BRIDGING Champion of the Bridging Professional
Round-table Bridging In-depth Industry Comment
Actions speak louder than words Mark Standley on the future of Assetz Capital
Talk to the real experts. We’re committed to helping SMEs and property developers during these uncertain times – it all starts with a real conversation. We’ve funded 1 in every 100 new homes built in the UK during the last two years. So, when it comes to development finance, talk to the real experts.
Rebecca Hall, Regional Relationship Director
Real world lending 0800 470 0430 assetzcapital.co.uk/borrow Assetz SME Capital Limited is a company registered in England and Wales with company number 08007287. Assetz SME Capital Ltd is authorised and regulated by the Financial Conduct Authority in respect of its peer-to-peer lending platform only. ’Assetz Capital’ is a trading name of Assetz SME Capital Ltd. Assetz SME Capital is registered with the Office of the Information Commissioner (Reg No: Z3338899) for data protection purposes.
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Here we go again… Contents
s we draw towards the much-needed end of 2020, I had hoped this market – and the nation as a whole – would be watching COVID-19 recede in the proverbial rear-view mirror. No such luck, however, as we have now been plunged into ‘Lockdown Two: The Sequel Nobody Wanted’, and prospects of a ‘normal’ end to the year are dwindling. It is not all doom and gloom, as the property market will remain open. It’s not as simple as carrying on as normal, of course, as strict guidelines will still need to be observed; perhaps the right phrase, to adopt a 2020 buzzword, should be carrying on as ‘new normal’. In the last week or so, alongside reports of a possible vaccine, we have seen government support systems – such as CBILS, payment holidays and the furlough scheme – extended to help mitigate the eﬀects of the lockdown. The questionsbeing asked, however, are what happens when these supports eventually end, how long the government can put itself into further debt, and whether this will cause further snarls in the system that will have to be unraveled later. Through all of this, though, the bridging market continues to hold strong. Bridging Trends found that Q3 has seen a 46% increase in loan volumes; although lending figures were 36% below preCOVID levels, they had risen significantly from the previous quarter. A key concern for the bridging sector during this period is that of exit routes, but lenders have proven their ability to adapt, providing forbearance and refinancing for those who need it, and introducing new products that address the need for certainty. For some inspiring examples of lenders and intermediaries doing just this, watch out for the SFI Awards 2020 winners’ supplement, which highlights the impressive work that was celebrated at the virtual event in October. It remains to be seen how the market will fare, but it’s clear that the agility and resilience of specialist finance will only become more important. B I
5 Donna Wells Finding the right partner 7 Joseph Aston Fortune favours the brave 9 Marc Champ Getting to Wharf… 11 Danny Carter Brokers reconsider their models 13 Kevin Thomson Commercial finance aﬀected by valuation changes 15 John Goodall Working together during Q4 17 Ian Norman Repossessions and coronavirus 20 Feature: Specialist finance and aﬀordable housing Jake Carter looks at the role of specialist finance in the creation of aﬀordable housing 30 CBILS and specialist finance Jessica Bird outlines the points raised at this month’s round-table, which considered the role of the specialist market during crisis 36 Cover: Actions speak louder than words Mark Standley discusses Assetz Capital’s role during 2020, and the future of the business 42 Vic Jannels Bridging Toolbox: Refurbishment Finance
Real world lending. 0800 470 0430
The Home of Specialist Lending Did you know we are one of the market leaders for bridging loans? A bridging loan should be a fast way of gaining short-term finance. Our personal and pragmatic service delivers rapid turnarounds to get a project or purchase safely over the line. The industry average completion time for bridging loans in Q3 was 52 days, West Oneâ€™s Q3 completion time was 33 days.
We offer more than just Bridging Loans... We can help the client through the whole life cycle from purchasing a property with a bridging loan, exiting on to development facility to then finishing on one of our buy-to-let products. One journey â€“ one brand. By using West One for different finance options, you will benefit from a fast and streamlined experience. Get in touch with one of the team who will be happy to discuss any cases.
Tel: 0333 123 4556 Email: firstname.lastname@example.org West One Loan Ltd is authorised and regulated by the Financial Conduct Authority. Firm Reference Number: 510024. Certain types of loans are not regulated, for example loans for business purposes or certain buy-to-lets. West One Loan Ltd is registered with the Information Commissioners Office. Registration Number: Z2651210. West One Loan Ltd is registered in England and Wales. Company Number: 05385677. Registered Office Address: 3rd Floor, Premiere House, Elstree Way, Borehamwood, Hertfordshire, WD6 1JH.
Finding the right partner Donna Wells director, F4B
he bridging finance sector has seen a sustained increase in the number of loan applications not making it through to completion in recent times. With lenders constantly changing rates, criteria and policy – not to mention suffering from a variety of service-related issues – a further layer of complexity has been added to the short-term marketplace. This means brokers need extra support when sourcing specialist products and supporting applications through to completion. So where can you get this extra support? Working with a packaging partner can form an important extension of any intermediary business for those who are not experts in the more specialist areas of the mortgage market. In short, packagers understand exactly what a variety of specialist lenders are looking for and how best to present often multifaceted borrowing scenarios to them. They act as a sourcing system in their own right, but also have a full understanding of individual lending criteria to ensure that even the most complex cases can find the right solutions. Packaging cases in the right way also means improved acceptance percentages by lenders, more decisions in principle (DIPs) being approved, and higher conversion rates to offer. Panels, partnerships and strategic alliances are integral in building any successful business, whether as a lender, packager or intermediary firm, and this will remain the case for the foreseeable future. The aim of all packagers is to align themselves with www.mortgageintroducer.com
lenders which provide a set of wellpriced, well-serviced, responsible financial solutions that can address challenges across the lending spectrum and support the needs of intermediary partners or introducers. Building a comprehensive lending panel is an ongoing task, as new entrants will always emerge. However, before they are added to any panel, packagers have to ensure that these lenders demonstrate the highest service standards, add competition, incorporate flexible criteria and are backed by robust funding lines. As lending propositions are constantly evolving, this highlights the importance of an effective engagement and communications process as well as strong relationships across all areas of the business. These relationships need to be constantly revisited, so as to ensure
Working with a packaging partner can form an important extension of any intermediary business
they remain beneficial to all parties in the chain. Many lenders are also looking to only deal directly with distribution partners, to ensure cases are packaged in the right way and correctly fit their criteria. This is especially apparent with many lenders having to carefully control business volumes in the face of some funding and service issues. From the other direction we – as an industry – need to continue finding ways to better educate and support intermediary partners and introducers in identifying the circumstances, property types and clientele that might benefit from a range of specialist lending scenarios. Not to mention ensuring that they choose the correct specialist route for their clients and their business. In summary, a good packager should offer a forensic understanding of the specialist markets and provide access to favourable rates, products, dedicated case managers and inhouse underwriters. It should also work closely with the introducer to ensure that it is not overstepping any boundaries when it comes to the issue of client ownership. For example, at First 4 Bridging we never contact clients directly during or after the case in question, unless specifically instructed to by the introducer. Cases involving specialist forms of finance can be massively time consuming, and many don’t even result in a case being accepted. A good packager will do all the heavy lifting in terms of sourcing, collating the relevant documentation, compliance and lender liaison. This frees up more time for advisers to focus on their core business, whilst still being able to service the more specialist needs of certain clients. With the number of complex property purchases ramping up as the stamp duty deadline looms, wider access to alternative forms of funding will be required to ensure that a variety of transactions remain on track, chains are not broken, favourable terms are not missed and costly deadlines can be met. This means that establishing a strong relationship with a trusted packaging partner will prove more important than ever in the coming weeks. B I
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COMPLEX CASES XXXXXXXXX
Fortune favours the brave Joseph Aston national sales manager, Vantage Finance
hile there’s no doubt that the first national lockdown was disruptive and a real challenge for the housing market, the second time around will be a different experience for a number of reasons. First, we are working to a set timeframe, although of course it remains to be seen whether it will be possible to come out of the proposed lockdown on 2 December as intended. Second, and more crucially, the housing market remains open, and as an industry we have all come a long way since March in enabling the housebuying process to take place in a safe and secure way. Looking ahead to the coming weeks and months, the guiding principles really should be about efficiency, and about brokers working smarter rather than just harder. During these unprecedented times we have seen loan-to-values (LTVs) rise and fall, various products recalled from the market and increased restrictions on lending. Whilst this makes the broker’s job more complex, it’s important to remember that this means borrowers need support more than ever. This is the time to utilise the specialist finance market and not walk away from a good deal just because from the outset it may seem too complex. In a world of ever-changing lending avenues, a broker can provide a lifeline to a client in need, create an opportunity and build a relationship that could last beyond the pandemic. Several initiatives introduced by the government to help keep the market afloat have created some positive shifts in behavior. The offer of stamp duty relief has seen the demand for housing skyrocket, with the number of
houses for sale reported as being 18% higher year-on-year. The specialist finance market has seen a mini-boom in response to recent initiatives, with increased demand for buy-to-let mortgages from first-time and portfolio landlords seeking to grow investments, as well foreign investors seeking to capitalise on property savings. The landscape of products is becoming more competitive, and there is a real opportunity in the specialist sector where lenders are keen to support brokers. In fact, specialist lending as an option is gaining some traction, as it can be much quicker to get the deal over the line. OVER THE LINE
With the end date looming on the stamp duty holiday and a wealth of differing borrower types seeking to take advantage of the payment holiday, brokers need to understand how to place the case – and importantly who to place it with – to get it over the line before 31 March. It is not only stamp duty relief that has moved the needle; with the whole nation on lockdown, small to medium scale home improvements have become increasingly popular. The average homeowner is reported to have spent a minimum of £4,000 on renovations, with the top end of the scale seeing anything up to £60,000 as savvy individuals take advantage of changes in the rules to permitted development. These two initiatives often mean borrowers need access to large sums of money to secure their plans. The Association of Short Term Lenders (ASTL) and Finance and Leasing Association (FLA) have reported monthly increases in applications for second charge mortgages and bridging loans in Q3 2020, and this is just another example of why brokers need to be up to date with their knowledge to provide their clients with access to more complex means of finance. When the high street is not an option and lending criteria are tight, specialist finance can be a lifeline.
At a time like this, it’s crucial that your behaviours and processes as a respected broker drive your service, not merely the desire to complete deals. Be sure to keep on top of lender changes, stay honest throughout the process and ensure you are setting your client’s expectations in a realistic way from the outset. Letting a client know early on that the process may be a little slower than usual – or that the rates may be a littler higher due to market conditions – will make the process more comfortable for them, and will ultimately leave you with more credibility as a result. By turning to specialists, borrowers still benefit from the stamp duty holiday, permitted development flexibility and wider finance options, while avoiding the delays that are now hampering the market as people rush to buy before the end of March.
