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October 2019 www.specialistfinanceintroducer.com
INTRODUCER Autumn is finally upon us, so we can say goodbye to sunshine and holidays and welcome Halloween and Brexit. The 31 October marks both occasions, and as we approach the deadline opinions are divided. Will we finally leave the EU after three years of discussions? Or will the deadline be extended once again? In this issue, we look at transparency in the bridging market and whether the industry needs to do more. Some argue that transparency is at the forefront of most lenders’ objectives in this saturated “Some argue that space, whilst others say transparency is more needs to be done. at the forefront This month’s roundtable looks at communication of most lenders’ between all aspects of the objectives in this bridging process, with the panel also highlighting saturated space, issues facing the industry whilst others say other than the B-word. It will be interesting to more needs to be see what happens at the done” end of the month, and if Boris manages to do what Theresa failed to by getting a consolidated response from government. Our cover stars Hope Capital discuss their 2019 so far on page 36 along with how they are integrating technology into their business and preparing for uncertain times ahead. It is very much a case of watch this space, but the industry remains resilient and prepared. We will all be watching how events unfold in Parliament and if we do end up leaving the EU, what impact (if any) this has on the market. Remember to follow us on Twitter @MortgageChat and let us know your thoughts on this issue.
5 Jonathan Newman
Lessons from Lendy
7 Kevin Thomson
The end of LIBOR
9 Brian West
Knightsbridge reverberates to the sound of supercars
11 Steve Swyny
Positivity is key for the rest of the year
13 Kit Thompson
Building a bridge from planning to reality
14 Feature: Investigating transparency
Michael Lloyd discusses transparency and places for for improvement
24 Benson Hersch
The latest from news and views from the ASTL
26 Build a Better Bridge
Our experts answer your bridging questions
28 Round table
Our discuss the latest market issues
32 Alan Dring
More than a partnership
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Time for a lesson What can the short-term lending market learn from the demise of Lendy?
According to administrator’s last report, the headline statements are as follows: Lendy book included 54 outstanding bridging and development finance loans worth a combined £152m Lendy received full authorisation from the FCA just months before the administration The development finance book had 25 live loans worth £116m and a total gross development value (GDV) of £226m, with 14 in the insolvency process So what lessons might be learned?
The default record is astonishingly high. In fact, it is so high, that these statistics bear no resemblance to anything seen or experienced across the traditional suppliers of shortterm finance. At Brightstone Law, we’ve worked along a broad range of suppliers, from family offices making the occasional advance at one end, to the volume challenger bank providers. In my experience, not one, has exhibited a default rate approaching that found by the administrators. So, no one ought to panic about the underlying strength of the sector. Default, in whatever form is a statistical inevitability and high street banks will say the same. The sector remains robust and is working well. Loans are carefully underwritten, work well and in the vast majority of cases, exit to strategy.
Professional partnerships remain key. Those partnerships need to be made up of stakeholders who have, service excellence, broad market range experience and long term www.specialistfinanceintroducer.com
responsibilities. Once engaged, each stakeholder has to consider their role, not just on a case by case basis, but in terms of their client relationship developing over time and the wider responsibility for the business space we operate in. So for the introducers, think not just about the fee, think more about customer profile and detriment, your long term business case and for the lawyers, are you sufficiently aware of the market to know and then have the confidence to have a difficult conversation with a client?; “this isn’t right, this isn’t representative, do you need to reconsider your model?”
A book which comprises a small number of loans at high ticket values is never a good idea. It becomes extremely vulnerable when the property market is tricky, stagnant or even receding. That’s mainly because risk is not spread widely enough, so if one or two loans fail, the book may not survive the damage. That was a lesson learned from the last recession, but clearly not by all.
Development finance is not straightforward and is strictly for those who know what they’re doing and have the right resources to underwrite, monitor and step in. In my view, development lending has double the risk. The usual risks of lending continue to apply, but then layer on top of that, the customers’ professional ability to manage and complete a project and their own third-party suppliers’ abilities to perform (e.g. builders, quantity surveyors, material suppliers). And even if the customer and team are up to it, there’s an unavoidable
Jonathan Newman senior partner, Brightstone Law
gamble on the appeal of the project to another unknown - a property market in a year or two’s time which may be quite different to the one which exists at the date of lend. So, if you’re a specialist, you get all of that. But if you are not, it’s extremely risky to skew the book with development lending.
FCA regulation is not a cure all. Authorisation is no endorsement of skill, or knowledge, or experience. Education remains an important key and there’s plenty of resource to tap into. By actively involving oneself in the wider lending community, engaging regularly with trade bodies such as the ASTL and FIBA will encourage best practice, provide the means to engage with established professional partners and enable open and useful dialogue with your peers. Such dialogue is invaluable. It can early flag to a lender, a book which is performing significantly worse than market and provide some indicators on what might be wrong and how to correct a failing business model – long before the administrators are called in. So don’t operate in isolation.
OCTOBER 2019 BRIDGING INTRODUCER
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The end of LIBOR Prepare your clients as LIBOR is set to be discontinued in 2021
With LIBOR expected to be discontinued after the end of 2021, it raises a need for brokers to revisit any clients with LIBOR related mortgages. The transition away from LIBOR has progressed in the derivatives and securities market however what about the mortgage and commercial loan markets? Certainly they seem less advanced with little known or published of the impact that the discontinuation of LIBOR may have. LIBOR is widely used in the challenger bank space and new mortgages are still being written on LIBOR based terms, so should we stop recommending LIBOR backed terms now? The question is definitely a pertinent one for those mortgages and loans that will still be in force after 2021. It does lead one to suggest that perhaps we should give options of terms on Bank Base Rate (BBR) as well as LIBOR wherever possible, just like a comparison of interest only versus capital and interest. Indeed I would go further and suggest that, as part of the recommendation of a LIBOR based mortgage product, there should also be the caveat about the impending changes to LIBOR and the need for a review of the loan or mortgage at that time, so the client is aware of this potential change to their mortgage, right at the start before they take the mortgage out. Where this may cause any detrimental terms with the demise of LIBOR, the client needs to be given the option of taking another mortgage rate now, tied to BBR or something with more longevity. Of course, we do not yet know the impact to a client’s existing www.specialistfinanceintroducer.com
mortgage if or when a lender moves away from LIBOR to an alternative interest rate. The likely replacement is looking like it will be Sterling Overnight Index Average (SONIA) which is published by the Bank of England. The question is will existing customers be moved to a non-LIBOR product and how will this compare to their existing arrangement? One thing for sure is that this transition for a lender will be at a cost and therefore the natural concern is whether existing customers will be made pay towards this change. We must expect lenders who have or still do tie their interest rates to LIBOR, to be writing to clients over the months ahead explaining that LIBOR will be disappearing and what effect, if any, this will have on the client’s mortgage. Lenders will need to start talking about non-LIBOR products and I am sure they will be treating their existing customers fairly. However this also gives the client’s broker the opportunity to communicate with them first so not only is the
Kevin Thomson sales director, Connect for Intermediaries
client expecting the communication from the lender, they already have some idea of what their options will be. Once communication is then received by the client, as their broker, you are in a prime position to help determine the best for them. This may well be staying with the lender but it may be to remortgage away. Even if it is to stay with the same lender, it gives you an ideal opportunity to discuss this and any further requirements that they may have. I am sure that our innovative challenger banks are progressing with their plans to take advantage of a post LIBOR era with innovative products. Any necessary changes to their technology platforms will hopefully simultaneously improve the customer’s and broker’s experience of dealing with them. Likewise, as specialist brokers, we should be taking the opportunity to increase our communication with our clients to put them on the front foot with regard to this impending change setting us apart from the transactional broker.
OCTOBER 2019 BRIDGING INTRODUCER
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It must be the season! Knightsbridge reverberates to the sound of supercars
As the days get shorter, the air gets chillier and Strictly Coming Dancing gets into full swing we know the noisy “Supercar Season” will inevitably give way to quieter Autumn nights! The late summer sights and sounds of Knightsbridge and Mayfair are fast becoming a home away from home for millionaire Arab playboys. In a little over two decades, and at a growing pace in the last 10 years, the district has evolved rapidly, swapping many native residents for international newcomers. The change has been so marked and the popularity with Gulf Arabs so strong that Knightsbridge is now commonly referred to by some as “Little Arabia.” Of course, the district has always had a luxury ambiance thanks to its high-end department stores, boutique shops and fine dining but where it was once almost exclusively the preserve of upper-class English Socialites it is now extremely international. This fact is reflected by the raft of Arabic cafes, shops and restaurants, that have opened in recent years, ensuring that the sight of shisha smoking in the West End is now incredibly familiar. People generally like to surround themselves with their own community and in this regard, Knightsbridge has taken over from the Edgware Road and Oxford Street as the preferred location for Gulf Arabs, never more so that in the summer when the permanent population is swelled by a temporary invasion! Whether it’s from Saudi Arabia, Qatar, Kuwait or the United Arab Emirates, many fabulously rich Arabs seek refuge from the extreme summer heat in the Persian Gulf and they don’t come alone. www.specialistfinanceintroducer.com
They bring their cars with them! As spring blossoms into summer, the high-end luxury vehicles start to arrive and millions of pounds worth of metal hits the streets of the West End and Knightsbridge in particular. Owners fly over their expensive and often highly customised vehicles, usually paying well in excess of £20,000.00 for the privilege. The service generally includes pick-up and drop-off of the vehicle from its home and destination addresses, in addition to export and import customs clearance at both ends of the journey. Qatar Airways is one of several airlines that ship these cars from Doha to Heathrow secured to the floors of their Airbus A330s. By using both the main and lower deck they can offer 31 berths on each flight!
Once delivered, the Bugattis, McLarens, Mercedes and Rolls Royces quickly seem to find their way onto double yellow lines and into residents parking bays without a permit. In addition, dubious parking ensures that some of the flashiest cars are left in the capital’s most desirable spots, not least of all in front of some of the poshest shops! Whilst searching for a parking space is a daily struggle for many Londoners, wealthy Arab businessmen don’t seem to suffer from this problem. They simply stop and park where they like and take the fine instead. In truth some are little better at obeying traffic rules and a great many Fixed Penalty Notices have been issued to quieten revving engines that are causing a public nuisance, to curb repeated sudden and rapid acceleration and to quieten monumentally loud music
Brian West director, Central Bridging
from in car sound systems that probably cost more than the average man’s car! Of course, the invasion is not all about Public Space Protection Orders, noise abatement and fines. Car enthusiasts, petrol heads and motoring photographers love the summer supercar season. Local shops and restaurants almost certainly feel much the same. The boost to the local economy is massive and it offers huge opportunities to local entrepreneurs as well.
