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January 2019



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INTRODUCER Information carried in Mortgage Introducer is checked for accuracy but the views or opinions do not necessarily represent those of Mortgage Introducer Ltd.

January 2019


INTRODUCER Welcome to the first issue of Bridging Introducer for 2019. As we close this first issue the bridging market has already seen a some changes. Back at the end of 2018 we saw the demise of Amicus Property Finance. This was arguably one of the biggest firms to have failed in recent years. Amicus Property Finance initially halted lending at the beginning of December after failing to work out a deal with a suitable investor. By the end of the month the firm was placed in “It’s never nice to administration. There was a great team hear that so many at Amicus Property people have lost Finance from top to bottom and it’s never nice their jobs” to hear that so many people have lost their jobs. The hope has to be that those people are back in the market soon and that the lessons that can be learned from the demise of such a large lender are filtered down through the entire industry. Elsewhere fears over Brexit appear to have caused British house prices to all but stagnate in 2018. Indeed, figures from building society Nationwide revealed that house prices in 2018 had experienced the slowest annual rate of growth since February 2013. Uncertainty over the economic outlook appeared to be undermining confidence in the market, it warned. And that uncertainty does not appear to be going away anytime soon. At the time of writing Theresa May is struggling to overcome deep opposition in the Conservative party to the Brexit divorce deal. As such the prospect of an economically damaging no-deal departure from the EU in March is a real possibility. Equally we could see the whole thing called off or a general election. Who knows! It looks like it will be an interesting year whatever happens.

5 Andrew Hosford

The liquidity merry-go-round

7 Kevin Thomson

Taking a closer look at commercial

9 Bret Jackson

Why we should be extolling the virtues of the market

11 Brian West

Getting the right partners

12 Feature: Looking to the future

Michael Lloyd takes a closer look at the next 12 months

22 Benson Hersch

The latest from the ASTL

24 Build a Better Bridge

Your questions answered

26 Round-table

This month’s industry debate

32 Cover Story: Bridging - The next generation

Jonathan Samuels, Matt Smith and Mark Posniak of Octane Capital discuss the lender’s plans for the future

38 Alan Dring

Teamwork makes the dream work

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06/12/2017 15:06

Comment News

The liquidity merry-go-round 2018 saw some lenders leave and 2019 will be the same

Ready for my bold, controversial 2019 prediction… a few lenders will disappear from the market and a few new ones will take their place. I know, I must be clairvoyant! On a serious note, I am sure that next year will be extremely challenging for a few lenders that have over leveraged their portfolios. We are no closer to knowing what impact Brexit will have on our market. There are degrees of bad, we just don’t know where on that scale the impact will be. While a few lenders will either have their funding lines frozen or pulled completely, there will be other lenders that rise from the ashes after receiving new funding lines. Simply put, there is a hell of a lot of liquidity out there and this money needs to be funnelled out through lenders, via us brokers, to property developers and investors. As well as my earlier prediction, I am also predicting a very busy first two quarters next year. The Voltaire pipeline is as strong


as it has ever been right now. A number of these deals have completions dates in February, March and April next year. A couple of these deals may slip, the market seems to be very slowmoving now, which would take a couple of these completions into May or June. After that, who knows. Brexit will finally be here! Back to the lenders. I hear rumours every day about what lenders are doing, I am sure we all do. One of the main rumours at the back end of last year unfortunately turned out to be correct with the demise of Amicus. On top of that I am hearing rumours repeatedly about at least one other lender that just won’t go away. This lender is allegedly hanging on by a thread. Should it collapse as Amicus did it would be a real shame. They have both done their bit to enhance the markets image. I guess that one, if not both, have been overly aggressive on their gearing levels and they just can’t get away from the historic, toxic debt.

Andrew Hosford director, head of bridging, Voltaire Finance

Again though, if one or both guys collapse a new lender will no doubt rise in their place. Will they be better, the same, or worse? Obviously, I have no idea, but if they can secure some of the huge pool of liquidity that is out there, they have every chance provided they don’t lend recklessly. I think I have gotten to the point now where I am shutting out the Brexit noise. I’m bored of people telling me how bad its going to be. They don’t know that and nor do I. It might be awful, it might not be. All I do know is that right now my clients are busy and so am I. We are looking at deals that take us right through to Brexit and so far, none of my clients have told me they are retiring. In fact, the opposite is true. They are ramping up for a very busy year. So, I am too. And so are the money men looking for new lenders to back or existing lenders to invest into. Maybe I am way off here, but I am excited about 2019.




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Comment News

Opportunity knocks Despite uncertainty 2019 will still have plenty to offer

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Well, 2018 has been a funny old year, dominated by the political and economic impact of Brexit, and as it rumbles on still, we cannot look forward to the New Year without mentioning it and what the impact will be. And it is still unknown. Following the Commons ‘meaningful’ vote on Brexit being postponed, following May’s decision to seek reassurances over the ‘backstop’ what will happen next? Will she be able to renegotiate? Will there be a second referendum? A General Election? No one knows, which makes an uncertain path for all. Throughout 2018, the uncertainty has already been having an impact, with investors holding off decisions and banks being cautious - especially on LTVs - and I cannot see that changing in 2019. There is a huge amount of speculation from the market, with many predicting that interest rates will rise and house prices will fall. And, there certainly is the potential for rates to rise and house process to take a tumble. This, in turn, will lower confidence in the UK - whether there is a deal or not - which will

affect all markets And that’s not all. The phasing of the tax changes on buy-to-let (BTL) will continue in 2019, and how BTL investors will react is still unknown. Almost certainly they will take a cautious approach to their investments, and I think we will see more look at other options, such as semi-commercial assets, holiday lets and Airbnb as a potentially more prudent investment. However, even with the tax changes and the potential for some investors to look at different options, I still do not think the BTL market will shrink in 2019 as property remains a solid investment option. What I do think we will see is a continuation of the recent shift to limited company applications, as well as the use of commercial lenders for portfolio landlords, together with increased activity in remortgages and BTL second charges. The combination of all of these will, I think, mean that the BTL market as a whole will still increase into 2019 and beyond. I think the drive for more housing will continue in 2019,

Kevin Thomson sales director, Connect for Intermediaries

but, I think lenders may be more cautious of gross development values (GDVs). Due to uncertainty surrounding house prices as a result of Brexit uncertainty, developer clients may find that the GDV of their projects are not quite at the levels they had hoped they’d be and that they have to offer more to lenders, by either putting more into the deal or potentially looking at joint venture projects I also think the retail sector will remain challenging as the High Street continues to fight the internet for sales, and as a result, lenders will continue to remain cautious when it comes to this type of lending. However, if – as I said earlier when talking about BTL – retail lets are balanced out by residential letting making the property a semi-commercial asset, the risk is reduced, giving both the lender and the investor some comfort. However, I think other commercial sectors will do much better next year, for example, I see light industrial and leisure in particular as potential areas of growth in 2019. I think overall, in every market there are positives and therefore, opportunities. Whether we are living in low or high-interest rates times, or even in periods of high inflation, one thing remains stable – there is always demand for funding. And yes, with Brexit and the uncertainty it brings, we are going into unchartered waters, and no one truly knows what will happen. However, despite all the uncertainty (and scaremongering!), there will still be opportunities. What we need to do now is make sure we have the knowledge, the technology and most importantly, the drive, so that we can maximise those opportunities and ensure we have a successful 2019.



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03/10/2018 10:04


Time to rally together We should be extolling the virtues of the market

2018 is in the past, the festive period is over, it is now time for Dry January, Veganuary (for those of you who know me, you will not be shocked to read I am not participating in either of these), gym memberships and all those New Year’s resolutions, most of which are probably already on the verge of collapse. It is also a time to get back to work, plan the year ahead, better yourself, exceed targets and have the right team working alongside you. Unfortunately, December saw the quick demise of one popular lender, Amicus. This was very sad for the industry but is also a stark reminder that even in this robust sector of the industry, casualties occur. The news at the start of the year announcing a couple of lenders have temporarily ceased lending, could cause some jitters amongst brokers, borrowers and other lenders alike. This is then counteracted by other announcements of record lending figures, new funding lines, new lenders launching; the norm for the sector. It is times like this the market should rally together and promote the benefits, the excellence that exists, not launching coarse advertising campaigns on LinkedIn and other social media channels on how they still have funds available, writing business here and there. It is not clever marketing and is damaging to the industry and certainly not amicable. Jonathan Samuels, CEO Octane Capital has written a couple of very interesting articles, placing realism at the forefront of how 2019 could be a bumpy ride. I agree. The political and economic uncertainty as to where we will be in 24 hours’ time, let alone


the fast approaching 29 March is almost impossible to predict. Whilst the news regarding Amicus was sad to hear – out of bad sometimes comes good and in the face of adversity, opportunities present themselves. Often the best assets of a business are its people. The closeness of the market has created opportunity utilising the skills and talent of the individuals who have been caught up in the demise of a business, through no fault of their own. We have helped these people regain their career and get back on track. These are the stories that make me feel better about the sector. A great philosopher once said, “knowledge is knowing a tomato is a fruit, wisdom is knowing not to put it in a fruit salad.” Ok, not a philosopher but one of the greatest ever Rugby Union players of all time, Brian O’Driscoll. The video footage capturing this moment during a press conference still makes me laugh today. It even came up over Christmas and got me thinking of its relevance to recruitment, bringing me nicely to one of my original points - the right team working alongside you. Before you think “Bret has completely lost the plot and is in Narnia chatting to Aslan” please let me explain. I mentioned in last month’s Bridging Introducer, it is the people that makes’ a business and this industry. The difficulty is finding the right person for a particular role. It is more than just having the experience and qualifications for a role, it is about the person. Are they a cultural fit? Do they have the right personality? Will others feel threatened? The days of throwing as many

Bret Jackson head of marketing and ommunications, BWD

CVs at a hiring manager and hoping one sticks are long gone…….well at least I hope they are. It is not the way recruitment should be done. One of the four values instilled into BWD is ‘Do The Right Thing’. 80% of our business comes from existing clients, some of which have been on the journey since our inception 12 years ago, so would they still be trusting us if we didn’t abide by this value? Having the relevant experience, qualifications and knowledge is very important, but being a cultural fit into an organisation is equally a vital characteristic. The impact of hiring the wrong personality can be very costly. If they do not fit in and other more established people start leaving, the cost to the business becomes extenuated by replacing them, retraining, product/service knowledge, the list goes on. Understanding a business is an essential when sourcing the right candidates. We need to understand the structure, the ethos, the people and the plans; which we can then discuss with candidates to ensure they would fit in. It is worth noting from an employer’s perspective, it is not all about money when attracting talent. Yes, salary is very important but so are all the other benefits. For example: health insurance, child care vouchers, season ticket loans, dental, pension, life assurance and flexible working. On the last point, a CEO of a global bank once said, “if you don’t trust your employees working remotely, why employ them?” So true. It is all about combining the right ingredients to perfect the recipe. People are the ingredients, it is how much and how you combine them that is the wisdom. See… tomatoes.



