to Hamptons International, Londoners bought 73,950 homes outside of the city in 2020, a four-year high. Back in summer last year, the number of city residents enquiring about village properties via property portal Rightmove rose by 126% year-on-year. House prices and rental prices may shift in 2021 to reflect this change. Or, as lockdown is lifted, homebuyers’ appetites to trade urban areas for rural life might diminish – only time will tell, but it is undoubtedly an interesting trend to monitor. One thing that can be said for certain: homebuilding must remain a key focus for the government. COVID-19 has understandably usurped most other societal issues, but the pressing need for affordable housing
to be erected across the UK warrants urgent attention. The housing crisis will return to the political and social agenda in 2021. Revised plans – both targets and a detailed strategy for achieving them – will need to be laid out to show how this well-documented issue can be addressed in the coming years. OVERSEAS INTEREST
One final trend to monitor postpandemic is the level of overseas interest in UK property. Here, there are two significant changes to consider: Brexit and the stamp duty surcharge. As of April 2021, non-UK residents who purchase properties in England and Northern Ireland will be subjected to a 2% SDLT surcharge. How much impact will this have in deterring overseas buyers from British real estate? It is hard to say. Will the extra tax become absorbed into the value of properties, particularly prime properties, essentially making a dip in prices so the total amount paid by the buyer after tax remains similar? Or will fewer overseas buyers enter the market? Add to this complicated picture the impact of Brexit. The UK’s departure from the EU will almost certainly result in fewer people moving from EU nations to live and work in the UK, in turn lowering international demand for property. Further, the value of the pound after Brexit could play a role – if the pound declines against the US dollar or euro, say, then British property would become more affordable to international buyers who hold those currencies. Clearly, the dual impact of stamp duty changes and Brexit will affect overseas interest in UK property. It will be important to watch closely what this in turn means for the property market and, in particular, for businesses that work with international buyers. The above issues are some of the key trends likely to shape the future performance of the property market. From the lifting of COVID-19 lockdown measures to potential tax reforms and the general adoption of technology, 2021 is gearing up to be a transformative, and indeed exciting time for the sector. B I www.sfintroducer.com
Is this a thawing or a false dawn? Harry Hodell director, Pure Structured Finance
020 was, for many, a year to survive. As we come to the end of the first quarter of 2021, does the remainder of the year look to be a flower thawing after a long cold winter, or have the first few months indicated a false dawn for our industry? With the news of vaccination distribution being seemingly positive, and a roadmap now set out for our return to more normal times, we can begin looking to the future with some degree of certainty, which over the past 12 months has seemed impossible. Throughout this period, the property industry – like so many others – has been buoyed by various breaks and support schemes. We’ve seen a number of government initiatives prosper throughout the last several months. The Coronavirus Business Interruption Loan Scheme (CBILS) has assisted both lenders and borrowers with the opportunity to continue ‘business as usual’ – or at least as usual it can be in such times. The stamp duty holiday has also given a kiss of life to the otherwise potential stagnation in property purchases in the midst of a pandemic. Undoubtedly the news for an extended holiday will continue to assist with house purchases. Even with the positive news of the stamp duty holiday, we should not expect this to be the only factor in the functionality of the property market. We are currently witnessing a huge availability of low-interest mortgages, making it appealing for potential buyers to continue searching. Combine this with the estimated £125bn lockdown savings to be spent, and it is clear that a combination of factors is allowing for www.sfintroducer.com
active purchasers to find some great opportunities, despite the bottleneck of mortgage applications currently delaying completion times. An extension of the stamp duty holiday will allow such transactions to go ahead, fuelling the property market. We have witnessed an obvious shift in market norms, because of a much larger proportion of the UK workforce now working from home. This is also a huge factor in how the industry will fare over the next 12 months.
“As borrowing requirements continue to need bespoke funding solutions, the need for specialist intermediaries and lender relationships will dictate a housebuilder’s ability to navigate development opportunities” The requirement for more room for the home office or more outdoor space, and the lessened need to operate from offices based in city centres means – at least for the experienced professional demographic – cities may no longer be the place to be. PWC believes that the population in the capital is set to decline for the first time in 30 years, with more than a quarter of a million people set to leave London in 2021. I would expect to see the return of young professionals back to the cities once lockdown restrictions are lifted, and the announcement of the extended furlough scheme will allow companies to bring their employees back to work instead of facing potential redundancies. This will create the demand for city living spaces, where supply will already be available. With the exodus from the city, we have seen an increase in developer and lender appetite for ‘commuter belt’
developments as demand surges in suburban locations. The opportunity for developers and lenders with a more diverse geographical understanding in these areas will be significant over the next nine months. With the declined appetite for commercial funding, we are also seeing the increase of commercial to residential options and other alternative uses for these buildings. There has been continued appetite for build-to-rent (BTR) residential and purpose built student accommodation (PBSA), as the UCAS statistics suggest that university demand has surged during the pandemic, perhaps due to the lack of concrete job opportunities and the demand for a highly skilled workforce. Much like the residential market, the scope for new PBSA has altered too, with students looking for quality accommodation as a precaution against there being another wave of COVID-19. As such, PBSA builders moving forward will need to understand the needs and requirements of students more acutely, many of whom have withstood months under lockdown restrictions already and will be searching for accommodation which provides all the amenities should we face these restrictions once more, when contact with the outside is limited. Throughout this year, I expect to see a number of the specialist lenders which capitalised on their ability to adapt quickly and effectively throughout last year’s turmoil to sustain their momentum. As borrowing requirements continue to need progressive and bespoke funding solutions, the need for specialist intermediaries and lender relationships will dictate a housebuilder’s ability to navigate the development opportunities ahead of them. For sustainable lending to take place, more than ever it will be important to understand each development on its own merits and the experience and professionalism of the people behind it. The year ahead provides an opportunity for those with a thorough understanding of the UK property market to flourish. B I MARCH 2021 BRIDGING INTRODUCER
REFURBISHMENT BUY TO LET
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Technology – but not as you know it Miranda Khadr founder, Pitch 4 Finance
echnology is a buzzword that’s all too often thrown around the trade press without context given to the market within which we work. As a broker, I’m not particularly concerned about technology per se, but more excited about what advantage it can give to me and my business. I’m more interested in the solution. It’s no different to other areas of our lives where technology has become so embedded that it has become the norm. For example, you wouldn’t necessarily choose an Uber over a black cab because of the technology behind the booking system. You would choose it because it provides the certainty of a car arriving to your location without having to stand by side of the road waving at passing traffic. So, when we started thinking about Pitch 4 Finance, which launches this month, our starting point was the development of a solution specifically for bridging finance, property development, commercial term loans and complex buy-to-let (BTL), looking at how we could fit technology into these markets. The challenges for intermediaries are clear. They are faced with constantly changing criteria and a lack of uniformity across multiple lenders, limited access to lenders based on geographical location, limited realtime tools to source the best deals, and limited resources for research and development. Brokers also waste a significant amount of time on the task of chasing lender responses and finding alternative solutions. www.sfintroducer.com
The current situation is far from ideal, and intermediaries should be able to use technology to their advantage, to save time and ensure that they are generating the best customer outcomes. However, this area of commercial finance is complex. No current existing technology platform adequately caters for it, as lender criteria can be flexible and cases are rarely black and white. Most cases also involve some element of individual assessment and human engagement. Creating a platform that doesn’t allow for lenders flexing their criteria, or for human involvement in the process, would remove the very elements from commercial lending that make it such a vibrant and healthy market, and ultimately wouldn’t be fit for purpose. So, we created a solution that uses leading technology where appropriate, but also allows for human interaction. Pitch 4 Finance provides instant criteria matching, and the opportunity for lenders to pitch for cases by offering terms through the system. It enables the whole research and application process to be carried out within the platform, which provides brokers with a record of all written correspondence with lenders and a full compliance audit trail. It’s also supported by a full helpdesk, with experienced brokers on hand to help intermediaries through the research or application process via a live chat functionality.