At Central we spend a lot of time based in the West End and embrace the Supercar Season. The phenomenon provides a massive boost to the local economy and thanks to some of our long-standing funding contacts we have access to a unique collection of supercars. Through Central’s sister company, Conrad Family Office, we are able to hire out replacement vehicles and on occasions even provide vehicles such as a Ferrari La Ferrari and a McLaren P1 for extended hire periods. Of course, this saves on the carbon footprint of flying a car over, allows a client to experience a brand new and often unique vehicle and gives us the chance to do something a little bit different alongside our core bridging proposition! In summary, whilst there are mixed reactions to this summer event, all sides can surely agree that the architectural beauty of Knightsbridge remains undimmed. The Royal Albert Hall, The V&A, many museums and of course Hyde Park are all local gems and of course, come the autumn rains, the visitors will start to slowly ebb away, flying home with their cars and leaving Knightsbridge to return to quieter, slightly less flashy times! OCTOBER 2019 BRIDGING INTRODUCER
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Bridging is increasingly attractive Positivity is key for the rest of the year
As a company who has just gone through a rigorous authorisation process, we know all about the importance and relevance of the regulated markets. So, it was no surprise to see that regulated bridging was reported to have returned to the top of the bridging category in Knowledge Bank’s most recent Criteria Activity Index for August. Maximum LTV for bridging — the most searched for criteria in the category for July — fell to the thirdmost searched for criteria. August also saw bridge-to-term and bridging minimum loan enter the top five, while there was a fall in adverse credit searches from third to fourth. Semi-commercial properties topped the commercial category, while lending to limited companies returned to the summit of the buyto-let category, having previously been there in May 2019. It’s fair to say that many borrowers, and some intermediaries for that matter, still don’t fully understand the requirements around many areas of regulated and unregulated specialist lending activity, not to mention the raft of available options currently on offer. In the world of property finance it’s always good to have some form of access to a range of products, as clients will constantly require loans to fit within their budgets and changing lifestyle requirements. And growing numbers of intermediary firms are waking up to the benefits of the more specialist end of the lending spectrum. The Knowledge Bank research is also interesting from the perspective of a specialist distributor as it offers important markers when it comes to demand and trends which may sometimes go undetected within internal data banks. It also highwww.specialistfinanceintroducer.com
lights the benefits of technology in terms of how we can track, identify and analyse volumes, activity and tendencies. Technology has the scope to significantly impact many areas of the mortgage market, but we still have to maintain a certain level of restraint when it comes to specialist lending. Although some elements of the advice process - namely back office solutions, front end consumerfacing solutions and admin burdens - can all be supported by the correct implementation of technology, underwriting is likely to remain manual because of the bespoke nature of the product. A number of lenders are now looking at ‘robo-underwriting’ where risk assessment, affordability testing and decision making are done by a computer rather than a person. However, bridging is a specialist, complex product that requires someone with expert knowledge to properly take on and underwrite cases. Here at F4B, we still value the human touch and it’s important that we get this balance right moving forward. It’s all about working as a collective. I recently read an article from James Bloom, managing director of short-term lending at Masthaven who said: “In all industries, not just financial services, there can be a tendency for firms to adopt a silo approach, focussing too much on themselves and not engaging with the wider community. This bunker approach can stifle innovation, reduce knowledge-sharing and lower standards. If short-term lending is to truly thrive, it will need a combined, collective effort by those working in the industry.” These are sentiments that I
Mike Strange Steve Swyny managing head of sales, director, First 4 Bridging Funding 365
whole-heartedly share. Education is vital, particularly for borrowers and brokers who are new to bridging finance. The perception that bridging loans only help homeowners buy properties, for example, is certainly not true – it should now be seen as a financing option for a whole range of borrowing needs. Generally speaking, bridging finance has become an increasingly attractive proposition for property investors who are looking to expand their portfolio quickly to capitalise on opportunities while property prices are low. As we saw from the latest Association of Short Term Lenders figures, the second quarter of this year has delivered some very strong results for the sector. Let’s hope that we can maintain this positive momentum over the rest of 2019 whilst maintaining high standards of underwriting, customer focus and increase knowledgesharing activities where possible.
OCTOBER 2019 BRIDGING INTRODUCER
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From planning to reality There are many opportunities for brokers
Whatever the outcome of the coming months of political uncertainty, canny investors will always find a way to spot an opportunity in a changing market. Short-term lending provides a fast and flexible tool to enable developers to realise these opportunities at every stage of the process – and this provides opportunity for brokers. For example, in the current market, where properties are taking a long time to sell, development exit loans are proving popular with developers as a way of managing their cash flow while they market a completed scheme. Many developers are in a position where they are asset rich and cash poor, particularly when they near the end of completing a development. Their options at this stage depend on their intentions for the scheme. If they are retaining the development to let out, developers will usually refinance onto a longerterm solution. For those who are selling the properties they have developed, there is the option to buy extra time and release equity with a development exit loan. A development exit loan is a short-term loan that allows a developer to refinance their completed scheme, often at a lower rate than their development finance facility. This can provide a saving on interest payment and give them more time to achieve the best sales price and most investors also release equity from the scheme to use towards future projects. But it’s not just at this stage of a development that there’s a use for short-term finance. There are occasions when investors can secure the funding they need to progress their plans – right at the beginning of a transaction, when www.specialistfinanceintroducer.com
planning permission is in place, or even before. In these situations, it is important that the developer has a strong track record, but with this in place, there are opportunities for brokers to provide the financial kick-start a developer might need. Here are two examples where choosing to partner with a specialist in short-term lending enabled two brokers to deliver creative solutions for their clients that provided the impetus to get a new project off of the ground.
Case study 1: The sky’s the limit
We worked with a client who had a portfolio of more than 50 residential properties in addition to a handful of commercial buildings. The client has a particularly good eye for an opportunity and has developed a good track record of purchasing commercial property and using Permitted Development Rights to convert this into new homes, either for sale or rental income. We were actually introduced to this deal by our colleagues in the Buy-to-Let team and, at Brightstar, we often identify opportunities where it is beneficial for the client to access different types of finance. In the case of this particular client, we were able to secure a £450,000 bridging loan on the airspace above one of the client’s existing properties to provide the leverage they needed to pursue an additional opportunity. The client created a head lease on the building, in a limited company that was separate to the SPV that owned the property and, with this in place, successfully applied for planning permission to build an additional three storeys above the existing floors, with permission on a further seven storeys still pending. This legal structure and planning permission established financial
Kit Thompson director of short-term and development finance, Brightstar Financial
value in the space above the building and, consequently, we were able to secure a loan on the air above the property. This is clearly not the type of loan we work on every day, and the success of the application was dependent on the client’s track record and our strong relationship with lenders.
Case study 2: Hope in Wales
In another example, we worked with a developer who required a loan of nearly £850,000 to repay a bridging facility and provide additional funds to pursue the planning permission for the conversion of an office building in Wales to residential apartments.
Many developers are in a position where they are asset rich and cash poor” However, the client wanted the loan to be secured against the ‘hope value’ of the property, which was value of the site based on the assumption that planning permission for residential use would be granted. The client’s exit strategy for the loan was the sale of the property to a local housing association, once planning permission had been granted and, as part of its underwriting, the lender obtained external planning opinion, which suggested that planning should be achieved subject to some minor amendments. These recommendations were then included as conditions of the loan and the client was able to achieve the funding they needed to advance their plans. OCTOBER 2019 BRIDGING INTRODUCER
Investigating transparency i
Michael Lloyd discusses transparency in the sector and where there is still room for improvement
ransparency is something that is needed in all businesses, not just bridging finance. Whilst most adhere to transparent practices, a small minority charge excessively high default rates and do not outline all the hidden costs to clients. The rest of the industry rejects these malpractices and places emphasis on the importance of being open, clear and transparent to clients about the costs involved. “Transparency is explaining to customers every admin fee, charge and potential cost that is associated with a facility,” Dean Brown, managing director at specialist broker Aureum Finance, says. “So many lenders have high admin fees that are above standard costs, and this helps to improve their return but keep headline rates low.” Mark Posniak, managing director at Octane Capital,
says that as a lender transparency is about being crystal clear in the way you deal with brokers and borrowers. “It is about hiding nothing, especially when it comes to fees and how you charge interest,” Posniak adds. “Everyone needs to go into a deal eyes wide open, knowing what the terms and true costs of a loan are, and especially what might change if the exit does not happen on time.” Bridging Introducer explores the importance of transparency, looks at issues such as excessive default rates and financial jargon and what the industry can do to improve.
Importance of transparency
Lucy Barrett, managing director of Vantage Finance, says being transparent is of the utmost importance and argues that unless you put the borrower at the heart of www.specialistfinanceintroducer.com
y in the bridging industry what you are doing, you will never succeed in this industry. “Bridging attracts repeat borrowers and property professionals who would not take well to surprises down the line, and relationships and reputation can be quickly broken,” Barrett says. “It is really quite simple, you should treat the customer how you expect to be treated with care and diligence.” She goes onto say that transparency in the sector is significantly better than before but there are still some lenders who do not make it absolutely clear what their charges, terms, and conditions are. “The more prominent lenders in the space have definitely led the way to make the majority transact with transparency,” she adds. Dean Brown says Aureum Finance will always offset its borrowers’ fee against any proc fee received from lenders and will be open with them regarding how much they are receiving so it does not come as a surprise within the facility letter. “Transparency is our top priority for all clients, we want them to be happy with our services and recommend us to others, so it is important they are treated fairly,” Brown says. Mark Posniak says as a lender, being transparent with borrowers is the most important thing of all, especially in the specialist lending space where loan sizes can be large and the mechanics and structure of a deal quite intricate. “You need to be transparent on the phone, in all communications and be clear in all the terms and formal documentation that go across to borrowers, brokers and any other related parties,” he says. Aspen Bridging provides accurate fully costed quotes with all third-party fees, disclosed in minutes and then re-confirms terms and the purpose of the loan when they meet the borrower. “If anything changes, we alert the broker and borrower,” Jack Coombs, director at Aspen Bridging, says. “In addition, we undertake pre-funds calls and go through the terms again before completion.” Andy Reid, director of sales at Oblix Capital, questions why a legitimate business would not want to be transparent with its customers. “Brokers and customers alike should reasonably expect lenders to be open, honest and transparent; anything else could bring the lender, and ultimately the industry, into disrepute,” Reid says.