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Comment News

Forming a popular front Getting the right specialist partners is key

As we move into a new year it’s fair to say that bridging has never been so popular. Those that predicted 2018, with all its economic and political uncertainty, would see the UK specialist lending market in decline have proved to be somewhat wide of the mark. Indeed, from beginning to end the year saw a steady flow of new short-term lenders being launched. With interest rates remaining at historically low levels new entrants were propelled to market on a wave of cash by capital holders seeking a more attractive return on their money. Third party funders in the shape of private investors and family offices, hedge funds, challenger banks and even the average man in the street through peer to peer lending platforms all fuelled the continued growth of the market both in terms of the volumes of business being written and the sheer number and diversity of lenders. By the years end increased competition had driven rates down to levels that were unthinkable just three or four years ago whilst loan to value limits had increased despite the backdrop of a very subdued and even in pockets declining property market. On the face of it these trends look like great news for borrowers and, in many instances, they are, but despite hugely competitive borrowing rates and record employment levels the wider UK property market has finally begun to reflect concerns over the shambolic handling of Brexit as the 29 March draws ever closer. According to the Halifax, December saw annual house price growth slow to its weakest pace since February 2013 and a monthly drop of 0.7%. Faced with massive uncertainty around the eventual outcome of

Brexit it’s hardly surprising that UK homeowners are increasingly sitting on their hands and waiting for the storm to pass. Consequently, as we move into 2019 we have reached the point where a slowing property market, combined with intense competition between established specialist lenders to maintain their market share and newer entrants to gain some has inevitably seen some lenders, both old and new, pushing both rates and loan to values to unsustainable levels in pursuit of new business. These same lenders have often paid inadequate attention to their clients exit strategies. The assumption that rising property prices would always ensure an exit by refinance have proved to be deeply flawed and default rates for these lenders have spiralled. Against this backdrop of rising defaults and growing losses some established lenders have lost their funding and have begun to exit the market. As indicated above, the problem is not purely confined to established lenders. Newer lenders have in some cases based their underwriting strategies on algorithm’s and automated procedures. This one-size-fits-all mentality simply doesn’t work in a sector where deals are often extremely complex requiring the sort of ‘outside of the box’ thinking and tailored solutions that only highly experienced underwriters can provide. Rigid product offerings don’t work well in the bridging space. Finally, compounding the above, due to the rapid growth of the sector, it is now often the case that relatively junior underwriters and staff are being offered positions and levels of responsibility for which they are too inexperienced and ill-

Brian Strange Mike West managing director, Central director, Bridging Funding 365

equipped to cope. Immediate contact with senior personnel is often the key to a successful outcome but this can be impossible with some newer lenders who just don’t have the strength in depth and knowledge within their team. Now, more than ever, brokers and clients need to take a more holistic approach when determining the lenders they deal with. A simplistic focus on lower rates, coming as they often do, in rigid less flexible product offerings can be a mistake. Frankly, there is much more to making a good choice than price, particularly when the average duration of bridging loans is counted in months rather than years. Rate and LTV should always be balanced against a multitude of other factors including an ability to offer both conventional and unconventional solutions, access to senior decision makers from the start of the application process until the day the loan completes, autonomy to make decisions in house, certainty of funding and a consistent and above all decisive service. Fortunately, there are many lenders with highly experienced Teams and strong and diverse funding lines who were formed and have been forged in the last recession. It is these lenders who will underpin the specialist market in 2019 and who stand ready to meet the funding needs of borrowers, be they opportunistic investors in a buyers- market or the entrepreneurial SMEs that are the backbone of the economy. The specialist lending market is well positioned to end 2019 stronger, leaner and fitter than ever before but now, more than ever, it’s important to make sure you are working with the RIGHT lending partners.




Looking to the future


espite political and economic uncertainty last year the bridging market performed well. Figures from the ASTL in Q3 were down slightly quarter-on-quarter but annual completions continued to rise to £3.98bn. “Figures for Q3 2018 show an ongoing year-on-year upward trend,” Benson Hersch, chief executive of the ASTL says. “Despite current political and economic uncertainties, lenders are very much doing business as usual.” Sam Howard, managing director and co-founder of Magnet Capital, adds: “From a development finance perspective 2018 was business as usual punctuated with a growing sense of caution, amongst both our clients and lenders, as the clouds of political and economic uncertainty formed above us.” So business has been doing well yet underpinned by caution, but what does 2019 hold for the market?

Future of the housing market

Terry Pritchard, founder of Charter House Corporate Partners, predicts if the Brexit outcome is still fluid, a 16% to 20% drop in house valuations and a softening




Michael Lloyd considers how the bridging market will pan out over the coming 12 months over a 15 to 20-month period with London being hit harder at 20% to 25% with a softening over 20-24 months. “The housing market is doomed for the short-term, how bad and how long still depends on the Brexit outcome,” he says. Similarly, Michael Clapper, executive chairman at Black Book Finance, says he has less confidence in the short-term due to Brexit uncertainty but over the long-term is more optimistic. “Over the longer term I am confident that the housing market will be robust and thrive given the chronic shortage of homes and ever-increasing demand for those homes,” he says. “The same goes for London specifically.” Payam Azadi, director of Niche Advice which advises on both residential and bridging transactions, says many properties have had down valuations, especially in London, and therefore he worries about meeting the exit strategy. “Bridging is all down to valuations and keeping an eye on the valuation of the asset is key,” he says. “As long as you’ve countered for that and you’ve got the realistic


Sure-footed underwriting is required in a precarious environment As we move into 2019, the prevailing mood is one of uncertainty. With just weeks to go until the UK is scheduled to depart the European Union, we don’t yet know whether it will be departure with a deal, departure without a deal, or even whether Brexit will proceed at all. The ongoing ambiguity and looming proximity of Brexit means that it must be high up on the agenda at all businesses within the bridging sector. The OECD has predicted that economic growth in the UK is projected to increase slightly in 2019 before slowing in 2020, but only on the assumption that there is a smooth exit from the

Benson Hersch chief executive, Association of Short Term Lenders

expectations of the end and start values and are communicating them to clients, you still have opportunities out there and there are deals to be done. “Many lenders are still lending. London is fairly volatile, and I think will be similar this year. Outside of London there’s lots of business happening. You just have to be cautious.” However, Damien Druce, director of Assetz Capital, says prices can’t continue to drop. “The demand is still there,” he says. “People still want to buy properties in London. I think London will continue to correct itself. The wider market is in good shape, it’s about what Brexit triggers. But no one can see what’s coming. We can just sit here, wait and react accordingly.” “We continue to believe the market to be subdued until there’s some form of idea on what’s going to happen over Brexit,” Jonathan Rubins, chief executive of Alternative Bridging, adds. “It’s hard to see any particular motivator within the market that will move it from its current subdued state.”


After two years of back and forth negotiations with Brussels, the UK is set to leave the European Union on March 29. But these past two years have brought nothing but uncertainty of what might happen. Some 43% of property investors stated the biggest challenge they currently face is the continued Brexit uncertainty, MT Finance’s Property Investor Survey found. “The business market likes certainty and the uncertainty makes for a challenging period,” Rubins says. “There’ll be many twists and turns over the situation with Brexit and we’ll all be pleased to see the

EU. The OECD says that failure to come to a withdrawal agreement with the EU is by far the greatest risk in the short-term, suggesting that a no-deal scenario could subtract over 2% from real GDP over two years, which would undoubtedly have a knock-on effect on the property market. Elsewhere, media speculation makes the OECD outlook appear decidedly positive and the papers are full of gloomy predictions. Brexit is not the only risk ahead. There are many indications that the global economy has passed its peak in the cycle and there have been signs of volatility in markets across the world. It is also widely expected that there will be a property price crash in

Australia, with recent data from CoreLogic confirming that house prices have fallen the most in a single quarter since 2008. History tells us that the world can be a small place when it comes to economic contagion and if banks suffer losses in Australia they may become more risk averse in other regions. But there is opportunity amongst the danger. The unemployment rate is historically low and real average earnings have risen. These are strong economic foundations and, if the Brexit situation is resolved without inflicting significant damage on the economy, there is potential for a bounce-back.