Technology plays an important role in the market
In addition, Pitch 4 Finance will be proactive in chasing lenders for responses on behalf of brokers, as we know that this is important. Pitch 4 Finance is currently in the final stages of extensive beta testing, and is due to launch widely to brokers this March. We currently have more than 180 lenders on the platform, with up-to-date information on criteria and lending appetite, supported by real-time application updates and tracking, document upload and secure messaging.
“Technology within the commercial lending sector should enhance human interaction, not replace it. This is perhaps where providers have gone wrong in the past – focusing on the technology rather than the solution” I truly believe that Pitch 4 Finance addresses the requirement for greater use of technology in commercial finance, whilst also acknowledging the unique characteristics of the sector – and this is not something we’ve seen until now. Technology has to play a key role in the market, and I’d go as far to say it’s the only way forward for the specialist lending industry to grow, deliver better customer outcomes and become more compliant. However, it has to be a technological evolution that’s specifically built for the unique characteristics of this sector, rather than a revolution. Technology within the commercial lending sector should enhance human interaction, not replace it. This is perhaps where providers have gone wrong in the past – focusing on the technology rather than the solution. We think we’ve developed a platform that strikes the right balance to give the best results for brokers and their clients, and we’re looking forward launching it to a wider audience. B I MARCH 2021
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STRUCTURED FINANCE XXXXXXXXX
The outlook for complex projects Tom Madden sales director, structured property ﬁnance, LendInvest
t was a rollercoaster year for the industry in 2020. With a partial shutdown of the housing market as a result of the first national lockdown, then subsequent economic shockwaves and further restrictions holding fast for the remainder of the year, it’s safe to say that adaptability became a key asset for property finance lenders.
“Planning reforms, including permitted development, will continue to fuel interest in land and commercial properties with residential opportunities” Last year also illustrated more than ever the requirement to listen to our brokers and borrowers, closely monitor the market for niche, underserved areas, and to ensure we are providing valuable expertise when navigating uncharted territory. With the above learnings in mind, we launched the LendInvest Structured Property Finance team in summer 2020. It’s safe to say we couldn’t have asked for a more difficult period to set this team up, with everyone working from home and volatility in the real estate and funding markets. However, we have managed to make it work, and while only a small team of three, we have a wealth of experience in property finance and have all been with LendInvest for over five years. The real focus was understanding our niches in the market and, alongside our credit and funding teams, the type of business we would be actively pursuing. The day-to-day job of dealmaking on large and complex www.sfintroducer.com
property funding requirements with our broker and borrower customers never really changed. We concentrate on funding residential lead security, covering land and commercial sites with residential planning or residential potential, development – alongside our experienced development finance team – refurbishment and conversion projects, development exit of completed schemes, existing multi-unit freehold blocks (MUFBs), title splits and portfolios, plus peripheral areas such as houses in multiple occupation (HMOs), student lets, mixed-use and also commercial. LOOKING AHEAD TO 2021
There’s a much bigger and more evolved market than you might think, from lenders and brokers specialising in structured finance and clients trying to access more bespoke funding services. With the extension of the stamp duty holiday, we can only expect the market to remain buoyant and more property professionals to be seeking these services in the coming months. The key message I hear on a daily basis from our customers is that they want an expert, personal service that delivers quick, clear and confident decisions, and we always strive to achieve this. We expect demand in the complex lending market to pick up, following on from a difficult year in 2020 where property developers and investors often held off making large commitments in such an uncertain market. Although uncertainty continues into 2021, in some respects we do have a much brighter outlook in the not too distant future. It is clear that the Brexit outcome has helped, as has the ongoing rollout of the COVID-19 vaccination programme, but there are still potentially choppy times ahead with the wider economic backdrop and unemployment forecasts. That said, our small to medium enterprise (SME) developer and
property investor clients seem very positive, with housing shortages, stretched new home targets to counter this, and a continued low interest environment looking set to contribute to a busy year for them. Planning reforms, including permitted development (PD), will continue to fuel interest in land and commercial properties with potential residential opportunities. We also expect a continued strong appetite for development exit funding, with delays in finishing projects still ongoing from lockdowns and the clogged up sales and refinance market. The Coronavirus Business Interruption Loan Scheme (CBILS) has played a big part in our market over the second half of 2020, and will continue to be an area of focus for property professionals while the scheme remains in place and funding is available, with its longer-term replacement scheme offering new funding opportunities. THE VALUE OF EXPERIENCE
At LendInvest we are one of only a few specialist lenders that make a clear distinction around our structured property finance offering. It’s key to have experienced individuals who can quickly understand the bespoke needs of clients as well as the flexibility of their own lending business – a relationship built upon service and trust needs to start from day one. Lenders should always be looking to grow their offering to their customers, especially in 2021. Whether it’s new funding lines to provide further flexibility, improving processes or being at the forefront of market movements, it’s crucial to always be thinking about how you might adapt. Finally, no matter how complex the deal, it’s important to keep things simple for borrowers. Regardless of the complexity of the case, a simplified experience is better for borrowers and lenders alike. B I MARCH 2021
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Tech is changing the face of bridging Aviram Shahar co-founder and CEO, Lendlord
hereas most lending decisions in the mainstream mortgage market are processed through automated decisioning models, the majority if bridging lending decisions are made by underwriters. However, whether the ultimate decision is being made by a person or a machine, all underwriting processes need data. The big challenge is the collection of this data. It usually comes from a lot of diﬀerent sources and can take a significant amount of time. When providing finance, lenders will initially provide indicative terms up front. After this, they will perform the underwriting process, delivering a decision on whether or not they will be able to lend to the customer. These indicative terms and interest rates will usually be a predefined financial product, with predefined approval criteria that the borrower will need to meet. In the current situation, without technology it is very hard for lenders to adjust and change the loan terms and the interest rate online, in real-time, based on a specific customer and case profile. However, here technology can make a diﬀerence. Technology can help to streamline both the terms and interest rate generation and the underwriting phases of a transaction. When it comes to the indicative terms generation, technology can take a look at a specific case and at a specific profile, and tailor-make the terms online based on real-time data collection from the customer. When it comes to an online decision, the more data an engine has, the more accurate the terms can be and more the risk can be reduced. Data can include the current portfolio of a property investor, the specific case information www.sfintroducer.com
that is currently available online and, of course, their credit history data. Here, open banking is changing the market, as customers can securely integrate their bank accounts, which can help them to achieve faster terms and a quicker underwriting process. The underwriting process can be streamlined as well, by integrating ID verification technologies, automatic proof of address and document verification, as well as open banking. By combining these technologies, we can create a new avenue for property investors to get their finance in a much more streamlined way. LAUNCHING AN ONLINE LENDER
At Lendlord, this is exactly our vision. We have started to deliver it with our new online bridging lender, which will generate heads of terms, online applications and case tracking as part of a fully digital process. By making the lender available through the online portfolio management platform, it tackles one of the big hurdles in the underwriting process – gathering the data. Lendlord users who manage their portfolios using the platform will be able to quickly review their bridging options based on the data already held on their portfolio – as a result of this wealth of information leading to more accurate risk decisions, they will benefit from better terms. This is actually how the idea to launch a digital bridging lender came about. We received questions from users who asked if they could get better terms from lenders if they kept their data up to date on the platform. We studied existing processes used in bridging underwriting, and we realised that an automatic engine could analyse user data and suggest tailor-made product rates based on their profile. The engine works by considering an applicant’s property investment background and experience, personal profile and credit history, as well as their exit strategy and analysis of the property that is being used as security.
The more information the platform has, the more data the engine can use to make an accurate risk decision, and so there are obviously benefits for landlords who already have their portfolio information and historical cashflow within the platform. The system can provide indicative terms in three minutes, and it takes five days once all the relevant documents have been uploaded. However, it’s important to note that, while this is an automated process, and a decision in principle will be generated automatically, there will be an ultimate human approval stage before the funds are released. We are not at a stage yet where the release of funds can be approved and actioned without some human intervention – and lenders will need to be comfortable with their own risk and processes before this becomes part of the market.
“When it comes to the indicative terms generation, technology can take a look at a specific case and at a specific profile and tailormake the terms online based on real-time data collection from the customer” In general, we think the entire property sector is moving more and more online, and I can see an increasing number of bridging lenders moving towards a more automated process. The pandemic has only served to expedite this shift to a greater use of technology. In the case of Lendlord, currently bridging loans are only available directly to landlords, but we are looking to bring out a solution for brokers in the near future. This is a big step for Lendlord, but it is just one step. Technology keeps on moving, and we all need to move with it. B I MARCH 2021
Lending and sustainable building Robert Whitton founder and CEO, Impact Capital Group
hat can the property and construction worlds do about the ‘great emergencies of our time’? By which I mean public health, climate change, social exclusion and housing. The chronic housing shortage and poor housing quality were both exposed by Grenfell. Too many developers and contractors shy away from these issues, believing that they are someone else’s problem. On climate change, the built environment and the construction industry are the world’s biggest polluters, while more than 75% of UK citizens live in regions where the local authority has declared a climate and ecological emergency. It is an obligation upon all of us to save the planet for future generations. Therefore, we must embrace the decarbonisation of our built environment, too. Despite the severity of these great emergencies, I am optimistic about the future – the pandemic has created a recalibration of values and priorities, and the big trends that were emerging are now accelerating. 2021 will be the year that our built environment is
2021 will see our built environment revolutionised
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revolutionised by sustainable design, offsite modular construction, and clean energy technology, and the government’s green recovery agenda will advance the progress to a carbon net zero future. Lending products dedicated to sustainable construction form part of that future.
