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BRIDGING

September 2019

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INTRODUCER

www.specialistfinanceintroducer.com

Champion of the Bridging Professional

Peak performance Aspen Bridging on their plans to conquer the market

BRIDGING IN-DEPTH

INDUSTRY COMMENT

PROBLEM CASES

ROUND-TABLE


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Comment

. September 2019 www.specialistfinanceintroducer.com

Publishing Editor Robyn Hall Robyn@mortgageintroducer.com @RobynHall

BRIDGING

Managing Editor Ryan Fowler Ryan@mortgageintroducer.com @RyanFowlerMI

INTRODUCER

Deputy Editor Jessica Nangle Jessica@mortgageintroducer.com News Editor Ryan Bembridge RyanB@mortgageintroducer.com Reporter Michael Lloyd Michael@mortgageintroducer.com Editorial Director Nia Williams Nia@mortgageintroducer.com @mortgagechat Commercial Director Matt Bond Matt@mortgageintroducer.com Advertising Sales Executive Tolu Akinnugba Tolu@mortgageintroducer.com Campaign Manager Joanna Cooney joanna@mortgageintroducer.com Production Editor Felix Blakeston Felix@mortgageintroducer.com Head of Marketing Robyn Ashman RobynA@mortgageintroducer.com Printed & distributed in England by The Magazine Printing Company, using only paper from FSC/PEFC suppliers. www.magprint.co.uk

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INTRODUCER Information carried in Mortgage Introducer is checked for accuracy but the views or opinions do not necessarily represent those Strip ad.pdf 1 30/08/2019 of Mortgage Introducer Ltd.

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We are fast approaching the Brexit deadline of October 31, and whilst there was an initial nervousness on the reaction it may cause it appears that consumer confidence is high. Unlike the usual August lull, this summer has been a busy time with a rising number of enquiries and new lending volumes. This month also marks the search of ASTL’s new chief executive following the successful tenure of Benson Hersch. The work Hersch has done with the association has been applauded by all in this space, and whoever “It continues to is chosen to be his be a positive time successor has some big for the market, shoes to fill and exciting challenges ahead. so let’s hope In this issue we are this positivity looking at the importance of networks within the sec- remains” tor and how they bring the industry together, and also host a roundtable which looks at subjects such as technology in the marketplace. Masthaven Bank recently unveiled research that showed how 78% of intermediaries have clients who have expressed dissatisfaction with the manual paper-based processes, with over a quarter (26.7%) of brokers recognising the role automation could play in removing wasted effort from the mortgage process. It will be interesting to see how technology continues to develop in the latter half of this year as businesses come up with new ways to incorporate automation to what is a traditionally personal finance sector. Our cover stars Aspen Bridging discuss their successful 2019 so far with Bridging Introducer on page 40, proudly explaining their recruitment process and emphasis on internal training at a time when recruiting fresh talent into the industry is proving challenging. It continues to be a positive time for the market, so let’s hope this positivity continues despite some challenging times ahead.

5 Brian West

Getting the right legals

7 Kevin Thomson

Growth in a flat market

9 Arwel Griffith

The surveying brain drain

11 Peter Howarth

A time of turbulence

12 Jo Breeden

Regulated bridging boost

13 Steve Swyny

Professionalism on the up

15 Sonia Shortland

Selling relationships

17 Bret Jackson Loving the UK

18-24 Feature: Networks and bridging

Michael Lloyd looks at the role networks have to play in the briding market

28 Benson Hersch

The latest from news and views from the ASTL

30 Build a Better Bridge

Our experts answer your bridging questions

46 Alan Dring

Stimulating interest

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Comment News

Getting the best legal advice And why you should be taking it

Despite a backdrop of serious macro-economic concerns and huge political uncertainty, the specialist lending sector continues to defy all expectations and grow apace. Shortterm lending is no exception, with interest rates remaining at historically low levels and a continuous stream of new entrants being propelled to market on a wave of cash, as investors seek a more attractive return on their money. Increased competition has driven rates down to levels that were unthinkable just three or four years ago, whilst loan-to-value limits have increased, despite a subdued and in pockets declining property market. Another indicator of a maturing and some would say over-crowded market, is the increasingly complex nature of products and criteria being developed. As lenders innovate to try and build market share, maintain margins and appeal to a more diverse client base, the importance of working with a great legal team has never been greater. The short-term lending sector is a fast paced and highly specialised market and although similar in principle to longer-term lending, it clearly requires a different set of skills and expert knowledge. The best lawyers have a genuinely commercial outlook, are alive to their lender client’s needs, can provide creative solutions to facilitate complex transactions and often work to extremely tight deadlines. Strong technical expertise and significant experience combine to ensure these lawyers genuinely do have an ‘insider’s view and understanding of the market’ and they are usually to be found within partnerled teams, that include experts in commercial and residential property, banking and corporate law. Such teams can advise on a wide www.specialistfinanceintroducer.com

range of commercial transactions, from traditional residential and commercial investment through to complex development and structured finance loans. They are also familiar with the incredibly varied nature of the properties that can be offered as security including student accommodation, offices, barns, mixed use schemes, hotels, shops, restaurants, care homes and many more besides. Market leading law firms such as Brightstone Law, Howard Kennedy and Seddons not only look to provide strong, fast and competitively priced advice, they also work closely with their lenders helping them to enhance their brands. Beyond this they actively engage with industry trade bodies such as the ASTL and FIBA, to offer ideas and expert advice that in turn helps to drive industry standards and promote and shape the short-term sector. At Central we have worked closely for almost 20 years with Philip Ross Solicitors. They played an intrinsic role in helping us to draft our original documents, processes and procedures and have been continuously involved as we have subsequently developed, refined and enhanced our lending proposition over many years. The best law firms provide so much more than simply day to day conveyancing support for every short-term loan. Of course, it’s vital that the basics are completed accurately in terms of the review and assessment of all title and covenant documentation, that bankruptcy searches are completed, that all borrower documentation is reviewed and checked, that all charges are registered and undertakings followed through and that debentures or overriding interests are filed with Companies House. However, in addition to this, the

Brian West director, Central Bridging

very best law firms are brilliant at encouraging and driving the borrower’s solicitors, particularly those that are unused to the pace of shortterm lending. They will ensure independent legal advice certificates and legal charges are witnessed in a timely fashion by a qualified solicitor, that information provided is true and accurate, that undertakings are given on Land Registry requisitions and that official copies of register entries are obtained along with transfers or conveyances for the security property. In addition, they will ensure planning permissions, conservation area or listed and standard building consents have all been obtained as appropriate and that the borrowers solicitor holds the required mandatory professional indemnity insurance. Not only do the best law firms do all this and more as required, but they will keep their lenders informed every single step of the way, effectively becoming an extension of the lender’s underwriting team. They will also ensure their advice is always up to date and compliant by working closely with both legal counsel and specialist advisers to stay on top of regulation. Fiercely protecting their lender’s interests is what defines the very best law firms, but of course in a market where commercial pressures are stronger than ever and lenders with large revolving credit facilities face heavy non-utilisation penalties, legal advice is sometimes ignored in the desperation to get money out of the door. New entrants to the market would do well to remember that some of those lenders most guilty of ignoring advice, much to the exasperation of their lawyers, are no longer trading. If you pay for good advice, it’s wise to act on it!

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Comment News

Continued growth in a flat market The development finance market continues to thrive

Despite a flat housing market, there is still significant growth in the number of lenders entering into the development finance space while the number of new homes registered by developers continues to grow. These two factors are more than an indication that there are opportunities for the experienced development finance broker. Reports from the NHBC state that builders and developers registered the highest number of new homes for 12 years in the three months between April and June, recording 43,438 new homes in the UK. This is 12% up on the same quarter last year and the highest since the last quarter of 2007. This growth is being driven by a rise in the private sector of 14% and a rise in the affordable and rental sector of 7%. While NHBC statistics are unlikely to reflect it, a number of new developments, both in the pipeline and to come, will be encouraged by the changes to permitted development rights. This is a pre-approved permission to build which enables developers to bypass the main planning process, extending accommodation by up to 75%, providing the developer’s designs fall within the government’s guidelines. Some Permitted Development Rights no longer have a deadline date by which a development has to be completed. The deadline dates, by default, caused a rush due to developers trying to take advantage. However, from 25 May 2019, new rights were brought in. The increased size limits for single-storey rear extensions that were previously time limited have now been made permanent by government. It also enables a change in the use of high street shops and takeaways in order to make existing temporary rights permanent, allowing the www.specialistfinanceintroducer.com

extension of residential properties. All of these changes will be seen as opportunities by the property developer and investor, so brokers should expect to see the levels of enquiries increase. Knowledge of these changes should help when advising potential investors. Shops to offices: The regulations introduce a new permitted development right which allows a number of existing businesses to change their purpose to office use, classified as ‘B1’. This includes the conversion of shops (A1), financial and professional services (A2), hot food takeaways (A5), betting shops, pay day loan shops and launderettes of up to 500 sqm. Prior approval is required, which allows the local planning authority an opportunity to consider certain planning impacts, including the sustainability of existing shopping areas Takeaways to residential use: Existing permitted development rights allowing the change of use of shops of up to 150 sqm, financial and professional services, betting offices, pay day loan shops and launderettes to residential use (C3) have also been amended to now allow hot food take-aways to change to residential use (subject to prior approval). Converting retail to housing will probably only work if there is a lack of housing in that area plus an abundance of empty shops, therefore giving a higher return from the residential than from retail. However, we have all seen the demise of the High Street and many towns need some new energy injected into them, which could be in the form of residential with supporting retail with the likes of cafés, bars or gyms to support the office worker.

Kevin Thomson corporate sales director, Connect

“It is fair to say that there are increased opportunities for the property developer but he or she will continue to need funding” It is fair to say that there are increased opportunities for the property developer but he or she will continue to need funding. Whilst there is a growth, particularly in the number of bridging lenders entering the development finance space, the largest obstacle to overcome in obtaining funding is the experience of the developer. Every lender is seeking that experienced developer as, just like with the university student leaving full time education with a good degree, employers are also looking for experience. Even for the experienced developer lenders will generally want personal guarantees, but if the developer has the experience, the project is sound and presented fully, then surely the personal guarantee is an unnecessary obstacle. One way around this is that the developer could take out Personal Guarantee Insurance to mitigate the risk, achieving the lender’s requirements and getting their loan, albeit at the cost of the insurance. For the less experienced developer, seeking out an experienced broker can be a godsend. An experienced broker who can help to ensure the project is sound before approaching lenders will be valuable time spent at the outset to avoid wasting time and cost further down the line.