end of it. Nobody knows what’ll happen. But our appetite hasn’t changed since Brexit.” Similarly, with a lack of information on what will happen, Clapper says its business as usual. “But on the assumption that the housing market will ultimately thrive whatever happens with Brexit, due to the shortage of supply and ever-increasing demand, the best thing we can do now is continue to execute our business strategy, unless or until something happens that forces a rethink,” he says. Brian West, director at Central Bridging, adds that the outcome is unknown but he’s as prepared as can be with an experienced team and diverse funding lines. Azadi says to prepare for uncertainty and different Brexit outcomes he will be diversifying into different areas. “You’d be mad not to be worried about Brexit and its implications,” he says. “We’re going to diversify. We advise on residential, buy-to-let, secured loans and bridging. “We’re just hedging our bets on lots of different things because if there’s a downturn in one area, you need to make sure you can do business elsewhere. The same goes for lenders too.” Meanwhile Colin Sanders, chief executive officer at Tuscan Capital, cites an opportunity for smaller specialist lenders in the face of Brexit. “What I do see is an opportunity for smaller scale specialist lenders should the big institutional players choose to take fright and rein in their funding to developers and property investors,” he says. “It happened in 2008-09 and heralded a bright new era for bridging.” Howard reiterates the housing market will be difficult in the short-term with uncertainty and is more  JANUARY 2019




Outlook for this year 2018 has been quite a year. If you had asked me a year ago to predict what would be happening now I would have been a million miles off. Who would have thought that the government would be in the mess that it is, that we would be three months away from Brexit still with no agreed plan in place and that Donald Trump would still be in power? Therefore, predicting what will happen in the next year requires the type of crystal ball that has not yet been invented, even in fantasyland. The only certainty right now is more uncertainty. This is the biggest risk not only to the financial services but also the economy as a whole. Most industries rely on an amount of consumer confidence and ours more than most. This is not helped by the chronic political instability that we are faced with at the moment. On the positive however, it has been a very buoyant year for the bridging industry which has achieved record levels of business. At Hope Capital we have more than doubled our business volumes and aim to do the same next year – whatever Brexit delivers. Call us

Jonathan Sealey chief executive, Hope Capital

pessimistic about London as stamp duty has in many ways frozen the market too. “People will probably be wary of buying until they get a sense of what is happening with Brexit,” he says. “However, there is a structural shortage of houses being built so at the more affordable end of the market there will always be demand.” Druce, however, is optimistic that the country can withstand whatever Brexit throws this way. “I’m not worried about Brexit at all,” he says. This country has got fantastic bounce-back ability. We take knocks very well.”

Funding issues and peer-to-peer

In 2018 some companies had problems with funding lines and there were some issues about peer-to-peer funded bridging lenders. Last year saw estate agent Emoov and bridging lender Amicus Property Finance enter into administration.




bullish but we believe that this is still entirely possible. Demand from developers of all sizes has been strong all year and remains the case with the ASTL recording record bridging completions. New lenders therefore continue to be attracted to the bridging market, although many remain under the radar. The bridging industry is fortunate that not only does it do well when the economy is buoyant but any downturn that affects mainstream lending tends to drive more people to shortterm lenders who have more flexible underwriting. The biggest challenge that may affect bridging lenders could well be on the funding front. Lenders that are externally funded may find that funding lines are harder to obtain or that their underwriting has to become more cautious. If conditions get more challenging therefore, we may see more consolidation and smaller lenders who haven’t carried out prudent due diligence may well go to the wall. Ultimately lending is a relationship game and not only with funders. To capitalise on the opportunities ahead lenders need to work closely with brokers and build up a reputation for

delivering. Ultimately brokers want to know that if they introduce their client to a lender that lender will do what they can for their client. That means if they say yes then they will deliver the loan and deliver it within the timescales that the client needs. Most importantly brokers need to know that the lenders they work with have the surety of funds to deliver on every loan. There is often the question as to whether brokers embrace bridging enough; this has to be an answer of two halves. Those reading this in Bridging Introducer are likely to be specialist bridging lenders who embrace bridging and understand the potential and unique solutions it can provide. Mainstream mortgage brokers are often unfamiliar with bridging however, and it is down to lenders to help educate them as to how bridging should be one of a range of solutions that they consider. 2019 must surely be the time that a bridging module is introduced into the CeMap qualifications so that brokers can be aware of a whole range of solutions. This would also help to dispel any negativity around bridging which continues to linger from days gone by.

Amicus reportedly failed to find a new funding line so stopped lending but will continue to fund its existing facilities. “I have little doubt that 2019 will see further casualties but equally there will be new entrants,” West says. “On balance, by the end of the year, I think the bridging sector will be leaner, fitter and stronger than ever. It will be a case of ‘survival of the fittest’.” He says Central Bridging has multiple funding lines, a mixture of private and institutional funders and some pulled away temporally for a period in 2016 after the referendum result while others saw an opportunity and backed the lender more. “As a result we wrote considerably more in the six months after the referendum than in the six months preceding it!” West adds. Rubins adds Alternative Bridging is fully funded and has no change in appetite and attitude. Druce highlights that Assetz Capital is a P2P funded 

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Should there be a stamp duty surcharge on foreign buyers? 2019 is set to be another exciting year for the bridging industry. While we cannot underplay the impact Brexit will have on the specialist finance market, both in terms of property prices and investor willingness to pursue new investments, it’s important not to let this overshadow the demand for bridging loans in 2019. House prices across the country are rising. And while growth is slowing in some parts of the UK, other regional hotspots are projected to post annual growth above 10% over the coming five years. For property investors, this presents some very lucrative opportunities, as long as they are willing to explore new areas. Moreover, with demand for real

Paresh Raja chief executive, Market Financial Solutions

lender but isn’t expecting any issues. He says Assetz is robustly funded with a mixture of intuitional and retail depositors. “I think the microscope will be on P2P from the regulator,” he says. “We’ll continue to act in accordance with the rules and regulations and we’re looking to grow aggressively this year like we did so last year.” Clapper predicts more P2P lenders tightening up their criteria and underwriting and some short-term lenders exiting the market this year with a move to consolidation among others. Furthermore, Azadi predicts that as investor confidence drops, lenders will restrict how much they lend and will want their money back quicker, leading to perhaps 12 months rather than 18 month terms. “I think 2019 will be a year of caution,” he says. With some peer-to-peer lenders facing issues its reputation has faced a hit so perhaps 2019 is the year this reputation will be rebuilt. “If everyone can improve their transparency and build greater trust that’s how the wider market can move forward,” Druce says. “They need to be open with their brokers and borrowers about their rates, which they tend to do, but also with their investors.” Pritchard says the reputation can’t be improved unless the mainstream press stop tarring everyone with the same brush and West says it depends whether the industry can avoid a high profile collapse from within the P2P sector. “When it comes to reputations, it can take years to build a good one, and seconds to destroy it,” Clapper adds. “Getting it back can be a slow and painful slog.




estate outpacing the existing housing stock, the real estate market will remain competitive over the coming year. Given the stringent lending measures imposed by high street lenders, which often result in lengthy applications and processing times, demand for bridging loans as a flexible form of finance is likely to remain high in 2019. Lenders are taking note, and over recent years, there has been an ongoing influx of new lenders entering the market. This trend will no doubt continue for the next 12 months, and in light of this, existing bridging lenders cannot be complacent – competition is fierce. Throughout 2019 this will mean bridging lenders must constantly scrutinise their own offering, while

also looking to broaden their reach to potential brokers and borrowers across the country. Cutting rates to remain competitive may seem like the simple solution but it is not always the right answer. Instead, bridging lenders need to show creativity in the products they offer and demonstrate a keen awareness of the market to ensure they are directly responding to the needs of borrowers and brokers. This is not a cause for concern; rather, lenders should see this as a time to reassess their position in the market and identify what it is that makes them stand out from the competition. Looking to the coming 12 months I see 2019 as being another significant year for potential growth.

Undeniably responsible lending, over time, will be the only way to rebuild reputations, so that’s what they will now need to do.”

Size of the market








InterBay’s broker survey this year found brokers thought the bridging market would grow in 2019 with 62% expecting the demand for bridging to rise and 42% of these predicting that rising house prices would be the key reasons for an increase in demand. A further 40% said that it was a growing demand from buy-to-let investors. “Although caution will be the watchword, we expect that the bridging market will continue to grow, in part because of investors looking to use short-term finance in more innovative ways,” Marc Goldberg, commercial chief executive at Together, says. “For example, they may be looking to expand their buy-to-let portfolios, increase their rental yields or to change the use of properties, for instance, from disused office blocks and shops into good quality residential accommodation.” Paul McFadyen, managing director at Glenhawk, predicts the bridging market to grow but maybe not double in size. “I do believe the gap between regulated and nonregulated bridging will narrow,” he adds. In addition, Howard is positive for the development finance market over the medium term while Rubins expects the market to grow as he reckons there will be more opportunities. “I think large lenders like clearing banks may have a 


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A difficult year to call It’s a tough question to answer (what’s does 2019 offer for the bridging market) because until we actually know the reality of Brexit we are left pondering how the markets will react with any certainty. The fact of the matter is that politicians are making something far more complicated than it actually needs to be, and instead of all working to the same end, continually arguing amongst themselves. This constant bickering amounts to a general public who just do not want to commit to anything, plus the valuers are seeing this and rightly covering

Terry Pritchard founder, Charter House Corporate Partners

decreased appetite towards property which gives smaller lenders an opportunity to fill the gap,” he says. However, Sanders says that the sector’s overall size and value of around £4bn per anum has barely shifted over the past few years. “I don’t anticipate any significant change to this in 2019 or beyond,” he adds. “Bridging is a specialist product for a specialised purpose.” Clapper says bridging is very flexible and doesn’t expect the demand for it to be affected. “With all these factors in mind, I expect the market size to be relatively consistent with 2018 – no huge growth, but no major declines either – but perhaps fewer lenders participating and gaining larger market shares,” he says. Pritchard believes the market will shrink a little because valuations will halt a lot of deals, which is already happening. “That’s why Charterhouse is looking at the long-term future and larger loans where people are struggling,” he reveals. “We will act as their partners through the difficult period and get them through to the other side. It’s a gamble, but a small one in our view.” Meanwhile Druce thinks that there’s nothing to suggest why the market can’t continue to grow. “The level of growth might slow down and plateau but it’s still very much a growing market and if we hit difficult times mainstream lenders may contract and bridging lenders would probably be the ones that step up and fill that gap,” he says. “Uncertainty and change always bring great opportunity for well-run lenders,” West adds.