“Have conﬁdence in the resource of specialist expertise, which is here and ready to make those deals happen” There is a wealth of support to draw on in terms of the expertise of master brokers in the market, to make the more complex deals happen, and happen quickly. As we enter the second national lockdown, it is also important to work together as an industry to support each other at a time like this. Certainly, over the coming weeks it may be more important than ever for brokers to look to other sources of expertise for support in getting deals over the line. So despite the difficulties of broking during a pandemic, brokers should have confidence in the resource of specialist expertise, which is here and ready to make those deals happen, support their clients and help them build relationships now and beyond the pandemic. B I
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SPECIALIST BROKERS XXXXXXXXX
Getting to Wharf… Marc Champ managing director, Wharf Financial
aunching a property finance specialist brokerage has been an ambition of mine for many years, and for the past five I have been putting the wheels in motion to orchestrate turning this into practice. Having earned my stripes within the small to medium enterprise (SME) and corporate spheres at the high street banks, I had a solid foundation for lending. Having acronyms such as PEST (political, economic, sociocultural and technological) and SWOT (strengths, weaknesses, opportunities, and threats) drilled into me, it was clear that I had a stable base to help customers. The fundamentals of lending should be core in any lending scenario; however, having only been exposed to high street customers, I knew there was a wider world out there. I needed to experience another angle of the market. Joining Shawbrook in 2015 was a daunting prospect, especially when I was advised by an old mentor that I wouldn’t last two minutes. I had heard exciting stories of this relatively young challenger bank, and I ignored the naysayers. Challenger banks were a growing part of the market, and it was imperative they were on my radar. Customers need choice, and learning the Shawbrook model was like walking into a whole new industry. Things were done very differently and the motivations of the customers were often not aligned to those of the high street borrowers. New acronyms like AIP (agreement in principle) and DIP (decision in principle) had to be understood, but all this extra knowledge would serve me well when the time came to make the leap. The sales team at Shawbrook was great, and I learnt a lot from the people and systems they had in place. There was
definitely a different way of working, and sometimes I had to do things my own way to push the boundaries. MAKING THE LEAP
Jumping from a salaried position to one purely based on commission was a gamble. How did I know if I would succeed? My second child was only six months old, and the chasm into which I could fall was frightful, but I knew I had to trust myself and make the move. In the back of my mind I knew I shouldn’t be afraid to fail. I had done what I could to build up my contact base as well as trying to understand what lenders and customers alike were looking for. At the beginning of 2018, I made the move and joined Bespoke Business Finance, which was very welcoming. Even though I understood the lending market, I needed experienced brokers around me to make the transition a success. Luckily, the team at Bespoke was just as good as I hoped they would be, and they took me under their wing. Even though broking and working within a lender have the same ultimate goal, the processes are very different. The experienced shoulders that Bespoke offered me were just what I needed, and as my client base and contact list began to grow, I knew that my ambition of launching my own property finance specialist brokerage was not too far away. After two years with Bespoke I was ready, and after several meetings with marketers, Wharf Financial was born. In the background, all the prep work had been done with National Association of Commercial Finance Brokers (NACFB) in obtaining Wharf’s Financial Conduct Authority (FCA) permissions, and by March I was ready to launch. Where better to do this than at the MIPIM property festival. Everything was set up, and with some creative speed networking in Cannes I thought I could really make a mark. Then COVID-19 and the lockdown struck. I am not for one minute thinking I have had it tough compared
to a lot of others, but launching a new business in an industry which most probably will take a hit, and not knowing how long any of this was going to go on for, was going to be difficult to say the least. Those of you reading this who know me know I am not one to pass up a challenge. Even though the task had just become abundantly more difficult, I had prepared. Not only did I have 15 years of lending under my belt, I also had 15 years of being friends with customers, colleagues and various other helpful contacts. When I do business with people, I do so by making friends. Some may think this is naïve, but I feel friendships in business are the most important thing. When negotiating, it is my fundamental belief that a good deal is a deal which suits everybody. Honesty and integrity are paramount to everything I stand for, and even though I have a competitive streak, I am always there to help my customers and competitors alike. So I stuck with my original plan and launched Wharf Financial. I had the background knowledge, the work ethic, and the ability to business develop behind me. I opened the (virtual) doors and set to work. Although networking was out of the question, I set about making the brand known. Seven months down the line, we are in a good positon. We have taken on three new brokers and have written more business in these past few months than ever before. There are bound to be rocky times ahead, but sticking to my core principles has given me the opportunity to realise my ambition. What 2021 will throw at us is out of our control, but it is time to give something back. I’ll leave you with something I like to stick to – Arnold Schwarznegger’s ‘Six Rules for Success’: 1. Trust yourself 2. Break some rules (not the law) 3. Don’t be afraid to fail 4. Ignore the naysayers 5. Work like hell 6. Give something back B I
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Brokers reconsidering their business models Danny Carter MD, Collective Mortgage Network
inance brokers typically fall into the category of either regulated advisers or unregulated brokers, with the key difference being in the products that can be sold. For unregulated firms, it is not possible to offer advice or arrange deals on regulated products – be that mortgages, regulated bridging or some buy-to-let (BTL) mortgages. So does this mean they are losing out, and has COVID-19 made a difference?
more effectively, but allow them to take advantage of the high-volume regulated finance sector whilst at the same time growing their specialised unregulated lending business. Regulated finance can, over time, help to build a consistent base of income to support the rest of the firm’s or broker’s business, and overall this can result in higher income levels and less risk. REGULATION AND COMPLIANCE
For some, this strategy may not fit with their aims or targets, and it isn’t the case that one size should fit all. However, there are an increasing number of unregulated brokers looking to become regulated, so as to offer a wider service to clients, as well as
REGULATED VS UNREGULATED
Regulated loans include mortgage loans to consumers, consumer BTL and regulated bridging. This also covers certain second charge lending to homeowners. There are significant volumes of transactions by regulated lenders, with circa £70bn of loans per quarter currently. Unregulated loans are those that are not regulated by the Financial Conduct Authority (FCA) and are typically commercially in nature – think investor bridging loans, property development or professional buy-to-let. To offer regulated advice or arrange loans for a client which is regulated, the adviser is required to hold a qualification to give mortgage advice (for example, CeMap) and work via a firm regulated by the FCA with the appropriate permissions. OFFERING BOTH SERVICES
There are many firms and brokers out there that are happy solely providing unregulated lending products. However, offering a whole-of-market, cohesive service to clients can help brokers not only serve their clients www.mortgageintroducer.com
“The impact of COVID-19 on the market has brought uncertainty and a continued need to review the products that are available to borrowers” qualified mortgage advisers looking to branch out into specialist lending. To do so, a firm can be directly authorised (DA) by the FCA, or it can work alongside a network, which will provide the compliance administration and necessary permissions to operate. Using a network can often help brokers deal with the day-to-day compliance function, which is fundamental to operating as an adviser. TWO SIDES OF THE EQUATION
Collective Mortgage Network was launched earlier this year by UKFCS Mortgage Specialist, which has been authorised by the FCA since 2006. Many firms which rely on regulatory networks for their FCA permissions
struggle with more specialist lending support, as many networks do not allow their advisers to conduct non-regulated lending, due to the added complexity this brings in case management and compliance reviews. A network such as Collective Mortgage Network – which supports both types of lending and has access to a whole-of-market panel of lenders on both sides of the lending equation – can help advisers who want to offer a holistic service to their clients. FUTURE-PROOFING
The impact of COVID-19 on the market has brought uncertainty and a continued need to review the products that are available to borrowers. For some the impact has been greater, as they’ve historically focused on a narrow product range, which has been closed or reduced due to COVID; this period has been important for them to reflect on how they can future-proof their business. As with anything, diversification is a key strategy for all brokers, and we believe that by combining traditional regulated mortgage and protection business with specialist lending, brokers can help to create a wider range of products to work across, reducing the exposure to a particular subsection of the market. This is certainly the feedback that we have been getting from brokers who have contacted us about Collective Mortgage Network; they are now taking the view that to join a network where they can offer services across the entire property finance spectrum does help to introduce a degree of risk management to their business. For traditional finance advisers, it is a big pull to move into the specialist market, not least for the chance to enjoy commissions of 1.5% on some deals. For everyone that moves into a regulated business model, ensuring continued compliance with the rules and going above and beyond for clients is key, so choosing the right approach to regulation – be that direct authorisation or joining a network like Collective Mortgage Network – is paramount. B I
NOVEMBER 2020 BRIDGING INTRODUCER
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Commercial aﬀected by valuation challenges Kevin Thomson sales director, Connect for Intermediaries
ooking back at the national lockdown in March, one of the biggest issues in the property purchase market was that of physical valuations. Lenders responded, where they could, by utilising desktop valuations or automated valuation models (AVMs). However, a lender’s ability to use these depends upon the property type, and whilst AVMs are acceptable for residential homes, they are not used for commercial properties. The key rationale behind whether an AVM or a desktop valuation can be used is whether there are comparable properties that the valuer or computer model can look at to draw a conclusion. This is, of course, more possible with estates of identical residential housing than it is with a one-off property. Commercial property falls into this area; how can a computer assess a property when there are no others of its kind and the state of the interior is a complete unknown? In commercial and multi-occupancy buildings there is a much greater need to physically examine the interior as the condition can alter so much between properties, greatly affecting the valuation. Now we are in another national lockdown, the issue of physical valuations raises its head once again, although lenders are better placed than they were in March. There are, of course, different approaches needed as the lockdowns vary across the four nations of the UK. The impact on valuations should be minimal this time around. The Royal Institute of Chartered Surveyors (RICS) has stated that physical
valuations of properties can continue across all the property sectors – albeit with the requisite social distancing – during this lockdown. COVID RESTRICTIONS
However, although physical valuations are allowed, the rule against mixing households indoors may mean that either the vendor may restrict access to the property or the valuer may not be comfortable in carrying out the physical valuation. Add to this the likelihood that either party may also have to isolate because they have COVID, or they have been exposed to someone who has, and there could well be delays in obtaining valuations of some properties. This becomes more likely for high occupancy buildings such as houses in multiple occupation (HMOs), multi-unit freehold blocks (MUFBs), semi-commercial and fully commercial properties. Therefore, while COVID-19 restrictions or health worries will clearly affect all properties, they may particularly affect all types of commercial and multi-occupancy buildings where the lender and valuer cannot resort to using an AVM. Across the nations, Scotland has restricted physical valuations to only those that are absolutely necessary, while Wales had no physical
valuations until the end of its ‘firebreak’ period, which will have caused a small backlog. Needless to say, all physical valuations are also subject to valuers following all the relevant health guidance and social distancing rules, and so any property that contains someone who is shielding immediately makes a physical valuation impossible for at least a two-week period, adding to any other delays. Whilst the latest lockdowns are far from what is wanted for either the national or local economies, it has to be said that the residential property market is now in a much better place as a whole to cope than it was in March. For the commercial market, on the other hand, as well as the specialist buy-to-let market, there are likely to be notable delays, particularly as a physical valuation will be required. This in turn may impact a borrower’s ability to buy a new property within the window of the stamp duty holiday. One solution may be short-term bridging loans. Bridging lenders were generally still able to lend during lockdown, so this may become the necessary route for purchasers who want to buy a property sooner rather than later. However, the difficulties with commercial bridging loans will be the exit route within a 12-month period, as refinancing onto commercial term finance may not then be possible. To overcome this, the market really needs longer-term commercial bridging products enabling businesses to stabilise, and to show they are conquering the impacts of COVID. B I
Physical examination is very important when valuing commercial properties
We’re open for business. The bridging experts you know. Flexible and reliable. But smarter and faster. And maybe, like you, having to do things a little differently – for the time being, at least. But make no mistake; We’re still using our common sense. Still focused on delivering for you. With simpler products than before, All through a select panel of packagers.