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Comment News

The brain drain The surveying talent pool is quickly evaporating

The talent pool is diminishing and many of us are concerned over the future of the profession. There is a serious issue around finding talent, especially within the surveying industry. The industry has long struggled with attracting and retaining new entrants to the market. For some reason, surveying is not seen as a career that attracts students to explore in more detail. It seems that unless there is a familial tie, and your parents have some form of property-related expertise, it is not a profession that warrants further discussion. But why is this? And should we, as an industry, be doing more? The economy, of course, has not helped. Many hundreds of surveyors who found themselves out of work during the depth of the last recession have since gone on to learn new skills, or left the industry altogether, which means there is a huge shortage in the number of quality valuation surveyors now available. That is not an insurmountable issue in the longer-term if there is a sufficient pipeline of new talent coming through, but I worry that there isn’t. Our industry is not seen as being particularly ‘sexy’. It is hard work, involving years of study and commitment for comparatively poor levels of pay – at least in the short-term. And that often does not appeal to today’s generation that demands instant gratification and reward. Given its low profile, it is unlikely to feature strongly in any careers advice at school. Indeed when it is mentioned at all, it tends to be lumped together with ‘real estate’ and that means we are only a short step away from estate agency and diluting or losing our true value completely. While I have often bemoaned the quality of new surveyors entering www.specialistfinanceintroducer.com

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our profession and wonder if there has been a gradual dumbing down of our education and training programmes, a trend is emerging that is making me think that my early suspicions are correct. I can see a potential pitfall for lenders, if not immediately, then certainly in the near future. The average age of surveyors is now around 60 – there is a real lack of young blood coming into the profession, and it is to be lamented. Lenders need people that are better versed in the world of development, and that have the right qualifications backed up by real world experience. We oversee some 100 sites in the Midlands and South of the country, and if you asked how much a foot squared of a building would be worth in Birmingham or elsewhere in areas we operate in, I would imagine the actual price would be very close to our initial estimate. Our institution is very alive to the need to train the next generation to the high standards we have enjoyed previously. It is also aware of the huge loss that our industry faced in the last recession, losing a good many men and women to other industries, or many simply taking early retirement. Our future challenge is therefore two-fold: firstly, how do we inspire school children today that our industry is a worthwhile and attractive profession; and secondly, how do we maintain standards at a level that ensures the integrity of our profession is maintained. It is time for some radical thinking. There is also a definite lack of understanding of the role of the Surveyor and our part in the process. There is an inconsistency in approach across the industry and many are not even sure what they

Arwel Griffith partner, Robert Sterling Surveyors

need/want their valuer to do, or the role that we play. The profession is as relevant to the high-flying Cambridge graduate as it is to somebody who skills as a technician. It embraces highly technical aspects of building, research and building cost control, it covers rural and urban property, embraces the entrepreneurial world of advice on ownership (not least estate agency) and real estate finance. It includes expertise in chattels and works of art. Scant wonder therefore that suggestions of a career in surveying are met with blank stares.  There are however some strong selling points for those seeking to persuade young people to consider surveying as a career. Firstly, it tends to be a gregarious industry with generally extrovert people happy to share ideas, challenges and success. Secondly, it’s very face to face with clients who, while not always great company, are invariably thought provoking, challenging and unintentional tutors. It is also a stepping off point – surveying will teach and awaken; business, education and politics are awash with people who started out in the property industry and who learned freedom of thought, the ability to express oneself and the hunger for knowledge. I have met a number of incredibly pleasant and able young people in the lending market, but there should be better knowledge across the two professions, and a greater understanding of one another’s roles. In the past, I have had some people shadow me, and learn firsthand what my job entails. There has to be greater interaction between the surveyors and lenders to foster a new wave of well-rounded surveyors for the future.

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Comment News

Get ready for mixed messages The market could be set for an extended period of turbulence

The recent announcement that the UK economy shrank by 0.20% in Q2 (and could therefore be halfway to being in an official recession) has certainly provided lenders with reason to pause for thought. A reading of the financial press commentary over the last few days or so makes it clear that the slowdown could be attributed to a wide range of causes. Of course, there are plenty of commentators who feel that the slowdown is heavily related to the Brexit story. Whilst I don’t want to jump into the shark-infested waters of Brexit commentary, it feels safe enough to say that the Q1 stockpiling of goods and resources in time for the original leave date of March probably did contribute to the shrinkage in Q2. There are though many other contributory factors at play, not least consumer confidence. There has been recent weak data for the housing market, which is another indicator that all is not rosy which, if not already, will soon impact on consumer confidence. Even if Brexit is resolved in October, it seems likely that we are facing at least a few months of mixed data messages. A formal recession, whilst not a certainty, is clearly a possibility. If Brexit continues to be unresolved (or if we exit without a deal) then it seems reasonable to anticipate a longer period of turbulence. Beyond British shores, other parts of the world are also encountering difficulties. Germany has just announced a one-quarter shrinkage, and other European countries are, at best, seeing weak growth. Meanwhile, on the global stage, trade wars between the USA and China are not helping. Part of my role as credit risk manager is to keep a watchful eye www.specialistfinanceintroducer.com

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on the outside world and interpret that for internal decision-making and strategy setting. Any sensible lender will want to set its appetite for lending with at least one eye on the external environment. Yes, we all have targets to hit but targets which are not set with a view to the external environment can soon lead to poor outcomes. How though should a lender interpret external events? There is after all a sense that by the time that a distinct pattern has been discerned, the lending which you might have wanted to do differently is already on the books. In some ways, the short-term specialist finance industry has an advantage here over longer-term mainstream lenders. For a longterm lender, loans granted when the economy was booming will still be on the books, whereas the constant incepting and subsequent redeeming of loan accounts that a short-term lender sees grants it an advantage. We know that loans granted today will, in all probability be largely redeemed within the next 12-18 months (if they are well-managed). And it is there where the greatest opportunity lies. In the past some short-term lenders have come to grief by piling on the loans and worrying about the consequences later. In more recent times many of us have placed greater emphasis on robust management of live loans, and it is here where greater control can pay dividends. If a loan is well managed, then it joins up the decision-making at the front end with satisfactory outcomes. Unfortunately, some borrowers will always find that their plans go awry or realise that they don’t have the capability that they thought they had (or the lender thought

Mike Strange Peter Howarth managing credit risk director, manager, Funding 365 Mint Bridging

they had) and this happens even during boom periods. I believe that at times such as now, even greater care must be taken to mitigate risk, but that lending can and should continue. A good lender understands how to match lending opportunities to the micro and macro environment, manage the risk and price accordingly (as well as controlling volumes), and realises that the secret to its success lies in proactive and capable post drawdown management. Some short-term lenders also have an advantage in that they sometimes have access to multiple funding lines, which gives them a robustness that other lenders don’t have. A lender with limited sources of funding, or one which must satisfy shareholders, regulators, and other corporate funders is far more likely to find its lending capacity stalls in a downturn. Niche lenders which have multiple funding lines (such as Mint Bridging) can keep the momentum going whatever the weather, and in so doing, can play a vital role in keeping the wheels of the economy turning.

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Comment

Surge in regulated deals Regulated bridging is on the rise after a low in 2018

In the second quarter of 2018 regulated bridging lending hit its lowest level since 2015, accounting for 36.8% of transactions against 43.7% the previous three months. Thankfully the downward trend did not continue and in the first two quarters of this year the segment has stabilised at 38.3% from January to March and 37.5% from April to June. At Crystal we are definitely seeing signs of a further positive nature with an upturn in applications to refurbish properties prior to putting them on the market to achieve the highest return, so is this a general market movement or are we seeing more brokers dip their toes in the specialist world?

post works it will be worth circa £380k and be far more desirable to purchasers.

Case one: A customer is looking to buy a new property and sell main residential home, so an application not only covers the purchase but a further £200k to refurbish the current house which will see its value increase from £1.1m to £1.5m.

Easy access

Case two: A client takes a bridge to complete £55k of internal works, including the kitchen and bathroom, before taking the property to market. The current value is £260k,

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BRIDGING INTRODUCER

Case three: A customer is looking to sell their mother’s home as she has moved in with the family. The house is currently worth £125k, and £30k worth of modernisation will see it sell for closer to £200k. The maths is pretty basic in all of these examples, but they clearly demonstrate how a regulated bridge, in the hands of those who cannot be classed as developers, can see an individual or family maximise their financial position. So why are we seeing more applications here at Crystal? It’s far too early to say whether we are about to see a general market upturn in regulated bridging. Yes, it’s true that when the economy is tough then people are more driven to maximise value in whatever asset they own, but with so many external political factors at play we all know anything could happen. What I would like to believe is that all the years of broker education in the specialist sector is start-

SEPTEMBER 2019

Mike Strange Jo Breeden managing director, Crystal Funding 365 Finance

ing to pay off, and truth be told this is one of the simplest ways to gain first-hand experience in the bridging sector. A regulated bridge connects the divide between the regulated and non-regulated worlds and is the perfect way to start the journey to help more customers and earn more from those customers too.

Take the challenge

As I’ve said many times, specialist finance should be an essential part of a broker toolkit as it solves problems – adverse credit, chain break, multiple incomes, zero-hours contracts, rental, development, etcetera. But most brokers will hear these phrases and it’s the end of the line. I don’t expect many of you have had clients ask you for a bridging loan, or a higher rate commercial mortgage, but they solve problems. But as a broker I would challenge you to challenge the client next time they wish to discuss a house move. Can a bridging loan and a small delay during renovation works bring a return-on-investment of the property in question, and if so isn’t it our duty to raise this as a possible avenue?

www.specialistfinanceintroducer.com


Comment News

Moving on up The bridging market continues to become more professional

Do you remember a time when some borrowers (and some mortgage brokers) thought bridging finance was purely lending as a last resort? We have operated as a specialist distributor in this market for almost 20 years and this perception now seems like a lifetime ago, but it’s not as long as you might initially think. Bridging finance has evolved rapidly to meet the shifting needs of a growing proportion of borrowers who continue to be shunned by high street lenders. Giant strides have been made in a relatively short space of time. Not only in terms of products, criteria and related fees but also in the rise of professional standards across the board. In the modern lending world, all providers operating within specialist sectors must act responsibly and conform with the treating customers fairly principle. As more bridging products become regulated, the sector’s reputation has been further enhanced, resulting in greater demand from FCA regulated brokers.This demand is also a result of a concerted effort from all those within this sector to not only raise professional standards but to also increase awareness around short-term lending. And trade media outlets such as Mortgage Introducer, and dedicated publications such as Bridging Introducer, have really helped to further raise this profile. It’s also up to individual firms to do their bit in gaining a better understanding of what consumers and intermediary partners want, and how they perceive this sector. We recently conducted an online survey to get a better understanding of how brokers handle their bridging enquiries, who they approach with such enquiries and the reasons www.specialistfinanceintroducer.com

why they might use a specialist distributor. When asked how many bridging enquiries they had received within the last 12 months, a quarter of respondents (25%) said they had received more than 10. Some 45% reported that they had received up to five enquiries, whilst a further 20% stated they had seen between 5-10 enquiries. Interestingly, this meant that a whopping 90% of respondents had been approached by a client in need of bridging finance within the past 12 months. Facing the question - who would you approach if you had a bridging enquiry? Nearly half of all respondents (42%) stated that they would use a specialist distributor, with 26 per cent saying they would go direct to the lender. Some 16% opted to pass the enquiry to another introducer, 6% would use a souring platform, 3% reverted to a network/ panel and 7% stated ‘other’. Of the brokers who took part in our survey, the most popular reason for using a specialist distributor was speed (33%) with 26% highlighting an unfamiliarity with available products. 13% of respondents stressed that the availability of exclusive rates was an important factor, and the same number also pointed to having

Steve Swyny head of sales, First 4 Bridging

the ability to access underwriters as being a primary reason. Enhanced commission gained 3% of responses, whilst ‘other’ made up the remaining 12%. In terms of the main concerns in using a specialist distributor, the two most common answers were control of the process (42%) and additional fees (39%). Over a tenth (13%) of respondents cited customer retention as another concern, with third party information coming in at 6%. This made for some interesting reading. It’s fair to say that due to lingering mainstream lending constraints, a growing number of consumers are better informed around alternative funding possibilities for a variety of propertyrelated projects. Not that this serves to devalue the advice process, if anything it simply creates a wealth of opportunities for brokers to enter into such conversations, investigate new markets and explore additional revenue streams. This sector continues to progress at pace and whilst it will never become ‘mainstream’ – and nor should it – pricing, confidence, education and professionalism are all factors which are making the intermediary market firmly embed a growing number of alternative lending options into their advice process.