“The property and construction industries need to reinvent themselves completely” At Impact Capital Group, our mission is to help tackle the great emergencies of our time in the round – from sustainable lending to transformational development and regeneration, to offsite construction in our own modular factory, to smart homes and flexible offices. Sustainable finance will be the focus on our new company, Impact Lending. Bringing Impact Lending into the group means that we can provide a holistic solution by catering for the endto-end lifecycle of future developments that will benefit generations for years to come. We also want to help the transition of the industry, encouraging all of our clients to consider using sustainable construction methods on their future developments, and contributing to the green recovery initiative. For instance, we believe that the new and exclusive sustainable construction product range is the first of its kind in the development finance industry, and will provide sophisticated financial solutions for forward-thinking developers by promoting modern methods of construction. The modular construction approach – in which a building’s large-scale modularised components are prefabricated in an offsite manufacturing facility for rapid assembly onsite – can deliver greater environmental and social sustainability
benefits in comparison to conventional construction methods. We now know that sustainable modular built homes can consume up to 67% less energy than those built with traditional methods. Material waste and carbon footprint can both be reduced by 90%, while operational energy can be cut by 78%, and materials used for modular units – like insulation on the walls – are also good for the environment. Additionally, the build programme can be delivered much quicker, because everything is pre-engineered in a factory and delivered to the site, so transport movements are reduced. Products can also encourage borrowers to use sustainable methods by providing economic incentives such as loan-to-costs (LTCs) in sustainable loan products as high as 100%. The debt is structured to have a sustainable impact because it is designed either to fund modular construction or to finance sustainable developments that meet specific environmental criteria, such as the Building Research Establishment Environmental Assessment Methodology (BREEAM) or Leadership in Energy and Environmental Design (LEED) certificates. The lending assists and delivers sustainable buildings either to live or work from, achieving its main goal of contributing to the decarbonisation of real estate construction. This is the future of construction. Governments, supra-governmental bodies and the Future Homes Standards are all pushing in this direction. There is an urgent need to decarbonise our economy, and housing plays a big part of that. The property and construction industries need to reinvent themselves, embrace change, repurpose what is redundant and put sustainability, quality, safety and community at the fore. Lending products that support sustainable construction are fundamental to this transition. B I www.sfintroducer.com
Networks wake up to a new opportunity Danny Carter managing director, Collective Mortgage Network
he traditional approach for mortgage networks, of taking a slightly narrow view of the types of business they allow their appointed representatives (ARs) to conduct, seems to be changing. Collective Mortgage Network launched back in October 2020 to fully support its partners across both specialist and regulated lending advice. Since then, we have seen a flurry of networks follow suit. These new entrants have been the larger networks which have worked to put in place partnership arrangements with specific specialist lenders so that their advisers can offer specialist loans from the relevant partner. This is an interesting and exciting move from an industry that has been cautious in its uptake of specialist lending, probably due to the knowledge and training that is required to upskill advisers to offer these more complex loans, and the associated risks and professional indemnity (PI) costs that come with it. With that in mind, one could argue that traditional mortgage brokers have become de facto ‘specialist’ advisers in the past year, whilst navigating residential applications through policy and criteria changes as a result of the pandemic. They have had to adapt to the status quo whilst understanding that at the drop of a hat a lender might change its requirements around furlough payments, the Self-Employed Income Support Scheme, mortgage payment holidays, lower loan-to-values (LTVs) and the impact a Coronavirus Business Interruption Loan Scheme or Bounce Back loan could have on www.sfintroducer.com
a mortgage application – all whilst ensuring their advice meets stringent regulatory requirements. The benefits to the industry of working to upskill advisers so that they can offer a wide spectrum of advice across the lending life-cycle is something we feel is very important. Not only does it help the clients, as they can deal with a single point of contact across multiple loan types, but it also helps the industry and the advisers, as it offers a broader spectrum of income generating work in a world where the market can change quickly. The key considerations for advisers looking to make the move from regulated lending into providing specialist advice is training and ensuring they fully understand the loan types and the key touchpoints for clients. There is a huge range of lenders in the specialist market, and each one is slightly different, not only in what it is looking for but also in what products it provides and how it charges clients.
This intimate knowledge is key to being able to offer full-service advice to a client. There are also a number of dedicated industry trade associations specifically for the specialist lending market. These include the National Association of Commercial Finance Brokers (NACFB) and the Association of Short Term Lenders (ASTL), which are bastions of the industry, promoting good practice and healthy competition. The offering of specialist loans by networked advisers is an interesting recent development, and a positive one which may help the industry shake the stigma around certain specialist loans, such as bridging finance. There are clear use cases for bridging finance where it is beneficial for a client, and as competition increases, rates also become more competitive. Of course, not all bridging loans are born equal, as we have both regulated and unregulated loans, for consumers or for those acting in business as an investor or developer. A fully qualified adviser who can therefore offer a whole-ofmarket service to customers across both regulated and unregulated bridging loans can truly help their client navigate the bridging market and secure the best deal and most competitive rate. B I
The offering of specialist loans by networked advisers is an interesting recent development
MARCH 2021 BRIDGING INTRODUCER
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GOOD THINGS IN S
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SMALL PACKAGES Jake Carter looks at how the agility, speed and entrepreneurialism of small and medium-sized lenders is shaping the short-term lending market