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Working together during Q4 tumult John Goodall CEO, Landbay
here has been much talk recently about lenders’ service standards, and lenders launching products and then pulling them again quickly. It is certainly a tumultuous market at the moment, and a combination of the rising numbers of COVID cases, the new national lockdown and approaching Brexit is not going to help. Lenders have a lot to answer for in some cases, but there are also a lot of outside factors contributing to delays. It will help intermediaries to be aware of these, as the situation is likely to get increasingly challenging over the next few months. At the moment the housing market is proving incredibly resilient. Property prices are continuing to rise, with the demand to buy housing – both residential and buy-to-let – proving much stronger than any of us predicted back in May. With the announcement from the government that housing market valuations and house moves can continue, even this second lockdown doesn’t look like it will dampen the market that much Of course, we have stimulus from the Chancellor in terms of the stamp duty cut; but while it is fine for those of us with modern, efficient systems who can pretty much carry on as normal, it is not helping where many mainstream lenders are concerned. High volumes are just adding to the challenges faced by some bigger lenders using clunky legacy systems, which may be finding it more of a struggle, especially with staff working from home. The mini-boom that we are seeing at the moment looks set to continue www.mortgageintroducer.com
for the rest of the year. It is likely to be increasingly busy over Q4, and with this comes additional problems both within and outside of lenders’ control. What lenders can do to help is ensure they have realistic service level agreements (SLAs) in place so that intermediaries know what to expect and can in turn manage their clients’ expectations. It is better to change the SLA and stay within it so that intermediaries can plan properly, than to have a shorter SLA time that is consistently missed. Of course there is always the odd case that will go outside of this due to outside factors, but intermediaries need to know that 99% of cases will complete within that SLA. Thinking of outside factors, it is not just lenders that are facing backlogs, but conveyancers, valuers and even the Land Registry, too. All of these have been weighed down by the volumes of cases coming in since the stamp duty holiday was announced. This may get worse the closer we get to 31 March, particularly if valuers are having trouble getting access to properties because of local or national lockdowns, or because people in those properties may be quarantining or self-isolating. Likewise, some valuers may also have symptoms of COVID and be unable to work, and with a national shortage
of surveyors, having even a few out of circulation will have an effect. Conveyancers are facing similar challenges, and some are already caveating that they may not be able to guarantee completion before 31 March – all of which will increase the calls for this cliff-edge to be extended. As a result, I think we will end up having quite a few bumps in the road, with very little that will be running at 100%. This will inevitably cause some delays. The more intermediaries and their clients are aware of this, the better the situation can be managed, particularly if clients are looking to get completions done to take advantage of the stamp duty holiday. While calls for the stamp duty holiday to be extended will grow louder, particularly with the second lockdown, it is sensible to plan for things to stay as they are – just in case. This means everyone will need to allow more time than they normally would, and while it can be frustrating at the moment this pressure is likely to build as we get closer to March. Realistically, people will need to have their offers in by Christmas to stand a chance of completing in time. If intermediaries can advise their clients of the likely timescales, it can only help as things get closer to the wire. All that being said, lenders should be very clear on where they’re at with their service levels to help intermediaries and their clients to plan. Communication can only help here, including communication of those events that are outside of lenders’ control. B I
The UK housing market is seeing a mini-boom that is likely to continue throughout Q4
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LendInvest Limited is registered at 8 Mortimer Street, London, W1T 3JJ (Company 08146929). Your clientâ€™s property may be repossessed if they do not keep up repayments on their mortgage. For intermediaries only.
Repossessions and coronavirus Ian Norman partner, consumer credit, Lightfoots Solicitors
s I write this, we are facing a second wave of coronavirus and Boris Johnson has announced a further national lockdown. This time, we are told it is likely to last approximately one month, beginning on 5 November and ending 2 December 2020. In what has already been a volatile year for the economy, the nation must now brace itself for further challenges. Between March and May 2020 much, if not all, of the housing market was shut down, and house moves ceased altogether. Not this time, so we are led to believe. This could all change, but we are told that if guidance is followed the market will remain open – not surprising given that it has been firing great guns since it reopened, with support for buyers in the form Stamp Duty Land Tax (SDLT) relief. Much has been made of the stress placed on property services to get everyone moved before SDLT relief ends on 31 March 2021. What about other issues in the market triggered by this situation, such as rent and mortgage arrears? As we know, mortgage providers and landlords have been prevented from evicting defaulting borrowers and tenants for six months between March and September this year. The Financial Conduct Authority (FCA) has already insisted that the mortgage payment deferral scheme continue. Those who have not yet taken a payment deferral will be able to defer up to a maximum of six months’ payments. Those who have had a payment deferral of less than six months will be able to extend that www.mortgageintroducer.com
deferral of up to the maximum six months. Those facing longer-term financial difficulty are encouraged to contact their lender, who must try and tailor further support for them. Speaking to clients, I have been encouraged to hear that many borrowers who took advantage of a deferral period have bounced back and are making payments normally again. What effect will a second lockdown have, especially on those who have already experienced bumps in the road as a result of the first?
“Where tenants fail to leave the property upon expiry of the relevant notice period, they can only be evicted with a court order” Another story emerges in the private rented sector. A second lockdown is likely to wreak further havoc for those in arrears with their rent. To help tenants, landlords can apply to their mortgagees for deferral of their payments, where possible, on the basis set out above. The government has encouraged them to do so, and no doubt this will need to continue as the FCA has suggested. The government has also sought to provide further support through the benefits system and universal credit, so tenants should be sign-posted to sources of free advice (Shelter, Citizens’ Advice Bureau and The Money Advice Service) on what might be available. The Coronavirus Act 2020 has introduced extended notice periods to protect tenants from eviction. In most cases, a minimum of six months’ notice to tenants will need to be given. There are exceptions in the most extreme circumstances, where for example there are rent arrears in excess of six months. In those cases, a minimum of four
weeks’ written notice must be given. There are other circumstances where landlords may be able to give a shorter notice period; however, these are limited. Where tenants fail to leave the property upon expiry of the relevant notice period, they can only be evicted with a court order. Only after careful attempts to reach compromise should action be taken. The forms used to give notice to tenants and the process used to bring or restore possession proceedings have been amended to deal with changes to law and regulation, and it is highly likely that these will change further. Care should be taken to ensure that the correct forms are used and correctly completed to ensure there is no delay or prejudice to the proceedings brought, especially given the extended timeframes involved and the likely backlog that courts will face. Special procedures have been introduced by the courts, requiring that information about the known effects of coronavirus on the defendant’s circumstances be given. This information must be filed with the court and served on the defendant not only for cases that are to be restored after such a long stay, but also for newly issued claims. Different procedures apply for claims issued before and after 3 August 2020. Look out for updates to Practice Direction 51Z, as the court system may once again decide to stay claims generally until this lockdown ends, and change the dates during which these amended procedures apply. We have already seen evictions stop, save in the most extreme circumstances, and the FCA has now announced a cessation of all mortgage arrears evictions until 31 January 2021. In the meantime, and if that does happen, open dialogue and full use of the available assistance will lead to the best outcomes. Will we be out of national lockdown by 2 December? As with everything else in 2020, only time can tell. What we do know, however, is that rent and mortgage arrears aren’t going anywhere; lenders and landlords should make sure they have access to specialist and up-to-date advice as we brace for further challenges. B I
NOVEMBER 2020 BRIDGING INTRODUCER
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If you have a choice, choose the best Jonathan Newman, senior partner at Brightstone Law, looks at the events of 2020, and why now more than ever, choosing the right legal partner is of vital importance
f you have been reading my articles in Bridging Introducer in recent months, you will know that while the recovery environment for lenders has been complex and uncertain, it has not been a firmly closed door. At each stage, the guidelines – or inconsistencies therein – have presented opportunities for lenders to engage with their borrowers, to devise and propose sensible and feasible alternatives to court determination, and to best position themselves when all else fails and enforcement reverts to normal, or near normal, conditions. The action taken has been designed according to the regulatory status of each lender, its attitude to risk and the commercial pressures it is experiencing. Consistent across all of this has been the need to do something rather than nothing, particularly in an economic environment like the one we are currently experiencing. We are now within a second national lockdown, but the courts have remained open, and the Financial Conduct Authority’s (FCA) latest guidance is less restrictive, giving lenders their conventional route to recover debt. Nevertheless, it is so important that they make the right choices. The moratorium pushed existing claims back by at least six months, and the courts’ limited capacity due to social distancing could add a further three to six months to recovery timescales.
There has also been a new stage inserted into the process: case review before listing. In addition, we will not know for some time the impact of borrowers seeking court forbearance where they have been impacted by COVID-19, or whether some might look to game the system without cause. In recent weeks, with increasingly worsening health statistics and tougher restrictions imposed, we have heard of government pressure being applied to County Court bailiffs and High Court enforcement sheriffs, not to repossess in badly hit areas or over Christmas. Indeed, the FCA has urged against evictions before 31 January 2021. So, even with the moratorium ended, the impact of coronavirus will continue for lenders for a long time, and delay in recovery in the most difficult cases tends to result in an interest or capital shortfall, even without accounting for adverse property market conditions. When lenders suffer loss, insolvency and professional negligence actions rise. Now more than ever before, lenders need to partner up well. A lender’s lawyer now needs to be as dynamic, creative, and innovative as the business they represent, because in an adverse market, lawyers can make a real difference to the bottom line. But it’s not just about recovery – Harry Peradigou heads Brightstone’s team of lawyers and professionals in delivering market-leading service levels on loan origination. He understands
BRIDGING INTRODUCER NOVEMBER 2020
what qualifies as good and marketable from a title perspective, but just as importantly, what might not work from a saleability perspective. In addition, like myself, his years of experience in the specialist lending sector have resulted in the most finely tuned of sniff tests, as well as real authority when offering solutions to issues identified, or recommendation as to when and when not to proceed. It’s the synergy between the security and recovery departments at Brightstone Law, working together and feeding off each other, which creates greater efficiencies and efficacy in each, and the strongest of propositions for the professional client. INTELLIGENTLY CRAFTED ADVICE
The most important choice for lenders is that of which firms they partner with; when it comes to recovery, partnering with the right legal firm is vital. To operate in this area, specialist lawyers need a whole lot more than just a one-dimensional understanding of property law. In fact, to provide the best support, a lawyer needs to demonstrate deep understanding of contracts, property, litigation, and insolvency. Specialist lawyers now need to understand the practical environment and regulatory considerations, and fashion a way through all of this without offending one or more of the overarching stakeholders, in a way that is fair and reasonable to the mortgage
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BRIGHTSTONE LAW XXXXXXXXX “At a time when making the right choices is crucial to helping lenders – both new and existing – to survive and thrive, we believe we provide the best possible choice” customer, but at a pace – and a price – which also improves the lender’s prospects. All of these represent key areas that are fundamental to any lending business and – as short-term mortgage lending is often used in particularly complex or unusual situations – it’s really important that lenders have the confidence that they have robust support in place. The right firm will work in very close partnership with lenders, both on a case-by-case basis and in carefully developing strategies and ideas, to help them with originations, collections and future plans. Partnerships are key to the way we do business at Brightstone Law. We work with lenders on an individual basis to craft an approach that tackles the unique considerations for their business, peel away the layers of mystique and uncomplicate the legal framework within which they work.