SEPTEMBER 2019 BRIDGING INTRODUCER

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Comment News

We no longer sell products As a sector we are now in the business of sell relationships

01966 (1)

In my opinion the reputation of bridging lenders has come a long way since Apex Bridging was launched in 2013. With an anticipated market north of £7bn the sector now has an important role to play in the UK financial model and has a growing respect for the way most lenders conduct their business. I am reminded of the JFK quote: “Don’t ask, what your country can do for you. Ask what you can do for your country”. I think many lenders in the short-term market are now asking: “Don’t ask what your lender can do for you, ask what you can do for your lender”. What I mean by this is that more lenders, particularly the smaller ones, are forging stronger and more enduring relationships with their cherry-picked brokers because they have invited those brokers to be an important contributor to the development of their business model and product proposition. Gone are the days when you sent a BDM out with a batch of product promoting leaflets and expected a broker to digest them and be enticed by the rate or the free offer attached to a sale. Now a lender via its chosen distribution route must get the brokers commitment to being part of a relationship. To achieve this, lenders have to be prepared to accept that as with any sustainable partnership each party must be willing to adapt to the ‘demands’ of the other and usually that means compromise after each party’s position has been fully understood by the other. Broker surveys are an essential part of a lenders research into what the market wants and recently Apex Bridging undertook our first survey and the results of an 80% response rate to the 11 questions posed gave us a great deal of information that we are now feeding into our 2020 www.specialistfinanceintroducer.com

growth plans. The vital part of this feedback of course is what you do with it and this is what the brokers expect, that lenders respond to the them and address their concerns and consider ideas. Relationship management in financial services, as in life, is something born out of experience and in the bridging sector we often bemoan the lack of experienced quality personnel that we have, to cope with during what has been a rapid growth period but I believe as a result of the efforts of such as the NACFB and FIBA things are improving for the better. Lenders are designing better education programmes that are focused on long term relationships born out of a greater understanding of what all the stakeholders in the process have to do to ensure all parties play their part in the combined partnerships that will lead to a successful completion and on the back of that, repeat and referral business. A great deal more still needs to be done by lenders, solicitors, valuers, brokers, distributors and even developers to understand better what each profession needs to do to fulfil their role in the process and thus forge stronger relationships between all parties. At Apex we are developing a greater understanding of what our stakeholder partners

Sonia Shortland managing director, Apex Bridging

do by working with them to design flow charts that show the journey from start to finish of each different component part of the big picture so we get things in perspective and can work on ways of modifying our processes to accommodate other partners needs. This works both ways of course, each element must be influenced by the willingness of all parties to modify for mutual benefit. All my staff hear day after day are the three words that drive our internal processes and internal relationships, and they are, collaboration, communication and education. A lender cannot expect to establish the right external relationships if their internal infrastructure is not up to the standards they expect from their external partners. The same however is true of the brokers and others. They must cascade the agreed processes, methods, communication lines etc. they have set up with the lender to all their team and regrettably far too often this is found not to be the case. When JFK spoke the people of the US listened, and acted, I believe more are listening and acting as the bridging sector builds on its growing reputation for establishing strong relationships built on trusting your partners and collaborating with them for mutual benefit.

SEPTEMBER 2019 BRIDGING INTRODUCER

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07/02/2019 09:32


Comment News

Loving the British market Staying strong in challenging circumstances

Gross annual bridging lending hit £5.6bn for Q2 2019, according to the West One Loans Bridging Index. The lender also stated the sector has been the beneficiary of increased professionalism, from both lenders and borrowers. Many industry commentators have stated how the sector has changed over recent years, with professionalism and education being at the forefront. Is this why we are seeing a variety of different financial institutions coming to the market, providing an array of different funding lines to lenders? Quite possibly. As Boris continues to steer the country along the path of a no deal Brexit, are we prepared? When I say we, I mean this in numerous ways. We as a country, we as the financial services industry, we as in individuals. Now, I am not suggesting we stockpile up on medicines, tinned food, super noodles and UHT milk, but we need to be aware of the existing route, or do we? During a recent social libation (or two) with a couple of industry chaps, one of them raised an interesting point. Is a no deal Brexit like the millennium bug? A load of hype that the world was going to collapse? I could certainly see where he was coming from. For those that remember this phenomenon, everything from computers to video recorders wouldn’t be able to cope moving from 1999 to 2000. Due to how they were programmed, they would instead revert to 1900, therefore that planned recording of the X-Files, would not happen. At the time, I was a financial adviser at Royal London and remember an abundance of IT staff being drafted into head office, on ludicrous salaries, to ensure everything did what it was supposed www.specialistfinanceintroducer.com

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to do. Guess what? All was fine, no meltdown occurred. You could still warm up soup in your microwave, record your favourite programmes on VHS and login to your PC. The UK and the US spent millions on preparations for this, whilst the Italians did sod all. They were warned about electrical blackouts, food shortages, supply issues, hospital deaths to name a few, yet they were struck by a bout of normality. Sound familiar? Brexit is a whole different beast, but the scaremongering tactics are identical, and people just need to know the truth. They deserve it after three years. One of the most interesting articles I have read in recent times, came from one of our European partners, Denmark. No, this is not the one relating to Trump trying to buy Greenland off the Danes, but the launch of the first negative rate mortgage. Jyske Bank is offering a 10-year fixed rate at -0.5%. In addition, Nordea Bank is offering a 20-year fixed rate of 0%, but factor in inflation, this is still a negative rate. So why is this happening? Why is this not being muted in the UK? Firstly, the banks and the housing market in Denmark, and other Scandinavian countries, is somewhat different to the UK. It is better for them to lend at a small loss, than stockpile the cash at even lower negative rates or enter riskier markets. It is also pushing up prices in the major cities in Denmark, propelling the property market. The Central Bank Rate in Denmark is currently -0.4%, compared to the UK being at 0.75%. Whilst rates in the UK are coming down, they are different markets, with different products, so hard to compare fully. Still tempting to move though. Of course, there is a downside

Bret Jackson head of marketing and communications, BWD

and that is the savers. Some banks are offering 0% on savings, but predictions for the first negative savings have been discussed and they feel they are not too far away. For wealthy customers with UBS in Switzerland, they are being charged 0.6% on balances over €500,000. Nice position to be in but highlights the downside to the low interest rate world. Some UK savers have been burnt recently, with investments in Lendy, London Capital & Finance and now issues with Blackmore Bonds PLC.

“Some UK savers have been burnt recently, with investments in Lendy, London Capital & Finance and now issues with Blackmore Bonds PLC” Whilst writing this article, all interest payments due for July have been paid, but has left many savers concerned about the next instalment and their original investment. On the plus side, I love the British market, as we create new savings products and initiatives for individuals to help them save, rather than being placed in the bank. It boosts lenders, developers and assists in keeping businesses going. But the reputable firms who operate in this manner, many P2P lenders, can be tarnished with the same brush, despite having a solid base of investors. Attracting other investors could be difficult and need to differentiate themselves from the poor. Hopefully, these have now been eradicated. SEPTEMBER 2019 BRIDGING INTRODUCER

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Feature

Networks in the Michael Lloyd discusses how networks are impacting the specialist space and the importance of education

T

he word ‘networks’ often leads to thoughts of mainstream mortgages and protection. Most are focussed on just that, with many cautious of the bridging industry. However, some offer worthwhile support for brokers getting involved in the sector. A number of networks have a basic presence in bridging by offering either a panel of lenders directly, a master broker solution, or the option of both. Some will offer education via small events such as roadshows and conferences, others through their adviser communications. However, some have been criticised for the lack of bridging lenders on their panels and for restricting the

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bridging business its members can conduct. Here we explore how well networks operate in the specialist sector and the changes needed to bring bridging finance to the masses.

Support from networks

JLM Mortgage Services Network has a few businesses within its network that are active in the bridging market, such as Fitch & Fitch and Vincent Burch Mortgages. In July the network launched specialist mortgage desk Master Private Finance, exclusively for its advisers. It offers its appointed representative (AR) firms access to a panel of mortgage providers that specialise in www.specialistfinanceintroducer.com


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bridging space

specialist areas such as bridging and development finance, commercial mortgages, buy-to-let and secured loans, to encourage them to make the most of the opportunities within the specialist arena. Connect for Intermediaries is a specialist network that has been praised by a number of bridging brokers for its specialist expertise. The network sorts the compliance for brokers whose business is primarily in the bridging, development, commercial and buy-to-let markets. It has 140 lenders on its panel with around 18 bridging lenders it really trusts. Liz Syms, owner of Connect IFA and Connect for Intermediaries, says they ensure they do not use lenders that are more aggressive www.specialistfinanceintroducer.com

than others and have some flexibility if the client unfortunately finds themselves in a difficult position or in default. “We have a panel of lenders who are secure financially and have a proven service record,” Syms says. “It is about making sure they can deliver on their promises and can deliver when things go wrong.” Connect has an in-house learning management system which enables advisers to read and watch material to educate themselves on bridging before taking tests. It also has a packaging service within its business, to help brokers with bridging cases and handhold them throughout the process even though they are in control of the client and advice.  SEPTEMBER 2019

BRIDGING INTRODUCER

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Educating brokers Clients should seek independent advice and consultancy from the earliest possible stage, rather than approaching any specific lender directly. By taking their case to an independent financial adviser or broker, it means they can discuss the available options with an impartial third party and have them carry out a whole-ofmarket comparison on their behalf. Networks provide brokers with plenty of routes to market whether this is via a packager or referral to a master broker, such as The Right Loan. In the past, attitudes towards bridging finance have been negative. With today’s market where property renovations and new developments are on the rise, combined with the bridging market becoming a very

Martin Wilson chief executive of The Right Mortgage and Protection Network

Similarly, The Right Mortgage and Protection Network has a number of master brokers and packagers on their panel to provide the specialist support needed to them and their customers. Earlier this year it launched its own master broker, The Right Loan, which will be rolling out their bridging proposal later this year and plans to have a select panel of 10 to 15 lenders with a variety of product ranges. New Leaf Distribution is another network known for its support. It offers a full training programme in commercial lending as well as running a number of lender events annually which includes bridging finance. It has 15 lenders on its panel chosen from fund availability, rates, lending criteria and processing procedures. Sesame Bankhall Group runs events to train advisers, such as its Mortgage Extra Live events or smaller informal adviser cluster meetings and works with lender panels to produce content such as case studies and infographics which highlight the ways bridging finance can be used to provide a solution for a customer. The network has 10 lenders on its panel, such as Precise Mortgages and United Trust Bank, and is in discussions with adding three more. Specialist lending master broker Vantage Finance often attends or hosts educational programmes to help raise awareness amongst members of its network partners who may not have had any experience of the bridging sector, or who have limited experience. www.specialistfinanceintroducer.com

competitive space between lenders – it is transforming specialist finance to an everyday mainstream form of lending. As a network we believe that education is key to the growth of bridging finance, not just for brokers, but to consumers as well. If consumers are unaware of what products and forms of finance are available to them then it is down to brokers to educate them. This opens up opportunities for the client and the broker, however who educates the broker? We offer our brokers the training and tools they need to help promote bridging finance to clients and potential clients, which will in turn develop into new leads, enquiries and more business. We as a network have always been a supporter of bridging

finance, especially as this market is getting stronger through product innovation, lower rates and product awareness. We have a number of specialist packagers on panel to support our brokers and their clients. Yet, as a network we feel we could do better by going one step further by introducing bridging finance via The Right Loan. The Right Loan, who is owned by the network, aims to support our brokers who will be attending workshops across the UK, holding meetings and presentations to help them identify the best bridging products on the market. As well as providing them with the right client facing information, marketing, presentations and even online animations so they can pass their knowledge on to their clients.

Do networks do enough?

There are many networks operating within the mainstream mortgage market but a small number that do so in the specialist arena. It is therefore unsurprising that the majority of advisers believe that overall networks do not offer enough help for them when it comes to bridging. Andrew Morris, business development director at specialist brokerage Commercial Finance Network, says networks do not do enough to help brokers get involved with bridging. “From my experience networks don’t do anything to actively promote bridging,” Morris says. “When we register with a lender we speak with their BDMs who go through what they do.” He adds that networks also aren’t needed with bridging as brokers can just go direct to the lender. Furthermore Chris Oatway, director of specialist brokerage LDNfinance, says that when founding the firm two years ago, their research showed that networks were not able to offer much support when it came to specialist finance, as advisers deal with so many bespoke family offices, private individuals and quirky funds. “Networks were not able to offer additional value to the transaction process in sector knowledge and in fact, were more likely to restrict our ability to do deals,” he says. “Networks typically work with a panel of lenders and in the specialist sector it is more important than ever to have flexibility to go to the whole market.  SEPTEMBER 2019

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“Having this flexibility can be the difference between being able to provide a solution for the client or not, due to the variety of niche areas that need to be covered.” Chris Nairn, mortgage compliance director at New Leaf Distribution, argues that networks do not do enough to help brokers get involved in bridging, with them generally referring business to a packager. “Most will do a bit of regulated bridging by referring,” he says. “You have to have a training programme in place to do it properly otherwise the pitfalls can be deep.”