Excessive default rates
Recently there has been much debate in the industry, sparked off partly by a LinkedIn post by Posniak, centering around excessive default rates from some lenders. www.specialistfinanceintroducer.com
Posniak says that lenders charging excessive high default interest rates is damaging the industry. He argues lenders charge these rates because they see it as a way to bolster their margins at a time when competition has driven rates down. “It is a cowboy practice and the more that those lenders who do it are exposed, the better,” he says. “Essentially, they are deliberately providing finance over timeframes that they know will not be met so the borrower defaults then is hit with the increased interest rates and excessive fees which make up for the lower original rate.” He highlights a practice where certain lenders will offer a standard and discounted interest rate so that when the borrower defaults, they are moved onto the standard (penal) rate rather than a default rate. “It is a PR ruse and a cheap trick that has now been exposed,” Mark Posniak adds. However, Reid highlights that higher default rates are not the problem if the borrower is aware of them before the loan commences. Particularly if the lender helps explore alternative options with the borrower long before those default rates are due to be implemented. “It is not in anybody’s interests to allow loans to go into default, so the lender should be transparent about their default rates before the loan commences and should work with the borrower to help avoid the need to implement them,” Reid says. Chris Oatway, director of LDNfinance, says lenders must fully disclose the default interest along with extension fees from the outset. Lucy Barrett says it is important for brokers and legal advisers to examine the paperwork and ensure that the correct term is provided to the customer at the outset in any event. Barrett argues that there isn’t always a direct correlation between excessive fees and a lack of transparency and questions who defines what is excessive. “Some lenders may try and catch a borrower out, but more have default rates to ensure that a customer is proactive and does not rumble into default without considering the consequences,” she says. “Lenders have to manage their default rates, their own funders potentially and cost of borrowing and it is important that borrowers are not taking the ostrich approach to pending expiry dates. “Lack of transparency for low, high or what some may consider excessive fees is inexcusable and what the industry has worked hard to avoid.” Chris Whitney, head of specialist lending at Enness Private Clients, sees some lenders that are very clear about what their default rates are and always tries to use a lender that he knows would work with the client if a problem occurred. OCTOBER 2019
Transparency now can encourage lighter regulation later It is becoming increasingly clear that full regulation will eventually come to the mortgage market, including the bridging sector. There have been signs of this happening for some time, but the process took a significant step forward at the end of July when the House of Commons Treasury Committee urged HM Treasury to extend the remit and powers of the FCA to include unregulated SME lending, amongst other areas. Now, as an industry, we have a window of opportunity to demonstrate that we already understand and operate to high standards. This may act to encourage any regulation that is applied to
Benson Hersch chief executive, ASTL
Aspen Bridging is one such lender. Jack Coombs argues that almost all bridging lenders have higher rates of interest applied beyond the term-end. Aspen has a process of extensions and of putting agreements in place on the back-end in the event of a problem with redemption. “This ensures that if the customer is working with us constructively then higher levels of interest or charges are not applied,” Coombs adds.
Brokers and lenders alike point to the importance of communicating true cost, the cost of the loan including interest and fees, to the client. “True cost is vital and relates back to the core issue of transparency,” Mark Posniak says. “Borrowers and brokers should always go into a deal knowing the true cost of the loan rather than be shown numbers that may hide the real cost.” Reid argues that true cost, such as an annual percentage rate (APR), provides the borrower with a standardised and consistent way of comparing overall costs from different lenders, which proves to be a good way of ensuring there is transparency in costs. Meanwhile, Dean Brown believes true total cost is important and should include all admin, insurance and other fees to provide borrowers with a fair estimate of the overall finance cost. When seeking terms, Brown adds, Aureum will prepare a comparison table for clients and include all costs so they can compare the total cost. Amadeus Wilson, director of SPF Private Clients, highlights that on regulated deals all lenders have to
the market to be applied with a lighter touch rather than a heavy hand. With an aligned approach and commitment to high standards and customer focus, we can help to influence what form regulation takes. Now is the time that we need to come together and shape the future of our industry – and transparency is a significant part of this. If we can develop a culture that encourages the clear labelling of all fees and charges from the outset, we will create an environment of self-regulation, where those lenders whose charges are excessive compared to the market, will simply not win business and so pricing will find an appropriate level. We have a responsibility to
encourage all lenders to meet minimum standards of transparency because we all operate in one marketplace, sharing in the reputation of that market and a commitment to our customers. It is times like this when the role of trade associations like the ASTL acquires more significance as we are in the position to unite the industry behind high standards. Our code of conduct, to which all members of the ASTL subscribe, makes a clear commitment on transparency, and if we can soon reach a point where every lender operates to this high standard, we will be in a strong position to face future regulation.
display the true cost. Wilson says he would warmly welcome non-regulated lenders following suit as it is good practice. Paul Day, director of business development at Clever Lending, adds that true cost is very important, especially over the product period as this allows for comparison. He says there must also be the assumption with true cost that customers will pay in accordance with the prescribed agreements. “When customers fall outside these agreements, they should be aware from the outset of any additional costs they may incur,” Day says. Rob Ground, director at AK Partnership, also argues that true cost is very important and he believes lenders are increasingly becoming more active in making sure they inform borrowers what they are getting themselves into before engaging in a contract. Chris Whitney believes that total cost of funds is obviously one of the major factors when choosing a lender and that it is incumbent on the broker to work this out, if not obvious, and advise the borrower. He says that the industry should try to bring more transparency in this area. “It would be great if the industry had a prescribed format for doing this to help transparency, but I do not see that happening anytime soon,” Whitney adds.
As well as transparency with rates, transparency is also seen as significant in terms of the language used when communicating within the industry. As a consensus, the industry believes using less financial jargon would help the borrower. www.specialistfinanceintroducer.com
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Mark Posniak says a good lender will always use clear and easy to understand language with the end borrower, otherwise the risk of a misunderstanding is more likely to arise. “Put it this way, a borrower should not need to refer to a thesaurus when taking out a loan, however big or complex it is,” he says. Rob Ground says it is very important the borrower understands what they are doing, hence jargon is not something that should be seen in any documentation. “It needs to be reduced or eliminated,” Ground says. “I’m sure that is improving all the time. “There is no doubt some consumers would find some of the language hard to understand and that depends on how sophisticated the borrower is.” Ground goes on to say it is very important for borrowers to use an intermediary who understands the market. Fairer Finance is one organisation that is at the forefront of increasing transparent practices in this sector. It is a consumer group that campaigns for a fairer finance market by working with businesses, the government and regulator as well as giving free advice to consumers to help them make informed decisions. One recent campaign entitled ‘spare the small print’ aimed to show consumers the importance of reading the small print in documents. The group works with businesses by analysing hundreds of terms and conditions and policy documents and suggesting ways to make them clearer in terms of language and design. The organisation even offers to rewrite entire documents. Andy Reid argues that lenders should remember that their communications are written for the benefit of the customer, and the language used should reflect that. “There is certainly an argument for an industry-wide, voluntary code for the language used in communications and marketing material, and a standardised explanation of what each of those terms mean,” he says. Matthew Arena, managing director of Brilliant Solutions, emphasises that financial jargon is one area that we should be asking those from outside the industry about as it is so easy to forget the amount of jargon we all use; this being the case in many parts of the financial services world. “I am sure the industry can do better, but we are not aware of any lenders that deliberately mislead in this manner though perhaps they are out there,” Arena says.
The Financial Intermediary and Brokers Association (FIBA) is currently busy campaigning for more transparency in the short-term lending market. It is collecting information around default fees from all its lender partners and aims to publish that information within its lender directory so its broker members can see it when advising a client. Adam Tyler, executive chairman at FIBA says so far, he has not found any lender members mistreating their customers.
“One recent campaign entitled ‘spare the small print’ aimed to show consumers the importance of reading the small print in documents. The group works with businesses by analysing hundreds of terms and conditions and policy documents and suggesting ways to make them clearer” “Most of the lenders we have are all doing the right thing,” Tyler says. “The right thing would be to work with the customer and make sure they know from the outset what the fees would be if they do not repay during the time period. “It was instigated by brokers and lenders coming to us as a trade body, saying something needs to be done and asking us to get involved, and of course we have.” Tyler argues that FIBA wants transparency over fees, including lenders being more transparent over the whole raft of other fees, particularly fees borrowers pay when they go over the term. “Other than the published rates, it is the rates that are not so visible and we want transparency with that,” Tyler adds. “We are campaigning to make sure these are more transparent from the outset by the lender, so the broker and solicitor can see the fees in an easy to see format. “We accept lenders have to charge additional fees appropriately to ensure a timely return of funds, but we want to make sure they are more visible. “It is making sure it is open and transparent. I think this is the start of something.” Mark Posniak commended FIBA for this, saying they have the right approach. “FIBA are certainly pulling from the front with their decision to make all their lender members publish their default interest rates,” he says. “That is setting a good precedent for the industry as a whole but I think both associations can do more to name and shame those lenders that act inappropriately.” Benson Hersch, chief executive at the Association of Short Term Lenders (ASTL), highlights that a key objective of the association has been to achieve greater transparency in the industry. “We are committed to developing a culture that encourages the clear labelling of all fees and charges from the outset,” Hersch says. “The association has stressed this from its conception in 2008, and has continuously sought to ensure that transparency is a key requirement for members. “When I took over the position of chief executive in 2012, the code of conduct was expanded to reinforce this. The code has since been further clarified on an ongoing basis.” This code of conduct, to which all its members www.specialistfinanceintroducer.com
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The scandal of high default interest rates The level at which some lenders charge default interest rates, of 3% to 4% per month, and then the way they try and gloss it all over by referring to them as standard rates, is nothing short of a scandal. Worse still, it is a scandal that is damaging the perception of the industry we all work in. With more and more borrowers being forced to go over term in the current slow-moving market, more people are going to be stung by this sharp practice. I’ve even heard on the industry grapevine that some lenders are charging 5% extension fees, which is mind-boggling. What you’ve basically got is a number of lenders out there who are structuring loans over terms that are never going to
Mark Posniak managing director, Octane Capital
subscribe, says a member should always seek to disclose to the customer all fees and commissions or other financial benefits payable by that member to a financial intermediary, broker or third party in connection with the customer’s loan, including override payments that might be made in the future. Paul Day from Clever Lending argues that trade bodies do sound the voice of their collective members to provide an industry view on key discussion points as well as providing interpretation, guidance and advice to support the industry with the best practices. However, Andy Reid argues there is always room for more to be done by trade bodies, and by lenders themselves. “The code of conduct plays an important role in looking after the interests of borrowers and maintaining the reputation of the industry, but the standardisation of the key technical language used by lenders is a good example of how we can improve transparency for borrowers,” Reid says. He goes onto say that any such codes of conduct should be regularly reviewed and amended if necessary, dependent upon market and policy changes.
Is more transparency needed?
MT Finance’s sentiment survey in April 2018 revealed that none of the broker respondents felt the need for lower rates or further transparency. However, now it seems most would welcome more transparency or even call for it. Amadeus Wilson argues some lenders are better at being transparent than others and SPF would welcome
be long enough with the deliberate intention of hitting the borrower with default interest. This enables them to make up for the loss of margin they are experiencing as a result of the saturated and highly competitive market. Sadly, this is the only way some of them are able to compete. Where they are being especially duplicitous, though, is in the way that they refer to their default rates as standard rates and the standard rate as a discounted rate. This means they can avoid being accused of charging excessive ‘default’ interest rates because the borrowers being punished are simply on their standard rates. It was a clever ruse for a while but the game’s
now up and these lenders have got nowhere to hide. It is great that FIBA have started asking all their members to publish their interest default rates and how they charge them, so it is an issue that is now being addressed. We are encouraging all brokers to ask lenders about their default interest rates and the way they charge them so as not to be caught out. It is certainly in the broker’s interest to do so, as if a deal over-runs and the client ends up getting hit with a ridiculously high fee or new rate then the broker is going to cop some flak. It is potentially brand damaging stuff for a broker and could lose them clients and really hit their business hard.
more transparency across the industry. Dean Brown argues more transparency is needed, in particular with additional costs and penalties which are often put into the terms and conditions documents. “Key points should be flagged at the front of any legal pack for borrowers and their solicitors to take note of,” Brown says. “Some are good at doing so but this can be improved further.” Furthermore, Reid says there is always room for more transparency, and improved communications. “We have a duty of care to the broker and borrower to ensure they are fully conversant with products, processes and fees,” he adds. Mark Posniak also makes the argument for more transparency but is thankful that the majority of lenders already are. “We need to root out the ones that aren’t, who are dragging us all down with them,” he adds. Matthew Arena argues that the transparency debate has been ongoing for years and very little progress has been made. “There was a time when I thought that self-regulation would work and that things were improving but so many years have passed and the regulated environment is a much safer place for a broker and client to be in,” he says. “The disparity between sectors is huge and that is not right.” Arena believes there may be a short-term hit on cost to switching to a more transparent model, but it will help build a more mature market which will be beneficial for all. www.specialistfinanceintroducer.com
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Transparency is everyone’s responsibility speed. If you prepare beforehand, this need not take any extra time.