At Brightstone Law, we often talk about our expertise and experience in this sector. But what does that actually mean, and how does it benefit clients? Most difficult legal cases boil down to two or three fundamental differences. The more experience you have, the more likely it is that the outcome can be forecast. By using that experience it is possible to arrive at the same outcome sooner and less expensively. This is always our goal. This experience doesn’t mean we lack passion. We are passionate about our service standards and are emotionally invested in every case. In fact, our experience tells us that passion and personal investment tends to lead to success, and this is the very best business development tool you could have. We are proud to have worked with clients over many years – their growth story is our growth story, and vice versa. In short, Brightstone Law is a firm does the right thing and stands up for what it believes in. At a time when making the right choices is crucial to helping lenders – both new and existing – to survive and thrive, we believe we provide the best possible choice.
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awyers tend to have a reputation for being conservative, traditional, and inward looking. Brightstone Law is different: prepared to stand above the parapet and lead the way as legal specialists in the lending industry, with campaigning and thought leadership to support the interests of our sector and its customers. This prominent role within the industry has helped to deliver success within the firm, and Brightstone Law has outperformed all competition in the legal sector in key indices of the Hazlewoods/Lloyds Bank Financial Benchmarking Survey over the last three years, making it objectively one of the most efficient, resilient and successful law firms in the country – not just in the specialist lending sector.
However, it is not financial performance but culture that is by far the most defining aspect of the firm. Recruitment is important, but development of true talent from within is its proudest achievement, with 40% of existing fee earning staff trained and qualified through the firm’s development program, including two current partners who began at paralegal level. The firm has a highly experienced leadership team, with partners Harry Peradigou and Michelle Rosen working alongside Jonathan Newman to deliver solutions and advice to clients. The thought leadership of these partners sets the firm apart, but it’s the delivery and execution of the entire personnel, delivering sector-leading levels of quality expertise and service, that set Brightstone Law apart.
Setting standards in the legal industry Brightstone Law has been shortlisted for a prestigious Law Society Excellence Award, the highest accolade for law firms in England and Wales. The firm was shortlisted alongside four others, in the category of Medium Law Firm of the Year, which recognises those medium-sized firms that have ‘demonstrated excellence through business improvement, staff engagement and development, and client service’. Jonathan Newman, senior partner at Brightstone Law, said: “Being shortlisted for a Law Society Excellence award is really pleasing. “It’s not just affirmation that we are considered amongst the finest law firms in the country, but also recognition of the way we go about our work. “At Brightstone Law, we’ve never been afraid to put our head above the parapet and fight for what we believe in, which is unusual in the legal profession, and not always popular. “This accolade is proof that our commitment to taking a lead in our sector can provide both success and recognition. “It doesn’t mean we can now sit on our achievement, but it does provide real encouragement for us to continue doing what we do and continue to improve how we do it.” Simon Davis, president of the Law Society of England and Wales, said: “There are more than 9,000 firms and 190,000 solicitors in England and Wales, so to be shortlisted for a Law Society Excellence Award is to be recognised as being among the very best of the best. “The justice system was already under immense pressure prior to COVID-19 and the situation has been exacerbated by the pandemic, making the incredible work that is being done by solicitors across the country day in, day out to support their clients more vital than ever.” B I
NOVEMBER 2020 BRIDGING INTRODUCER
SPECIALIST FINANCE AND AFFORDABLE HOUSING
Jake Carter takes a look at the role of the specialist finance market in the creation of affordable housing as the UKâ€™s housing crisis persists
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he definition of affordable housing, according to the Ministry of Housing, Communities & Local Government’s National Planning Policy Framework, published in February 2019, is housing for sale or rent for those individuals whose needs are not met by the market, including housing that provides a subsidised route to homeownership, or caters for essential local workers. The delivery of affordable housing is a key element of the government’s plan to seek a resolution to the ongoing housing crisis, as well as tackling homelessness and providing aspiring homeowners with a step onto the housing ladder. Its importance has only gained momentum as a result of the coronavirus pandemic. While Mayor of London Sadiq Khan has set a target of 17,000 affordable homes to begin construction per year, the number of completions was noted at only 7,775 over 2019-20. With the continued rise in property prices, first-time buyers and those on lower incomes have increasingly struggled to get a foot on the property ladder. As a result, the government incorporated a barrage of funding within its March Budget, including setting aside £12.2bn for the Affordable Homes Programme. According to the government, this money could produce up to 180,000 affordable homes over the next six years. An estimated 50% of these properties have been designated to go up for sale, 40% are intended to be let at affordable and social rent, and the final 10% will be provided as supported housing for people with physical and mental health issues.
“Specialist lenders have a key role to play as they are able to apply more flexibility to the underwriting process on cases with adverse credit, those who are self-employed and those with variable or different forms of income” Additionally, within the March Budget it was outlined that £400m of funding would go towards Mayoral Combined Authorities and local areas, to establish housing on brownfield land across the country, and the Housing Infrastructure Fund is set to receive £1.1bn. This infrastructure funding is set to build 70,000 new homes. However, many are still asking whether enough is being done. Prime Minister Boris Johnson recently declared that he intends to turn ‘Generation Rent’ into ‘Generation Buy’, suggesting procedures to get more prospective www.sfintroducer.com
homeowners onto the property ladder by offering lower deposits to help with affordability. As part of the initiative, banks would no longer be required to ask applicants about the finer details of their earnings and outgoings. The government would also take on some of the loan risk in the form of a state guarantee, with the intention being to have an estimated 95% of loans accepted. Furthermore, Johnson indicated that he would like to see longer-term fixed rate mortgages becoming more commonplace. THE ROLE OF SPECIALIST FINANCE As an increasing number of first-time buyers come under the specialist category, not least due to the ongoing effects of the pandemic, lockdown and the resulting impacts on job security and incomes, this push to get people onto the housing ladder intensifies the role of the specialist finance sector. Hiten Ganatra, managing director at Visionary Finance, says: “Affordable housing is an excellent initiative from the government, and one that we see helping many customers on a day-to-day basis. “Specialist lenders have a key role to play as they are able to apply more flexibility to the underwriting process on cases with adverse credit, those who are self-employed and those with variable or different forms of income. “Without specialist solutions for these types of borrowers, we will have many who can afford to buy their first home, but are unable to due to lack of lending options.” Offering specialist products to borrowers with complex financial situations is not the only way in which this market comes into play. Construction and development are also key areas that have been hugely affected by lockdown and the need for social distancing, with the newly announced second national lockdown likely to cause further complications and delays, despite plans for the housing market to remain in operation. Nick Jones, commercial director of Roma Finance, explains: “The creation of affordable housing depends on development funding, which the banks and high street lenders are not currently offering enough of.” Jones believes that specialist lenders can be instrumental in providing the way forward for many developers, adding that the sector has already committed to keeping the market moving throughout 2020, supporting developer clients through some challenging months. He adds: “Many projects have been halted during the pandemic, and the best specialist lenders are going over and above to support existing borrowers.” However, Chris Oatway, owner and director at LDN Finance, says that government cannot solely rely on the private sector, and that there has to be a multifaceted approach for real results to be seen. → NOVEMBER 2020 BRIDGING INTRODUCER
AFFORDABLE HOUSING “Affordable housing requires a strategic approach, and at this point, the government simply does not have one,” he says. “This is where the crux of the issue lies: the affordable homes gap has to be plugged by the public sector. You cannot rely on the private sector – there is just not enough profit in the deals, as there is such a large amount of affordable housing required in the planning approval.” Ganatra adds: “Specialist lenders need their funders to be more willing to lend on affordable housing stock, as this will help expand the lending options available to borrowers. “For example, a quick search on Knowledge Bank will show only one specialist lender, Kent Reliance, offering shared ownership. This has to change.” GOVERNMENT INITIATIVES As a result of the housing crisis, an entire generation is being referred to as ‘Generation Rent’; with reliance on the private rented sector only looking set to grow following the disruption of 2020, the government has begun investing in initiatives and funding strategies in order to aid first-time buyers in purchasing a property. The March Budget laid out the largest single funding mechanism in the form of a £12.2bn investment in the Affordable Homes Programme. Jason Berry, group sales and marketing director at Crystal Specialist Finance, says: “During challenging times, any government initiative which stimulates the UK housing market by creating advice opportunities for mortgage advisers has to be applauded.” Berry believes that even if the build targets fall short of the 17,000 mark, the news is still welcome and provides a stimulus which would give the housing sector hope, beyond that created by the stamp duty holiday and permitted development moves seen earlier in the year. He adds: “Indeed, the current stamp duty holiday has no guarantees of extension and – if anything – history suggests the tax break, which either eliminates or reduces buyer costs or simply reduces investor costs to purchase, will cease as planned on 31 March 2021.” Oatway says that the government schemes are promising; however, he believes that solving the housing crisis in both the private and affordable sectors is not going to be achieved by one scheme alone. He says: “There has to be a number of both local and national schemes to help boost the numbers, but more importantly, the land needs to be identified for new projects and the planning process has to become much more efficient.” “At this point, it takes far too long for schemes small, medium and large to be approved through the planning process. Technology needs to, and must, be embraced to improve this.” Ganatra agrees that a single scheme does not go far enough: “It is a laudable start, and I hope it is the
BRIDGING INTRODUCER NOVEMBER 2020
start of many such schemes, and this investment will also help create jobs and provide infrastructure investment at a vital time. All the messages from the government lead me to believe that housing is at the centre of its policy, so it is up to all of us in the chain – developers, brokers, lenders, surveyors, estate agents, and conveyancers – to continue to provide homes and finance for all sections of our community, and first-time buyers are critical to the health of the rest of the market.”