Commercial considerations

Gary Watts, director of Which Network, says that few networks place emphasis on bridging business, having their appointed representatives (ARs) introduce it to a preferred trading partner which in this case is a bridging specialist. He puts this down to compliance and commercial considerations. “This could be mainly due to compliance sections feeling uneasy about the product as they are not familiar with it,” Watts says. “Also, I think it is because a network that refers bridging to a trading partner is unlikely to have or need bridging included in their PI insurance since the risk would lie with the bridging specialist.” He goes onto say that if bridging loan revenue is only ever likely to account for 2% or 3% of a network’s income, then the money required in setting up the compliance, software, AR training and finding reliable sources for the product would probably bring a better return if invested in increasing protection revenue, for example. Andrew Morris echoes this, saying bridging isn’t the main business income of most networks but that residential and buy-to-let mortgages are. According to Karen Bennett, partner at specialist broker FinanceWell, compliance and caution are the main reasons why some networks are hesitant when it comes to bridging. She says that networks have generally in the main, been supportive of regulated bridging, but have been understandably cautious and reticent to be as supportive within unregulated markets like bridging. This is because, Bennett argues, they don’t have as clear boundaries to manage their ARs to and there can be circumstances where the lines between regulated and unregulated are down to interpretation. “I think the support a network offers an AR is invaluable,” Bennett adds. “It’s important to remember that a network delegates compliance responsibility to the AR to follow the guidelines set, but it’s the network who is ultimately accountable, and they have to be able to evidence how they are comfortable the AR not only understands but also acts appropriately. “With unregulated business, such as bridging finance, this isn’t easy without the standards or guidelines a regulator would set out, and that a network would www.specialistfinanceintroducer.com

expect.” Bennett goes onto say that there have been some changes, but these have been gradual. “Where a network is more specialised, like Connect, they are able to support in specialist markets as they have taken the time to become experts in those markets,” she describes. Liz Syms argues that networks often deem bridging as a high-risk product, along with home reversion plans and second charges, hence may not allow members to place that business but refer it to mitigate the risk. Syms highlights Connect helps brokers diversify into bridging because their background is in specialisms, so they understand the market, its risks and how to mitigate for those. In addition, Syms says that generally networks are starting to look at the bridging market and see how they can do the same because traditionally it has not necessarily been in demand for their membership. “I’m seeing more networks saying ‘how can we allow our members to do this’, mitigate the risks and ensure they are property educated,” Syms says. “That is key.” Martin Wilson, chief executive of The Right Mortgage and Protection Network, points out that networks give brokers plenty of routes to market, whether this is via a packager or referral to a master broker. “The key is for more education on bridging finance around the products and identifying when this product could be useful to a customer,” Wilson adds. Similarly Sesame Bankhall Group offers both options for its members when placing bridging deals; they can go direct or use a master broker. Lucy Barrett, managing director of Vantage Finance, argues that the help available for networks has grown over the years alongside raising awareness of the bridging sector as a whole. She argues that it is difficult for networks to provide much more than they do since it is not the only product they offer. If the level of communication is too much across all products, Barrett argues, that starts to dilute the message altogether. “Having good experienced lenders and master brokers without creating a panel that becomes too big to manage is the best start,” Barrett says.

Importance of education

The consensus among the industry is that it is important to educate people about bridging so more people spot opportunities for specialism; helping their clients with all their needs and bringing the next generation of specialist brokers through. Education is key, Martin Wilson says, and brokers respond well to a variety of methods. “The network finds face-to-face training sessions beneficial as this environment helps brokers and their peers discuss pain points and solutions,” he says. “These sessions can always be backed up with webinars, CPD videos and case studies as additional support.”  SEPTEMBER 2019

BRIDGING INTRODUCER

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Feature

Training advisers Bridging finance is a short-term loan, from one month to three years, the norm beings six to 12 months. Some countries call it a caveat or swing loan. They are either regulated (where the property is either occupied or will be occupied by the borrower or immediate family member), or unregulated (where the loan is being used for commercial or investment purposes only). Sounds simple but a second charge loan on a residential property does not mean it is regulated. Headline rates are much higher than traditional loans and can start from 0.49% per month. It allows finance to be readily available for those in the asset rich/cash poor category to be serviced across all business sectors. Look upon it as readily available cash that can be used for the purchase of

Chris Nairn mortgage compliance director, New Leaf Distribution

Liz Syms says that educating brokers on bridging is incredibly important because there are a number of differences between bridging and mainstream mortgages, with the main one being the exits. “I think that an educational piece on when bridging works for clients is very important to get more advisers understanding the market and considering it as an option for clients,” she says. “It’s making sure brokers are very clear on the exit route, risks and the alternatives if something goes wrong.” Stephanie Charman, specialist lending relationship manager at Sesame Bankhall Group, adds that education is important to show the many purposes a bridging loan can be used for. “Bridging can be used for a wide variety of reasons not just the traditional chain break scenario, which could be an adviser’s initial thought of where bridging can be used,” she says. Chris Oatway argues that bridging is complicated with specialist advisers finding it challenging to keep up with new entrants, products, and services. He says very few residential mortgage advisers who are used to doing straightforward remortgages and product transfers would be able to offer the best advice in all areas of the specialist sector. “It is essential that an adviser wanting to make the transition to specialist has the right training, education and support before they start taking on new deals, as www.specialistfinanceintroducer.com

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the next home, refurbishment bridge to let, pure development finance, business finance or even avoid a repossession. For the adviser it can unlock a treasure trove of opportunity. It is secured by way of a first or second charge on a property/ asset and is not as risky as many would have you believe. Since the 2008 crisis a vacuum of finance erupted in areas involving short-term transactions. This is rapidly being filled by private banks and niche lenders giving more flexibility, choice and competition thereby allowing brokers to negotiate the best deal on a case-by-case basis. It is now an essential product that needs to be in the regulated brokers’ advice armoury, though networks generally tell you to refer the business to an approved packager panel hence taking away the assumed complexity. It

is no more difficult than operating in the buy-to-let market. To understand bridging you need to develop a commercial panel to your business, understand how lenders source their monies and operate from an underwriting viewpoint, educate yourself in the differing aspects of bridging, where lenders will help. Establish a relationship with a good solicitor who understands bridging as they can generally collapse a case. You need to resource exit strategies for clients with education, training and further education being essential for all advisers. It is financially rewarding but with limited/no sourcing software available, advisers shudder and tend to be lost, as you have to research using the old fashion method of picking up the phone and recording the result.

any mistake could lead to very costly issues for a client or for their own business,” he says. Independent broker Phil Mabb from Bridge Development Property Finance argues that education already exists from lenders, networks, clubs and the NACFB and FIBA. “I sometimes think there is too much and you have to be careful not to saturate the situation,” he says. “If one club or network hosts a roundtable on something in Q2 and another does the same, there will be fewer in the audience.”

Changing attitudes

Despite not all networks offering support with bridging finance, the consensus is that change is occurring with more networks starting to alter their attitudes towards short-term funding and offering more help. Syms echoes this viewpoint, arguing that more networks are starting to look at bridging finance and give it some consideration for their members. Similarly Martin Wilson argues that networks, brokers and consumers are changing their attitudes towards bridging with the industry becoming more mainstream. “Property renovations and new developments are on the rise,” Wilson says. “Combined with the bridging market becoming a very competitive space between lenders – it’s transforming specialist finance to an everyday mainstream.”  SEPTEMBER 2019

BRIDGING INTRODUCER

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Meanwhile Lucy Barrett believes that the shift in attitudes has happened quite some time ago with bridging continuing to form part of the overall core offering for most. She argues that bridging continues to become more respected as a product that offers true value rather than lending of last resort. “There is definitely more options now than several years ago,” Barrett says. Martin Wilson agrees, arguing that the improvement in the reputation and attitudes towards the bridging market is being achieved already. “The level of bridging loans written has risen year-onyear, so naturally it must be gaining a stronger reputation,” he says. Although the attitudes of networks towards bridging is improving, there are arguments that more change is required for specialist finance to reach more in the mainstream space. Chris Oatway says that networks need to put more work into understanding the specialist sector fully, add as many lenders to their panel as possible, and offer training to those that are new to the sector to really offer value to the bridging industry.

Bridging credentials

He also argues for the introduction of a bridging exam to improve standards. “An area which would provide the most immediate value to the specialist sector would be the introduction of a specialist finance qualification for bridging, commercial and development finance,” Oatway says. “It is something we would welcome and encourage to improve the standards of the industry.” Jonathan Burridge, development director at JLM Mortgage Services, says that the mortgage industry is constantly evolving with later life lending, robo-advice, specialist products, and regulation. He believes networks need to adapt their attitudes and offerings to remain a relevant option for their ARs. “Networks like ours raise awareness and provide opportunity for advisers to have access and training,” Burridge says. Chris Nairn says that with new sourcing software coming online you could bring a small vanilla flavour panel to the market for simple bridging. “It is difficult as some bridging can be complex which results in lots of phone calls to lenders so sourcing software isn’t the solution,” he says. “The best solution is getting mortgage advisers to understand the solutions bridging can provide, and if they do want to get involved, to refer business to a small commercial arm within the network.” Nairn also goes onto say that it isn’t about the networks but the adviser. “If the adviser wants to improve, spread their wings and create diversity in their business they will seek those who can provide them with the training,” he says. “This isn’t about induction training but taking someone at trainee level and building up their www.specialistfinanceintroducer.com

knowledge. Seminars are essential and getting lenders to become involved in training is essential.” Andrew Morris reckons it’s difficult for networks to offer a lot of bridging support as it’s not their core business. “I don’t know if they have a massive place in this,” he says. “A lot of the bridging I do does not go through the network unless it’s high street lenders.” Martin Wilson highlights that education is important, but not just to brokers, but to consumers as well. “Social media is a powerful tool and tends to be under-utilised by brokers when trying to educate their clients on what types of finance is available to them,” Wilson says.

Education is key

Stephanie Charman argues that education is key to anyone looking to enter a sector of the market they’ve not previously operated or had much experience in. She has witnessed established bridging lenders expand their offering into other areas of lending such as buy-to-let and other lenders such as Clydesdale, albeit on a pilot basis, seeing the opportunity in this market and creating a bridging proposition. “All of this activity can only help to improve the image of a sector which has worked hard to improve its reputation in recent years,” she says. Liz Syms suggests one-way bridging lenders could improve the reputation of the industry. While the buy-to-let market is unregulated, it self-regulates, she says; with lenders refusing applications from brokers if they don’t have some form of FCA regulation. But that practice does not exist in the bridging market, with lenders taking applications from unregulated brokers which means the client may not have the best advice. “That’s something bridging lenders could do to improve their reputation,” Syms argues. “And they can be clear and transparent what they do in the event of a default.” Historically networks haven’t been specialist savvy, but have approached the arena with caution, some with fear even. Now attitudes are changing and more are getting involved with specialist areas, such as bridging. It’s worth looking back at the work and improvements so far even though more, as always, is required. Many agree that some networks provide a fantastic service to the bridging industry and hopefully more will follow suit. The key point however is that education is available to help brokers spot specialist opportunities. “It is imperative that brokers acting in the markets are aware of all types of specialist finance, however it’s important to understand these markets are called specialist for a reason - they don’t have defined criteria,” Karen Bennett says. “Working with either a specialist broker or network provides you with that experience and the ability to provide a wider selection of finance options for your clients.”  SEPTEMBER 2019

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Comment

Facing the challenges ahead Solid foundations are the key to facing the many challenges ahead

It seems that the ongoing saga of Brexit is doing little to dampen the growth of the bridging sector. In the most recent lending figures compiled by auditors from data provided by members of the ASTL, it was confirmed that bridging loan books grew to a record £4.62bn at the end of the second quarter of this year, representing growth of 11.7% compared to Q1 2019 and an increase of 14.4% on the same quarter last year. Bridging loan applications also hit a record high in the 12 months preceding the end of Q2 2019, with £22.13bn of applications representing a 9.7% increase on the same period the previous year. These are strong results, particularly given the uncertain politic and economic environment, but it is very important that we do not get carried away. Record lending is all very well, but if it comes accompanied by the ignominious collapse of lenders, as we saw with Lendy earlier this year, then reputation of the industry will be damaged and the sustainability of lending such volumes should be questioned. The challenge for the industry now is to continue this level of activity whilst maintaining high

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standards of underwriting and customer focus. This is particularly important as it looks like the writing is on the wall with regards to regulation of the short-term commercial lending sector. At the end of July, the House of Commons Treasury Committee urged HM Treasury to extend the remit and powers of the FCA to unregulated SME lending, amongst other areas. The concern is that when regulation does come, it will be targeted at the lowest common denominator to those organisations that exhibit the most questionable practices. This means that it won’t be light touch and it will impact the whole market. This may protect some customers, but it will also be to the detriment of many more and stifle innovation in this vibrant sector. There is, however, good news. We have a window of opportunity to influence the shape of regulation and demonstrate that we are collectively a responsible industry that operates with the best intentions of our customers at our heart. And we are doing this from solid foundations in a growing market.