All parties in the chain need to take responsibility for transparency of fees and charges. Lenders They should update their systems and documentation to produce a fully transparent loan illustration. It is that simple. Packagers and specialists The information is there if you ask for it, lenders are not obstructive when you ask the right questions. As specialists, you should also know the detail behind the terms and get to build a relationship with a lender that gives you all of the information and assurances you need. This is the model that we operate under. Many will know the detail but not present all of the facts and it is all done in the name of
Chris Nairn mortgage compliance director, New Leaf Distribution
Broader transparency Much of the dialogue is around transparency of fees and charges but the process and terms issued are often misleading for the broker and if it misleads the broker it will certainly mislead the client. Indicative terms are thrown out in minutes on occasions, after almost no information is requested. This is a hook to get the broker to
With the consensus for more transparency, there are various ideas suggested to achieve this. Amadeus Wilson calls for more consistency with lender documentation, saying it would be a real bonus for clients so they can compare products. Jack Coombs believes less fees should be presented as ‘TBC’ in quotes. He argues that there should be more clarity and granularity on redemption statements and alternative routes on the backend. Dean Brown suggests a vetting process before any new lender can be created and lend money to clients that are putting their assets at risk. “As many of these loans are unregulated, there are numerous new bridging lenders being created which is saturating the market and reducing the quality,” Brown says. “Whilst I am not suggesting that all of these loans should be regulated, there should be a requirement to adhere to a code of conduct which could include a cap on fees and penalties.” Similarly, Rob Ground says regulation would help the bridging industry to remove some lenders that are at the higher end of the cost spectrum charging more. One option, suggested by Andy Reid, would be to introduce award categories that relate to transparency and the quality of communications from lenders. “This would provide a further positive incentive for lenders to compete with each other to ensure their communications are amongst the best in the market,” Reid adds.
Brokers Make sure the information you are presented with is fully comprehensive. If you have any doubts, ask the question. That will no doubt move up the chain and you will get the information you need. It is just a shame that you may need to ask.
submit and is used by many in the industry. Brokers are used to the openness of the regulated sector and get caught out when that 85% deal at 0.49% with no fees transforms into a 65% deal with treble the real cost… them and their clients are often committed at that stage. Companies need to look at that approach and consider whether that is appropriate. We do not operate on that business and it sets us apart from many in the industry. Brokers too need to consider whether they have given enough information or been asked for enough information, after all, short term finance is higher risk, hence the cost. If it is higher risk, shouldn’t they be expecting a lot more information being gathered initially?
Matthew Arena calls for a non-regulatory version of the European Standardised Information Sheet (ESIS) which includes default interest payments and all relevant charges. “The basis of them would go a long way to solving this,” Arena says. “Also, the industry really lacks a decision in principle framework.” While Chris Whitney believes lenders can do more to help brokers see the true cost of funds and also be more transparent from the outset as to what will be required for a specific loan to complete, he also puts responsibility onto the broker. “I think that brokers could do more to undertake better fact finding with borrowers from the outset and disclose all relevant information in a clear efficient manner,” he adds. It has been found that a majority of lenders are transparent when communicating their default rates and fees. The industry, with the help of trade bodies, has reportedly come a long way however this is the responsibility of both brokers and lenders. FIBA has been applauded by many for its work in declaring members’ rates. “Excessive default rates can be an issue in the industry but are generally confined to a select few lenders,” says Amadeus Wilson. “Increased transparency would be welcome so that borrowers know the ramifications of excessive default rates and understand what they are getting into.” www.specialistfinanceintroducer.com
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Staying on track Aligned approach can drive growth as well as standards
There seems to be growing consensus that it will only be a matter of time before FCA regulation comes to unregulated SME lending and that, as an industry, we need to come together sooner rather than later to ensure we are in a strong position to meet the new regime. Regulation is not created for those lenders that follow best practice, but for the bad apples; so we have a collective responsibility to ensure we operate to a code of conduct that protects our investors, our borrowers and our sector. We must place greater emphasis on high standards of underwriting, training and education, and we must do this sooner rather than later as this may save the industry from over-zealous regulatory intervention. We have a window of opportunity for lenders to support an organisation like the ASTL to take the lead, to ensure the industry follows a code of conduct that ensures customers get the best deal,
are not misled, and can encourage the FCA to take a pragmatic approach to regulation. This isn’t just a defensive manoeuvre – by aligning to high standards we can also help to stimulate the growth of our sector. Another area of common consensus is that bridging lending will only truly realise its full potential for growth if more brokers enter the market. Bridging lending has evolved to become a very useful source of funding for a number of investment and business scenarios, and the competitive lending landscape has helped to make bridging finance more attractive for borrowers. But, when it comes to distribution, we are still limited to a relatively small number of intermediaries and this is impeding the growth of the sector. As more lenders have entered the market, more businesses have put more time and investment into promoting the uses for bridging
Benson Hersch chief executive, ASTL
finance as well as their own brands, but attracting more brokers will require more than just education about the opportunity. We also need to demonstrate to brokers that bridging is a market in which they will feel comfortable providing advice and with which they want to be associated. This
“Regulation is not created for those lenders that follow best practice, but for the bad apples” means a joint approach to delivering transparency, consistency and high standards of underwriting. Now is the time that we need to work together to demonstrate our collective commitment to quality lending and discourage any potentially heavy-handed regulation. In doing this, we will also help to raise the profile and reputation of our market and this will, in turn, encourage wider distribution opportunities and the further growth of our sector. For any responsible lender, it is important to have a good understanding of the environment in which we operate, particularly during this time of so much political change and economic uncertainty. And so, we are pleased to be able to do our bit to help, with a programme for this year’s ASTL Annual Conference that includes economist, Roger Bootle, Rob Elder from the Bank of England, Lucian Cook from Savills and Lynda Blackwell who was mortgage sector manager at the FCA. www.specialistfinanceintroducer.com
in association with the Irish Medical Socie
An interview with…
Deirdre McManus, former Head of Sales at Bristol & West, the founder and principal organiser of the Broomstick Ball.
What is the Broomstick Ball?
The Broomstick Ball is an annual black-tie evening held in aid of Cancer Research UK. I think we are all aware of the great work CRUK do and the great strides they are making. This year will be the Broomstick Ball’s 20th anniversary. Over that time it has become recognised as one, if not the biggest, charity events in the property/ financial services calendar.
The ‘Broomstick Ball’, I’m guessing it’s on 31st October - Halloween?
That was the original idea. We identified it as a date when there were the least industry awards evenings and it reflected the fun we set out to have, while raising funds for a great cause. As the years have gone by however, ‘Halloween’ has grown in popularity beyond all recognition and sadly it no longer makes financial sense for the charity to hold it on or near Halloween.
What day will the Broomstick Ball be this year?
This year it will be held on Thursday 21st November, the latest day in the year that we have held it. It’s really important that we get the best venue at the best price to ensure that we raise as much money as possible for CRUK. The Broomstick Ball has become so well-known throughout the industry that we are reluctant to change its name even though it is not held in October.
Where will the Broomstick Ball be held?
We are very excited that for the 5th year it will be held at the Leonardo Royal Hotel London St Paul’s, next to St Paul’s Cathedral on Godliman Street, previously known as the Grange Hotel.
Is the Broomstick Ball well attended?
On average we attract around 400 guests, from a wide range of lenders, solicitors, valuers, brokers, introducers and intermediaries. It is a great opportunity for people to network, as well as say thank you to those who have been loyal customers over the previous 12 months; and all in the name of a great cause. If I’ve done my maths correctly that is over 8,000 guests over 20 years.
How much money have you raised over that time?
So how much does it cost for a ticket?
It is essentially £195 per ticket. We think this is a great price for a three-course meal in a top London hotel with wine and a champagne reception. A company will take a table which seats 10 or 12 guests. This year however, conscious of our ever evolving landscape, we have introduced shared tables for 6 guests, for those smaller and newer businesses who want to be a part of the evening but their budget doesn’t quite stretch to a full table. We think these shared tables will also be a great networking opportunity for those businesses joining us for the first time.
Who attends the Broomstick Ball?
There is something for everyone at the Broomstick Ball – a great auction; heads & tails; a dance floor and casino. As a result, we attract a really diverse group of people from leaders of the industry through to the executives being rewarded for their hard work. In addition to industry professionals, friends and associates of the table sponsors are regularly spotted in attendance, supporting this worthy cause. Media partner
More information can be found at:
We have raised in excess of a fantastic £1.2m since we began. An amazing testament to the property/financial services industry which has a reputation for looking out for themselves, however this just goes to show how charitable an industry we can be.