he events of 2020 and early 2021 have sparked many conversations about the merits of larger financial institutions versus smaller ones. Much of the debate centres around the security and certainty of funding lines in a crisis, versus the ability to be nimble and adaptable in a rapidly changing market. Nowhere does the questions burn stronger than in the bridging market, which has come even further into its own during the COVID-19 pandemic as cases, individual situations and property chains have become more complex, and deadlines tighter. It has been a year of challenges to overcome, and changes to take into account. As we look back, what can be said about the role of small and medium-sized (SME) bridging lenders in the market, and how will this evolve moving forward? SPEED AND AGILITY
There are various advantages and disadvantages experienced by SME lenders, all of which have come into play during the pandemic in different ways. For example, while a smaller bridging lender will likely be more agile and its decision-making processes faster and more flexible, it is also an issue that funding will be more expensive than it is for a larger scale lender. Vic Jannels, chief executive of the Association of Short Term Lenders (ASTL), says: “Every lender is different, of course, but in general smaller lenders will have shorter chains of decision-making and so may be able to offer faster decisions or be more flexible in their approach. “At the same time, larger lenders are likely to benefit from economies of scale and access to cheaper funding, so may be able to offer lower rates.” Another benefit is that smaller lenders tend to be more innovative, which means less bureaucracy and a lower reliance on legacy IT systems which might have become out of date. Over the course of a year in which one of the key themes has been fast, continuous adaptation to new technologies and unfamiliar methods of working, lenders across the board have had to take a more agile approach. Chris Oatway, founder and director of LDNfinance, looks to the specialist approach that SME lenders can take in terms of offering speed, flexibility on security, and faster processes on valuations. He says: “Small and medium-sized lenders will have a specific niche where they have an edge over the mainstream lenders to secure new business. For example, some may have the advantage of speed with no lengthy underwriting process or a credit team to get approval. “Others are able to be more flexible when it comes to security, such as sites without planning permission, → www.sfintroducer.com
MARCH 2021 BRIDGING INTRODUCER
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SME LENDERS XXXXXXXXX or being able to make their own decisions on whether or not a valuation is needed.” Paul Silva, chief financial officer at Atelier Capital Partners (ACP), agrees that agility is a key point: “The most compelling advantage smaller lenders have over their larger rivals is agility – the best-run players will have a much faster, clearer decision-making process. “Whereas larger lenders will put all applications through multiple stages of credit approval – meaning a deal can fall over at any point in a long and complex process – at smaller, specialist lenders the decision will typically be made by just one credit committee.” This streamlined decision-making means that SME lenders are more likely to be able to provide fast access to funds. Speed is has long been seen as a key selling point for bridging in general, for example in its use as a means of repairing a property chain or saving a deal from falling through due to time-sensitive complications. Over the course of 2020, and particularly in light of a looming stamp duty deadline on 31 March, this conversation around bridging as a means of overcoming the issue of drawn out processes and backlogs elsewhere, and meeting tight time pressures, has only become more prominent. Although the deadline has now been extended – initially to 30 June and then at a lower threshold until the end of September – the issues around completing in time have by no means gone away. Silva explains that, provided borrowers and brokers are fully engaged in the process, smaller bridging lenders can have loans credit-approved and funded within weeks, whereas it is not uncommon for a customer to engage with a large lender for up to six months, only to be told that a credit committee has rejected the deal. Silva stresses that ACP has founded its own approach on the importance of a quick rejection, if one is necessary, which smaller firms are able to provide over their larger counterparts. He says: “All lenders reject many more deals than they approve, but the ability to deliver a swift rejection for the right reasons is beneficial to all parties.” SERVING THE UNDER-SERVED
A large proportion of the borrowers being catered to by the specialist market will fall outside of the remit of traditional high street banks, necessitating a bespoke, individual approach to underwriting that smaller lenders, more suited to ad hoc decision-making, are well suited to provide. The number of customers that fit this description is only increasing. → www.sfintroducer.com
Time is money Mark Bond operations director, BIG Property Finance
s a relatively small lender backed by family funds, BIG can operate faster and more efficiently than larger institutionally backed lenders, meaning we can offer a very user-friendly service to brokers and borrowers. The biggest complaint we hear from clients is lenders changing terms relatively late on, or worse, withdrawing their offer of funding completely, leaving them having to find alternative funds at the last minute, often having paid out considerable fees and unable to complete a transaction. We are a team of property experts who analyse each transaction in detail before any terms are offered. This means that issues that can crop up within the legal and valuation process are identified and dealt with on day one, rather than the day before a loan should complete. BIG offers competitive rates on terms that are unlikely to be amended or withdrawn, and extremely likely to be available when needed. Brokers and borrowers come back to us due to reliability over rate. Our size allows the flexibility to understand and align with borrower funding needs and build strong, lasting and mutually profitable relationships with our clients. One of our latest loans that completed at the end of February perfectly shows our flexible customer-focused approach. An existing borrower had obtained development finance terms from another lender that unfortunately was taking longer to complete than the contract terms with the vendor allowed. They needed a bridging loan for £1m net, 63% loan-to-value (LTV), to secure a site with planning for 50 apartments, and had one week before potentially facing losing their deposit and the purchase. In cases like this, time is both money and opportunity, and time being of the essence, it took a fast, flexible approach to get the loan completed. Our advantage here was our size and flexibility. We are a small team with hands-on directors who are decisive decision-makers. We came up with a speedy solution to meet the borrower’s funding requirement by making minor compromises to our usual due diligence without increasing our overall risk. This included an in-house desktop valuation and taking out title indemnity insurance. Our swift and efficient due diligence process and longestablished relationship with solicitors used to working against the clock, ensured that the loan completed to borrower’s satisfaction.