SEPTEMBER 2019

Benson Hersch chief executive, ASTL

Lenders may feel competitive pressures, given the over-supply of funding, but there is still a good level of demand and the market is in a healthy state. We must use this as a foundation to build the next chapter of development and this is why it is so important that we agree across

“The concern is that when regulation does come, it will be targeted at the lowest common denominator” the board to a code of conduct that protects our investors, our borrowers and our sector. My, admittedly biased, opinion is that there has never been more need for an organisation like the ASTL to take the lead and 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. We have many challenges ahead of us, but at least we are facing them from a strong foundation.

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Don’t tell me, show me NACFB member brokers remain resilient and adaptable

The NACFB has been conducting site visits to our members across the UK for over three years. In that time, we have partnered with nearly 500 commercial brokerages to review their processes against our minimum standards of membership. But we are sometimes challenged; why do we do this? Firstly, let me make one thing clear, our association does not see itself as a regulator. Whilst we maintain a healthy working relationship with the Financial Conduct Authority and other organisations, we do so in a mutually beneficial way. We rely on our regular meetings with them to hear how they view our industry and what measures they are seeking to review or implement. But it works both ways, having a seat at that table is important for the NACFB and our members, in that we can act as a reliable barometer for the business loan intermediary sector. Our feedback on behaviours and professionalism within the sector influences the regulators approach and it is in this area that our findings from our minimum standard reviews are of vital importance. We have been able to successfully tally anonymous quantitative data of our members over a number of years that clearly demonstrates advances in their approach to compliance. Here, our aim is simply

“Over the last twelve months we have seen movements from the FCA that signpost a clear direction of regulatory travel” www.specialistfinanceintroducer.com

to provide empirical evidence to concerned parties that the intermediary sector is capable of successfully self-regulating. The NACFB believes that our industry expertise and our understanding of the market makes self-regulation more effective and efficient in both identifying and resolving issues. To combat the perceived risk that some concerns will be seen from the industry’s perspective rather than that of the SME, we seek to ensure that our compliance function focuses on what the finance journey looks like from the borrower’s perspective. So, what are our compliance consultants looking for when we conduct a minimum standard review? The regulators are evidencebased and we are seeking to adopt much the same approach. Our aim is to be able to visit any of our members, select a deal of theirs at random and be able to step back through each stage of the finance journey to ascertain how a decision or piece of advice was arrived at. A question we often ask the brokerages we visit is: if a decision is not evidenced or recorded in some way, did it really happen? Our aim here is to underline the importance of adopting an ‘evidence first’ approach, for there are often myriad reasons why a business borrower may not be offered the cheapest rate; be it through varied repayment structuring, speed of access to capital or a firm’s poor credit rating. Being able to evidence why this decision is was arrived at is what matters, to the SME, the lender and ultimately – if a deal falls through – the regulator. Our statement of suitability template, available to download as a document from the NACFB

Norman Chambers managing director, NACFB

compliance portal, is the best way to satisfy this key regulatory requirement. Over the last twelve months we have seen movements from the FCA that signpost a clear direction of regulatory travel. Although the FCA’s motor finance review, published in March of this year, directly pertained to the vehicle finance community it contained a broader message for the broking industry. Namely that the FCA has become increasingly proactive in seeking to shape credit markets for the benefit of consumers, whether financial products are for property, machinery or cars. Ultimately, it is our members’ name above the door and our role as a trade body is to provide firms with reassurance that they are compliant. The NACFB’s continued efforts in conducting minimum standard reviews ensure that those brokerages proudly operating under the association’s logo can do so with confidence, knowing that they are part of a community of likeminded and trusted finance professionals. Herein lies the value of joining a not-for-profit trade body - one that isn’t accountable to a set of shareholders - in that brokers can rest well knowing that all decisions are made in their best interests. All revenue generated by the NACFB is ploughed back into new initiatives as well as ongoing training and support with the sole aim of helping our Members’ businesses prosper. NACFB member brokers remain resilient and adaptable, and, backed by a forward-thinking and independent trade body like the NACFB, they will continue to provide choice, advice, and expertise in an efficient manner that satisfies the expectations of their clients, their trade body and the regulators.

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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 I took a bridging facility on an investment property I own as I wanted to create a separate title on the garden in order to create a building plot. The process has taken far longer than I imagined and the bridging facility is due to expire. Will the lender allow me to simply renew and extend the facility? Mel Fordham: Unfortunately, it’s difficult to determine what the individual lenders action/ attitude will be as I’m sure you will appreciate every lender and organisation has a different criteria and attitude to risk. However, from the intonation of your question it seems as though you have been successful in your application, you have separated the titles and have obtained the planning consent you applied for. Providing this is the case; the value of the now individual building plot will be significant and I am sure would be very attractive and of great interest to both small local developers and the self-build market too. With the above in mind, and is the case in all matters of finance and mortgages; you should keep your lender informed of the changes, explain the situation and clearly set out what you would like to do next, this should include a reasonable time scale for repayment and indeed your proposals for the interest on the facility too. In the main you will find bridging lenders innovative, pragmatic and keen to help. If your intention is to build the property for which you have obtained planning and you are approaching the lender for funding for the build costs: then the lender will require a full and detailed coasting from a qualified building contractor and a statement method giving proposed timescales for completion, you would be well advised to begin collating this information as soon as possible. Phil Mabb: In short yes, but this depends on the underlying circumstances behind the delays. What strikes me a strange is the very purpose of taking a bridging loan was to carve out the title, and bridging lenders tend to be fast and flexible - part of their 30

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Phil Mabb property finance broker, Bridging Development

Mel Fordham chief executive, Centrado

DNA. The procedures are relatively straightforward requiring input from you, your lawyer, the lender and their lawyers, Land Registry and possibly a surveyor to draft appropriate Land Registry title documentation – all of which should take a matter of weeks not months. I am not sure where responsibility for the delays lie, but if the lender or their professional partners are culpable, they should provide an extension and perhaps consider a cost compromise. The lender holds the entire security and I assume when they took on the transaction they were comfortable with the proposed repayment exit/s routes? The sort of things you’re a new lender will consider are the loan-to-value (LTV), the evidential progress you have made to date and what the issues you have come up against. All of which will come at a potentially unecessary financial cost. My wife and I own a detached house with a very large garden. Our neighbour, who’s house is slightly larger and in a significantly bigger plot has put in a planning application to demolish his house and build six flats. We have no building/ construction experience but would like to buy our neighbours house simply to stop this development. We have been advised this has a high likelihood of being approved – can we get a bridging loan to make the purchase? MF: The short answer to your enquiry is yes. However, before you embark on this matter I would urge you to consider where you want to end up and give great consideration to the immediate financial and long practical implications. Firstly, if your neighbour feels that the planning consent is likely to be granted/approved what would motivate him to sell the property to you? If he were to sell the property to you with the knowledge of the potential increase in value; he would presumably want the price to reflect the potential? How would this uplift in the agreed purchase price be confirmed by any professional valuer when assessing the value for finance purposes? As obviously at this stage

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Build a Better Bridge

value with planning is simply “hope” value and may ultimately be without foundation if planning is rejected. Secondly, if you agreed a price which you felt was fair and progressed this purchase, on what basis would you be making the purchase of the property? You have made it clear that you want to stop the development; so (unless you have significant provable income, sufficient to service the new borrowings without causing financial stress) it would seem renting the property would be the only feasible option available to you. In which case the property would have generate rent, high enough to service the borrowing required and after consideration of the lenders margins/multiples. PM: You simply want to stop the development of your neighbour’s house when there his every likelihood that planning would be granted. On that basis, it could be an expensive proposition since your neighbour might rightly want a premium for the house. Of course you could be able to secure a bridging loan to secure the property, but the real questions lies with your intentions thereafter and your ability to contribute towards the costs of purchasing the neighbouring property. If you take a rule of thumb that a lender will support you to say 70% of the fair market value then you will have to cover the balance, SDLT, legals valuation and other soft costs. This seems a bit extreme, but if you love where you live then perhaps this is a price you are willing to pay for quite enjoyment of your existing property? What you do need to give consideration to is what you will do with the new property. If you were to refurbish to recoup some of your initial outlay, there are a number of bridging lenders that support novice developers subject to certain criteria. In the first instance I would recommend you seek support of a Project Manager and source a decent contractor to complete any proposed redevelopment works on your behalf. Armed with this information you could then approach potential bridging lender to secure the necessary funding. The lender is then measuring the project manager and contractor to deliver the end product. What you have not provided is numerical information on the costs associated and more importantly how much cash or equity you have to contribute towards the scheme. As a rule of thumb lender would limit a development facility to c65% of GDV (factoring in all costs). Finally, if you keep the property on a BTL, you retain control, if you sell you could add some form of restrictive covenant on the site to stop future redevelopment. We live in a beautiful flat in Mayfair which I inherited from my grandparents. The lease is due for renewal and the freeholder who is a huge well know property company have asked me for £500,000 to extend the lease by 30 years. I’m advised in today’s market the flat with the lease extended would be worth in the region of £8m

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>£10m so it’s all relative. But mortgage providers have advised they will not help – would a bridging lender consider this proposal and be able to help me? MF: This is a situation in which bridging can be used very effectively indeed and is where the innovative and commercial attitude of bridging lenders can be demonstrated most clearly. As you have found, traditional mortgage providers generally shy away from commercial risk, which is mainly due to the restrictions imposed by their lending criteria, not that they can’t see common sense. Whilst I know several bridging lenders that would be delighted to assist you and provide the funding you require, the question that would be at the forefront would be; how you would be able to repay the facility post the lease being extended. Obviously, the bridging facility, even at the most competitive rates will be more expensive than traditional mortgage rates and will have a relatively short-term. Given the terms of the bridging, you will be required to confirm a realistic proposal for repayment before the facility is made available to you. Obviously, you could simply sell the property and using the huge resultant equity to buy another property. However, if it is your intention to ultimately remortgage the property to repay the bridging facility; you will have to satisfy the bridging lender that you qualify for such a mortgage and that you have income commensurate to service such borrowings. Whilst this may seem a little paradoxical, given the disparity between the value of the property and your borrowing; today’s compliance regulations are focussed on affordability and preventing financial stress and hardship. PM: The good news is there are a few specialists short lease extension bridging lenders in the market. However, before you start your journey, there are a few items to give consideration to – appointment of a specialist lease extension lawyer and surveyor since you will need their skills to assist with the negotiations Further, armed with professional support the £500k may be improved upon. The property company you allude to is likely to be hard to negotiate with by those uninitiated to such transactions. These come at a cost, so I hope you have liquidity to cover their fees? Additionally, we need to cover off a few things before approaching a lender by starting with the day one value and what your intentions are once you have secured the lease extension. Knowing little about your financial circumstances I cannot comment on your ability to service such mortgage if you intend to continuing living there, but on the basis that £500,000 is the approximate debt on a £8m-10m property, you should be to raise a BTL mortgage if retention is your target. The other option is to secure the right to extend and sell to a third party, therefor giving them the problem of raising the £500k.

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Our experts discuss the bridging market, from an ASTL successor to recruiting fresh talent

The status of bridging Jessica Nangle: Do borrowers value experience in complex bridging cases or are they driven by other factors such as price and speed? Roger Morris: Initially a lot will source on price but once they experience the quality of good advice and lending advice that changes. A lot have gone to a lender based on price, but the level of understanding about what that developer wants to do has suddenly stopped them and caused them to go back and research to find a lender who can think outside the box and take a much more pragmatic approach than the lenders purely based on rate. This is because the lenders purely based on rate are not as flexible and diverse with a wider offering in the bridging space. It’s not about price, it’s ultimately about achieving what you want to achieve within the timeframe and profitability. Gareth Lewis: I think the market is on a knife edge at this moment in time. When brokers are looking at bridging there’s been a consensus over the past few years that price has been the most important factor. We’ve seen lenders bring their prices down because they want to have the best product so brokers can get compliance sign off for that being the best route, however some lenders have sacrificed the essence of bridging, which is flexibility and serviceability. High profile lenders have marketed great products but have not been able to deliver the best service and deliver flexibility and serviceability. Brokers have to rely on not just the tick off from compliance, but on what they know from the delivery of each lender. For example if they have certainty of funding and are flexible. Lots of brokers are saying ‘here’s a price orientated route, I can’t guarantee it’ll be done within the time scales and I can’t guarantee how much underwriting will be done (which is relevant)’ compared to ‘here’s this company who may be slightly more expensive but I can guarantee they’ll do everything they can to make sure this deal goes through’.