Build a Better Bridge
Getting the most out of bridging finance Can bridging be used to help your clients with difficult circumstances? Our experts answer your questions My partner is a solicitor and I am a doctor. We have bought a plot with planning for a home for us and in conjunction with the architect have developed plans for a super-eco-friendly property that requires use of some materials which are considered to have a zero-carbon footprint, are extremely thermally efficient but are certainly not traditional would this construction be acceptable to a bridging lender and can we obtain development funding? Phil Mabb: Interesting proposition and congratulations for your contribution to sab and I suspect driven by primarily by the exit post development. By that I mean any lender will focus on your ability to secure a term loan at the end of the development to repay what is due to them. The vast majority of bridging lenders will run scared from a non-traditional build because their lending covenants will not allow them to facilitate supporting such a project. However, others may be able to take a view, particularly if they were minded to research eco-friendly or green mortgage lenders such as building societies where there are a number of specialist long term-lenders.Without knowing detail of the costs associated and Gross Development Value (GDV), nor for that matter your personal financial circumstances, it is difficult to gauge what appetite there will be, but assuming a sensible LTV at practical completion and with income of a lawyer and doctor being above average, I think with the support of a well connected broker you should be able to secure the funding you need. Mel Fordham: From what you have described, I know several bridging lenders that will consider assisting you with funding to build a home which has a low carbon footprint and is environmentally friendly. In the main bridging lenders are aware of their obligations to assist in these matters, by providing innovative and pragmatic funding solutions to what seems to be un-resolvable issues. From my experience, I have found that whilst the bridging lenders are willing to fund such projects 26
Phil Mabb property finance broker, Bridging Development
Mel Fordham chief executive, Centrado
they falter for two reasons: firstly, the property has to valued and assessed as suitable security for mortgage purposes by an independent firm of surveyors. The surveyor, in providing his valuation, is risking a potential claim on his firms professional indemnity, due to lack of comparables and unusual construction, is normally very pessimistic. In some instances the surveyor will confirm whilst the property is highly efficient and has a low ecological impact, it does not represent security for mortgage purposes due to the potential low demand of subsequent buyers. Secondly, some long-term lenders are simply not prepared to take the risk of lending on any property which is not considered “traditionally built”. So, to be constructive I would suggest that you seek both bridging and long-term funding simultaneously, as I am sure if you can get a firm commitment from a mortgage provider to repay the bridging finance at completion. I have been offered a house which is being sold via a local agent on behalf of the National Crime Agency. The property is in need of a great deal of decorative attention, but has no structural issues. However, I have two issues, firstly; currently there are 14 people living in the property and there are no tenancy agreements in place. The agent advised they are occupying the property illegally and notice has been served to vacate. Secondly; I do not have a great deal of available cash as a deposit, but do have only a very small mortgage on my home and my father, who lives and works overseas can send my cash, but it will take up to three months before he can get his funds released – is there a solution please? PM: This is a transaction that comprises three parts - dealing the illegal occupier, dealing with your financial situation and finally the support of your fathers’ proposition (if indeed needed). What you have not stated is your long-term proposition for the property i.e. retain to occupy, refurb to sell or retain as an investment buy-to-let. Further the associate
Build a Better Bridge
costs of the purchase price and refurbishment are missing - both key drivers at the outset, so the comments that follow make assumptions that the scheme is modest in terms of things like costs, LTV, your competence to complete the project and your ability to secure an exit (if retained). Starting with the occupiers – they have been given notice, so perhaps you should only consider buying with vacant possession – then at least you can get on with the refurbishment. Taking the site on with them still in-situ, and bearing in mind your cash position will not seen favourable with many lenders, and frankly why take on someone else’s problem (i.e. the vendor)? There is clue in the fact that the NCA are selling and who knows what the occupiers are about? If you are brave enough to entertain buying with some occupants still around, you run the risk that the house continues to deteriorate – again something that would put off a prospective bridging lender. Moving to your financial situation, and assuming the purpose is either to sell or retain on an investment buy-to-let then raising a second charge on your private residence would be deemed as for business purposes and provided the existing lender agrees, should allow you to capital raise now to contribute to the scheme.
refurbishment, and something potential lenders will also have an eye on. For example, if you intend to live in the building you will need to work with a regulated mortgage broker and lender. Bridging lenders will then need to take comfort in your ability to service debt on a subsequent mortgage. On the other hand, if you intend to create a buy-to-let, and bearing in mind the pending changes to tax relief in the buy-tolet market, you may want to create a limited company vehicle to take ownership of the asset. Consequentially rental income cover of long-term mortgage payments will be a key driver. Then of course you may simply want to sell the house. So, it is worth taking advice from an accountant and possibly a suitably qualified lawyer now, as it will impact how we address the funding of the transaction. Notwithstanding the above, this transaction is ideal for bridging finance with the refurbishment to the house conducted prior to securing a long-term finance solution. The modest LTV requirement is favourably, and the issue surrounding the structural problem readily surmountable. As such there will be plenty of interest in the market allowing a (regulated) broker to secure good financial terms for you.
MF: If you are serious about this purchase it is critical you agree a deal “subject to full and vacant possession” you may need (as part of any funding offer) to arrange for an independent surveyor to inspect the property prior to completion to confirm the property is vacant. With regards to the deposit, it is possible to take a bridging facility on a second charge secured on your main home, however you will need to prove you have reasonably good income in order to service the facility should you have to. In the same respect the lender will require confirmation your father does have the funds to give you, confirmation the property you are buying will be mortgageable to a high enough level on completion to repay all the bridging or the property will increase in value to clear the borrowing if it is your intention to sell.
MF: Firstly, if you have a copy of the structural report, re-approach the firm that carried it out and ask them if they could update their report. Whilst this may be the most cost effective, easiest and most robust, there will undoubtedly be a charge and the firm may want to send a surveyor out to re-inspect the property. Provided the firm is suitably qualified, has the required levels of indemnity and is acceptable by the lender you have applied to, if the report makes the same conclusion I can see no reason why the lender will not agree the facility. If, however, you are unable to get the original report updated you have a couple of options; Instruct another firm of structural engineers to carry out another inspection and prepare a report. This may confirm the findings of the initial report or may conflict and recommend you complete remedial works, in order the property is bought to a mortgageable standard; costs of which should be considered in the payment to your brothers. Should you feel confident with the original structural report, are absolutely satisfied the property is sound and want to progress matters with your brothers there are lenders that will consider the property in its current condition, and despite the structural integrity being jaundiced, it will still have a value, albeit diminished. The lender will be prepared “in principle” to advance you around 50% of the current value. This option is clearly the most straight-forward; it is clearly the most speculative and could leave you extremely exposed. In this respect, I would strongly recommend you obtain qualified independent advice before proceeding.
My mother recently passed away and left her house valued at around £500,000 to my three brothers and I. The property is in a very bad state of repair and is in need of significant works to modernise it. I have agreed with my brothers to remortgage it for £125,000 in my sole name and buy out their interests. However, the surveyor who inspected the property advised there is deflection in the back wall and the property is not considered security for mortgage purposes. My Mother had a structural survey carried out some years ago and the report confirmed the movement was historic and non-progressive. What can I do? PM: Firstly, sorry for your loss. To begin with, we need to give consideration of your intentions post
Our experts discuss how to improve communication in the bridging market and the upcoming Brexit deadline
An uncertain future Jessica Nangle: Packagers and brokers differ as do how lenders work with them. How can lenders make it easier for brokers to know what they need and expect? Gary Bailey: Brokers complain about the service lenders provide, but you also have the other side of the service the brokers provide to the lenders. I think part of it is quite simply knowing what service proposition you have. Brokers go to the lenders that can do the deal, but do lenders want introducers and packagers? I’ve heard recently some lenders have bypassed packagers including contacting them within 48 hours of the case going through. There is obviously a shift for some lenders but I think they need to be transparent about where they go to and come up with the right proposition so then they can support them to provide whatever guidance they need. We’ll forever have this issue around service either from brokers or lenders until that is cleared up. Brian West: You’ve heard some lenders have been bypassing packagers? GB: Traditionally they’ve been packager focussed, but from rumours I’ve heard this is happening. My definition of a packager is someone who’d bring everything together up to the point of submitting a valuation. They are a broker effectively. Some even call them distributors. Sonia Shortland: Is it that some lenders have been going direct to the introducing broker to cut them out or for underwriting purposes? GB: You have the packager and master broker who have been contacting the introducer to the master broker. Lenders may diminish the quality if they go away from that distribution level.
BW: I’d only ever contact a sub-broker if I had the prior permission of the master broker or master packager. Sometimes you need to, there is that element between sub-broker and master broker, because of a lack of trust between the two of them, with a breakdown of communication between them making the deal go nowhere. GB: I think this was more of trying to take the business directly away from that introducer. SS: That is short-sighted. Jonathan Sealey: You’ll potentially lose out on dozens or hundreds even of deals from that broker. GB: And you’ll get a service issue as well. Whatever quality they are they’ll be at a lesser standard than the master broker. Alan Dring: I think the conversation needs to be had between that particular broker, distributor and master broker because it is normally the breakdown of the broker saying the master broker is not doing what I thought they would be doing, and I’ve experienced
that. Packagers started in the 1980s because there wasn’t trust by the majority of peripheral brokers doing traditional stuff and it was an easy route to market. The reason lenders try to circumvent is that the master broker is not doing what the lender hoped the master broker would be doing. They say ‘I’ll go back to the broker and find out’ and you end up with a middleman who is extending the process. Eventually the competent broker circumvents that and rings the lender directly. BW: On occasional situations you can end up with two relatively incompetent brokers who don’t talk to each other and in that case I obtained permission to speak to the client directly. It was the only way to get the deal across the line. They both got their cut but sometimes it’s almost worthwhile paying them to get out of the way. GB: In the instance I was describing it was the lender circumventing the distributor so it’s not necessarily saying the service wasn’t good from the distributor but it’s them looking to gain further distribution. Lenders need to decide what the distribution channels are and that way you’d get the quality you are expecting.
(From L to R) Sundeep Patel, Together; Alan Dring, The Mad Approach; Phil Mabb, Bridge Development; Sonia Shortland, Apex Bridging; Matthew Tooth, LendInvest; Gary Bailey, Hope Capital; Jonathan Sealey, Hope Capital; Brian West, Central Bridging
Everybody wants to increase distribution. Make it transparent and don’t circumvent things. It’s unfair for the distributors in this world, naturally their volumes would decrease. BW: You can circumvent. There is a difference in circumventing in order to get communication and the deal across the line and you pay them, from doing so in order to gain access to the client. In a way you are paying them to get out of the way and let you crack on with the deal. When there are too many leaks in the chain everything can get lost to communication. It’s worth treating them correctly and paying commission, but in order to get the deal across the line. GB: That makes absolute sense.
JS: Every packager is different. Some want to do everything and be copied into every email and there are others who don’t want that and don’t want to be involved in the legals. You have to know the broker. GB: You need that service proposition to suit everyone. Sundeep Patel: The expectation of one master broker differs from another immensely. Some want to be in control of it and are very good at it; these would be preferred brokers for us because we can see the customer outcome is a focus for them. Whilst with others it is difficult to liaise with and we have to try to find a way to get it done. There is a customer at the end of it and we have to find a way to get the outcome. JN: Should there be a standardised form in bridging to aid with transparency and default interest? If so, what should this look like and who should drive it forward? JS: How many times has this been tried in the market, to get a standardised form? I’m not saying it’s not a correct thing to try and achieve but how many times have we tried to do it and it hasn’t come to fruition? You have to try and understand why.
GB: When you look at regulated transactions, mortgages, bridging finance and second charges there is mortgage illustration that is consistent whoever it is. There may be minor changes but it’s consistent thus easy to compare for the client and the broker. It is a challenge we’ve heard throughout the industry with pricing and default rates. Should there be a form that sets out the overall cost and shows what it looks like from the beginning of the loan, throughout the loan and even beyond potentially? Because there isn’t that consistent approach we’ve taken the approach of having video calls with clients and explaining everything very clearly to ensure they know exactly what they’re getting into. With transparency could you get all the bridging finance lenders to sign up to a consistent approach? I think it’s something perhaps some of the bodies could pick up like the ASTL, FIBA and NACFB. BW: As far as I’m aware it’s under discussion between the ASTL, FIBA and NACFB. It does need to be pulled together. The NACFB have had a go and others are in talks. I’d expect news of that in the not too distant future. Matthew Tooth: In your business you can have a principle of transparency which doesn’t necessarily involve an industry standard but just you are disclosing the fees which is good business and protection for allegations such as mis-selling. You can be transparent without having a standard. BW: Transparency should be a given. It’s something the ASTL built into its values charter over three years ago in terms of complete transparency from the start of the process. In terms and offer letters everything should be transparent. The issue is that there are only around 34 or 35 members in a market of around 250 bridging lenders.