Opportunities for the sector

Filling the gap that mainstream lenders leave is certainly one opportunity but it seems more will

themselves by reducing property prices by significant amounts which in turn affects the lenders by increasing their liability. So in answer to the question, there will ultimately be a reduction in cases that fit the general criteria which in turn will lead to those who are unprepared for the downturn eventually going out of business. Talking to some old heads from the industry who sat next to King Arthur, they predict a 30% downturn in business volumes and a 25% reduction in lenders. We spent the last four months preparing for the “Brexit bounce” at Charter House and we think we have most things covered. We will

be launching (not closing) a funder for bridging that specialises in larger bridges and the buyout of distressed portfolios, so, keep an eye out as things are there to help us get through what will for some people be a very awkward period. Finally on the matter and to re-iterate my previous comments STOP PICKING ON PEER-TOPEER. The British public need to be encouraged to “invest in Britain” and this funding method works very well as long as its coupled with robust underwriting and strong leadership. Those that do not have those skills should stop now and let the professionals do it properly!

arise this year too. Masthaven found 84% of specialist lending intermediaries are confident about their company’s prospects over the next 12 months. In addition Interbay’s broker survey showed 60% of brokers thought the increase in demand was a key reason to take on short-term finance clients and 65% said that taking on bridging clients would help them diversify. “There’s new opportunities for bridging lenders everyday,” Druce says. “Bridging lenders like a quick turnaround of cash but there’s more they can do, perhaps diversifying their product range like potentially venturing into the commercial space and using short-term lending expertise in that market.” D’mitri Zaprzala, head of sales at Octopus Property, highlights cities such as Manchester, Birmingham, Leeds, Edinburgh and Bristol as producing higher yields and capital growth and hence expects more lenders to grow their exposure in these areas. “Despite wider market concerns, the returns available from developing and investing in property remain favourable,” he says. Sanders says Tuscan Capital wishes to expand into the Midlands and North of England where it sees considerable opportunities for short-term lending. And Chris Oatway, the owner and director of LDNfinance which advises on bridging, development and commercial cases, believes Northern Ireland is an opportunity for savvy investors to take advantage. “Belfast is still 50% down from where it was in the crash which in some ways shows how much it was overvalued but on the flip side could show it is due a good run for the next three to four years,” he says. “It is a very limited market and regionalised into city centre locations and Greater Belfast but there is a gap within that.” JANUARY 2019



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Exciting year for the bridging industry 2018 has been a good year; bridging is now a large, mature market. However, it is transforming especially when it comes to loan terms. A lot of bridging is now more a mid-term product of 18-24 months, so bridging loans tend to be on our books for longer. The main challenge could be the property market in 2019. We have seen some areas falling in value and some lenders who have granted high LTV loans that could have issues, particularly if there are further falls in property values. Although we have been particularly careful to stay away from property that we consider illiquid, or with limited servicing

Clint White director, Fiduciam

McFadyen reckons there will be consolidation among some of the more mature boutique lenders as they look to share resources and geographic exposure, while Nikolay Petkov, principal at Avamore, says there will potentially be refinancing and restructuring opportunities particularly in Q1. “We may find that some borrowers, look to move onto different facilities ahead of Brexit to allow more time to repay loans,” Petkov says. “Internally at Avamore, we have seen a rise in ‘finish and exit’ bridges which is likely to continue throughout 2019.” Azadi pinpoints conversions into residential properties as doing well while Sam Howard unveils Magnet has a vision to support SME builders and developers to build the right housing in the right locations. “For those lenders with bullish funding partners who are in it for the longer term this year is likely to be one of opportunity, tainted by increased risk,” Clapper adds.

Potential pitfalls

When talking about potential problems for the market this year one word is thrown about the most - Brexit. “Until there is more certainty on the Brexit outcome, we may see borrowers hit pause on their decision making,” Zaprzala says. “Having said that once we do get some clarity on what the future might look like we’d expect there to be a bounce in activity.” However Druce expects to see further competition with new entrants this year and Pritchard highlights how resilient the country and bridging market are. “We will go through extreme pain but we will survive and we will be stronger for it,” Pritchard adds. Clapper says the biggest danger is the prospect of failing exit plans.


capacity, this is still a potential minefield in 2019. Liquidity can dry up very rapidly. We think a few lenders will leave the market, some already have, so we will hopefully pick up a bit of business there. Even in the most difficult markets there are lending opportunities, so I believe we will still find some very good lending prospects in the UK. Individually I think industry members need to look at where properties are more liquid and prices are better supported. There are also niche property types which will perform well even in the worst economic conditions and identifying those kinds of deals will be key.

There are many brokers focusing on bridging now and a large number of bridging introducers to support the industry. If everything goes as we think it will, Brexit will be much less of an issue, the market will be bottoming and some lenders will have left the market. There is one important caveat to this and that is that there is no hard Brexit; its impact would be so horrendous that it is hard to imagine parliament would allow it to happen. I will be saying that 2020 looks like it will be amazing and that I am looking forward to a fantastic year ahead after a challenging 2019.

“If prices do fall significantly over the short-term, as some ‘experts’ predict, then a sale or refinance may not be viable options, which will leave exposed lenders in precarious positions,” he says. “Rate rises are also likely to be on the cards this year, given rising LIBOR rates and funding lines priced for increased risk, but they are unlikely to be so high as to dampen demand, in my view.” Azadi agrees and adds companies losing their funding and whether lenders will be lending at high LTVs as other potential pitfalls this year. “There’s lenders out there that say they’ll lend a lot but it changes halfway through the deal,” he reveals. “Lenders still have a lot of money to lend. It’s whether or not that’ll change and they become more conservative on what they’ll lend on. Only time will tell.” Furthermore, West fears the reputational damage to the whole industry could be significant if a high-profile P2P lender collapses. “One of the defining images of the credit crunch was the queues outside Northern Rock branches up and down the country,” he says. “10 years on we need to hope that tens of thousands of P2P investors are not the ‘Northern Rock savers’ of 2019! Although there are worries about Brexit, exit strategies and funding lines, the bridging market seems to be resilient and continues to perform pretty well with opportunities still there, such as conversions and diversifying into different products. For now it’s business as usual. “It is times like these where bridging can serve its most vital market role,” Clapper says. “There will be winners and losers but hopefully the bridging market can end the year a little leaner, fitter and stronger than it starts it,” West sums up.  JANUARY 2019




Here’s to a strong 2019 NACFB chairman Paul Goodman delivers a new year message

A very Happy New Year to you all and I trust that you have enjoyed a great festive period with family and friends. In an ever-increasing fast paced world that we live in, down time is an essential component for a business owner and entrepreneur, so I hope you have made the most of this time, I know I have. I write to you at the start of my fifth year as chair of the NACFB and at a point where I believe the association has never been in better shape; benefiting from the support of a record number of members and patrons. Our industry leading events, such as the Commercial Finance Expo and Gala Dinner, both enjoyed record attendances also. A similar pattern that is reflected across our regional events programme also. Of course, this is only part of our story of successes. Later this month, we have the launch of our new-look



magazine, designed and tailored to support our members with industry specific thought leadership and articles. 2019 will also see an overhaul of our main website and FindSMEfinance lead generation platform – both of which will be supported behind the scenes by new back office systems. These initiatives have been designed to support your businesses so that you can assist more SMEs through potentially turbulent times. This doesn’t mean we can rest on our laurels, not at all. I will be welcoming three new member, two patron and one external board directors later this month to your advisory board. I look forward to embracing their energy and enthusiasm to continue to build on the great foundations that are in place to deliver value and support to all our members. We continue to welcome selective new patrons to our association,


Paul Goodman chairman, NACFB

whilst ensuring that we enrich and enhance our existing patron relationships. Collaboration between our members and patrons is always high on the association’s agenda, to ensure that our patrons continue to provide the depth and breadth of funding we all need for our clients. I will be delivering my vision for my last two years as chairperson to our new board later this month. With their support and the support of our executive and head office team, I look forward to delivering more value to you, our members. Ensuring that we are ahead of the compliance curve, embracing the elements of technology best suited for brokers to remain effective in a world filling with disruptive technology. Finally, I will seek to ensure that we as brokers have all the tools and support in our kitbags to further our businesses as individuals and as a collective force. As a membership organisation, I would implore you to attend as many events as you can. Your voice is important to us, we do listen, and our door is always open to listen to feedback, both good and bad. Looking forward into 2019, we clearly have choppy waters ahead given Brexit or whatever it ends up being on March 29. We seem to have been in a world of uncertainly forever now and with the pace of change showing no signs of slowing, we are ever more required to shine brightly as the place to come to for UK SMEs to secure funding. We have the members to be able to guide businesses through these uncertain times, and by maintaining our high standards, we will remain the kitemark of excellence within the finance industry. I wish you all a successful 2019 and beyond.