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Adam Tyler: In the old days brokers wanted good service and everything was service-driven. It’s hard recruiting staff; recruiting experienced people. If you cannot get experienced people in, then your service will suffer. I’d say service drives the old school brokers, but price does come into it too. Brian West: The average length of the loan is five, nine, 10 months and there’s a tendency that clients are signing up for a 25-year mortgage but they are not. The difference between five - 10 basis points is negligible with bridging. If you have just bought a property at auction and after two weeks of trying to get finance from your bank, you have found that they cannot help you, you have just two more weeks to get finance otherwise you will lose your deposit. You don’t want to lose the property and deposit, so you need to go to someone who can understand the complexity of the deal and save it. Jack Coombs: Borrowers fundamentally want the cheapest and fastest deal to be the same deal. But it is difficult for a broker to get across to a borrower the

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difference in quality between a bunch of names the borrower may not have heard of before. In terms of experience, if lending to a foreign company some lenders do not understand which countries you can and can’t deal with. Experience is needed then. You could go to a lender and not get anywhere. GL: The onus gets put onto the broker. You say it is a hard job for a broker to turn around and tell the client what the best deal is when the client has never heard of the lender. That is why a client goes to a broker. They go for the experience and expertise to identify the best route. It is a minefield with the number of products and lenders in the mortgage and bridging spaces. You have to have the right experience and forego what you think is the best route, which is down to the best experience which is not always price driven. RM: Some brokers do not know the quality of lenders in this room and the value they can add. Instead they go with a high street name of a new high street bank that has wandered into that space because the board has seen the potential returns of bridging but haven’t a

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From L to R: From L-R: Gareth Lewis, MT Finance; Jack Coombs, Aspen Bridging; Matthew Anderson, Bath and West Finance; Phil Mabb, Bridge Development; Ashley Ilsen, Magnet Capital; Roger Morris, Precise Mortgages; Adam Tyler, FIBA; Brian West, Central Bridging clue about the complexity, need, desire and reputation that’s been established in this sector. These lenders create a nightmare because they have gone for the return without understanding the process. That causes me a lot of concern. Ashley Ilsen: Over the last few years we have seen real proliferation of different types of lenders and I’m surprised many do not market themselves to be specialist enough, some focus on commercial or development. We have seen a real scrap for market share and all of a sudden we are seeing too many lenders that are more broad. To really add value to the client, you should sell yourself as a specialist and say ‘this is what our expertise is and this is why you should use us’. 

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JC: There is an education point for brokers as well. We had a purchase bridge case that went to two brokers, one took it to ourselves and the other was a master broker. The client had a significant deposit and needed to complete in three days and we managed it with the broker who took the case to us. Meanwhile the master broker went to a different lender who hadn’t started reviewing the file. The deal went with us instead. If you offer something different you need to make sure brokers are informed of that. AT: Bridging isn’t a regulated product, but we are bound by The Consumer Credit Act and brokers are bound by the FCA. GL: I don’t transact in the regulated space but did so at Precise. You had inexperienced compliance managers at networks, clubs and master brokers. Their way to determine good advice was to look at price alone. It was very hard for brokers to define why they went elsewhere. It’s education not just to brokers, but to compliance teams and networks. Roger has done a lot of this with education to networks. Price is a very relevant factor but not the be end and end all.

AT: If you are producing suitability letters you have to justify why you are recommending more expensive deals to customers rather than the cheaper ones. RM: For me as a landlord of many years, real bridging is not regulated bridging. Regulated bridging is just a short-term regulated contract. We are seeing some new entrants wander into that space with a headline rate and the brokers are saying ‘I know that brand, it’s the cheapest rate and therefore I’m going to use that’. However the implications of the inability to conclude in the time needed, has not been factored in. Small margins such as 0.1% or 0.2% are tiny amounts of difference in cost and the other associated costs may be two sets of legals may be needed. On regulated, there is a lot of sense in that which is different to non-regulated, where there could be arguments of not wanting dual legal. If you are just buying a retirement home, do you really want two lawyers for that? There should be a complete separation of regulated bridging and non-regulated bridging. One could quite easily be segregated and condensed. And it shouldn’t just be focussed on price, it is the ultimate delivery. JC: Borrowers and brokers should also be interested in how lenders are financed. In the current economic environment with uncertainty and who knows what will happen by the end of October. When people are taking an on-demand facility and providing personal guarantees, do they really want to be using a lender whose funding line could be pulled? Brokers should guide their clients on how heavily geared lenders are.

“The utopian situation of having enough time to get the cheapest rate does not happen” Phil Strip Mabb ad.pdf 1 30/08/2019 17:10:22 C

Phil Mabb: A friend of mine has a case of a church buying a temple in Sri Lanka. The person taking it is someone I know and he runs PropLend. I said to him ‘there is £500,000 deposit at stake which they would lose Monday so have a week in total, can we work with valuations eight months out of date?’ We got them re-addressed as they are, he’s taken out his value, and we have to get the trustees to do my GDPR forms. I said I need the document before they get their money. We cut some corners like title insurance. I know Brian and trusted him implicitly to do it. It is a sensitively priced deal that is going to complete. I’m having to educate the people that don’t understand finance. The worshippers collected money, put it in an account and bought the site two years ago with a long-term completion and £1m short of where they needed to be. They had a week left but were fortunate to bring it to me and I know enough people to make that deal

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happen. If they went onto Google to look at what lenders do it would have been hopeless. It had to go to a broker. For me, it was not even the fee, it was great that the Sri Lankan community were useful, they’ll look after you and me them. Everyone is a winner in this. Service is everything, the cost of money was absolutely irrelevant. RM: That’s experience, knowledge and contacts on a complex deal. Brokers have to understand that when they are sourcing the right people to help them. PM: The utopian situation of having enough time to get the cheapest rate does not happen, it is always yesterday’s money. JN: We all know the ASTL is looking for a new chief executive. Who would you like to see in the role and what do you think they should focus on after taking over from the successful tenure of Benson Hersch? Matthew Anderson: I think Benson should be applauded for the job he has done. We looked at it and thought what was in it for us? We asked what the benefit of us as a regional lender being in the group is and there isn’t a lot. I remember going into an old ASTL meeting, probably when it first started, and there was some friction between the London and Northern bridgers. It was all about London bridgers not being interested in us up in Manchester. I don’t think that is the case anymore but I still think it’s London central and whoever replaces Benson has to recognise it is a national industry, we are everywhere now and there are lots of us. It’d be great to see a former heavyweight name in the industry take it on, but I suspect we’re all busy. JC: Or perhaps someone who is a heavyweight from outside of the industry? Someone maybe from the mainstream banking community who maybe knows the regulator and can help the industry manage the mission that is likely to come over the next few years promoting the fact that short-term lending is a more mainstream form of finance. RM: There are some very strong characters who are reminiscent to necessary change in the industry and Benson has done an incredible job. Strip ad.pdf 1 30/08/2019 17:10:22

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BC: I am not sure that there will be an election. It goes

“Brokers should guide their clients on how heavily geared lenders are” Jack Coombs out publicly looking for applications from interested parties and was circulated internally with lender members. GL: You also need the right person at the right time of their career path. That was lucky with Benson. He had been around in the bridging space for a long time and was in a fortunate position to be able to take on that responsibility. JN: How have you been finding recruiting fresh talent in your businesses? AI: We are looking for someone at the moment and are looking deliberately outside of the industry. We find that everyone we have taken on who has been in the industry has a fixed way of doing things. The beauty of short-term lending is there are more ways to skin a cat. A few years ago, we took on someone who was an engineer from Rolls Royce in an operations role, and they turned out to be one of our best hires. AT: When I meet lenders one of the most common questions, I get asked is ‘do you know somebody looking for this role?’ It normally comes up in conversations, showing there is a lack or shortfall in

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who haven’t had the best educational opportunities but are just naturally bright people. We try and recruit these people after college and train them up ourselves. We have an internal programme. Training people is difficult unless you have a proper programme of how you’ll train them, particularly as a smaller business. It’s working so far.

“With development finance you think you know it and then discover more. I am always learning. It is fascinating” Ashley Ilsen new people in the industry. It’s important the industry has some way of bringing people in and training them. RM: We have expanded our sales team and are one of the hardest lenders to join because you have to understand regulated lending, specialist regulated lending, adverse, CCJs, defaults and debt management plans, second charges, buy-to-let, limited companies, the regulation and taxation laws, and bridging. That is quite a lot to ask. Jamie Pritchard who does all our training, induction and hiring has developed a system. I’d say it takes about five years to fully learn bridging comfortably. It is like peeling an onion, it takes a long time to learn it. To find quality people to go out the with the right work ethic is hard too. And I think exits have become a bigger factor than they were before with the changes in buy-to-let. It’s not easy to find the people and we should applaud you for going outside the industry and starting afresh. JC: The industry has grown very quickly and there is not necessarily a vast volume of people going around looking for jobs. It is typically not the case and the competition money-wise is extremely intense. We are regionally based. We take the viewpoint that there is a rich pool Strip of young particularly ad.pdf 1talent 30/08/2019 17:10:22 amongst people C

GL: I think everyone has looked around the sector over a longer period of time to look at who is available, what skillsets they offer, and if they’ll fit the business. It can be hard to change the thought processes of some people. The big thing I look at is personality. If you have the right personality and the right person, you can develop their skills and take some more time to nurture and develop where they go by offering them career progression. We have people inside the business who have moved from one side of the business to the other to find their niche. I did something similar, I started as an underwriter and moved onto sales. That is where my skillset was better suited but I maintained that ability to understand risk in transactions. BC: The best sales guys I have ever brought on board were ones that were initially underwriters. Bridging that gap internally with an internal, underwriting sales role attached to the sales team for a year before becoming a BDM is great. They know what they are talking about when talking to brokers. GL: I think the role in sales has changed slightly as well. There are criticisms that some BDMs don’t generate business. BC: They have to have the sales attitude. AI: I think one of the biggest challenges of the whole industry over the next few years is not just how to be visible but how to be appealing to younger people. When you leave university, you are completely unaware this industry exists. It is supply and demand and there’s a lack of underwriters for example. AT: But three or four years ago we wouldn’t have been having these conversations of bringing in these young people outside of college or recruiting from outside the industry. So, you have to applaud that kind of conversation. In three or four years’ time it will be normal and bringing people in. I think we need to have some form of education or something that happens to recognise what people do. Not an exam, but

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something similar to that.

might want to go and specialise. We do not do the specialist bridging; we do not do development finance.

PM: As an industry we are very much in the driving seat of controlling where we go with the ASTL and FIBA. It is an exciting industry. It is going to be a good place. There is good money in our industry. If you have a decent head of a company that delegates and empowers, it can only go one way. RM: Nurturing an individual affects the rest of their life and gives them the tools to move on. It’s not necessarily academic qualifications that makes the right people. It’s about understanding how we invest. You have to applaud what we are doing. It is diversifying why it will benefit our industry. BC: I think we are always guilty of driving too ambitiously for a CeMAP type qualification in bridging, but I think there is scope for a bridging qualification along the lines of the old FISA with one days’ training. It would give a level of kudos to the industry that when you hire someone, you send them for a one-day training with the ASTL or NACFB or whomever and get a certificate with a pass or distinction. I remember the FISA days in the secured loan industry, every brokerage and underwriter would have that certificate pinned to their desks proudly. It is always being argued, and we set the bar too high so nothing gets done. I think we should set the bar a bit lower and we might actually get some progress. If we could get something in place it would give a greater degree of legitimacy of people coming into it. It would be pretty basic but a good thing.

AI: With development finance you think you know it and then discover more. I am always learning. It is fascinating. BC: I say development is 10 times more complex than the standard bridge. JN: How important do you think it is to embrace technology in the specialist sector? Do you see it as a hinderance or an imperative factor to improve processes? JC: Technology is an absolute must for anybody serious on lending. This may be a more resistant forum but to deliver on service you need the systems in place to do the legwork extremely quickly to free up the underwriters to focus on the more complex, greyer areas that need to be looked at by human beings. Technology is fundamental for enabling the key people to do the right things. GL: I think hesitance is the wrong thought process. I

AT: A few years ago myself, Rob Jupp and Benson had conversations with The London College of Banking and Finance but we need to all get behind it. Last time it was attempted the industry didn’t get behind it. The ambition is too high; you need to step it back a bit. PM: Don’t larger firms have induction courses for staff? That’s in-house training.