“There has to be a number of both local and national schemes to help boost the numbers, but more importantly, the land needs to be identified for new projects and the planning process has to become much more efficient” Looking to the Mayor of London’s target of 17,000 affordable homes to begin construction per year, Ganatra does not believe that there is enough engagement with developers, and therefore he has concerns around whether these numbers will be met. Jones adds: “Ultimately, the housing crisis requires funding from multiple sources, so the government’s recently announced Affordable Homes Guarantee Scheme and Legal & General’s £100m of long-term debt financing to its affordable housing business are both hugely welcome, alongside funding from the specialist sector.” Furthermore, Berry believes that while there are some excellent funding solutions available, there will be ongoing requirements to shape and innovate product ranges. He says: “This should be undertaken with a very positive outlook. Many of the property investor customers will be extremely credit-worthy citizens who need simple solutions to circumstances, which on first inspection may appear complex, whereas the affordable housing clients will understand their obligations to meet important financial commitments and be incredibly grateful for the homeownership opportunity being completed.” CONVERTING COMMERCIAL PROPERTIES Repurposing commercial properties into affordable residential housing is a topic that is gaining momentum. In July 2020, Housing Secretary Robert Jenrick revealed an overhaul of planning permission requirements, with the goal of simplifying and expediting the process of turning unused buildings – namely commercial and retail – into residential properties. In theory, converting commercial properties into affordable residential housing is straightforward → www.sfintroducer.com
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AFFORDABLE HOUSING and saves housebuilders money, as a conversion is less expensive than a build; however, many lenders have voiced their concerns surrounding funding this type of project. Ganatra says: “Converting commercial premises into affordable residential housing has it challenges, because lenders already have concerns about permitted development schemes, which the government introduced a number of years back.
“Renovation funding options are already becoming more popular following the government’s relaxation of planning permission on the conversion of commercial properties to residential” “This initiative goes further, which I feel will make lenders even more nervous.” Ganatra explains that if not enough lenders are on board, then the future saleability of the properties could be impacted, and this would also be reflected in the valuations by surveyors. A report from Savills shows that 75% of commercial landlords are thinking of repurposing their assets to consider affordable housing, with 85% of those keeping redevelopment into residential flats in mind. Furthermore, as housebuilders continue to construct properties further and further outside of town and city centres due to the demand for more space – which is increasing as a result of lockdown, the move to remote working, and shifts in tenants’ and homeowners’ priorities – converting commercial properties might provide a solution to developing properties with added space, but that maintain a closer link to local hubs. For example, many large warehouses are left vacant; this building type has the potential to be converted into a large quantity of affordable properties. Jones says: “It is not just about funding. The changes to planning laws in the summer will give a huge boost to the development of affordable housing. “Renovation and refurbishment funding options are already becoming more popular following the government’s relaxation of planning permission on the conversion of commercial properties to residential.” Jones outlines that by converting commercial properties into affordable residential housing, this can also help protect the greenbelt. He adds: “But they need to be done in a way that reinvigorates town centres and high streets, turning them into social centres. This is dependent on the infrastructure being developed alongside the homes, and on the homes meeting the minimum standards announced in October.” Danny Waters, chief executive of Enra Specialist Finance, says: “The conversion of commercial property
into affordable residential housing is an opportunity that could be of benefit. However, we need to learn our lessons from the permitted development legislation.” This legislation was originally brought in years ago to prevent commercial properties from undergoing poor quality conversions into residential housing, an issue which was on the rise at the time. Waters says that this issue has far from gone away: “Sadly, I believe we will still be talking about this in 10 years’ time, and the problem will not have been solved.” Meanwhile, Oatway believes that the government should look towards refurbishing existing vacant properties into residential housing. He says: “The government should be building the affordable housing that is needed on the public land it owns, rather than selling it off. “Dilapidated houses are scattered across the UK, especially in the North of England, and these would be very suitable for councils to use for affordable homes after a quick refurbishment, rather than building completely new housing.” Oatway goes on to explain that there are plenty of empty houses and roads that could be used to produce thousands of affordable homes in cities such as Manchester and Liverpool. He adds: “Many of these have been identified, but there is no strategy for the government to refurbish them into affordable homes. It would be much cheaper to use these vacant houses, that already exist, and simply improve the standards – plus, these areas could then build a community much more quickly, and often already have the services in place to support them as they grow.” Jones agrees: “Creating affordable housing through new developments, and through the conversion of existing commercial properties to residential use, are both necessary parts of the puzzle.” “They need to happen alongside sustained infrastructure investment to ensure that housing is supported by schools, transport links, parks, and retail in order to foster thriving communities. “That takes long-term commitment from both the public and private sectors to bridge the housing gap.” Berry says that the permitted development and affordable housing initiatives are becoming increasingly important: “The rule changes, which relax many planning consents, are interesting and will undoubtedly see commercial and empty retail units purchased by opportunistic property developers keen to make a killing. There has never been an easier time to create affordable housing.” He also outlines that discerning mortgage advisers will have to ensure they are on hand to provide financial solutions to both the speculative developers and also those customers seeking to buy, but who may otherwise struggle to get on the housing ladder. Looking to what could be improved with regard to the affordable residential housing market, several → www.sfintroducer.com
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AFFORDABLE HOUSING commentators point to an enhancement of funding solutions and the need to increase awareness among advisers as to the methods that could be employed to access affordable housing. Ganatra says: “The arbitrary percentage applied for social housing should be scrapped, and local authorities should be engaging with developers and working with them to try and develop a scheme which delivers at least some affordable housing, rather than years of wrangling.” Ganatra explains that a number of schemes are made unviable when a minimum 30% is required to be set aside for affordable housing. He says: “If a developer is able to deliver 20% then the permission should be granted, so at least we have 20% more affordable housing rather than 100% of no housing due to a dogfight between the developer and local authority.” WHERE DOES RESPONSIBILITY LIE? Working patterns and structures have become increasingly diverse and complex over the years. With the impact of coronavirus, this trend is only going to grow in momentum, and there will likely be more self-employed and contract workers among the catchment of clients as time goes on. Add to this the fact that income and employment inconsistencies are rising as a result of the pandemic, and that perspectives on what industries are ‘stable’ are shifting, and it looks like an increasing number of people will start to come under the umbrella of the specialist market. Part of the push to make the affordable housing provision work smoothly, then, is ensuring that advisers grow and develop their knowledge and confidence around the specialist finance options. Berry says: “It is imperative that mortgage advisers feel confident and have a good understanding of the funding solutions which are readily available.” Advisers therefore need increased education around bridging and commercial offerings, or alternatively require further knowledge about the specific specialist criteria available. In addition, to ensure that affordable housing is not simply affordable, but is also sustainable and has a positive impact goin forward, Berry urges developers “to build sensibly and, most notably in town or city centres, create homes which occupants will be proud to own in 10 or 15 years from now.” However, Waters takes an alternative prospective; he believes that ultimately, boosting affordable housing is down to policymakers in government and house builders, rather than being the responsibility of the specialist lending market. He says: “Specialist finance lenders can support this cause by designing products that are suitable for affordable housing, but ultimately it is not in our gift to give.”
BRIDGING INTRODUCER NOVEMBER 2020
Waters explains that far from being the remit of the private sector, affordable housing is a “generational issue that consecutive governments have failed to deal with successfully.” He adds: “The announcement of 17,000 affordable homes is welcomed, but it does not deal with the scale of the problem.” Furthermore, looking to Legal & General providing £100m of long-term debt financing to its affordable housing business, Waters says: “£100m is a good start, but it does not go far enough. The main issue is down to policymakers and the government to really drive forward these initiatives.” FUTURE PREDICTIONS Most commentators can agree that the government needs to focus on building more in order to address the need for affordable housing. Ganatra says that there is a higher demand for this than ever before, and that lenders may have a role to play in addressing it. He adds: “Will that demand be satisfied in the short to medium-term? Unfortunately, I have my doubts. “However, if we can increase and improve lending options, then that will help open up the market, improve exposure risk for all and ultimately help people own their own homes for the first time – surely that is what we are here for?” Jones notes that specialist lenders continue to support brokers and their clients to fund their development projects, and create more affordable housing. However, he believes that it is clear there is no single solution to Britain’s housing challenges. Looking at data collected by Forbes, the average house price in the UK would have to drop by 37% to make it affordable for a single person on an average income. However, the reality is that property prices are still rising, even in the face of recession and crisis during 2020. Oatway says: “The [government’s] target figures are never going to be enough, but they are a start, and it is encouraging to see a much higher target figure than the low number of affordable housing we have seen over 2019-20.” He believes that this target can only be reached if developers can make sufficient profit from a scheme. “Being a property developer is high-risk at the best of times, and the profit on any scheme is often made in securing the land required at the right price,” he says. “If the land values are too high, which they often are, especially in London, the planning process becomes a cripplingly slow and painful procedure.” As a result of this, deals are much less attractive and quality developers are less likely to compete, reducing the chance of the affordable homes coming forward within the required timeframe. He concludes: “At the end of the day, affordable housing needs to be exactly that – affordable.” B I www.sfintroducer.com
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CBILS AND SPECIALIST FINANCE Jessica Bird outlines the discussion points raised at this month’s Bridging Introducer round-table, which looked at the role of the specialist market during economic crisis
n yet another example of this year’s propensity for rapid change, the days before this month’s round table saw the prospect of a new national lockdown go from suggestion and rumour to government leak, and on into cold hard fact. On the one hand, this might mark a daunting return to the state of affairs seen in March; on the other, with the housing market pegged to remain open during this next iteration, the powers that be are clearly showing how important this market is in keeping the country moving forward, even as we seem to take a step back. For numerous specialist lenders – including Assetz Capital, Fiduciam and United Trust Bank, to name a few – this role has included becoming accredited under the Coronavirus Business Interruption Loans Scheme (CBILS). This scheme provides financial support for UK small to medium enterprises (SMEs), as part of a wider package of government-backed measures, including the Self-Employment Income Support Scheme (SEISS) and Bounce Back Loans.
For this month’s round-table, representatives from Assetz Capital, Movin’ Legal, Castle Trust, The Association of Short Term Lenders (ASTL), Market Financial Solutions (MFS) and Wharf Financial gathered to discuss the effectiveness of CBILS, what the government should do next, and the role of the bridging market in aiding economic recovery. CBILS – A SAVING GRACE? From the perspective of a lender that was accredited early on, and is one of the few to expand the scheme’s remit to include property development lending, Assetz Capital has found CBILS to be highly effective. Mark Standley, national commercial director at Assetz Capital, says: “It has been very, very helpful; it’s enabled us to stay very much in market. Development lending is a substantial part of what we do, so we went to market with CBILS development and CBILS commercial mortgages, and we’ve been very busy, which means we will have been making a material difference across the UK economy.”