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SME LENDERS XXXXXXXXX Craig McKinlay, new business director at Kensington Mortgages, says: “The cohort of individuals that small and medium lenders serve often comes from under-served market areas, so they can help self-employed customers with complex incomes, something traditional highstreet banks struggle to accommodate.” McKinlay explains that smaller lenders can understand an individual’s situation on a case-by-case basis and work to ensure that a product is best suited to their specific needs and changing circumstances. This also means that these lenders’ appetites in terms of different property types and areas of the market can be more diverse. McKinlay adds: “Smaller lenders also tend to operate in other market niches, such as holiday buy-to-let [BTL] or houses in multiple occupation [HMOs] – areas that are not usually of interest to big lenders.” However, Silva notes that a potential weakness among smaller lenders includes a lack of understanding of risk and uncertainty of funding, once a facility is in place. “It’s vital that both borrowers and brokers are confident that any lender they engage with understands this,” he adds. CERTAINTY AND STABILITY
Looking to the advantages of smaller lenders, McKinlay says: “Legacy issues, or lack thereof, is another area where small and medium-sized lenders have an advantage. “You only need to look at [payment protection insurance (PPI)] mis-selling, where some high street banks have only finished compensation payments in the last year or two. “Smaller lenders are also less influenced by the wider business, as a significant amount are monoline and focused on mortgages.” Carl Graham, regional director at Tuscan Capital, agrees that the flexible approach smaller lenders can provide offers brokers and their clients the chance for clear and transparent lending terms within short timeframes. He says: “Smaller-sized bridging lenders enjoy a number of advantageous characteristics not always evident in the models of their largerscale peers.” However, Graham explains that for larger, institutional lenders, their scale and corporate structures do have the advantage of providing access to a wider and deeper funding pool. This includes – particularly in the case of banks – access to retail deposits and favourable government schemes. This, in turn, can give larger providers an advantage on price: the cheaper the funding www.sfintroducer.com
costs to the lender, the cheaper the price of borrowing for its customers. Graham goes on to say that larger firms also enjoy greater structural ‘buffer’ protections that allow them to weather unforeseen storms, such as short-term difficulties in the functioning of financial markets or, of course, pandemics. McKinlay agrees: “Small and medium-sized lenders have faced unique challenges due to COVID-19. One of these is funding. “Banks tend to use customer deposits to raise new loans, whereas non-banks and smaller lenders often rely on securitisations and warehouse facilities.” McKinlay adds that bigger lenders have also historically had the benefit of a louder voice when it comes to affecting regulatory change and influencing government policy. Despite being under the same regulation as banks, nonbank lenders arguably have not had access to the same level of government support. This is something that the market, and bodies like the ASTL, is looking to change in the wake of the pandemic. So, where smaller lenders might have found agility to be an advantage in the constantly changing environment of 2020, larger institutions represent the other side of the coin, with arguably stronger support and more hardwearing foundations. These sources of stability and certainty of funding among larger lenders can be their downfall, however, as they can be synonymous with a more rigid approach to lending. Graham says: “Size does not always determine a better outcome for the client. For processing large volumes of perfectly compliant borrowing applications, this works well; however, for would-be customers whose circumstances are less than perfect, it’s not always so.” McKinlay agrees, adding that due to the events of the last year, larger lenders may need to start taking more inspiration from their SME counterparts: “A one-size-fits-all policy will not work for most borrowers anymore, and big lenders need to be far more flexible going forwards, more so than ever.” AN ENTREPRENEURIAL SPIRIT
The significance of SME lenders within the bridging space often lies in their ability to offer customers niche funding solutions. Smaller lenders are able to take a case-by-case approach and offer loans in circumstances which larger lenders would more likely reject. Jannels says: “�uite simply, small and medium-sized lenders form an essential part of → MARCH 2021
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Resilience in adversity Paul Munford CEO, Century Capital
his time last year, we were only beginning to grasp the implications of COVID-19. A year later, and we have all learned to adapt to overcome the many challenges the pandemic has created. Regardless of what business you are in, the global pandemic took us all by surprise and business across all markets has been affected. The market slumped, mortgage holidays were introduced, the government was giving away money and we all learned to work remotely. No one knew we would still be here a year later. Lenders across the board battened down the hatches and retreated into survival mode. The top priority for most companies has, of course, been the health and safety of their clients and staff as we all moved entire teams to remote working. The learning curve was steep. While larger, institutional lenders, struggled to adapt, it was the agile and flexible businesses that thrived. Lenders that took a proactive approach were able to step in and fill the void left by larger lending institutions. By adjusting our business models and adapting our product lines, we proved that we could continue to transact through the pandemic. Century Capital, along with other established lenders, demonstrated our resilience and adaptability as the wider lending market underwent a serious stress test, with access to funding lines becoming more challenging and loan repayment strategies thrown into disarray. The certainty in the market that we had become accustomed to evaporated overnight. However, as the realities of the pandemic have become better understood, and the hysteria has largely faded, a nationwide bounce appears on the horizon, boosted by tax relief measures across the board and an increasingly buoyant real estate market. At Century, we are both an established business and agile one. Having been in the bridging business for over 10 years, we have maintained an excellent track record with no losses to date. During the pandemic, we adapted by introducing new products and processes including our super-fast completion process. These have proven popular amongst our network of reputable and established brokers and borrowers that require instant access to capital. We have established our position as the lender of choice for clients in need of quick access to funding, with a commonsense lead approach to our lending decisions, with funding available across a diverse range of property types. With substantial funds available for deployment and a 10-year track record, we demonstrated resilience in the face of adversity and maintained our reputation as a trusted lender that never lets our clients down.