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“It’s important the industry has some way of bringing people in and training them” Adam Tyler

RM: We do have a robust training process. We go right through bridging, buy-to-let and seconds. The more complex and wider the spectrum, the longer it will take. Buy-to-let is the most complete area to train people with ICRs, limited companies, structures and tenants in common. It is such a spread. People tend to Strip ad.pdf 1 30/08/2019 17:10:22 come to us because they want to do it all. Then they

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think the bridging space and lending in the specialist arena wants to embrace technology, but I do not think we get over what gut feeling and common sense brings to it. If you were to try and build a proposition that is purely computer-generated decision making you would lose the fundamentals of what bridging is about. How many times have you scrapped deals because of how your gut felt and you were right and realised why your gut was telling you not to do it? It is getting the information-gathering processes automated and bringing the information you need to assess a transaction which is fundamental. The next generation of borrowers look at their mobile phones. JC: For legal and valuation instructions we have just created an integrated system that has just gone live. That means for our underwriters, instead of taking 30 or 40 minutes to undertake those instructions, it now takes about five. That is a massive time-saving exercise and if you can implement them, it leaves the intelligent people to do more thinking rather than waiting. RM: We’re part of a much bigger entity than bridging so we have so much automated digitalisation in what we do. But if I went out to see a broker I wouldn’t sell technology, I would say ‘you’ve got a deal, ring me and chat it through’. It is the ability to assess everything and every possibility. It is looking at it through so many strands. You might be able to use the security of a parent’s house or associated product. Brokers also have to be careful of technology because as technology develops within the next five years, it will take 60% of straightforward regulated deals, Barclays

are now doing two-minute offers on purchase and the fact MoneySuperMarket are doing product transfers is ultimately the death of the broker. Technology will ultimately benefit the lender but how will it benefit the industry? Development finance is so complicated I don’t think it’ll ever be automated. Technology can automate, and increase speed and efficiency but it’s in balance with the value of the gut feeling to be able to bypass the system to get the right result. BC: The balance is key. The danger is when looking for market gains becomes excessive and you overstep the market. Before the last recession a multitude of lenders tried to do automated valuations and that ended horribly. I saw a case recently where a lender tried to do a drive by, automating technology. In the valuation arena, perhaps you’d one day have a fly by with drones and artificial intelligence. You’ll be able to revolutionise the valuation process, but valuers cannot be replaced. With that drive-by valuation, the fact it needed to be gutted, wiped out and rebuilt was missed because the lender relied on technology. AT: I’ve also run and still do run a finance platform that runs algorithms to find the right lender. It doesn’t work without human intervention. You need human intervention particularly with deals around this table. I don’t think even in five years you’ll be able to replace the commercial finance broker to be able to place a bridging deal. I think you’ll need some form of human interaction. GL: The digital mortgage space, or with more and more going into the mortgage space digitally led, means that if a consumer goes to that lender do they know they are getting the best deal? It isn’t whole of market and understanding. That is the biggest worry from the broker’s point of view, that if you have people that are lazy and will use a digital platform for mortgages, do you run the risk of those lenders providing digital mortgages which are not the best? AI: Too much tech runs the risk of depersonalising the borrower experience. We find out about their business and who they are and I think there’s no replacing that. JC: But should you write down the information you get from those discussions again and again putting it into different systems, or should you have a holistically integrated approach that once it’s down, it’s down?

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AI: Absolutely once you have that information, it is key. However there is no replacing that initial contact. JC: There is room for improvement in how people share information. MA: You now have open banking pulling in a lot of information.

www.specialistfinanceintroducer.com


Round-table

GL: I don’t think anyone is saying that information gathering and using technology is the wrong thing. I think everyone would embrace it, because the ease of pulling data together and quickly is brilliant. BC: It’s just about getting the balance right and there is the danger of some lenders thinking they can lend on algorithms. JC: We visit every property. We take the view you need to compare the old view approach with a new school approach. JN: I’d like to get everyone’s take on the speed of processes in bridging because the average completion times remain stagnant at around 40 days. BC: This is from Bridging Trends which includes a lot of regulated deals to be fair. GL: It is regulated and non-regulated taking a pool of information from brokers and packagers that transact in both the regulated and non-regulated spaces. It is a really diverse pool of information. The need for speed in the bridging space is probably less relevant than it ever was. When I came into the sector, the need for speed was what you had to always hang your hat on. There are deals that need to be done quickly but it is the transactional certainty and need for that liquidity. Does it always need to be very quick? Probably not. Does some of the complexities of the legal process hinder the transaction? Can the client’s solicitor or client themselves slow down the process? There are a lot of factors that puts that 40-day figure there. It may not be something that has gone wrong, but that is what has happened because someone has not needed to push the button quickly. RM: We do vast amounts of regulated lending. They need an offer out in three or four days so they can exchange. There is pressure with regulated, particularly on older people downsizing. They just want to know they have the house. The timeframe with a chain of houses is outside the bridging process. PM: Does the 40 days have any meaning? I’ve done deals in once a week, one in two days and one that took six months. ME: With development finance the due diligence you are doing is greater. If it needs to be quicker, it is quicker. JC: Aspen takes the view that we try to do everything in 10 working days. That is our attitude but it is borrower dependent. It is a mentality that is helpful because we trade on service. ME: You need a solicitor that understands what they

www.specialistfinanceintroducer.com

“Nurturing an individual affects the rest of their life and gives them the tools to move on” Roger Morris are doing. Bog standard conveyancing solicitors do not know what they are looking at with bridging. GL: More and more specialist brokers have their own panel of solicitors who know what they are doing and can help the transaction. AT: I’ve spoken to solicitors to get them onto our panel and how we market them to our members. RM: I’d say on unregulated use dual legal, your legal bill will go down dramatically because you don’t have an incompetent lawyer being supervised by a quality one. Dual legal will save huge amounts of time and money. ME: One of the issues we’re seeing is trying to get good valuers with valuations you trust. It takes two to three weeks. To get the right person for the deal you have to wait. BC: I’ve spoken to a few valuers and they are not happy with their PI levels coming out at excessive levels. Whilst I am championing the falling internal valuation there are quite a few saying I’m not sure we can carry on with that model anymore because they are being asked for premiums of up to 20% of turnover. PM: Some peer-to-peer lenders are finding that some of the valuers are saying we cannot do it. Christian Faes has always been quoted as saying ‘a bridge is not a bridge if it is not done in 14 days’ so maybe we should change the name ‘bridging’ to ‘short-term property finance’. 

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Cover

Standing out from the crowd Jessica Nangle speaks to Jack Coombs, director at Aspen, about the past 12 months for the lender and the importance of internal training processes How have the past 12 months been at Aspen? It has been a period of fantastic growth. We are in the process of doubling our loan book this year, above which we have seen a notable surge in enquiries and illustrations. Two huge factors have played a significant role. Firstly the increase in our loan sizes to £4m maximum has driven a major change in the type of business we are seeing. This has driven our average loan size from £375,000 up to circa £900,000. Secondly has been the launch of our finish and exit product, which in the whole bridging market is a very specialist offering which needs a whole new layer of expertise. As the name suggests it means the work on the development is not necessarily completed. The product is available on wind and watertight developments – which is ultimately the time whereby the asset is protected from weather conditions – and we allow drawdown on revisit or building control sign-off. We will also progress with no building surveyor required where works are sufficiently advanced as our

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underwriters also visit and assess themselves. The product is also available throughout England and Wales with no restrictions on scheme type or works percentages and is offered to both corporate and individual borrowers. Demand for this is stronger given the current environment of slower sales where development lenders are often requiring redemption earlier than developers are able to deliver. What have been your key challenges over the past 12 months? Our business model is very hands-on, one of our experienced underwriters will handle an application from initial enquiry to drawdown and then maintain an ongoing dialogue with the client until the funds are repaid. This is also not a purely deskbased process as we visit every project we are set to lend on at the same time as the valuer in order to better understand the project and the clients’ needs. The downside is as we become busier it becomes harder to arrange

SEPTEMBER 2019

diaries, but this is a nice problem to have. We do not operate with BDMs because we do not want to have that separation; we want to provide certainty and clarity to people from day one. We have experienced and intelligent people who are welltrained, telling people the answers they need to know from day one. It is hard to do that with a BDM model. Of course there is always room to be more proactive, our problem is getting out to brokers and ‘beating the drum’ when the workload is already rocketing. That said we’re obviously doing something right as we are approached by brokers weekly with whom we’ve had no previous relationship, and once they use us they invariably come back. 

“We have experienced and intelligent people who are well-trained, telling people the answers they need to know from day one. It is hard to do that with a BDM model” www.specialistfinanceintroducer.com


Jack Coombs


The Aspen team

Cover

What are your internal training processes like? Thorough. We run an ongoing series of training modules which are vitally important in delivering a first-in-class service for brokers and their clients. Our approach is to get specialists in all relevant fields to give the team breadth and depth of knowledge. We get planning officers in whobring us up-to-speed in PD treatment, application processes and timescales and classification types. We get specialist legal advice from partners at magic circle firms to ensure the team understands the greyer aspect of bridging and law, and essentially what is safe and what isn’t. This is key to structuring a deal in a manner that ensures it can complete or alternatively letting the introducer know what does not work day one. We also have anti-fraud seminars whereby specialists provide us with a thorough awareness of red flag issues to ensure that our team is well trained to identify fraud and to take the appropriate actions. We get specialists to come in to talk about damp, dry rot, and wet rot; we get valuers to train our team on understanding how residual valuations should be undertaken and appropriate valuations for different asset classes. We get building surveyors and quantity surveyors involved, and insurance specialists as well. You name it, we’ve got it covered. This all benefits the customer and broker enormously because instead of waiting six weeks for a professional report to come back, we can spot the problems early and deal with them immediately. When the team pick up the phone, they are able to speak to the customer with authority and clarity. Not being based in London is a big win for us. In the capital you are competing for the best talent with corporate finance, M&A, business valuations, private equity houses and asset management firms. Being based in Solihull means there is less competition for these high

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value employees, and once we have them we ensure they don’t want to go elsewhere through good pay, bonuses and by allowing these naturally and practically intelligent individuals to do the job correctly while investing in their knowledge and future. What is your take on the current state of the bridging market? It is both busy and competitive. There are a lot of new players launching all of the time but not necessarily for the right reasons. Even though we only launched in 2017 we have fast become considered an established bridging lender largely because people appreciate quality customer service. More competition is ultimately good for the customer because it means that pricing is keener and service becomes a key selling point that businesses have to focus on. However, the danger is that the quick money that comes into the market will be equally as quick to exit the market should the economy experience a downturn. A lot of the new and more established firms are heavily leveraged and the volume of debt that major bridging players have themselves to third party organisations is vast. Obviously those that have banking licenses are more constrained as they have capitalisations rules that they must comply with, but those that often have precarious balance sheets. In a downturn these lenders will exercise their ‘on demand’ facilities and are therefore a higher risk option for customers and brokers alike. Having a lender like ourselves, where our money is fundamentally coming from a strong equity position (being 100% owned by a very well-established and lowgeared PLC), therefore has major benefits. We are also listed company that has responsibilities and we also have a TCF (treating customers fairly) mentality which comes through in every transaction. We are one of only a handful of lenders who offer flexible loan extensions designed to protect a

SEPTEMBER 2019

“We have fast become considered an established bridging lender largely because people appreciate quality customer service” borrower’s equity in projects that have been subject to unforeseen delays. Customers have the capacity to extend a loan for up to six months if serviced, and up to two months if non-serviced. Again this can only be comprehensively offered based on our one-to-one service model. Do you think Brexit will have an impact on business? I think it depends very much on the type of Brexit that we have, and let’s be honest and say we’re still all none-the-wiser after three years. There are outcomes that I can guess at. www.specialistfinanceintroducer.com