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MARKET Standley added that in temporarily replacing the Enterprise Finance Guarantee (EFG), which was narrower in scope in terms of the purposes and industries that it supported, CBILS widened the support provided to include, for example, construction and development. He said: “[This has] been and continues to be a very important sector in the UK, we do need the housing, so I think it’s been tremendously effective. “There aren’t many other funders supporting development, but we aren’t the only one, so it makes a material difference undoubtedly.” Perhaps unsurprisingly for a scheme that was brought in at such short notice to address a sudden crisis, there were some teething issues, explains Marc Champ, managing director at Wharf Financial. He says: “[CBILS has] eased the pressure for some of our customers. The issue I’ve had with it is more about how it’s been advertised. “Each lender has its own criteria of how it’s going to put CBILS forward, there’s no standardised process of going to all the lenders and finding out what each one does, it’s quite a cumbersome process, and finding out new policies for 100 different lenders is quite difficult. “So the information, as a broker, that we’ve been getting on what each lender does hasn’t been that clear. We’ve put the time and effort into finding our customers the best solution, but it could have been clearer up front.” Addressing this point, Standley notes that the lender manual received upon accreditation, while helpful in terms of outlining what can and cannot be done, is indeed loosely worded. He explains that far from an oversight, this was a deliberate approach. He says: “I think that was quite deliberate, because the government wanted to be inclusive rather than exclusive. The British Business Bank was encouraging lenders to conduct themselves almost as normal.
“I don’t think the full effects have been felt yet, with Brexit on the horizon, stamp duty, this lockdown and future lockdowns. So something needs to be thought about long-term” MARC CHAMP
“We took a position of being custodians of the scheme, for want of a better expression, to make sure it was fairly and properly applied” MARK STANDLEY
“That’s been one of the tests that we apply to things: what would we normally do? It’s an enabler, but it doesn’t tell lenders how they should lend money, that’s very much left to the discretion of the lender.” Perhaps where the issue comes to a head, according to Champ, is in the centralised online resources providing information on all accredited lenders and their criteria, which he has not found to be particularly user-friendly. A further difficulty that has arisen with how the scheme was implemented, Champ continues, is in the process of customers needing to approach their main clearing bank first, before moving onto those other lenders available through the scheme. He explains: “That caused massive delays for a lot of our customers when they needed the money quickly. The high street banks weren’t geared up to look at the number of applications [coming in], and the turnaround times were ridiculous.” From Champs’ perspective, if the scheme had been launched initially to a wider range of lenders, rather than starting with only high street banks, this might have helped create wider accessibility and in turn eased the bottlenecks being experienced. Despite these teething issues, the overall consensus regarding the effectiveness of CBILS is positive. Vic Jannels, CEO of the ASTL, says: “It was a very valuable introduction by the government, and so far it has been successful and particularly valuable for those people who desperately needed the support at that time. “When you look back to 2019, at the issue of Brexit, the market slowdown caused by that, the bounce back once the election completed, and the exciting start everybody looked forward to at the beginning of this year – which suddenly came to a racing halt when lockdown arrived – I think CBILS was absolutely the right thing for the government to do.” →
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MARKET MISGUIDED BORROWING While the overall picture is positive, Jannels does voice concern about the use of the scheme on the borrower side, suggesting that – as with a number of other supports brought in this year – some may have taken on new debt they did not actually need. This is not to say that lenders have not done their part to ensure responsible use of CBILS. Standley explains that Assetz Capital, for one, has approached this type of lending with the same level of due diligence and enquiry as it would any other. He says: “We took a position of being custodians of the scheme, for want of a better expression, to make sure it was fairly and properly applied.” However, he does agree that other support measures were implemented by the government with a more automated and “fairly faceless” approach, which might have resulted in unnecessary borrowing.
“Bridging lenders have provided an open door with speed, products and a case-bycase ﬂexible approach for intermediary clients” JOHN AHMED
Regardless of the due diligence done by responsible lenders, Jannels does feel that there were likely people who seemed like a good fit, but who were in fact taking the loans when they were unneeded. He says: “Maybe there were people that would have ticked [lenders’] boxes, who probably still took the money where probably it wasn’t quite so desperate. That for me in the longer-term might have been a mistake for those customers, not for the lenders.” Andy Reid, head of sales at MFS, adds that a similar issue arose with the payment deferral scheme: “There are people who haven’t been furloughed and are still receiving 100% income, but who have taken a holiday because they can just put some money to one side as a cheap way of saving while not paying their mortgage.” Charlie London, business development manager at Castle Trust, says the lender made a point of asking landlords about whether tenants were affected by
COVID-19 when it came to taking payment holidays, and found that a number simply wanted to take a deferral for the sake of saving money, rather than mitigating the negative effects of the pandemic. London says: “The perception of payment holidays when they first came up was that you didn’t have to pay the debt back, you just got some time off. We took the active step to ring our landlords and speak to them.” Standley argues that the approach of some borrowers in taking loans and deferrals where they did not necessarily need them, certainly early on in the development of the crisis, might not entirely have been misguided. He says: “It was dark times, if you think back, we were all so very uncertain what the future held for us. You can take on board why someone might do something in a pre-emptive way, just to make sure that they shore up their position for what might be to come.” John Ahmed, chief executive of Movin’ Legal, agrees: “There were also professional landlords who took the payment holidays simply because it was dark times, so what do you do as the best way to prepare for that? It’s to either retain capital or gather capital together. “I’m also aware that some of the professional landlords I know who took [a payment deferral] and didn’t need it who have actually paid it back. It’s cheap money and they don’t have a problem paying it back now or in the future, and have used it for other assets. “[However,] there are those who have taken it believing it’s free money and haven’t thought about it, and perhaps in 12 months’ time they’ll wish they hadn’t taken that extra debt on; I think it’s a mixed bag.” FURTHER SUPPORT SYSTEMS On the same day as this discussion of the merits of CBILS took place, the government announced that the scheme would be extended until 31 January 2021. This is a move that was roundly recommended by the panellists, for a variety of reasons. For Ahmed, for example, an extension helps ensure continued confidence in the market. Meanwhile, Reid notes that those businesses that considered borrowing under the scheme previously but chose not to, might find themselves in more need as the second lockdown gets underway. Reid says: “There is no apparent end in sight to what might be happening. All the help [businesses] can get in the interim is good help. It won’t boost anyone’s confidence if everything gets cut off.”
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“For us it’s been a strong year, a really positive year, but I think going into next year the specialist market needs to remain adaptive and diverse and competitive” CHARLIE LONDON London adds that this approach should extend to other support systems, most notably the stamp duty holiday, which has temporarily lifted the tax on up to £500,000 of the value of the property being purchased. He explains that this is helping to funnel business into both the mainstream and specialist markets, and that there will likely be a serious cliff-edge when it ends on 31 March, not least because of the bottleneck being seen across various parts of the market in terms of processing cases. Jannels agrees: “We’re already seeing certain firms of lawyers understandably refusing to accept new business, as they know they’re not going to get it through on time. An awful lot of people are going to be disappointed if the government doesn’t do something about it. “My panacea for that is [to] look at the mortgage offers that have been made in the period leading up to [the deadline] and then give it a three or six month window for those cases to complete, so you’re not penalising people going through the process today. Those who are rushing now to try and get it done and coming up against all of the issues – it would give them a relaxation period.” However, while the move to extend CBILS is largely seen as a positive one, there are practical realities to be taken into a consideration, such as the pressure placed on an already stretched national budget. Standley says: “We all know that government borrowing is at unprecedented levels – they can’t keep writing cheques indefinitely – but there are some things that can be done for an extended period, so if you look at what [CBILS] can support, to continue that for an extended period is entirely possible. “What can’t go on indefinitely is the business interruption payment, covering all the finance costs for 12 months, as there’s a huge cost to government. I think given recent events there is a very strong case for
extending that out into the new year, but that could be gradually taken away, while the underlying structures could carry on for an indefinite period and could make a real difference.” Champ agrees that the scheme is part of a much needed support system during an ongoing period of uncertainty: “I don’t think the full effects of the lockdown have been felt yet, with the Brexit issue on the horizon, stamp duty, this lockdown and [possible] future lockdowns. So I think something needs to be thought about long-term.” However, he warns that following previous crises, such as World War Two, which resulted in huge debts owed by the British government, the burden continued to be felt decades later. Perhaps there is space for an argument, then, about whether constant support for businesses under financial stress is the healthiest approach in the longer-term, considering that the pain of this period of difficulty will still be felt at some point, with many businesses unable to survive, whether the scheme ends now or at some point in the distant future. “There’s going to be short-term pain,” Champ says. “But we are in a capitalist society – some entities do have to fall by the wayside. “So at some point it will all have to end, we can’t keep propping everybody up all the time. [The scheme] has to go on for longer, but there will be a cost and we will be feeling it for a long time.” In addition to the extension of CBILS, the Financial Conduct Authority (FCA) has also proposed to extend the availability of payment deferrals. Those who have not yet taken advantage of the scheme will be eligible for two deferrals of up to six months in total, while those who currently have an initial payment deferral will be eligible for another of up to three months, and those who have resumed repayments after an initial deferral will be eligible for another of up to three months. In Ahmed’s view, while the intention to protect the vulnerable is sensible, the reality is that managing these payment deferrals is likely to become increasingly difficult, and that the high number of people applying for them brings its own industry problems. There is, as ever, no perfect solution, and support and forbearance for businesses and individuals facing difficulties will ultimately take its toll, whether on the government or on an industry already coping with its own stressors. →
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MARKET A MARKET IN DEMAND Despite the challenges of catering to these schemes, as well as facing the complications caused by the events of 2020 as a whole, there has been a great deal of positive news from across both the wider housing market and the specialist lending sector specifically. To name just a few examples, Aspen Bridging has reported having zero defaulted loans on its books and predicts a strong end to 2021, Allica Bank has reached £100m in committed loan offers since June, The Mortgage Lender and LendInvest both achieved record performance in Q3, and Castle Trust became a bank in the midst of a pandemic. Ahmed says: “Access to finance for clients has been very important, the pandemic lockdown hampered the high street lenders which were already taking a bulk underwriting approach, the bridging lenders have provided an open door with speed, products and a case-by-case flexible approach for intermediary clients. “It’s no wonder the bridging market is gaining favour among intermediaries, which is only set to continue and grow.” Of course, the bridging industry has still been affected by the difficulties of 2020, from having to adapt to new methods of working, through to coping with the ramifications of a closed housing market during the last lockdown. Reid says: “[Initially] brokers were having a horrid time trying to work out who was still lending and what the criteria was. There was certainly a huge need for bridging facilities, which is great, but in some areas it was desperation to find out who was actually lending and who wasn’t.” At MFS, certainty of funding lines helped it to continue lending throughout the lockdown period, and the lender has deployed tens of millions in funding during COVID-19; however, Reid notes that for those that were not lending throughout, this year has been much more painful. A bullish market might not mean all is well in the long-term, though, notes Ahmed, particularly as the strength being seen at the moment is being spurred on by manufactured incentives. “We came out of lockdown reasonably strong, so I guess there was some backlog there which accelerated through,” says Ahmed. “I would anticipate the numbers being higher than 2019, but again what we don’t want to see as we come through March is an absolute panic to try and get
“To penalise people who’ve been placed on furlough on the high street is unfortunate, but it does give the specialist lending sector a much greater opportunity” VIC JANNELS
everything jammed through and then the whole thing tips over and falls off.” Once again, this comes back to the need for a softer, tapered approach to ending those support systems that have not only helped businesses and individuals in distress, but have funnelled demand into the lending market and made for a more productive year than might have been predicted in March. Standley points out that, while the bridging market has kept an even keel, even flourishing in places, the specialist market covers a broader remit that should be taken into consideration. He says: “Bridging demand has held up because residential property prices and underlying demand has held up, but we mustn’t forget the disruption to the construction industry. “With our own customers, we’ve been able to accommodate those issues by term extensions on their development facility, which is the most obvious thing to do, but we have also seen it pushing up the demand for development exits where people are at or coming to the end of a facility and need a solution to allow them the grace of time to sell that property in the normal way, so I think that’s exacerbating demand as well.” Champ’s suggestion that CBILS might have started on a stronger note had it been open to a wider range of lenders from the outset leads into a deeper argument about the role of specialist and non-traditional lenders in supporting those in need, and ultimately aiding recovery. One of the issues facing the bridging market during this period, however, is the lack of certainty around exits, notes Jannels; if writing a 12-month bridge, lenders must concern themselves with whether they are certain to get their money back at the end, given the uncertainty around the ongoing effects of COVID-19.