“Every packager is different. Some want to do everything and be copied into every email and there are others who don’t want that” Jonathan Sealey
SS: Even if you’re transparent some brokers don’t pass all of that onto the borrower and when you’re talking to them it’s the first time they’ve heard about it, even though your documentation is clear. Without there being one platform for brokers to be able to advise from and without there being one set of standard forms like a mortgage offer, it will always be really tricky to work out what each and every lender does. GB: That takes it back to the lender and broker and the right proposition between them.
AD: The ASTL in my opinion has an obligation to progress a standardised form that is optional. It’s designed to be an aid and most trade bodies would work towards supporting that. It’s helpful having a charter but the actual development of a form that would hopefully be contributed to by the members that is an optional use, is better. I’d think if only 50% would see it and then engage with it and over time it gets modified for best purpose that would be good. I’ve been told the new head of the ASTL will be a part-time function and I disagree with that. BW: The NACFB has 1800 members and X number of patron members. The ASTL needs more members. AD: That’s when you get a full-time function with support. The NACFB a few years ago weren’t in the advantageous position they are now, nor were FIBA. FIBA were fortunate with their sponsorship and NACFB with their membership contribution. If the ASTL has a future it’s got to have 70 members and affiliate members who contribute to the proposition. Phil Mabb: FIBA created an aide for bridging application forms which was quite simplistic. FIBA and the ASTL had a joint meeting with probably 20 plus lenders, half a dozen lawyers, four or five brokers and packagers. We were talking about default rates and Adam Tyler, who had already collected a lot of data so far, said he couldn’t disclose what it is but claimed there was a huge disparity between things. We picked on a name not represented at the table and started critiquing it for their enormous default rate. I’ve heard before, ‘but they don’t apply it’ but you can’t put it in and not apply it, you either have it and apply it or you don’t have it at all. As a broker I have to explain it. I take the draconian level when explaining it to clients and say ‘if you don’t pay that back on time, expect that whack, because that’s what you’re signing up to’. Whether it’s the lender, broker, master broker or anyone else, they are obligated to explain it. If you are pushed to taking a client to a lender whose fees are draconian you have to make sure you handhold them throughout and give them an opportunity to exit if they don’t exit according to their normal needs. There is a way of avoiding the big whack at the end. Some lenders provide an offer a client can take and others can’t. As long as they are explained all the way through. It’s all about motive, if the motive’s right it shouldn’t go wrong.
“Could you get all the bridging finance lenders to sign up to a consistent approach?” Gary Bailey GB: If there were a collaborative approach between the ASTL, FIBA and NACFB, it would have a lot more power than individual silos to drive things forward. JS: I think the ASTL and FIBA have tried lately, they’ve done some roundtables. GB: It’s great for the industry. AD: AMI is a very good example of how over the years it has morphed into something both beneficial, cost effective and respected but it’s probably taken Robert Sinclair about 20 years to get where he is. But that’s because you had a dedicated, experienced full-time professional who was respected and knew what the agenda was. JN: Technology has been a talking point within the industry as of late. How can technology be further integrated in the bridging sector? How can it become more important or less important going forward? JS: We do video calls with the borrower where we go through all the same details of the loan. Recently we’ve
JS: I’ve seen valuation reports of a representation of what the kitchen will look like. That’s not the actual kitchen! SP: Is that live or recorded and sent to you? GB: We have the capabilities of doing it live but at the moment we do it recorded, not just from a resource and efficiency point of view but it’s something that as an industry we need to try and test. BW: Over time you’ll always be looking at ways to refine and trim the process and speed up the turnaround times.
“Lenders want to lend and borrowers want to borrow and we need to build houses” Phil Mabb brought in video valuations by our valuation panel and our asset will film the property as they go around. It gives us a bit more of an in-depth idea of what the property is because we haven’t seen it ourselves. Valuation reports have always been the same and I’ve never seen anything other than a paper valuation report in my experience. We’ve never moved forward. I can’t believe we’ve only just realised that we can do video valuations whether real time or recorded with the valuer or asset manager and they can point out any issues with you. That’s before they get back into the office to write up the report. That saves us time and the customer journey becomes easier and better. It’s just little things like that. BW: I’ve always been a strong advocate of full internal valuations, not just because you get the insight into the property and the stuff you couldn’t possibly get from an automated valuation, but by going into the property you can tell so much about the client. JS: And they’re meeting the borrower at the same time at the property. BW: I remember front valuations used to be the front and back of the house and added to with a photo of the kitchen and bathroom and you can tell a lot about the potential borrower from the state of their kitchen and bathroom.
JS: Perhaps people get used to doing things the same way and thought ‘this is just how things are, let’s keep it that way’. AD: You have to quantify the benefits. They have to be reinforced by valuers so you have to get the right platforms. You start through the media being exposed and then get onto the relevant platforms like the ASTL, where you get the advocates talking to people about the benefits of this type of approach. What happens in my experience is these things are developed in silos and it looks great and before you know where it goes, it hasn’t been mentioned to the valuers. The collaboration does not exist in this sector to the extent it should do. If people stand up as a group and define the benefits and how those benefits translate into growth for all parties, you have a winner. GB: For some valuers it will be quite scary and there will be resistance. Unfortunately, and with no disrespect to valuers, it’s an ageing population with very few new guys coming through. We spoke to some valuers and some are considering how they can implement this, but I think it could revolutionise valuations. If they’re doing this live stream would it diminish that sector for them and does it mean they’ll lose business? For commercial where it’s more complex you need that full valuation. BW: You strengthen the valuers’ proposition because if many bypass that internal inspection, which I think is crucial, you’re looking to not bypass it but to enhance it. Lots say with technology instead of a drive by you can get a fly by with a drone, but would a drone pick up dry rot inside the property which would cost £200,000 to put right?
SS: With time I think valuers will enjoy it and it’ll be much easier for them to show us the phone and what’s going on rather than go back to the office and take measurements and do floor plans. I always really enjoy looking at floor plans because they give you the real feel of the property. Rather than doing five or six properties a day and writing floor plans it’d be so much easier for them to have an app on the phone. PM: When I did my diploma in home reversion in 2008 which became abolished, it was there for speed. I learned there was a lot of documentation that had to sit in case there was a claim made. I think there’s a solution already there but I’m not sure how you can get a valuer to do all those things and keep up with the speed needed in the bridging industry. In the term loans and commercial sector, I get it. It’s one of those that whoever cracks it could make a small fortune. JN: The deadline for Brexit is 31 October. What do you see happening, and do you think it will impact business in the latter part of the year? JS: Everyone here could give a different prediction and none could be right.
JN: Has LendInvest seen any impact from Brexit? MT: Not so much in refinance which just goes on. In fact, refinance with buy-to-let just gets accelerated with the uncertainty. There has been an impact with purchase activity, but overall you wouldn’t notice. There’s definitely been an impact on developers’ beginning schemes and an impact on exits being sold. The best outcome for the industry would be a lastminute deal but it could be very last minute and could involve giving something up in Northern Ireland and doing something they’ll only mention at the last minute. It could be hanging those guys out to dry which I wouldn’t put past Boris. Probably the best outcome for the industry is a deal. BW: I was at an event where Andrew Marr was the guest speaker. He was pretty adamant we’ll be out of the EU by the end of this year which was quite interesting. I don’t necessarily share that belief. At a different event, a journalist from the nationals said that there was in excess of about 20 Labour MPs who strongly regret not voting for Theresa May’s deal and if some sort of deal comes back, those 20 plus MPs will swing behind it.
GB: I think there are a number of scenarios that could play out which, although are all unlikely, none are impossible. We are in unchartered waters now and specialists can’t predict what will happen. Boris Johnson is willing to disrupt everything and with Jeremy Corbyn there are MPs in his own party who don’t want him to be Prime Minister. I think the only thing we can hope for is that Boris comes out with a deal. I think that’s the only direction they can take it now rather than try and find loopholes in all the other stuff. The answer is to find a deal. BW: There’s the argument that taking no-deal of the table and forcing Parliament to come back has undoubtedly weakened his negotiating position with the EU. That’s a bit of a shame. JS: We’ve ruined our only card we had to play. It’s ridiculous. BW: You don’t go to DFS and ring them beforehand saying you’re definitely going to buy a sofa. You go in prepared to walk away and if you do everybody gets a deal.
“Is there any place in the specialist market for a specialist club that would deliver against all the issues we’ve spoken about?” Alan Dring
JS: It could be the same deal that Theresa May got. BW: It’s not going to be very different. There’s a theory that by continuingly postponing Brexit for six months we avoid going into recession because we go into recession for one quarter when the postponement has been granted and the next quarter numbers go up because everyone has been stockpiling. JN: What other issues do you see besides Brexit? Are there any issues or anything else you’re worried about for the rest of this year and next year? PM: I think there’s a lot of pent up demand and it’ll be an exciting place to get on with. Developer exits are already maxed out. I think we all just want to get it over the line. We can’t determine what the outcome will be in real terms but at least we will know and then we can get on with it. Lenders want to lend and borrowers want to borrow and we need to build houses. BW: In the UK, and particularly in London, if a deal gets done there will be a boost in terms of a feel-good factor. If a deal is not done and we come out on a no-deal basis, then there’s reason to assume Sterling will continue to devalue, we become more attractive to overseas investors and the market kicks up anyway. The London market ticks up if we get a deal or not and if London starts to move in the right direction then other areas already moving in the right direction benefit further. SP: A lot of landlords are stockpiling their equity like they did before the buy-to-let tax changes. They’re seeing it as an opportunity and are waiting for the
outcome, whatever it may be, and are waiting to pounce. They have the power to do it. We’ve been at these landlord events talking about bridging. The only concern is exits; a lot of their exits are weak and it’s about educating them. In terms of opportunity I think it’s there and I agree demand from foreign investors is still there in London. Once it happens everyone wants it to happen and get it over with but from our point of view there is opportunity. AD: If it happens and we’re confident things go forward what’s your feedback about material supply meeting demand? GB: I think there are two things. I don’t think there will be a massive boom. The key to whatever happens with Brexit, whatever Brexit it may be, a deal or no-deal, is the timing of clients. Some will pull wait and see how it all weighs up, others will see it as a big opportunity and jump in straight away. I think the banks will have their own challenges. The mainstream will have their own challenges trying to adapt into a post-Brexit world even though they’ve planned it. That will be a huge change for them and that will help the demand within our sector. Part of the challenge will be depending on where the funding lines come from for each individual lender and they’re all different; that could see some people step away from the market. We’ve seen some do so in the past 12 months. That could affect some lenders quite dramatically, their funders pulling away from them. I think brokers should be looking at those lenders with diverse and strong funding lines that can support the market when it starts to move because the last thing we need is another Lendy or Amicus situation from an industry’s perspective. SP: I get about two calls a week to complete deals from other lenders who were very close to the deal, asking if I can come and step in. As an industry we don’t want to be seeing that but it’s happening. BW: That effectively happened in the wake of the vote in 2016. Amicus pulled from the market for a few months. Some funders had Brexit release clauses and funds were pulled from some significant lenders. At the time we had a reasonably diverse pool of funders and some took a decision to step away from the market for six months whereas others saw the opportunity, so we were able to have a very good period for those six months after the vote. It’s about having the strength and diversity of funding.