a diverse and competitive market that is able to meet the varied and often complex lending needs of a broad base of customers. “Without small and medium sized lenders the market would be less well-equipped to offer customers what they need.” Meanwhile, Graham points out that the idea of having multiple, smaller lending bodies – rather than limiting the market to a few larger institutions – is what keeps it healthy, competitive and sharp. He says: “Monopolies or cartels are usually detrimental to innovation, progress, pricing, efficiency and customer outcomes.” Graham adds that while there are advantages to dealing with either larger or smaller lenders for the consumer, the agility of smaller lenders can create a greater focus on service. He explains: “Smaller-scale lenders might not always be able to compete with the big players on price. However, what they may lack in financial firepower is, I believe, more than compensated for in their energy, personalised communication skills and ability to deliver binding decisions and outcomes rapidly and without undue fuss.” This is why Graham believes there is always a place for smaller lenders on the panels of respected broker networks and aggregator firms. While larger lenders fill a vital role in the short-term market through their scale and robustness, bringing integral liquidity, security and reputational benefits to the sector, the industry would be, he says, “a poorer and less progressive community without the entrepreneurial skills, flair, flexibility and genuine passion of the smaller lenders.” Kim McGinley, founder of Vibe Finance, agrees that there will always be the need for smaller lenders within the industry, as they offer added variety. She says: “Some clients look for and prioritise the assurance of lending coupled with a sense of having less hoops to jump through, and that is where some of the smaller lenders come in.” Silva agrees that smaller, specialist lenders have filled a particularly vital role in the market in recent years, saying: “Mainstream banks retrenched following the 2008 financial crisis and will now often ‘only get out of bed’ for deals north of £30m. “This situation will not be changing any time soon, leaving a huge gap in the sub-£30m market, which alternative finance providers have filled admirably, and will continue to.” Since the 2008 financial crisis, an increasing number of smaller lenders have appeared on the landscape, which ultimately benefits borrowers. → www.sfintroducer.com
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SME LENDERS XXXXXXXXX Jannels outlines that lenders differ from one another in a variety of ways, but that one consistent factor is that smaller lenders are able to offer a faster approach to lending. He says: “Every lender is different, but smaller lenders can often provide more rapid access to key decision-makers, which can help them to take a more bespoke approach, offer greater flexibility and make faster decisions.” BATTLING BUREAUCRACY
McGinley points out that this ability to make faster decisions is largely due to the fact that smaller lenders have to deal with less bureaucracy and red tape before making a final decision. She says: “Their position to be able to make quicker decisions – and for bespoke underwriting where case exceptions can be made – ensures that they stand out in a busy and highly competitive market.” McKinlay agrees, adding that larger lenders are, in part, constrained by what other areas of the company are doing at any given time, whether that is related to savings, current accounts, or the investment arm. He says: “It is a juggling act based on where customer deposits are being used. Once a set rate has gone live and that daily quota is filled up, sometimes in the space of only a few hours, that will be it.” Looking to smaller lenders, McKinlay says: “Hands are not tied in the same way, and there is a greater choice. “Small and medium-sized lenders can adjust business models more efficiently to manage demand for mortgage lending and provide customers with payment holidays while still preserving a buffer.” In addition, McKinlay explains that there are fewer operational challenges, and less chance of dealing with offshore processing centres, when it comes to smaller lenders. “At Kensington, we had 30 people working from home before lockdown,” McKinlay says. “A week later, this reached more than 500. For large lenders, where thousands of workers are all in the same building, such a sudden shift throws up many difficulties.” He goes on to add that smaller lenders are often fortunate to have newer and more agile operating models. Silva believes that the key difference between smaller lenders and larger institutions is the speed and transparency of the underwriting process, through which “decisions are made more quickly and usually first time.”