2019 – Annus horribilis? It looks as if 2019 is going to be a pretty challenging year

I am reminded of some quotes a former partner of mine once sent me – firstly; “in preparing for the future let us not substitute hope for reality, or optimism for the truth; or how we want to be for how it can really be, or charisma for systems or idealism for rationality. In other words, it’s not the way you want it to be, it’s the way it is.” Also, in considering the relevance of past experience, his view was that “the trouble with learning from mistakes is that the number and variety of mistakes is usually inexhaustible.” Why is 2019 going to be any different from 2018? Of course, the vexed issue of Brexit looms large. At 11pm UK time on Friday, 29 March, the UK is scheduled to leave the EU. The date can, and possibly will, be extended, but at the time of writing (mid-December) the situation is as confused and clouded as ever. That is not the only issue – the EU itself has problems beyond Brexit. It will need to deal with the US trade war, the Italian budget challenge, the likelihood that the French will break EU budgetary conditions, the continued intransigence of some members on immigration, changes in German policy as Merkel fades from power as well as the hopeless budgetary mess that it is in. On the regulatory front, the FCA has confirmed that the Senior Managers and Certification Regime, which was first applied to banks, will come into force for the rest of the UK financial services sector on 9 December. Like the implementation of the General Data Protection Regulations in May 2018, many firms will ignore this until the last minute. I also expect tightening up of the regulation of peer-to-peer funding as the chickens start coming home to roost for some firms.

On the financial front, if political uncertainty in the UK persists, Sterling will continue to weaken and inflation increase. Wage growth is finally catching up and cost-push pressures from this and higher import costs will feed through to increased inflation and interest rate rises may follow. New and newish borrowers may have been protected by risk assessments based on stress level affordability, but many seeking to refinance past loans could find that the combination of softer property pricing and higher interest rates will make life difficult for them. NatWest has already announced rate increases. The debt problem is world-wide – according to the IMF, there are US$1.3trn of “leveraged loans” outstanding. Many of these are “covenant-lite”, providing lenders less protection from default. In 2007, “covenant-lite” loans accounted for about 25% of leveraged loans. Now it’s 80%. If and when the next recession strikes, corporate debt is likely to make it worse. It’s interesting to note that US Treasury yields have continued to rise throughout 2018. These yields reflect expectation of future interest rates and inflation and this is affecting share prices. The US S&P 500 is on track for its worst quarter since 2011, with the loss currently estimated at 10%. This has only happened 10 times since 1928. The great American Bull Run may finally be over. In Japan, a quarterly survey of business confidence by the Bank of Japan revealed that companies anticipate conditions to worsen over the next three months. Business growth in the Eurozone slowed in early December to the weakest level in more than four years, according to IHS Markit.

Benson Hersch chief executive, ASTL

“If and when the next recession strikes, corporate debt is likely to make it worse” The UK will not remain immune to these pressures, but it’s pointless to panic. So, is it all doom and gloom? The portents aren’t great and the road ahead may be a rocky one, but there will be opportunities for the brave and careful. Bridging loans may well take longer to redeem, but provided there is an exit, this could in fact prove profitable. This is not a time for wide-eyed optimism, but neither is it a time to flee the market. Be sensible, be aware and be careful – there are good customers out there who need funds and good lenders who can provide these.




Build a Better Bridge

New year – new opportunities Can bridging be used to help your clients with difficult circumstances? Our experts answer your questions My three business partners and I bought some land in 2011 but we were advised there was very little chance of ever getting planning consent. However, with a very, very sympathetic and eco-friendly scheme we have now obtained planning and the site has been valued at £60m and the final fully developed value is estimated at £135m. However, one of the partners wants to be bought out due to ill health and we need to raise £40m but we don’t want to start the build until 2020. Can you help please? Mel Fordham: Obviously, the size of this transaction limits the available lenders to a certain extent. Additionally the manner in which you want to structure the funding will not be acceptable to many lenders as they have a limit on term of facility which generally is 18 months. The majority would have reservations about a very large facility simply secured on land with no specific proposal or timing to commence the development, enhance the equity, which would define the exit/repayment timing. Bearing the above in mind and the fact this is a unique and undoubtedly commercial transaction, I feel you may be able to secure this funding from a private equity provider who will offer you structured finance and provided the end values can be established would be happy to make the facility available to you. The lender/equity provider would offer you a range of options including straight debt for a coupon and fees or funding on an equity basis for reduced interest and charges but would also bring expertise such has tax efficient asset disposal and marketing. Phil Mabb: Wow, jumbo figures! This type of transaction sits in a rarefied sector of the bridging finance world, amongst a small handful of traditional bridging lenders or more like family office with very deep pockets. Key detail are missing such as original site purchase price and planning expenditure, what the scheme is, the associate build costs and timeframe




Phil Mabb property finance broker, Bridging Development

Mel Fordham chief executive, Centrado

to conclude and more importantly your demonstrable ability to conclude the same. However, the biggest sticking point is your partner’s need to extract c66% of current value - I am going to guess residual value which is frankly going to be very difficult to take forward; and that is before inclusion of interest and fees etc. Your partner might get an offer nearer 55%, but I expect there will be a lot of background information needed. Perhaps you could contract to sell or build with to a major housebuilder, thus providing some risk mitigation, but dealing with the majors will take some time and 2020 is not far away. Clearly with ill health the partner is looking to extract cash to spend now, but there is a limit… The dilapidated house next to mine has come up for sale. It stands in a very large plot and will be perfect for a development and I am very concerned that a developer will buy it and over develop the site which will have an adverse impact on my home. I’ve asked my mortgage company if they will provide me with the funds to buy it, I don’t want to develop it, but just to maintain my view and peaceful setting. The lender advised because it’s not mortgageable they can’t help. In addition it could devalue my current home and they are concerned about my ability to pay the increased borrowing based on my income – can I get a bridging loan to buy the land? MF: The simple answer to your enquiry is “yes” this is a proposal a bridging lender would consider. However, the problem you, and indeed the lender, will have is how you will repay the bridging facility, as it is a short term finance agreement, with a defined repayment date. Given you have advised your existing lender is unwilling to provide any further funding to you based on your income, I would imagine this may be the reason the bridging lender will be unable to consider the application as effectively the only way to repay

Build a Better Bridge

the facility would be to sell it, presumably to a developer, given the property is dilapidated and presumably un-mortgageable? Obviously, if there was a way you could increase your mortgage based upon the increased value of your home with the additional land, maybe extending the term to reduce the monthly payments, or finding a lower more affordable rate then the proposal becomes very straightforward and one that will without doubt be significantly in your advantage, as you always have the option to sell the whole, part or two individual parts in the future. PM: Interesting, why would a lender think your current home could be de-valued if you brought what is already a dilapidated neighbouring house – I imagine you would at least consider refurbishing the same? Perhaps we should ignore this statement! Bridging finance is the perfect tool to assist when buying a property that the residential sector considers un-mortgageable. You buy it, refurbish it and make it mortgageable – Simples! You have not stated what the costs associated are (purchase price, refurbishment cost and value post redevelopment) nor your ability to refurb the property, but assuming you have a reasonable deposit to contribute and at worst a friendly builder, you will find plenty of bridging lender will to consider supporting both the purchase (c70%) and redevelopment (100%), allowing you to refinance on an interest only BTL where the income generated by tenants should at least service the debt. There is a lot of detail missing here, but the cause is most certainly not lost – get in touch with a broker who can walk and talk you through the options. My mother recently passed away and left her house valued at around £500,000 to my three brothers and me. The property is in a very bad state of repair and needs significant works to modernise it. I have agreed with my brothers to remortgage it for £125,000 in my sole name and buy out their interests. However, the surveyor who inspected the property advised there is deflection in the rear flank and the property is not considered security for mortgage purposes. My mother had a structural survey carried out some years ago and the report confirmed the movement was historic and non-progressive. What can I do? MF: Firstly, if you have a copy of the structural report, re-approach the firm that carried it out and ask them if they could update their report. Whilst this may be the most cost effective, easiest and most robust, there will un-doubtedly be a charge and the firm may want to send a surveyor out to re-inspect the property. Provided the firm is suitably qualified, has the required levels of indemnity and is acceptable by the

lender you have applied to, if the report makes the same conclusion, I can see no reason why the lender will not agree the facility. If, however, you are unable to get the original report updated you have a couple of options; Instruct another firm of structural engineers to carry out another inspection and prepare a report. This may confirm the findings of the initial report or may conflict and recommend you complete remedial works, in order the property is bought to a mortgageable standard; costs of which should be considered in the payment to your brothers. Should you feel confident with the original structural report, are absolutely satisfied the property is sound and want to progress matters with your brothers there are lenders that will consider the property in its current condition, and despite the structural integrity being jaundiced, it will still have a value, albeit diminished. The lender will be prepared “in-principle” to advance you around 50% of the current value. This option is clearly the most straightforward; it is clearly the most speculative and could leave you extremely exposed. In this respect I would strongly recommend you obtain qualified independent advice before proceeding. PM: Firstly, sorry for your loss. This is a classic bridging transaction ideal both in terms of the modest loan to Value (LTV) required and favourably bridging lenders might consider the issue surrounding the structural problem. As such there will be plenty of interest in the market allowing a broker to secure good financial terms for you. Whilst I acknowledge you have an aged structural survey, it’s unlikely to be reusable without an update (but the content of which could be used as a platform) so another might need to be commissioned, something that the bridging lender community can assist you with. That said, if it is as described, perhaps nothing will need to be done. Depending on the outcome, remedial work can be carried out as part of your refurbishment program. If any remedial work is carried out, I would also recommend it is carried out by a firm that can provide a suitable warranty, with the report made available to subsequent buyers and mortgage lenders. Thereafter, you can get on with the modernisation program. I suspect a refurbishment product based on monthly drawdowns signed off by a monitoring surveyor or lenders asset manager will be the best product, keeping interest costs to a minimum and allowing the lender to keep an eye on the quality of the builder work – a product provided by many lenders. As stated previously, a good broker will source the same with ease.