News

One is the no-deal scenario where, once tariffs are applied, you see the cost of goods go up and the real value of people’s earnings go down correspondingly. You will see the leveraged position of mortgages worsen and refinancing will become difficult for people in that position. I think this would likely have a serious effect on the property market. Any lender that is not capable of operating responsibly and ensuring that their borrowers have a sound exit strategy, even in such uncertain times, is therefore doing them a disservice. The other option is to put a border down the Irish Sea to avoid a hard border between north and south Ireland. This would be palatable to the EU but would effectively separate NI from the rest of the UK. In that scenario there would potentially be a short-term boost as we would remain in the customs union and single market as an agreement is determined. www.specialistfinanceintroducer.com

What have you got planned in the next 12 months? We are aiming to revamp our timebased service excellence offering. We currently undertake our illustrations in 15 minutes and our credit approved DIPs post searches in three hours. We instruct legals and valuations within one hour and we aim to complete our cases in 10 working days. This is all made possible by a hugely comprehensive dataset which we created ourselves, which runs in the background and helps us to make near-instant decisions on whether an application is good, bad or requires further consideration before progressing. It is good, but we’re going to make it better. It is already in development, but the updated system will radically improve our timelines in all of these respects still further. With this system we would like to bring DIPs down to just one hour

and have us instructing legals and valuations in 15 minutes. These are time savings that do not compromise the quality of the underwriting because they are based around removing data duplication and clever systems which make sensible assumptions. This simply then requires an underwriter to view the case, make any necessary alterations and click send. There is also the opportunity to do bigger and more exciting things within that time period also. We believe that we can integrate APIs, which will mean initial quotes can be done in seconds. But importantly bridging is never going to be a ‘one size fits all’ industry, it is always going to need a human element by way of an exceptional underwriter who can understand a case, overcome problems, see the end result and deliver exactly what the client wants in a timely manner.  SEPTEMBER 2019

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In Our Opinion

An introduction to Aspen Bridging If a deal can be done, it should be done. Specialists in high LTV, rapid & reliable bridging Service excellence

Since its inception in 2017, Aspen Bridging has forged a successful loan book and a burgeoning reputation with brokers and their customers for service excellence, speed and flexibility. They are the only bridging lender to have made public their time-based service excellence targets, which shows that the company aims to take the majority of business from enquiry to completion in just three to 10 days. Based on a number of caveats – which assumes immediate valuation and legal payment, no building surveyor, property access and quick response times from all parties – the decision is supported by figures showing 81% of cases are currently completed within 10 working days. The company will supply a fully-costed quote in the first 15 minutes and will move from a submitted DIP to a post-search DIP in a maximum of three hours. The initial online enquiry through to post-search DIP has been created to ensure that every agreed application has the maximum chance to reach completion should the information provided remain consistent, at present 93% progress to post searches with later fall-off largely coming through customers withdrawing or down-valuations. All steps in the process are

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controlled through a philosophy of one person per case, site visits from the experienced underwriting team to every property at valuation stage, and close partnerships with thirdparty firms such as valuations specialist VAS Group and expert solicitors including Fieldfisher LLP and Brightstone Law.

Best in class

Brokers remain the heartbeat of the business, and Aspen works SEPTEMBER 2019

And don’t just take their word for it, here’s a selection of introducer testimonials on actual cases: Alex Vickery (Y3S) “The client was in a very difficult position that required flexible and speedy service and Aspen Bridging delivered. Multiple lenders were considered but none of them offered what Aspen did but more importantly they delivered.” Callum Taylor (Watts Commercial Finance) “Aspen were efficient and effective at every turn. They were on site with a valuer within 24hrs of instruction, and always on hand to update myself and the client on the case. I would highly recommend Aspen to anyone thinking of doing business with them. Their standard service is a level above what I have come to expect from lenders I have worked with.”

Seamless delivery

Aspen is a 100% equity funded lender, with its own secure funds, which means it is not reliant on third parties. This ultimately means the business can adapt to meet market requirements in just days. When the market asked for an increase in maximum loan sizes, the company upped their top limits to £4m net for portfolios and £2m net on single properties with immediate effect. When an opportunity was seen in the complicated development sector, Aspen created a new Finish & Exit bridge product to make the process simpler while introducing several marketleading elements for wind and watertight developments which required further time to be completed. And the company is one of the first to launch and publicise flexible loan extensions for up to six months in a move designed to protect a borrower’s equity in projects that have been subject to unforeseen delays.

closely with its valued introducers to offer them a best in class service. Our experienced team and our online portal ‘Broker View’ makes working with Aspen quick and easy. The business meets every customer onsite to truly understand their requirements and keeps all parties up-to-speed every step of the way.

Dave Fathers (Primus Finance) “This was a prime case for Aspen. With speed of the essence, we have an excellent strategic relationship with Jack and his team at Aspen and they produced again to complete this deal.”

Our offering: • 80% LTV Residential & 72.5% Commercial • 1st charge unregulated (2nds supporting an Aspen 1st) • 0.45% pcm across all LTVs • Loans of 100k - £4m net • 6 - 18 month terms (2 month extension available) • Interest retained • England & Wales • Adverse accepted • Bespoke solutions • All-purpose bridges (including heavy refurbishment / light development) • Multiple draw-down loans - 0% non-utilisation charge

www.specialistfinanceintroducer.com


Advertisement Feature

Case Study

Dual use bridging loan from Aspen drives developer onwards and upwards A developer in Surrey has cleverly utilised Aspen Bridging’s Finish & Exit product to both complete their current project and buy a further substantial plot of land for their next scheme. The four-bedroom luxury detached house in the sought after location of Windsor Great Park was wind and watertight with a current value of £1.1m, requiring £350k of works to

realise a gross development value of £1.8m. Concurrently a larger plot of land in the same region had been noted for its development potential, so a facility of £1.2m was agreed at 0.61% per month initial rate with a term of 10 months. The deal was made possible by Aspen’s time-based service excellence targets, with an illustration issued in minutes with credit-backed terms in three hours before instructing surveyors and solicitors in the next hour. An Aspen underwriter met the developer onsite and quickly grasped the efficiency of the build team and the client’s bigger plan. Further rapid communication between the lender, broker Primus Finance and respective solicitors ensured a timely drawdown of funds. Commission was paid on the same day as completion. Dave Fathers, Head of Bridging &

Development at Primus, said: “When this case came to us we immediately knew that Aspen’s Finish & Exit product would give our client the best leverage and rate needed to both finish their project and fund their next. A quick resolution ensured that works and purchase were not disrupted.” The client added: “We were at a pivotal point during the scheme and required a fast and effective loan, Aspen and Primus delivered in all aspects. Their hands-on approach delivered the desired speed and gains required, with special thanks to Harry at Aspen for pulling out all the stops.” Aspen Bridging’s Finish & Exit bridge is available up to 80% LTV from day one with rates starting at 0.45% per calendar month. The term can run from eight to 12 months up to the lender’s maximum loan sizes of £4m net for portfolios and £2m net on single properties.

Case Study

Chinese foreign national saves deposit on Nine Elms investment thanks to Aspen Aspen Bridging has overcome language barriers, international legalities, valuation issues and a tight timeframe to save a Chinese foreign national’s £115k deposit on a £1.15m new build flat in Nine Elms. The applicant, based in Shanghai, had already paid the deposit and originally planned to acquire the property on buy to let term finance, but the developer served notice and the application could not be completed in time.Required to pay in just 10 working days, the case was further complicated by the significant oversupply of flats in the Nine Elms regeneration zone and a list of snagging tasks, as well as a five hour time difference with a client who could not speak English. Following a customer interview and pre-funds release call done by Aspen underwriters in Mandarin, the broker

instructed the applicant to use a global law firm with offices in Shanghai and London such that loan documentation could be translated appropriately and conditions of the loan explained. Aspen’s valuer and valuation audit team then undertook a comprehensive look at values within the regeneration area with a focus on new versus second-hand apartments, arriving at a number which worked for all parties and protecting the lender against any localised value related risks. A £675k gross loan was agreed at an initial interest rate of 0.47% on a six-month term. Exit will be by way of a move onto buy to let term finance, with the lender providing underwritten terms with approval to enter legal work once the property reached practical completion. Arthur Cole-Fontayn, senior

underwriter at Aspen, said: “The borrower was under pressure to complete so we worked quickly to get out formally underwritten terms within our three hour time-based service level agreement. I visited the property 48 hours later with the valuer and took receipt of the valuation of a further 24 hours after the visit. “Once on site I quickly became comfortable with the asset given it was one of the premier flats in the block, superior views and internal spec which compared well to others on the market and in the locality.”

Please contact us on 0845 318 0001 or email enquiries@aspenbridging.co.uk

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SEPTEMBER 2019

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Comment

Stimulating interest in bridging Are you giving brokers the information they need?

The Premiership is underway and as ever the talk is that the champions will come from the ‘big six’. The ‘big six’ have the resources to dominate and just like the major brokerages in the specialist market, they will predictably take the lion’s share of the market, in the shortterm. That said, it is only 18 seasons ago that Manchester City were in the now first division and eight years since one of the biggest brokerages in the specialist market was saying the bridging market had no future and it was not for him. In that time, it has grown from a £1bn market to one estimated to be north of £7bn and that broker is making a good living from it alongside his traditional proposition. Recent data from The ASTL showed that in Q2 of 2019 there was an 11.9% growth in loans compared to Q1 and a 14.4% increase on the same quarter in 2018. On every front the sector is reflecting growth, so there is no better time for smaller brokers to start working with their parent networks to explore the potential the market offers them. My last piece for Bridging Introducer was a shout-out to the networks calling on them to do more to support their division one members so they can realise their potential and do a Leicester City and show the ‘big six’ what can be done if you have the three things you will need to realise your potential in a very competitive market - resource, support and data. I have listed elements that working in collaboration with their members networks could generate significant growth potential for many of their brokers who may be struggling in their traditional

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market as the number of mortgages decline.

Resource

• Networks should consider establishing a core group (could be the recently launched Commercial & Bridging Club) of likeminded stakeholders to put together a “my role in the bridging process” presentation and to deliver it to interested parties face-to-face or via such as webinars. • The bridging market has become more sophisticated and now demands a greater level of expertise from the broker so there is a need for brokers who are serious about entering the sector to either consider partnering with someone with the necessary experience or enquire more of the networks how they can source the resource required that will help them achieve income levels that makes their commitment worthwhile. • Most networks like Openwork direct business from occasional brokers to designated master brokers and that is fine, but I am convinced more can be done to use this specialist resource for the benefit of all parties.

Support

Journals such as Mortgage Introducer and Bridging Introducer are exploring ways their pages can better educate and advise brokers on the benefits of diversifying into other income channels, not just bridging, but seconds and equity release. I would recommend interested brokers to use their journals as they would use Google and ask them to establish an education segment encouraging brokers to submit their questions and for them to be answered by relevant

SEPTEMBER 2019

Mike Dring Strange Alan managing director, director, MAD Approach Funding 365

‘experts ‘ including lawyers, valuers, lenders and networks, thus giving the knowledge needed before committing. I have often considered that the best advice a network broker can get is from one of his peer group. Too often the advice is given by a lender who is obviously selling their wares but an independent broker (with no fear of competitive impact) who has had success in the sector is a much better advocate. I believe networks can do more to get their members to exchange success stories.

Data

The data that is published for the sector can give a novice broker a feel for what the market has to offer. ASTL, West One’s Bridging Index, and MTF’s Bridging Trends. Networks could use the data available to do more to impress on their membership what opportunities the market offers and where those opportunities exist. I am convinced there are opportunities for division one brokers to threaten the ‘big six’ and become the Leicester City FC of the bridging world, but it will not happen unless the networks collaborate more with all stakeholders in the market and the brokers set about putting a project together that will determine if they have the resource, support and data that will drive their growth ambitions. Of course, the other two factors that will determine if the information the broker gathers and the support they enlist is right for the individual broker is their commitment and their talent. No Premierships were won without the team having those two vital elements. www.specialistfinanceintroducer.com


0345 241 3079 www.castletrust.co.uk

Go wild for bridging you can trust With simple pricing, streamlined requirements and fast-track servicing, you can trust our bridging products to deliver.

Castle Trust | Belvedere House, Basing View, Basingstoke RG21 4HG | Tel: 0345 241 3079 | www.castletrust.co.uk Castle Trust is the trading name of both Castle Trust Capital plc (company number 07454474) and Castle Trust Capital Management Limited (company number 07504954). Castle Trust is authorised and regulated by the Financial Conduct Authority, under reference numbers 541910 and 541893. Registered oďŹƒce: 10 Norwich Street, London, EC4A 1BD. Registered in England and Wales.


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