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MARKET Jannels says: “None of us know where COVID is actually going to take us yet. All of the government scientists have their view and it all seems to be a fairly negative view at the moment, and that is going to have an impact, whichever way you look at it.” One product that might help in mitigating this uncertainty is Bridge to Let, which Castle Trust has recently launched. This allows for a bridging loan to turn into a term buy-to-let (BTL) after nine to 12 months, providing increased certainty for investors. London says: “For us it’s been a strong year, a really positive year, but I think going into next year the specialist market needs to remain adaptive, diverse and competitive. “There’s going to have to be some innovation from lenders alike to supply the demand, because I think there is going to be demand next year.” Another method London mentions is refinancing to another 3 or 5-year rate so that the borrower can weather the storm of a difficult market. He explains: “A lot of these properties are flats in Central London, whereas people need outdoor space now because of lockdown, so we’ve actively engaged with the broker and the client to look at a solution for them, and it’s something which has worked out really well.” These kinds of solutions are going to grow in importance as the usual points of exit become increasingly disrupted by the events surrounding coronavirus. Jannels notes that while property sales should provide an element of certainty, if there is any prospect of another market shutdown this picture could rapidly change. He says: “When we investigate what were going to offer to the lender as an exit route, there’s not always a secure answer, so I think that’s a main problem which has got to be overcome. I love the idea of Bridge to Let – it’s certainty for the people lending the bridge in the first place. “Lenders in fairness have shown extreme forbearance when a clients come to end of term and a property hasn’t sold simply because the market hasn’t been live. “The lenders are aware that often it’s not the consumer’s fault, that the exit route has not arrived on time, and if they take that into account and deal with it correctly, I think that’s good for the market.” The ability of the specialist sector to be agile and adaptable comes into play, helping to create solutions to issues as they arise, and shoring up fault lines in the market. London points out that this agility has been increased by the challenges thrown out this year: “We’ve all had to take a step back and look at what traditionally we would do – how many times have we heard ‘unprecedented times’ and the ‘new normal’? “We took the feedback from our brokers, and actually speed is key at the moment. I do think going forwards this has probably accelerated some of the technological changes that needed to happen.” www.sfintroducer.com
As a result of this market acceleration, Ahmed believes that the specialist market is set to take a bigger chunk of business away from the high street. For example, the high number of people now with periods of furlough in their employment histories means that many will need to turn to the non-mainstream lenders. This is particularly relevant considering the news that Chancellor Rishi Sunak has extended the furlough scheme until March 2021. Jannels notes that, while of course there is the risk that redundancy might follow, it is important to consider the borrower in terms of their status at this point in time. “To penalise people who’ve been placed on furlough on the high street is unfortunate, but it does give the specialist lending sector – which understands these
“The specialist market is designed to be more niche, to think outside the box and look at a deal completely differently” ANDY REID
issues – a much greater opportunity,” he explains. “The specialist market has a huge future.” Reid adds: “The specialist lending market continues to grow all the time. Not just for the amount of lenders that can do the deals, but just with the fact that the broker market seems to be very tuned in. “The specialist market is designed to be more niche, to think outside the box and look at a deal completely differently. As long as specialist lenders have the appropriate funding in place, it will continue to grow and take a bigger market share.” The reasons why bridging and non-traditional lending are coming further into the foreground now are the same factors that influenced the emergence of the sector in the first place. Having been borne out of crisis, specialist lenders are well placed to support the housing market, and the wider UK economy, as it works through this next period of difficulty, and on into eventual recovery. Standley concludes: “The circumstances are different, but if you go back to 2008-9 and crises prior to that, coming out of that the high street tends to go very quiet. There’s a dearth of funding available from those traditional sources. “That’s how many of the specialist financiers came into being last time round – because there was a demand for appropriate finance, but there were few providing it. “So this is our time, really, and we will play an ever more prominent role in the UK funding solution.” B I NOVEMBER 2020 BRIDGING INTRODUCER
Actions speak louder than words Jessica Bird sits down with Mark Standley, national commercial director at Assetz Capital, to discuss the importance of support and forbearance during the year so far, and the future of the business itself Assetz Capital
was accredited as a lender under the Coronairus Business Interruption Loans Scheme (CBILS) earlier this year. What prompted this decision, and what are your thoughts on the scheme so far? Assetz Capital has always sought to help small to medium enterprises (SMEs) and housebuilders, which is one of our founding principles, and the decision to become a CBILS lender was no different. We could foresee that there were going to be industry-wide issues due to COVID-19, and in addition to providing short-term support for borrowers via our own forbearance measures, we sought CBILS accreditation as a means to provide both medium and longer-term support for those businesses that have been impacted by the pandemic. We positioned ourselves to provide commercial mortgages and, with considerable specialist expertise, we are pleased to be one of very few lenders also accredited to provide property development funding.
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The scheme itself is innovative, and it is a big step up from the enterprise finance guarantee (EFG) that it replaced. We have been pleased to get the loans moving, assisting so many new and existing customers with an optimum solution in these difficult times.
To facilitate this lending, Assetz partnered with European firm Aros Kapital, as well as undertaking a Seedrs funding round, what have these approaches brought to the table? The success of the Seedrs raise is a show of confidence in what Assetz Capital has achieved to-date and the exciting promise of what we will continue to achieve going forward. It helps to ensure that we can invest in growth as we evolve to embrace the new opportunities of an everchanging world. The partnership with Aros Kapital has been timely, and with an excellent cultural match, the working → www.sfintroducer.com
NOVEMBER 2020 BRIDGING INTRODUCER
INTERVIEW relationship became an efficient and productive one very quickly. Aros Kapital’s financial strength has provided a welcome boost to liquidity for new lending as we help them to meet their own business growth objectives. We are delighted to be working with Aros Kapital following their strategic decision to enter the UK market, and look forward to working with them as a long-term partner. How has Assetz Capital been affected by the events of 2020 so far, both in terms of business levels and the day-to-day running of the company? Like any business, we have needed to adapt to the unprecedented challenges brought about by the global impact of COVID-19. However, as a FinTech business we were in fact well set up to switch to remote working practices.
“Actions speak louder than words. Individuals and firms value what we stand for as a trusted and reliable trading partner, and understand that Assetz Capital will work hard to always do what we say we will do” The day-to-day running of the company has also had to change, first in terms of the project to become ready to deliver CBILS, and then to meet and manage hundreds of new borrowing enquiries. We have seen a huge demand for CBILS loans, so in that sense business levels have remained strong, and if anything have grown. As we continue to facilitate these governmentbacked loans through the second national lockdown that is now upon us, we are taking care to keep colleagues safe as they continue to undertake essential development site visits and customer meetings within new guidelines. Going forward, we are well placed to start retail lending again, as an alternative and complement to a range of institutional partner funded solutions that we will have going into 2021. Has the current crisis spurred on technological advances and innovation? It has certainly changed the way we work, with home working and the need to rapidly embrace what are sometimes unfamiliar communication and collaborative working solutions. Many businesses have adapted to what is currently available, and we can undoubtedly expect to see rapid innovation in new technologies to take this even further.
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What is the role of peer-to-peer (P2P) lending in this marketplace, and what advantages does it have in comparison to more traditional lending models? Peer-to-peer lending allows for innovative funding solutions, whilst also providing an increasingly important investment solution for investors. Another founding principle of ours – the retail platform – also remains central to our plans for the future. Continued, controlled growth and financial success within Assetz Capital should make our platform stand out to astute investors. I do absolutely see further growth in P2P lending, though with a flight to strength and quality. Earlier this year, we announced that we had passed a landmark of delivering over £1bn of lending via our retail platform from a standing start around seven years earlier. This is an astonishing achievement, overshadowed only by the expected controlled growth we expect to achieve in the next seven years. As the economy progresses through a period of acute uncertainty, how important are lending models that allow for the spreading or mitigation of risk? The key is diversification. Investment in P2P lending should be an appropriate percentage of an investor’s wider portfolio. P2P also affords further diversification across many loans, either manually selected by the lender, or by Assetz Capital on their behalf via one of our automated accounts. It is also important to remember that all Assetz loans are backed with charged property security within what we consider to be prudent parameters. What trends have you seen in terms of investor appetite over recent years, and what might you predict in the year to come? We have witnessed flights to safety – mainly cash – around various key events in recent years. This was most notably triggered by Brexit decision points, and of course now the far-reaching impacts of the pandemic. These are understandable, though typically only temporary reactions, as cash investments simply cannot generate the returns needed to keep pace with even low levels of inflation. The market saw a ‘Boris Bounce’ early in the year when the country felt a sense of certainty around Brexit at last; now that we have been warned of the possibility of a ‘no deal’ decision later in the year, how might this affect property-backed lending? We are substantially a nation of homeowners; it has become imprinted in the British psyche. There will always be economic cycles and periods when markets www.sfintroducer.com
INTERVIEW react to significant events, yet it is hard to see how this fundamental can change in the medium to long-term. Some have suggested that the private rented sector is going to grow in prominence as a result of a range of factors due to COVID. Is this a trend you have seen signs of? You could surmise that adjustments in the availability of home mortgages, alongside worries for employment and the underlying economy might see first-time buyers in particular deferring their purchase decisions, though right now I have seen no direct evidence of this, perhaps due to the temporary stamp duty relief on property values up to £500,000. How might the second national lockdown and continued uncertainty around coronavirus affect the various sectors Assetz lends within? As a property-secured lender we have a particular interest in this sector of the economy, though good customers and safe lending opportunities are there to be found in all markets. Assetz was born out of the credit vacuum left by the last recession, and so by being forward-thinking, flexible and readily adaptable we expect to continue growing our business in a safe and controlled way in all market conditions. What is the role of platforms like yours in addressing the housing crisis and stimulating the development of new homes, and affordable housing in particular? Assetz have already made a significant contribution, having funded one in 100 of every new homes built in the UK over the last two years, while for Northern Ireland we have funded the build of one in four new homes over the same period. Many of our schemes incorporate a wide variety of affordable and social housing solutions, and we expect our prominence in this role to increase as we continue to achieve substantial growth in the months and years to come. How has the specialist market fared so far this year, and what trends would you predict as we go into 2021? The high street pulled back on traditional lending and took quite some time to fully organise itself to deliver CBILS in any volume. The specialist market tends to be more dynamic, however, and it has been seen to step up to the plate in good time to support the borrowing needs of UK SMEs. After some initial disruption, therefore, I believe www.sfintroducer.com
many in the specialist funders who were strong coming into these challenges will have turned things around to ensure a busy and productive year. Sudden and significant changes have, however, exposed weaknesses in the business models and planning of others.