Smaller lenders are also not as likely to be constrained by capital requirements as their larger counterparts, which means the potential for higher leverage on the right deals. Silva adds: “Borrowers will typically pay a higher interest coupon with a smaller lender than a larger institution, but most borrowers find this increased cost is more than worthwhile to secure the leverage, speed of delivery and personal service smaller lenders excel at.” THE IMPACT OF COVID-19
While the pandemic has had an effect across all elements of both the property finance market and wider UK economy, its impact has been felt differently from one lender to another. This is particularly true among smaller lenders, which tend to deploy a blend of funding and operating models that is unique to each business, and which is suited its specific lending appetites. When asked about the impact of the pandemic, Oatway explains that those lenders which took higher risks in certain areas or did a large amount of high loan-to-value (LTV) lending were forced to re-evaluate their loan books early on. He continues: “Many lenders remained cautious in the early months after the pandemic hit, taking longer to agree deals and changing their mind during the application.” It was smaller lenders which were often able to step in and fill this gap, meaning that the pandemic has had some positive ramifications for this part of the market. Oatway says: “In fact, we have seen that many smaller firms have flourished and taken the opportunity to expand their business, while many of the bigger lenders have taken a step back from the market or reduced their LTVs. “Those that came forward quickly and had confidence in the market have managed to receive higher volumes of business and are now seeing high completion rates as a result.” This is, once again, where speed and agility come to the fore. Similarly, smaller lenders were arguably better placed to adapt to the necessities of social distancing and home working. In part, this is due to the more manageable overhead costs of moving a smaller workforce out of the office and setting them up at home, but it is also due to the trend that smaller lenders tend to have a more nimble approach to technological advances and process updates. Speaking for Tuscan Capital, Graham says: “We had to learn quickly how to adapt to the changing landscape brought about by the first lockdown. Benefiting from our cloud-based → www.sfintroducer.com
• Development Loans - single unit self builds to multi-unit projects • 100% build costs available • Regulated Bridging Loans • Refurbishment and Heavy Conversion • Auction Finance • Commercial Property start-ups, purchases & capital raising • Terms from 3 months to 5 years • Fast and efficient service • Market Competitive Rates • No lengthy enquiries
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BRIDGING INTRODUCER MARCH 2021
SME LENDERS XXXXXXXXX underwriting and processing system, we found it possible to move our office team onto a remote working basis within a very short timeframe.” Graham stresses the importance of Tuscan Capital having three separate funding lines, which have provided the lender with a mix of private equity and institutional debt. He says: “With strong support forthcoming from each of our funding partners from the very beginning of the lockdown cycle, we have been able to avoid any uncertainty regarding our ability to continue lending throughout the pandemic, albeit with prudent tweaks where necessary. In the instances where the pandemic has impacted our customers, we have worked proactively with them to offer extensions – typically three to six months – to allow them time to deliver their objectives.” Silva explains that the impact of COVID-19 on Atelier Capital Partners has also been minimal, largely due to the specific profile of its loan book. He says: “Most of our loan book is focused on residential development. Security values within this asset class have remained remarkably stable, with recent forecasts from both Savills and Knight Frank expecting this trend to continue over the longer-term. “Where we hold loans with construction risk, these are typically on smaller and mediumsized schemes, where construction was able to continue, albeit observing social distancing rules, throughout the lockdown periods.” For Jannels, taking a broader approach, it is the resilience of the sector in general that has helped bridging lenders adapt to market changes, and continue providing vital funding to customers, regardless of size. He says: “COVID-19 has impacted all lenders in a number of different ways, from operational changes to managing social distancing and remote working, through to handling existing loans in this challenging economic environment. “A quick straw poll of our members has found the pandemic has not adversely impacted funding, although in a more uncertain environment we have noted a general tightening of criteria.” McGinley says: “In the first lockdown, regardless of whether you were a small, medium or a large lender, the shock and impact were the same.” However, she goes on to say that the impact on smaller and medium-sized lenders may not have been as significant as it was for larger lenders. She concurs that this relates to the aforementioned logistics of moving staff to home working and adapting to various changes. www.sfintroducer.com
“What came after that first lockdown, however, has been a surge in applications, with most lenders at or over capacity, timescales slipping and the need to take on and train new staff members to cope with demand,” says McGinley. McKinlay adds: “A roadmap out of lockdown is now on the horizon. By utilising innovative technology, smaller lenders will adapt and create new products to support the new groups of borrowers. “All lenders should use this time to take stock of what has happened, review their processes, and start thinking differently.” In all, Graham takes a positive perspective on the ramifications of the coronavirus pandemic on small and medium-sized lenders, saying: “In many ways, what has come out of the pandemic has been positive for the future of our business in particular, and perhaps for the sector in general. “We have most definitely become more efficient through our better and smarter use of technology, and we have learnt how to continue functioning throughout a real-life disaster recovery scenario.” Graham outlines that, having had time to re-evaluate Tuscan Capital’s business model as it was tested by the effects of the lockdowns, the lender has redefined its market strategy and operating methods to make them more suitable for a post-pandemic environment. He adds: “In future, this means we will be leaner in the way that we do things, but even smarter and more progressive in recognising the needs of our brokers and their clients.” LOOKING TO THE FUTURE
Despite the initial uncertainty, and some peaks and troughs of performance and appetite throughout the last year, the residential property market has seen a strong performance over the past year. However, uncertainty still remains in some pockets of the specialist market. For example, the ramifications of COVID-19 across the leisure, hospitality and retail industries has been devastating, and until the country fully emerges from lockdown, the full extent is not yet known. The future of these industries has undoubtedly changed, and a business’ survival might depend on how it has been able to adapt and move processes online or remote, and for those for which this is not an option, whether they are able to speedily reopen and reinstate physical locations across the country. The simple fact is that many traditional high street shops and businesses will close, leaving a question mark over the use of their vacant → MARCH 2021 BRIDGING INTRODUCER
SME LENDERS XXXXXXXXX properties. Where before these might have been snapped up, appetites have now changed. Meanwhile, with many businesses embracing the benefits of increased home working, the shape of city centres may be changed for good. According to data from consultancy business the Future Strategy Club, 25% of London office workers have not been back in the city since the first lockdown in March 2020. In addition, over the first half of 2021 commercial property insurance rates are anticipated to increase to 15%, according to Risk Placement Services (RPS). All of this, Silva explains, leaves some clouds of uncertainty hanging over the issue of commercial property. Nevertheless, he says: “These clouds too should part as the country unlocks and vaccines provide a path back to normal. On that basis, over the coming months I would expect to see a few common themes among lenders, including an increased appetite for leverage as economic data improves.” Silva anticipates an increased willingness to lend on the right commercial assets, as mass vaccination instils confidence amid the lifting of lockdown restrictions. Furthermore, he expects to see lenders building additional terms into their facilities, typically of around three months, to mitigate the potential impact of future ‘mini-lockdowns’. Meanwhile, Jannels believes that the exit routes are going to be a big consideration for bridging lenders of all sizes moving forward. He says: “Term lenders have tightened their criteria and, at the same time, borrowers have more complex circumstances. We are already seeing defaults on bridging loans increase as more borrowers are unable to secure an exit on their loans, and this is a dynamic that lenders will need to manage very carefully.” In addition, with many buyers rushing to complete before the stamp duty deadline, even with the extension taken into account, the likelihood of consumers turning to smaller, faster, bridging lenders is on the rise. Data from MT Finance shows that, prior to the recent extension, there was an increase in enquiries and applications for bridging, as buyers made efforts to complete before the original conclusion date, further demonstrating the need for a strong and diverse bridging market to cope with increased demand. ADDRESSING THE HOUSING CRISIS