“Even if you’re transparent some brokers don’t pass all of that onto the borrower” Sonia Shortland
PM: I see it as an opportunity for some new lenders to come to the market. We might lose a few and gain a few. I’m excited whatever the result is. JN: Do you think this would be a difficult environment for new lenders to enter? PM: No because they don’t to look at an existing book
that would potentially cause them problems. LendInvest came from the ashes of the crisis starting with a clean slate and no legacy - look at them now. Other lenders have grown as a consequence. GB: I think it comes down to the experience the lender has and where they came from. We speak to new funders regularly and they like people who have lent at a track record and can see they know how to handle cases that don’t go as well as planned. It’ll be more challenging for a new lender coming in with cash just trying to have a go at it. I think the ones with the experience will get the support and the funding. BW: Potentially it’s a win-win situation and is about introducing certainty back into the market. GB: Transparency will be a challenge because we all need to do that as an industry moving forward. There are still lenders and brokers who are unregulated and those who are regulated. We’re still seeing cases that are regulated being presented to unregulated lenders from brokers. There are situations where brokers don’t realise they don’t have the permission and that’s a big education piece which is a challenge going forward. As new things come to market or demand rises there’s a chance you could end up in that mis-selling situation. Things like video technology can protect the client, broker and lender. There are bigger things than just Brexit as we move forward that lenders and brokers need to be vigilant over. Some introducers don’t realise because they don’t have credit brokering permissions and can’t give it to a lender directly, they think they can just give it to a broker who has permissions but realise they can’t do that because they don’t have the permissions. That’s still in the background and there’s a big education piece there. AD: Is there any place in the specialist market for a specialist club that would deliver against all the issues we’ve spoken about? PM: Aren’t Connect IFA and Brightstar effectively doing that? I joined Connect as an AR at the start of my brokering career. They did specialist bridging and development, which gave me all the tools if I wanted to go indirectly through them to tick all those boxes. I don’t like that packagers tend to work with a panel of lenders and to me as a broker every lender is on my panel and if they don’t want to be on my panel, I’ll beat the door down to make sure I get there. I struggled with one lender because they wanted to use their preferred broker partners. I said I’m not giving my deal away to a broker who’ll get another fee. I’m a packager effectively but to me a packager is someone who charges more money. AD: It’s the club members who should decide who
“There has been an impact with purchase activity, but overall you wouldn’t notice” Matthew Tooth they want as provider, who they want on the valuation panel and on a growing solicitor panel. PM: FIBA have been doing some of this. They offer some sort of activity with a lender and you get the best rates you’ll get anywhere else. AD: It’s not a club though, FIBA aren’t sourcing it from their members. That’s the difference. John Malone once came to me asking: ‘what do we have to do to find out how to satisfy our members’ and I said: ‘find out what the members want’. How do you get good cherry-picked quality brokers who cherry-pick quality lenders who cherry-pick quality valuers? I think it’s a fascinating opportunity to explore. GB: I think it all comes back to the value that the club offers to brokers. We find out what our brokers want and build our proposition around it. It’s also what value they can add to lenders. To find out what the value should be you need to get some like-minded people in a room to discuss it and get them to work out how to add real value to this. We have FIBA, ASTL and NACFB, a collaboration between them could help formulate a lot of this and that’s the route forward. AD: They have to source the right surveys and information. Over time we have to do a lot of talking.
Hope for the future Jonathan Sealey and Gary Bailey from Hope Capital discuss the past 12 months, preparing for Brexit and plans for the year ahead How have the past 12 months been at Hope Capital? JS: In our last interview with Bridging Introducer we had just rebranded, moved offices and were looking for someone to work with us in the managing director capacity. Since then we have employed Gary to fill that position and it has been a big 12 months for us as a business, particularly with our internal processes and the experience that has been added to the team. Gary has been in the industry for a long time, and that industry experience is exactly what Hope Capital needed to move forward. We are also celebrating our eighth year, which is a big milestone. JS: At the start of the year we asked brokers what they wanted from us. Obviously they said lower rates, but they also mentioned product innovation, which is what Gary and I have been working on since. We have
significantly lowered our rates and are looking at various new innovative products. Some have been launched over the past couple of months, but we are looking to push these products forward in the next few years. Our aim is to bring out a new product every quarter or six months. GB: Service excellence has remained at the forefront of the Hope Capital proposition. With the implementation of the feedback points volumes have doubled and subsequently trebled over the past few months which has been great, however because of the Brexit issue,
“Once Brexit is finalised, one way or the other, we expect to see the perceived bottle neck widened and average completion rates speed up, with a possible bounce” OCTOBER 2019
Gary Bailey and Jonathan Sealey
the average speed of completion appears to have been extended slightly, across the industry so cases aren’t completing as quickly as we would like. I think that’s because some clients are holding back due to the uncertainty. Once Brexit is finalised, one way or the other, we expect to see the perceived bottle neck widened and average completion rates speed up, with a possible bounce.
Gary, what made you want to join Hope Capital? GB: I actually didn’t have the intention of coming back into the industry when Jonathan approached me about the managing director role. He invited me to come into the business to see how it worked and meet the team. It was inspiring and I wanted to get involved. The team had great ideas and were progressive thinkers, which is a hard thing to introduce into a company, and everyone I spoke to about the business had only positive things to say. I also liked Jonathan’s vision, what he wanted to do with the business and the fact that the customer was at the heart of everything that they did. JS: The amount of calls and emails I got saying what a great person Gary was to bring into the business was unreal.
How has Gary integrated into the business since he joined at the start of the year? JS: Brilliantly. I think Gary would say the same, but we hit the ground running straight away. We get on really well and do not differ on opinions and values; it has been a natural fit, which is great. Gary and I had been speaking for around 12 months before he joined us, and he attended a few of our strategic meetings prior to joining so he could see how we operate.
You recently obtained institutional funding. How did that come about? JS: When Hope Capital started,
we only had family funding. We then raised funds from HNWI’s until we reached a point where we needed further funding so we then went to meet large family offices in London, which enabled us to grow further. We then began speaking to non-bank institutional funders in 2017 and we now have two involved providing funding lines. The next step is to speak to bank institutional funders, which we are doing currently. We have gone through every level of funder, so there have been five different funding lines and structures around the business. We are keen to keep the entrepreneurial lending structure within the business however and there is a fine balance to that. We are managing to do it quite well as, we still have our own funds which go into every deal, which all of our funders and funding lines appreciate. It also means we still decide what we will lend on and what we won’t. We decide our parameters and bring funders onboard who are happy with that. GB: This gives us the opportunity to offer a very broad product and deliver for our chosen distribution channel. We can do the standard and vanilla, whilst also being able to simplify the complex. JS: We also appointed a full-time financial director who now controls cashflow and treasury so we have a strong governance around our liquidity. Which gives us real strength as a well-established lender with strong and diverse funding lines.
How are you integrating technology into the business? GB: It goes back to that customer journey. The journey should be smooth and simple. The more we can get the journey focussed on the customer, the better. One of the biggest pieces of feedback we received from brokers was that our service was excellent, however they also mentioned that they did not know exactly where Hope Capital fit in the market, so that is why we OCTOBER 2019
put together the product matrix, to enable brokers to be able to quote and a place a case with us. The enhancement to our internal technology has improved efficiency, provided an even better customer journey and provided good MI that allows us to make better informed decisions. As part of the enhancements we have improved our processes and procedures, they were already good, however we have also been able to enhance our offering. That has been the focus – how can we make everything even better? When I joined, it was great, as the team had all of the ideas but needed the mechanisms to put them in place which is where we applied our efforts. JS: Everyone sees using technology as a chance to be disruptive, but I don’t think that it is as relevant for our sector of the industry. I think it is exactly what Gary says; it is about making the customer journey easier and more efficient so we can get to the same goal quicker. It is not about being disruptive, it is about enhancing what we have. GB: This is where the MI and data provides great direction. We are working towards having a central hub of data, rather than having a series of systems. This will help drive the company through business intelligence rather than just management information. JS: Before Gary came in, we did not put the same emphasis on MI and data, but it is a big driver for every business. If you do not know what your customer wants or how they behave in a small marketplace then you cannot react to it. We did not have that level of data available to us before Gary came in and put these processes in place to both collect that information and act upon it. GB: The data tells you trends and directions of where you should and should not go, then it is about working partnerships with the broker and communicating with the right people to ask what these trends mean. It is great having the www.specialistfinanceintroducer.com
data, but it is the interpretation of it that counts. The world is moving forward rapidly, far quicker than anyone could have envisaged and yet in the bridging finance world, we are doing the same things that we have been doing for the past 10-15 years. Where is the use of videos, apps or Skype? As an industry, we are not exploring what we should be doing more of and that is why, at Hope Capital, we are trialling the use of technology, for example with video valuations and Skype calls with every customer before a loan completes in order to provide complete transparency for the client. Collaboration and forward thinking by everyone in the industry can really push the bridging finance market to another level.
How are you preparing for Brexit? JS: Do we really know what the outcome will be on October 31? No. I don’t have a crystal ball. I think all you can do is have diverse and strong funding lines within your business, and strong communication with all funders to ensure that they are standing shoulder-to-shoulder with each other. We have plans in place and will be taking a prudent, sensible approach to lending, which we do anyway! GB: We are also making sure that our processes are in place for whatever happens. Consumer prices may go up across the UK, and the banks will have their own headaches trying to resolve the issues that Brexit creates for them. This will mean there is an opportunity for alternative finance; it just comes down to the timing and the client. Some will pause whilst others will take the opportunity. The industry is strong, demand is strong, while property investment remains one the best performing asset classes, it’s just a matter of getting Brexit through. However the timing of when clients seize their opportunity will be down to their appetite. www.specialistfinanceintroducer.com
You recently won an Equality Employer of the Year award. How important is this to you and your business?
about those facing such a difficult set of circumstances being able to enjoy themselves for the evening. I am so pleased to be able to be a part of it – it is a fantastic charity.
JS: Massively important. We did not go out when we started Hope Capital to become Equality Employer of the Year. We simply hired the staff that were right for the business. We are made up of 75% female employees, 40% of our board is female and the majority of our management staff are female too. I didn’t think about that at all until around 18 months ago when we went through a round of
What are your plans for the next 12 months?
“We also appointed a full-time financial director who now controls cashflow and treasury so we have a strong governance around our liquidity. Which gives us real strength as a well-established lender with strong and diverse funding lines” fundraising. During a meeting with the would-be investors, they asked us about our equality policies within the office, as we were very femaleweighted. I hadn’t thought about it to be honest. As I say, we hired the right people to get the job done. They are a great team.