How might this new period of national lockdown, and the extension of schemes such as furlough and payment deferrals, affect the property lending market? In the short-term, the various welcome initiatives put in place during this time have sheltered individuals and businesses from the worst effects of a sharp reduction in the UK economy. As these support measures are withdrawn – as they must be – we are likely to see further business closures, with unemployment expected to increase. Logically, a decline in demand and property values would follow, though this is never certain. Economic forecasts are notoriously unreliable as so many other elements come into play. In particular, here there has been a reduction in housing supply due to site disruption and supply chain issues still being felt. All I can say with absolute confidence is that Assetz Capital will be ahead of any curve to ensure that we are well placed to make the best of whatever the world throws at us. What developments should readers be looking out for from Assetz Capital in the near future? You can expect to see a broader range of solutions, made possible by our institutional partners, to complement the continuation of core retail platform funded lending. It is likely that we will provide an enhanced bridging solution in 2021, and may well move some of our funding solutions into the larger corporate space. Finally, do you have a key message for intermediaries wanting to work with Assetz Capital? Actions speak louder than words. When going out to market with CBILS, I purposefully elected not to wave flags via social media or run formal advertising campaigns, instead making the solution available via our established intermediary relationships. Individuals and firms value what we stand for as a trusted and reliable trading partner, and understand that Assetz will always take great care and work hard to always do what we say we will do. Moreover, the network of professional intermediaries provides us with the bandwidth to ensure that the proposition has been properly targeted towards supporting eligible businesses that have been impacted by coronavirus. B I NOVEMBER 2020 BRIDGING INTRODUCER
IN OUR OPINION
A year to reme Mark Standley, national commercial director at Assetz Capital, discusses how the lender has played its part in supporting SMEs and property developers during an unprecedented year
his has been a year that none of us will soon forget – with a global pandemic, unprecedented restrictions to our personal liberty, work practices turned upside down and a deep financial impact that continues to be felt worldwide. It is at exactly such times that successful businesses must be light on their feet to adapt, embrace change and to make the best of any given situation or new opportunity. Whilst the events of the last several months could not have been predicted, Assetz Capital’s commitment to small to medium enterprises (SMEs) and property developers is as strong as ever. After being approved by British Business Bank in July as an accredited lender under the Coronavirus Business Interruption Loan Scheme (CBILS), we are currently working on over £300m of supportable CBILS applications. This government-backed scheme has been a lifeline for both our existing customers and many new borrowers across Great Britain and Northern Ireland who have been impacted by COVID-19. Alongside commercial mortgages, we are one of a small number of lenders that are able to offer development finance through CBILS, purposely going to market almost exclusively through our loyal and valued intermediary network. The inclusion of development finance in the remit of CBILS indicates that solving the housing crisis is still very much a key priority for the government. Initiatives such as the stamp duty holiday have also had a significant supportive impact, helping house prices hold their ground through challenging times, and even increase for a time, as Rightmove data found that asking prices were up by 5.5% year-on-year in October 2020. Assetz Capital is a specialist in development, and we pride ourselves on providing real world lending solutions to SME housebuilders. Over the past two years, we have funded the equivalent of one in every 100 new homes built in the UK, as we strive to help solve the housing crisis.
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Mark Standley www.sfintroducer.com
IN OUR OPINION
member IN PRACTICE One of our customers, David Linnell, an experienced developer and owner of Linnell Homes, was about to begin construction work on a new site for 10 residential properties when the first nationwide lockdown was announced in March, leading to huge uncertainty regarding cashflow, as well as an empty building site. Linnell reports: “We had just finished the demolition of a pub on-site and everything came to a standstill, it felt like the whole world had stopped.” Unsure of what the future held for his business, he contacted our regional relationship director Rebecca Hall to see if we could help. He says: “I had been introduced to Rebecca a few years previously, and since the first call we’ve had immense support to get construction started again.” Hall comments: “We understand that cashflow is critical to any development. The plan was solid, and we were very happy to help David with a multi-tranche loan to get this project completed and help address the growing need for housing in the UK.” Construction is now well underway, and so is interest in the properties. Linnell explains: “The response to the plans for these three and four-bedroom homes has been astonishing. Despite the fact they are due to be completed in October 2021, we had phone calls enquiring throughout the whole of lockdown.” This is just one of a large number of CBILS loans that Assetz Capital has approved, with many more progressing rapidly through to legals. OPPORTUNITY We have the experience and the knowledge spanning a number of economic cycles with which to adjust our business model to support SMEs in uncertain times. Much like the last financial crisis, this year has shown that there is always opportunity to be found in the face of adversity. Assetz Capital will continue to provide reliable funding solutions for brokers and their property developer or housebuilder clients, and we are delighted to have been able to support so many new customers with optimum solutions via CBILS in these testing circumstances. When the dust settles, we are looking forward to further developing our intermediary partnerships as we continue to grow our loan book. We have some very exciting new solutions to announce soon, as we move towards a strong start for 2021. B I www.sfintroducer.com
“They have done some incredible work to get this deal over the line, and kept in contact throughout lockdown to secure funding for the development portion of the project” DAVID LINELL, BORROWER
NOVEMBER 2020 BRIDGING INTRODUCER
Bridging toolbox: Refurbishment finance Vic Jannels CEO, ASTL
roperty refurbishment is one of the most common uses for bridging finance. According to the UK Bridging Market Study published earlier this year by EY, refurbishment is the most popular reason for borrowers to obtain a bridging loan, while the latest Bridging Trends report by MT Finance reported that 13% of bridging loans are taken for heavy refurbishment. So what are the benefits of property refurbishment for investors, what types of refurbishment loan are available, and what are the considerations? UNDERSTANDING THE BENEFITS
Refurbishment finance is usually taken over six or 12 months, but depending on the specific requirement can be anything up to 24. This timeframe commences once the investor has completed the purchase of a property and then carries out the work to upgrade its value, before deciding to either retain and refinance onto a longer-term solution or sell for gain. Every situation is diﬀerent, but on a well-planned project refurbishment can enable investors to leverage their capital and ultimately generate greater returns. For example: an investor buys a run-down property, in need of a new kitchen and bathroom and total redecoration, for £250,000, using a net bridging loan for £135,500 that is charged at, say, 0.59% each month. The investor spends £30,000 renovating and decorating, and then sells it 12 months later for £330,000. Over the course of the 12 months, the interest on the bridging loan would add up to approximately £10,203,
plus fees of around £3,900. Whilst this is more expensive than traditional mortgage lending, it is a means to an end; even considering the costs of buying and selling the property, the investor can realise a good return that more than outweighs the cost of the refurbishment finance. Selling a property once it has been renovated is just one option; often investors choose to use refurbishment as a way of improving the property in order to achieve both higher ongoing rental income and equity value. In general, refurbishment finance falls into two main categories – light refurbishment and heavy refurbishment, although there are a growing number of options that tread a middle ground between the two. Generally, though, apart from ground up development, most lenders will require a property to be wind and watertight at the outset. LIGHT REFURBISHMENT
Light refurbishment is normally where no planning permission or building regulations are required and there is no structural or change of use to the property. This is more common, as the level of work required presents less risk. It is often the case that a property considered to be uninhabitable could be made habitable with relatively straightforward light refurbishment. Common scenarios include replacement of a kitchen or bathroom, multiple kitchens in one property, or a surveyor having inspected the property and deemed it not fit for letting. HEAVY REFURBISHMENT
Heavy refurbs are more complex, involving structural changes that require planning permission or building regulations. The returns on a successful project, however, can justify the eﬀort. Typical types of heavy refurbishment include converting a property to
residential use, creating multiple units from a single building, or converting multiple units to a single building. NEW OPTIONS
Increasingly, lenders are providing options for development finance that tread a middle ground. These can be used to fund work that does not require planning permission, but does require building regulations. They are often more accessible than heavy refurbishment loans and can include permitted developments, including some extensions and conversions. Other innovations in this area include products like the Finish and Exit mortgage by Avamore Capital, which provides an option for clients who are completing a development scheme, and the Alternative Overdraft by Alternative Bridging Corporation, which provides a rolling facility that can finance multiple consecutive projects, with set-up charges each time or paying interest when the facility is dormant. Other lenders oﬀer similar options or variations on the theme. CONSIDERATIONS
As with any bridging loan, it’s important that the client has a robust exit route planned on completion of the refurbishment, and preferably a back-up plan should the first prove unviable. So, if an investor is unable to sell a property at the anticipated value, would letting it out be an option? It’s also important to consider a client’s experience in property refurbishment in line with the level of refurbishment they are taking on. An investor with more experience is likely to be better equipped to deal with the extra complexity of a heavy refurbishment project. When it comes to recommending a lender, you will also want the peace of mind that it adheres to a strict Code of Conduct and is committed to oﬀering the highest standards of service and transparency to you and your clients. All ASTL lender and associate members sign up to our Code of Conduct, and you can find out which of these lenders oﬀer refurbishment and other short-term mortgage options by checking our website. B I www.mortgageintroducer.com
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020 7060 1234 firstname.lastname@example.org www.mfsuk.com
Making a real difference for SMEs. We’ve lent over £1 billion to UK SMEs and property developers, and we’re not stopping there. So, when it comes to providing funding solutions for the real world, we’ve got it covered.
Stuart Law, Co-founder & CEO
Real world lending 0800 470 0430 assetzcapital.co.uk/borrow Assetz SME Capital Limited is a company registered in England and Wales with company number 08007287. Assetz SME Capital Ltd is authorised and regulated by the Financial Conduct Authority in respect of its peer-to-peer lending platform only. ’Assetz Capital’ is a trading name of Assetz SME Capital Ltd. Assetz SME Capital is registered with the Office of the Information Commissioner (Reg No: Z3338899) for data protection purposes.
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