Do you have a question for Build a Better Bridge? Email it to JANUARY 2019




Our experts consider the outlook for the bridging sector in 2019

A fresh start to the year Ryan Fowler: How was the end of 2018 – was it busy? Jonathan Samuels: For us it was incredibly busy both in terms of lending, new loans and AIPs. It was also incredibly busy with redemptions which is surprising given the current climate. That is both in refinances and sales. The right stock in the right locations will move. We’ve seen that and it’s exceeded expectations. When I came into the sector the bridging market was worth about half a billion pounds and now it’s about £4bn to £5bn. It keeps growing and the last quarter was huge. And some other lenders have told us they’ve had record months which is good news for everybody. Richard Deacon: It’s been steady. December I think was the third best month for completions for us but actually new business was poor in relative terms. Some of our introducers had their best month for completions and new business. Johan Groothaert: We had a very busy November and an even busier December compared to September and October, which we thought was rather subdued for us, so we needed to get our solicitors to work between Christmas and the New Year to close transactions that had to happen this year. Brian West: For us it was decent. We are the smallest lender in attendance. I’d say there wasn’t a great deal to differentiate it from any preceding months. We got a few deals through and were happy. It was steady but unspectacular. Phil Mabb: In my four years as a broker I’ve found it builds to a crescendo in December and over Christmas I’m still getting deals flow in. That’s probably because I’m maturing and getting more of a supply chain coming my way so I’m very excited. I can’t see an end to it. It’s fantastic and I can see this year being a good place to be too. Tom Pritchard: We had a huge amount of enquiries




for December, all for Q1 completions, especially for development deals. We’ve got a massive deal flow. We didn’t have as many completions in December as we’ve had with other months, but I think that’s because they’ve all been pushed to January. December was really busy for us with new deals flow. I even got an enquiry on Christmas Day. RF: Amicus went into administration in the back end of 2018. Does anyone have any views on this? Mark Posniak: While it’s sad for Amicus and the people within the business, a lot had seen something like this coming within this space. A lot of people think specialist finance and short-term lending is easy. The barriers to entry in the short-term finance space are very low, anyone can do it and it’s easy to put cash out the door. The big challenge is having the underwriting experience to deal with the challenges when loans complete and when you’re looking to redeem loans and having that at the core of your business and being able to work through difficult situations and climates will allow you to navigate the choppy waters ahead. I don’t think Amicus will be the


(From L to R) Brian West, Central Bridging; Johan Groothaert, Fiduciam; Tom Pritchard, Charter House; Jonathan Samuels, Octane Capital; Phil Mabb, Bridging Development; Richard Deacon. Masthaven; Mark Posniak, Octane Capital

having a consolidation. There’s also a bad book there as you know. When you lend 70% net so 75% gross and the asset has dissipated in value you have a problem. JG: Amicus had a new financial industry business model running a huge cashflow. They went for the bank licence and didn’t get that. The loan book may have played an important role but they disappeared because the private equity investors behind Amicus were unwilling to invest further money in it to cover their cashflow direct. It’s important to look at whether lenders as operations are cashflow positive or not because those that are not have to convince private equity investors every year to write another cheque. How long can you keep your private equity investors on board? That’s an important lesson from Amicus.

last. I think we’ll see more disappear in the next 12 to 18 months and I think they’ll be some consolidation and hires too. JG: The borrowers shouldn’t be forgotten because there are a number of them expecting future drawdowns on loans and it’s obviously not easy if in the midst of a development project you see your lender go bust. PM: I’ve got a client with Amicus and the administrator is looking at fulfilling certain obligations within the drawdowns so there’s some cash to put out. I’ve encouraged this client to go elsewhere. Originally the scheme fitted Amicus quite well but my client got a change of use on an element on part of the site which took it from a mixed use scheme of residential and commercial to a purely residential scheme, meaning more lenders would lend on it. So I advised the client to get away from the administration and refinance with another lender. I’ve also been asked by a couple of lenders to potentially get involved in buying the Amicus book. If I needed a new job I could go and do collections. And there’s a decent book to be had at Amicus so I see them

JS: It’s a real shame and came as a shock in some ways because they’ve been around for a long time and for a long time have been a good and profitable business. I think that changed with a strategic error and that’s a lesson for us all. It was the pursing of the banking licence. Masthaven got their banking license and did so very effectively. Amicus seem to have front loaded its cost, as in built up its cost base before the license came about, and never recovered after that. Masthaven did it on the leaner basis and started to build up once the license was in place. The same ultimate goal but two different strategies and one, unfortunately for the people involved, proved to be costly. RD: With any investment you want the return and security of it. It seemed with Amicus they got their returns but the security wasn’t there. One of the main reasons they didn’t get the banking licence was because of what the default rate was. Anyone can lend money. It harks back to the bad old days of sub-prime lending, 95% self-cert which anyone could have done but wasn’t the best thing people could have done with the cash. Some of the security Amicus were lending 70% net on. We wouldn’t do 60% net on and maybe a risky lender 65%. There comes a certain point where whatever your investment is your risk appetite hits the ceiling. If 





you’re going over and above that on a regular basis on poor stock with a questionable borrower and you’re only seeing the end profits there are problems. BW: It’s a case in the market where there’s a glut of liquidity and lots of new entrants desperately looking for business, taking risks. There are some introducers that have a close relationship and push things through that shouldn’t be pushed through. JG: In the run up to Christmas we noticed two other lenders have stopped lending. PM: I don’t think we need all these lenders anyway. The bridging market runs into hundreds and there’s loads I don’t know. Many don’t offer any choice to the client. The mainstream lenders are the ones with the finest pricing and hopefully the best teams and are the ones you should be going to anyway. I hate new lenders coming onboard because I have to know them and I have to do the right thing but I wouldn’t test a client on them because they’re never going to offer a USP that’s any different to anyone else.

JS: With someone who’s brand new and says all the right things you may be unsure of whether they’ll deliver but with people who’ve been in the market for 10, 20 years, you’d feel comfortable they’re the right guys to do business with. RF: Do you think the regulator could become more involved with the market? RD: I think the FCA have got a little more on their plate. In years to come, whether this year, next year or in five years’ time I think the bridging market could become regulated purely because of the level of advice that should be given to a client. We have to treat borrowers fairly. It is one of the most expensive forms of borrowing, whether you’re at 0.48% or 1.48%. I think lots did not pay Amicus back because maybe they were unregulated transactions so clients may not have received correct advice on that facility. I can just see in the future that that sort of transaction because it’s deemed potentially risky, becoming regulated and the regulator making it a regulated environment. In a lot of cases you’re lending on property not suitable for habitation and there are numerous other things like no provable income. BW: I think the clear and present danger for all lenders is the potential collapse of a peer-to-peer lender because of reputational damage. The FCA may not be that concerned if private investor funds are losing money. 10 years ago there were queues outside Northern Rock and now there may be an army of peer-to-peer investors disgruntled at their returns who may go up in arms. That’s the potential driver I think that would force the FCA to look more closely and quickly although I acknowledge they’re busy enough. Theoretically there should be a period of at least a few years where the FCA is not involved in the industry. My fear is a P2P collapse is what could hasten the day.

“We’re expecting the broker market to perform well” Tom Pritchard

MP: Bridging is regulated for individual consumers on their principal residence and the regulator makes sure the TCF is at the heart of all short-term lenders who are regulated and want to lend to people to acquire or refinance their residential dwelling. The P2P sector has an element of regulation to it and I think that needs a bit of focus, more than the bridging area. It depends what you’re lending and who to, for example, if you’re lending to a sophisticated property investor I think it’s very difficult for the regulator to

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come in and widen those types of transactions. What they currently regulate for is already there. The P2P space is the greatest risk because you have people losing their investments because they don’t understand what they’re investing in. They were sold something that isn’t true and there’s many lenders out there who don’t have the relevant underwriting experience and have entered the space because the barriers are so low, and they lose funds from an investment point of view. Absolutely the regulatory net should widen from that point of view to protect the investor. But to say that regulation in bridging should be increased for the sake of it is wrong. Regulation is there to protect the consumer and the majority of the loans made in the short-term lending space are to professional property investors and companies who don’t particularly need them. JS: One of the concerns with P2P is that often it’s been presented to consumers when investing that it’s almost like banking, putting your money into some sort of savings product and ‘what could possibly go wrong?’ But it’s not banking and it’s focused on a particular market and on a number of property loans. Things can go wrong and I think part of that is how it’s been presented to consumers. I’m more concerned by P2P than the FCA. There are other issues that concern us as an industry going into next year, such as Brexit.

“We noticed two other lenders have stopped lending” Johan Groothaert BW: I don’t necessarily see more lenders facing difficulties as a by-product of Brexit. I think that’s already been factored in.

RF: How concerned are you all about Brexit? JS: I don’t think next year will be a 2009 financial crisis situation but we’re seeing shades of it. I think this is the reference point for people but it’s a very different market now. We haven’t been in a market that’s been increasing with rapid year-on-year growth in property prices but it’s been quite flat and growth has been small and it depends on what part of the country you look at. And I think a lot of the Brexit concern has been factored in. It’s resulted in a plummeting of transactions and both buyers and sellers have been sitting on their hands but the real issue that could hurt us more than Brexit, and even a no-deal Brexit, is a general election that goes the wrong way for the property market. I believe that would be far more damaging but not have the same consequences the industry had 10 years ago either. It would slow the property market down and we’d see a few lender difficulties if those things happen.