You also get involved with a local charity. JS: We do. Three years ago, I was invited to the Broomstick Ball where I sat next to Ann Coffey. Ann lives very close to our office and she was discussing with me about a charity she runs called The Sunshine Group which is for breast cancer sufferers. Ann wanted to host a ball for all the brave women who have gone through or are going through breast cancer. We supplied sponsorship towards putting on the ball and it went from there. The ball has grown in popularity since. It is about raising money but it is also
GB: We are focussing on growth and getting the right people in who can complement the business. We will also be looking at our systems, and challenge ourselves with the use of technology. We want to pull in the stakeholders, such as solicitors, valuers and funders so that they become more a part of the business to increase efficiency and results. We will also be continuing to develop our products and potentially diversifying our product range. Our key goal is to be the very best on service excellence.
Would you consider going into the regulated space? JS: We have spoken to various people about this - who asked whether we would like to do regulated business, but to be honest we already put the customer at the heart of everything we do and ensure we do everything with skill, care and diligence. We still see huge opportunities in our current space so don’t see a need to be regulated at this time. GB: I am not sure we have the appetite for extending our product range that far as yet; it is all about timing. Unregulated bridging is worth about £5-6bn, whilst regulated is around £22.5bn. So, when you look at the size of the market, the biggest opportunity is in the unregulated space. We have huge amounts of growth potential in that area. Ultimately, we have a vision to be the UK’s leading specialist lender in our chosen sector, delivering modern, innovative, flexible, tailored solutions driven by service excellence and experience.
In Our Opinion
Building bridges Gary Bailey, managing director of Hope Capital, on what makes him tick What did you want to be as a child? Other than the usual football or rugby player, a palaeontologist! When I was at primary school, dinosaurs and their history always fascinated me and so I loved the idea of this as a career. What was your actual first job? My very first job was at three years old plucking turkeys on a turkey farm. I got paid the same wages as the adults so I remember being very proud and happy that I had a lot of money to spend on almost any toy I wanted. How has your career moved on since then? I had a job in retail at 14 whilst still at school then went on to join full time. I planned to save money for 12 months, then head for college and Uni, which never happened as I enjoyed working too much. By the time I hit my early 20s, I moved onto something that interested me - finance! I joined a major American finance house and got a great grounding in lending (I even met my wife Tracey there). After several promotions, I stepped into the specialist lending market and joined Blemain Group. I joined as National Sales Manager, however over the years got involved in almost every aspect of the business and settled as Sales Director Why did you leave and join Hope Capital? I left in 2017 to pursue ideas I’d wanted to for some time but hadn’t had the opportunity. I was turning 50 years old and having clocked up twenty years at Together the timing was right for me. I fulfilled some of my wider ambitions, getting involved in property and development plus opportunities with friends and family across a variety of sectors. I also fell into consultancy, helping people I respected in the industry. I worked with a broad spectrum of businesses,
from start-ups to challenger banks - it was a fascinating time. Jonathan and I had been speaking for more than a year before I joined. Hope Capital reminded me of the atmosphere and ambition at Blemain Group, when I first joined all those years ago. I carried out due diligence and liked their values and what Hope Capital stood for. The team are customer and service focussed and had great ideas. Jonathan’s ambitions for growth were exciting and so I felt I was well suited to join. What do you want to achieve in the next year? To grow Hope Capital, exceed the targets we’ve set and be in a great position for sustainable growth. I want to continue the success we have seen so far and build a strong platform for the future. This includes broadening our funding structure, revising our product range and launching new products and services. Importantly it means communicating strongly and working well with our brokers partners to enable them to see the opportunities and that Hope Capital should be on any broker’s lending panel. Hope Capital is already recognised as one of the best service providers in the bridging industry; I want to build on this to achieve our aim to be the UK’s leading specialist lender in our chosen sector, delivering modern, innovative, flexible, tailored solutions driven by service excellence and experience. What will be the greatest challenge facing the bridging/development finance industry in the coming months? The outcome from Brexit. However, whether we leave with or without a deal, positive signs remain, such as the high demand for finance and property remains high particularly when compared to the supply of housing. We are also in the lowest interest rate environment that we have ever known which is very positive for purchasers.
Property still outperforms many of the other asset classes. The challenge will be to adapt and seize the opportunities that are presented. What qualities do you look for in your employees or colleagues? I like to be with people who have a positive attitude, are self-motivated and driven with a desire to continually learn and improve. I also look for people who will fit in well with the team. Who or what makes you laugh? I can find amusement in most people and situations which make me laugh. I like to enjoy everything I do and laugh as much as possible. My kids and wife are often a source of my amusement. What is your favourite film or book? I have too many to mention but a movie I’ve enjoyed for many years with all of my children is the Jurassic Park box set - viewed many times and enjoyed by all. A link back to Palaeontology I suppose! What is your favourite type of holiday? I really enjoy exploring different destinations and love a villa on the beach, private pool and just enjoying time with my family. But I equally enjoy a city break, so ideally a combination of the two! If you could change one thing about yourself, what would it be? To enjoy golf more. Do you have one ambition you are yet to achieve? I have a huge list of things I’d still love to do, but my focus is making Hope Capital successful and the best as it can be, right now! www.specialistfinanceintroducer.com
Land with planning secured with a fast bridge Loan: Term: LTV: Property type: Location:
£406,000 3 months 40% Land Bristol
This piece of land located near Bristol had planning for a residential development. 56% of the development would be affordable housing using all of the latest energy efficiency techniques available and providing a range of owned, rental and affordable modern homes. The borrower was in the process of securing development finance and had an agreement in principle in place, however this was a couple of months away and there was a deadline to complete on the purchase from the local authority.
As sometimes happens, the borrower needed to extend the term of the loan by two weeks. As the borrower made us aware of this in plenty of time and provided us with a full update from their broker and solicitor on the progress of the refinance to development finance, we had little issue in allowing the extension at the same rate as the existing agreement. Once the two-week extension was over the borrower redeemed as planned and started the development on the site.
It was at this point the broker came to Hope Capital asking for a short three-month term bridging loan.
The borrower, aided by their broker, provided us with copies of the planning permission, and detailed investment paper for the development and a CV with their range of development experience over a number of sites. As such we were therefore confident in the borrower’s ability to secure development finance as an exit route from the bridging loan, within the predicted three-month timescale which was agreed.
What the broker said:
“Timings were really tight and you pulled it out of the bag, going above and beyond – thanks so much on behalf of both the client and myself.”
We offered a 40% LTV bridging loan and Hope Capital completed the deal just four days after the initial enquiry.
Speed was the order of the day and Hope Capital delivered LTV: 60% Term: 3 months Loan: £210,000 Property: Investment Location: Manchester
diligence, taking into account a small amount of historical CCJs and produced the Heads of Terms within thirty minutes of speaking with the broker.
Urgent is a word we hear a lot, and on this particular deal we heard it more than most. The Broker contacted us needing some immediate help on a residential case which required a relatively small loan of £210,000. The client wanted to purchase their property from receivers and stood to make around £100,000 for an onward sale, but they needed an urgent three-month bridging loan to do it. The team undertook the required due
checks completed within two days.
With the sale of the property secured, we stepped in to offer them the bridging loan they needed for a three-month period. A valuation had already been completed and we were able to speed up the process by agreeing to accept this existing valuation as a re-addressed report. Both the client and broker were incredibly efficient and we received the application form before lunchtime. Straightaway we got to work, solicitors were instructed and all due diligence
We were able to complete the bridge in just 3 days and, as planned, the client completed the transaction on time. They went on to sell the property and gain the £100,000 profit on the transaction, just four weeks later. Client, broker, valuer, solicitors and lender, working in partnership to deliver.
What the client said:
“I didn’t think I’d be able to secure a bridging loan in the time I needed, but thankfully Hope Capital delivered. Thank you for saving the day and helping me both to buy my property and sell it on again.”
Going back in time Looking back on 47 years in the industry
By the time you read this (if anybody does read it!) this old codger will have turned 70 years old and as I regularly do now, I will have reflected on the 47 years that have elapsed since I joined the Nationwide Building Society in 1972. In June 1972 the basic mortgage rate was 6% and life was generally steady but by October 1976 rates had peaked at 15.00% and we were at a stage when the first of the month saw queues, outside building society offices up and down the country, of people registering for mortgage funds that would not be released for three months subject to normal acceptance criteria (2.5x income... no joint income multiples in those days, you needed a 10% deposit and needed to have been saving for it with the building society for 12 months). There was a great appetite, but not enough funds to satisfy it, and so it continued until 2007/8 and we all know what happened then, ahead of the rate dropping to its lowest ever level of 0.5% in March 2009. In 1972 brokers were very peripheral and were usually society agents in estate agent’s offices, or accountants or solicitors who introduced the essential investment funds that funded the society’s lending. My first regional manager, a very army major type, was very influential in the outstanding training that Nationwide were renowned for delivering to their staff and it was he that established the principles in me that eventually became the ‘motto’ of The Mad Approach. That motto as such is embraced in five words; attitude, common sense, knowledge and confidence. It is these words that I believe should be
the drivers for brokers entering the specialist bridging and commercial markets if they want to survive and prosper for the next 47 years (God knows what the pension age will be by then!!) ATTITUDE is something we all have; it is difficult to embed and often as not is with us from our early days and will inevitably determine if we are successful in our chosen career or not. Many gifted artists, sports people etc, never achieve their potential because they did not have the right attitude to succeed. A broker with an attitude that believes his clients will be with him for the next 47 years will reap the rewards of a very positive customer focussed attitude that will inevitably generate repeat and referral business. COMMON SENSE is something else all together and though the common definition says it is, sound judgement derived from experience rather than study, that sound judgement has to be based on the length of experience so after 47 years I feel I can confidently say most of what I write and commentate on is based on the common sense I have amassed over my 70 years not just my 47 years in the FS sector. It is common sense for brokers to want to retain clients for as long as they can but over my time I have been disappointed by how few build into their proposition a client retention strategy designed to drive their growth and again deliver the repeat and referral business required for that sustained presence in their chosen markets. Of course, since my early days the markets have changed dramatically, and though bridging loans and
Mike Dring Strange Alan managing director, director, MAD Approach Funding 365
second charges go back to the 1970’s the composition of those sectors are now offering brokers and other sector stakeholders’ opportunities for diversification never previously available. However, many brokers fight shy of entering new markets because they lack the KNOWLEDGE required to capitalise on the potential. Successful brokers with the right attitude and common sense built up over the years will build their knowledge of new sectors by seeking the education they need from the leading providers in the sector and will build on their understanding until they have the confidence to spread their wings and embrace more clients who will support their 47 year plan. CONFIDENCE is what I feel I have had during my career, because I have made it my business to know, just like the likes of my beloved Liverpool FC, that when I have faced a challenge, an opponent, a growth opportunity, a lasting relationship, that I have the right attitude (teamspirit), a bag full of experience (know the competition better than they know themselves) and the knowledge given to me by so many hundreds of people over the years (performing at the top level). For what these thoughts are worth, I do believe that the more brokers who set aside time to consider their 47 year plan the stronger all the developing sectors will become, but please design your plans in three year bites. I hope the words of this old codger have been worth reading, though suspect only my old mate Vic Jannels and a few others will recall the good old days (he is old!). Good luck. www.specialistfinanceintroducer.com
BI - 10th Jan - MK II.pdf 1 07/01/2019 11:20:58
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