The Ministry of Housing, Communities and Local Government (MHCLG) has outlined plans to increase the number of houses built
across the UK to 300,000 per year by the mid2020s. However, a report from members of the Public Accounts Committee (PAC) noted that it believes the MHCLG lacks a detailed implementation plan for raising new home delivery from the current level. Fundamental to the UK’s efforts to build new properties and address the ongoing housing crisis is the role of SME developers, which can take advantage of smaller plots and projects that might not appeal to larger firms, but which have the potential to add up to a significant amount of housing created overall, in addition to having vital role to play in urban regeneration across the country. This, in turn, adds to the role of SME lenders, which can not only cater for the smaller, more niche projects in question, but which are arguably best placed to align with and understand the workings and values of smaller developers themselves. With both SME developers and lenders working together, while the projects themselves may not be as large-scale, the nimbleness and speed with which they are implemented may well be key. Silva says: “If the UK is going to tackle the chronic under-supply of housing and build its way to the government’s ambitious targets, then this must be underpinned by the UK’s SME developers who will, in turn, be underpinned by alternative finance providers. “So, smaller and medium-sized lenders will continue to play a huge role.” AN INTEGRAL FORCE IN THE MARKET
In all, while there is much to be said for the stability, certainty of funding and potential for lower rates that are offered by those institutions at the larger end of the market, there is little denying that SME lenders are an integral force in the bridging industry today. As individuals’ finances become more complex, sectors such as retail and hospitality find new footing, and the country continues to face disruption and uncertainty in the wake of COVID-19, this role is only going to intensify. SME lenders are able to offer an agile, adaptable approach, with bespoke underwriting and streamlined, modern processes that can provide an increasing number of customers with a vital alternative route to finance. Competition and variety are key to a healthy market; so, with the benefits of both larger and smaller lenders in play, the bridging industry looks set to continue growing in prominence throughout 2021 and beyond. B I www.sfintroducer.com
What do receivers really do? Vic Jannels CEO, ASTL
here are so many more parties involved in the bridging process than simply a lender, customer and intermediary. Whether it’s facilitating originations, enabling completions, or supporting collections and recovery, there are many businesses that ensure our industry is able to function effectively. At the ASTL, we make it our business to understand and educate about the role of those businesses and why they are important. One question that arose recently was: do we really understand what receivers do? The role has actually been around in one way or another for hundreds of years, but it’s one area of the process that is still open to misunderstanding. The definition of a receiver is a person appointed by the holder of a fixed charge to enforce its security, but what does that mean in practice, and how does the appointment of a receiver fit within the standard legal enforcement process? In order to help answer some of these questions, we spoke to the team at Sanderson Weatherall, which is an associate member of the ASTL. One of the themes that became immediately apparent is that, in bridging, we work within a complex industry. Cases are rarely straightforward, and so when things go wrong the solution is seldom immediately apparent. With this in mind, one of the first things a receiver will do to facilitate recovery is to get on the ground – metaphorically – to uncover some of the detail that may not have been immediately apparent to a lender during the underwriting process. In uncovering this detail, the route out of the situation usually becomes much clearer.
BRIDGING INTRODUCER MARCH 2021
Daniel Hardy, partner at Sanderson Weatherall, describes two case studies which explain this dynamic in practise: LONG LEASEHOLD FLAT A first charge holder relied on a valuation arranged by the borrower, and advanced staged payments of a short-term loan on the assumption that the borrower would fully refurbish the flat and extend the leasehold interest to enhance its mortgagabilty prior to sale. The deposit was borrowed from a third party who took a second charge. The flat was refurbished to a high standard, but the borrower was unable to secure a sale sufficient to cover the first charge debt. The borrower’s expectations of value were exacerbated by unrealistic advice from the agent. Default interest was accruing with no prospect of a full recovery; consequently, any recovery would lead to a complete loss for the second charge holder. The first charge holders appointed receivers who collected rent from the short-term tenancy and reached agreement with the freeholder to extend the lease. The receivers resolved a party wall dispute and achieved a sale through private treaty, having liaised via the lawyers to get a consensual release of the second charge to avoid a TR2 overreach process which would directly involve the first charge holder. FREEHOLD INDUSTRIAL SITE WITH POTENTIAL FOR RESI DEVELOPMENT The site was owned jointly by the borrower and an elderly relative. The adjoining site was owned by the same relative and provided the visibility splay necessary to enable residential development of the site at some future date. One of the borrowers was in occupation of the security under an informal arrangement. The borrower asked the receivers to postpone the realisation to enable them to procure consent for residential development. The receivers were not keen to take possession of the site due to its hazardous condition, allied to
“The definition of a receiver is a person appointed by the holder of a fixed charge to enforce its security, but what does that mean in practice, and how does the appointment of a receiver fit within the standard legal enforcement process?” potential adverse publicity that might be directed towards the appointor. Despite granting an extended timeframe for the borrower to achieve suitable planning consent, the borrower failed in their efforts. The property was sold at auction. As it transpired, the buyer was the original borrower who was successful at auction against other bidders. In this specific set of circumstances, no contract for sale was required as the price achieved in the room was accepted by the receiver and vendor as the best price achievable. It was therefore treated as a redemption. Rather unusually, the borrower offered at auction sufficient to allow a full redemption, but at the time of the auction process was not actually in a position to pay the monies over to avoid the auction process. As a consequence, despite the higher bid, only the redemption settlement sum was taken to cover full repayment of the loan to include all costs and fees. This was and is a very unusual set of circumstances. IN CONCLUSION
In the bridging market, very few lenders deal in the straightforward. Cases are often complex, with layers of intricacy and detail. Often this detail is picked up in the underwriting process, but sometimes it is missed, and when it comes to recovering a debt this detail can be the difference between success and failure. It’s a receiver’s job to uncover this detail and find the best way forward for all parties involved. B I www.sfintroducer.com
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At Roma, we have a ‘People before Property’ policy Because of this, we underwrite the applicant before the security, creating individual finance solutions and a personalised service.
Lending less ordinary
romafinance.co.uk 02/03/2021 17:14:24