RF: Has it been factored in? Do you think most people are prepared for Brexit? BW: I’d say there’s not a whole heap of preparing we’ve had to do. We’ve strengthened our funding lines. Our funding is perhaps more diverse but not as rate driven. In the event of a no-deal Brexit we’ll probably have some funders that’ll sit on their hands for six or 12 months but after the referendum vote we had some funders that pulled away from us for a period while we had others that said ‘get lending, there’s an opportunity here’ so in the immediate aftermath of the referendum vote we had a considerably busier six months than the six months prior. That was a conscious view. I don’t know what’ll happen with Brexit. I am hugely frustrated with the shambolic nature of the situation we’ve reached, with politicians that seem to be consumed with their own self-interests rather than the national interest which is creating an unstable enviroment. 






JS: You can certainly see that in high value properties. Properties over £10m was the only sector in the market that grew and that’s surprising given the situation. But prime central London prices have dipped by 15% to 20% over the last three to four years and has started to bottom out and the exchange rate has gone in the favour of foreign investors. Together those two things lead to bargains in London at that level so there are opportunities for investors. These could prove to be very low prices available to sell if you can persuade people to sell. But people in London aren’t desperate to sell.

“Whatever happens with Brexit there are opportunities out there” Phil Mabb RD: I think we love an excuse in this country to not do business, whether it’s Brexit, soft or hard, a change of government which I think will be a lot harsher, or a general election or the Beast from the East this time last year. The tabloids and social media love to pin an event on something. I think it’s the certainty of uncertainty that kills this industry. We’re here to serve customers that’ll buy or sell property, which is generally what we lend against, but at the moment they’re thinking ‘what if it’s a soft or hard Brexit or a change in government?’ It’s that uncertainty. We talked for half a day on Brexit and the impact on Masthaven. No one knows. It’s almost another excuse but why can’t we crack on and plan for the normal things like Easter? But we’ve been planning accordingly for Brexit. BW: Many funders and investors across the globe have faith in the UK and are not fussed about Brexit. They still want to come over to London for the summer. They see the temporary uncertainty but also the long-term big picture of the stability and rule of law. Many people we’ve talked to see it as a blip. MP: I think some see it as a huge opportunity, for example with the dip in the pound.

JG: We’ve seen three elements coming together: widening of credit spreads, international cities benefiting from a huge inflow of investor money and Brexit. The average loan market is £1.3 trillion. The Bank of England and everyone will be looking at this market rather than the bridging market. We will see a correction in the credit markets overall. That has knock-on effects, like someone may be dependent on funding lines from one of those big credit plates. And globally we’ve had very low interest rates which has massively inflated asset prices to levels where they are unaffordable for many. In this country we haven’t seen a real estate correction since the early 1990s. There is no reason London real estate couldn’t drop substantially. It’s just low interest rates that have sustained those asset prices. RF: What would incentivise people to sell? JG: There would be a sell-off because of LTVs being too high. We see a lot of loan applications where we simply refuse because we can’t see them getting refinanced because the LTVs are too high. It’s not so much prices coming down, it’s also liquidity and certain segments drying up. I think there’s always places to do lending like the luxury apartment segment in London. There are a number of these segments. Also the big international cities, London, Sydney, Hong Kong, New York, have all benefited from this huge inflow of investor money. The third element is Brexit, if there’s a hard Brexit I think Northern Rock would be small in comparison. If the UK doesn’t pay the EU then that means default and the UK is defaulting its debt. How do all the funding line providers look at that? I think a hard Brexit is unchartered territory and would rip the whole framework what this sophisticated society is built on. I think with a hard Brexit even a

Octane has lent over £350 million Bridging | Buy-To-Let | Developer Exit | Refurbishment Finance 30




55% or 60% LTV loan would look like a very high LTV loan. JS: I think a lot of this talks to the dynamics at play in the prime central London in the expensive luxury apartments and high end residential. I don’t think it applies to the North; Manchester, Leeds, Liverpool because they don’t face the same issues. Outside of London are domestic markets and they are not necessarily directly affected from money coming overseas to prime central London. It’s stock levels across the country but London too which has historically low stock levels. Are LTVs forcing people to sell? Are people breaching LTV covenants and are banks going to mass foreclose on people and have LTVs started to become breached if the values aren’t falling because people aren’t selling? I think there will be these issues in the luxury sector, but I think they’re very different to the whole country. JG: I agree but a hard Brexit would hit all these Brexit voting areas much harder than London because we are a flexible service economy and will adjust. For bridging it’ll be a great opportunity but a very challenging, negative environment. That’s where the banks will pull out and you’ll see a number of lenders disappear, so for those of us around there will be great business. A hard Brexit would hit the industrial and agricultural areas of the country the hardest. If you’re not certain anymore about your job in a manufacturing plant you’re not going to buy a property and demand for property could just collapse on the back of that. There’s a shortage of stock but you just need a dip like that, then there’s a sharp correction and two years later you come out of it. RF: What opportunities do you see going into 2019? PM: I think it depends on what sort of broker you are. There are some who have never lent anything and learned their trade as a packager and there are people like me who came out of the banking world. I’ve worked in the downturn so I’ll be fine and I’ll be able to do something down the line. Whatever happens with Brexit there are opportunities out there. I’ve got lots of sources of supply. The youth might struggle a bit but it’ll be a good year for me. TP: I think there are going to be some difficulties but we’re expecting the broker market to perform well because there are still going to be demands for

money. There’s going to have to be a change in product as well. I think LTVs will have to come down because of worry about where the market goes. I think brokers will become key. The build-up for us over Christmas was mainly clients wanting to get their loans sorted before Brexit. One developer told us he wanted the money in the bag before the end of January because he didn’t want to have to worry about where the money would come from. I think Q1 will be very busy for us and we’ll have to work hard to keep up with the demand. I think there will be a slump but then we’ll hit back in Q3 with some interesting loans. I think it’ll be a learning curve for everyone. MP: We started our last business in the height of volatility and uncertainty. We don’t think it’ll be the same as 2009 but there are shades of similarities. And with uncertainty comes opportunities. Those who are well positioned, well capitalised and here for the long haul, will make hay. You need to have gone through a downturn to understand there’s different scenarios and you can still prosper. We are very much looking forward to the future. We’ve set up our business and we’re trying to grow it. We’re here to support our introducers. We’re working with partners that understand you’re all in it together. I think we’re in for a great ride. BW: In 2011, 2012 there was no market but this is a much bigger market now. This industry grew out of the last recession and is now worth about £4-£5bn. I don’t think there will be any material growth this year but I think the market will stay about the same size as last year. It’s a much bigger, experienced industry and if we end the year a little bit leaner and fitter with a few casualties, that’s all well and good from a purely selfish perspective. JS: When we set up Octane the referendum vote had already happened so in some ways it was because of Brexit. Loads of lenders come into the market all the time. Everyone thought it was completely full but we knew Brexit would shake things up a bit and what’s happened is what we thought would happen. Uncertainty often leads to opportunity and that was our mindset. This year we think there will be rocky moments but for us at Octane it’s to lend through those moments. We’re optimistic but not blindly optimistic. We still lend to good borrowers on sensible properties. Our message is we’ll be lending through the rocky patches this year. 







The next generation Ryan Fowler catches up with Jonathan Samuels, Matt Smith and Mark Posniak of Octane Capital to discuss the lender’s plans for the future There have been a raft of lenders enter the bridging market over the past couple of years and you could be excused if some of them had passed you by. But one you will surely have heard of, if not used, is Octane Capital - the lender that bills itself as a ‘third generation’ bridging lender. Octane has made more than a few waves since coming to market with its novel approach. For this lender it’s not all about rigid lending criteria and prices are not set in stone. Indeed, the lender doesn’t even offer a product sheet. Instead, loans are structured on a highly bespoke basis and priced according to risk. It’s clearly a model that requires experience and that’s something that Octane has in spades. The lender was set up by Jonathan Samuels, founder of Dragonfly, alongside Mark Posniak and Matt Smith. In total, the trio had loaned over £2.3bn before even setting up the firm. And in the 18 months since the launch of Octane the lender has gone from strength-to-strength. As of January, that initial team of three has grown to 22 and to date the lender has achieved over £350m in completions. So what has enabled Octane to



achieve the success it has to date? We caught up with the founding trio of Samuels, Posniak and Smith to find out.

Early days

When Octane Capital launched in May 2017, one of the major discussions in the market centred on how crowded the market place was. For a number of years, bridging had been looked at as a sector providing both strong growth and high returns and this, inevitably, saw the market become increasingly crowded. However, this did not dissuade the team at Octane. As Samuels says, where others saw potential issues they saw a chance to do something different. “When we first entered the market a lot of people said it was

“In our mind, lenders had become far too formulaic and far too product-focused. The use of matrices had led to a race to the bottom”


saturated. And it was. But when we looked at the bridging sector we saw an opportunity,” said Samuels. “The market was saturated but only with ‘me too’ lenders that effectively offered very similar products and rates. “That’s where the third generation approach came from. It was, and is, about looking at a deal in its entirety and structuring a solution that works for everyone involved in the process. We felt that was what was missing and we’ve been proved right by the amount of lending we have achieved since launch.” The idea of offering bespoke deals and not having a product sheet has been championed by Octane Capital’s managing director, Mark Posniak. He’s hugely enthusiastic about the approach and explained why brokers have embraced the model so quickly since it launched. “In our mind, lenders had become far too formulaic and far too product-focused,” says Posniak. “The use of matrices had led to a race to the bottom. The challenge with this strategy is that it was easy to replicate and undercut each other, which led to an interminable race to the bottom — for low rate, vanilla deals.” Samuels says that while lenders in the past, specifically pre-2007, will 


Jonathan Samuels, Matt Smith and Mark Posniak

“The difference in the way we work as a third generation lender is that we are entrepreneurial but professional and highly methodical with it. We have blended the best bits of entrepreneurial, pre-GFC lending with the professional approach to short-term lending that emerged in the aftermath of the Global Financial Crisis” have used a similar, play-it-as-yousee-it approach to the one Octane has adopted, they have evolved it significantly. He says: “Lenders have clearly been entrepreneurial and highly bespoke in the past when looking at deals. But in many cases they were not just entrepreneurial but cavalier. “The difference in the way we work as a third generation lender is

that we are entrepreneurial but professional and highly methodical with it. We have blended the best bits of entrepreneurial, pre-GFC lending with the professional approach to short-term lending that emerged in the aftermath of the Global Financial Crisis. “With third generation lending, we’ve found a way not just to make a deal get through the system but

work for everyone in the chain.” An example of this is the way Octane works with its broker partners. It empowers intermediaries to shape the terms of a deal by structuring it collaboratively with them — for brokers, this is something that can prove the difference between winning and losing a rate-sensitive case.

The engine room

To operate in the entrepreneurial manner that it prides itself on, Octane has to lean heavily on the experience it has in the business. And Posniak was clear about where that experience has the biggest impact. “We’ve all worked in this space for a long time but our credit and underwriting team headed by Matt Smith gives us the edge,” says





“We’ve done this a long time and we know why exits fail or why borrowers can’t repay. The experience that we have means we’ve learnt a lot of lessons and keep learning all the time” Posniak. “That is the difference between a business like ours and any other trying to break into the sector. “The credit and underwriting team are the engine room of the business and we feel that we have the best specialist finance credit and underwriting team in the UK.” That’s high praise for Smith, director of risk at Octane Capital, and his team. How does he maintain the quality? Smith said: “It’s all about looking at the deal as a whole and not just focusing on any negative factors and then simply giving it the thumbs down. There are good deals out there and it’s about taking a broader view. “A bridging loan is like a journey and once we understand it, we can give the right terms. If the story of the journey isn’t there then you know it’s not the right type of deal.”



Clearly Smith and his team have a knack for identifying those stories. As mentioned, the lender has completed £350m to date and plans to hit half a billion of loans in 2019. Redemptions have been high at the lender, too, which clearly shows that the underwriting team is getting it right and Smith adds that the wider market is also helping the lender. “People are quick to say that the property market is having a wobble but the level of redemptions we are seeing shows that people are happy to refinance deals and properties are selling,” he says. “It’s proof that the market is still strong in the right places.” Samuels agrees: “It’s all about lending on the right properties in the right places. We’re sensible about what we lend on and the experience we have in Matt and his team helps us ensure we are lending on the right deals.” And Smith adds: “We’ve done this a long time and we know why exits fail or why borrowers can’t repay. The experience that we have here means we’ve learnt a lot of lessons and keep learning all the time.”

is about building a sizeable lending platform that will endure for many years to come.” In the next 12 months, Octane is aiming to achieve in excess of £300m in new lending — a sizeable target in a year where outside forces could hinder the market. A fact the guys are more than ready for. Samuels says: “We know there could be rocky periods in the year ahead. We’ve built a skilled team that provides us with a really strong foundation to ride things out. We’ve got a great group of people here who have the experience that will help us achieve our targets for 2019 and beyond.” In addition to new lending, Octane is also actively going down the acquisition route. Consolidation is widely expected to happen in the next 12 months and Octane is keen to be in the mix. But what is the lender looking to acquire — a book or a whole business? “We’re open to either opportunity,” says Samuels. “It’s something that we have done in the past and learnt a lot from so we feel that we are in a good place to look to do it again.” The previous deal saw Dragonfly acquire a specialist development and mezzanine lender back in 2011. Samuels adds: “That was a very good deal for us and we can take the experience of that into 2019 and look for the right opportunities. But this isn’t just about growth for growth’s sake. We want to find businesses that offer things that we can’t, or can’t easily, do.” And the lender also doesn’t rule out an “opportunistic play” if the right chance became available. Posniak explains: “We’re extremely well capitalised and ready to go, so if the right opportunity were to arise we would take it.”

Growth and Acquisition plans

Increasing business

With some £350m already out of the door, Posniak says the target of £500m is “in sight” for the lender but their plans don’t just stop there. “Once we hit the £500m mark, the next target is £1bn,” says Posniak. “We are hugely ambitious and this isn’t a short-term play. This


Alongside the acquisition route, Octane is also looking at other ways to increase deal flow for the business. It now has a sales team of nine: six field-based BDMs and three office-based staff, all of whom are actively looking to increase distribution and work more closely with

Cover News

Octane’s existing broker partners. Indeed, around 95% of Octane’s business comes from brokers and Posniak believes that brokers continue to hold the key to the lender’s future growth. He says: “We value the trust that we have built up with intermediaries and we want to maintain that. We have built our reputation around certainty of funding and want to ensure that brokers know that if we say a deal will go ahead, it will go ahead. We do not backtrack and pull the plug once we have committed — and brokers know and respect that. And Octane doesn’t rule out looking at other areas. For example, when the team were at Dragonfly they had a strong reputation in the development finance space. Would they consider revisiting that part of the market? Posniak says: “We’ve not moved into some areas as we haven’t felt the conditions were right for us. In the future, they are areas that we will doubtless revisit. It’s all about doing things and entering markets at the right time.” You have to admire the team’s patience as it would have been easy to jump straight back into markets they had previously been in. Posniak says that it’s the different traits of the three founders complementing each other that ensures the business continues to grow at a steady and sustainable rate while still being open to opportunities. “Between the three of us we are

able to make the right decision about where we want the business to go,” he says. “There is a great deal of trust between us and we are not about doing things for a quick win. That’s where you usually come unstuck.” Smith agrees: “We came to market with a business plan and knew where we wanted to go. We’re on course to achieve our goals. It’s not about getting a quick buck but about ensuring we achieve the goals we set out at the beginning. “We don’t want to make a bad decision. We came into this knowing that Brexit had happened and that 2019 would be a tough year for the market. We’ve built a model that helps us turn these situations into opportunities.” Samuels adds: “With the strategy we set out, we’ve been able to focus on our bread and butter, which is bridging, non-standard buy-to-let and commercial. We’ve built a solid proposition and I feel that the decision to focus on these three areas alone for now has really paid off.”


Speaking to the team, it’s clear that there are a number of themes that are constant in both the way they run the business and deal with their clients - broker and borrower alike. Experience, trust and empowerment are all key to the business. Octane wants to empower everyone in the chain - lender, broker,

“We value the trust that we have built up with intermediaries and we want to maintain it” borrower - to find the best possible solution for all. Posniak says: “What we offer is an alternative to the rest of the market who have BDMs armed with product sheets only. Our team will actively structure deals with our brokers and can look at every deal holistically. Whether it’s a straightforward vanilla loan or a complex deal, I’d always call on brokers to come to us. We will look at it and make it happen. Our third generation, ‘product-less’ approach along with our huge appetite and experience, means we are always actively looking for reasons to do deals rather than turn them down.” So how is the Octane approach going down with new brokers? “They love it,” says Smith. “It may not be for everyone but for the vast majority it works. We’ve got a sales team that understands the appetite and risk of the business and effectively acts as a first line of credit. The BDMs help brokers structure deals and find a way that works for everyone while providing the best solution for the borrower.” “Our BDMs structure the deals with brokers so we aren’t getting 10 deals through the door and declining nine,” adds Posniak. “They work with brokers to help find a way to make the deal work and if it doesn’t they have the experience to show people why not.” Uncertainty is certainly the buzz word for 2019, a year where countless external and uncontrollable forces could impact the market. With that in mind, it’s refreshing to hear from a lender that values certainty so much. By empowering brokers and its staff to help borrowers achieve their goals in these unprecedented times, this third generation bridging lender really could be the template for the future.  JANUARY 2019



In Our Opinion

Asking the experts Bridging Introducer takes a trip to Octane’s Camden HQ to catch up with director of risk Matt Smith and senior credit manager Graham Macaulay Octane Capital’s director of risk, Matt Smith, and senior credit manager, Graham Macaulay, have worked together for almost quarter of a century. Both are expert underwriters in their own way but it’s their sharply contrasting styles that has made them such a successful team with a near flawless risk record..

Firstly, why do you think you’ve worked together for so long? MS: Because we’re polar opposites, chalk and cheese. Graham is loud, outspoken and brash — an underwriting bull in a china shop — while I’m quiet and methodical and bring a much needed calm to the office. GM: Anyone who has met us will know that’s nonsense. Matt’s the loud one always charging around the office and I’m the calm one reining him in. MS: But seriously, we’re a good duo because we both play off each other exceptionally well. He’ll say, “I think this works” and I might find something wrong with it — and vice versa. But it’s the resulting discussions that help us understand the real risk of a deal and how we can protect ourselves. Together we’re able to look at each deal holistically and from all angles. When we’re both firing, we can write deals



for fun. We both have a relentless energy and enthusiasm for what we do.

your funding lines. The relationship between a lender and its funders will be in sharp focus.

What are the main challenges for specialist underwriters going to be in 2019?

You two are the engine room of #3rdgen lending. How does it differ to traditional, LTV-based lending models?

MS: What they’ve done in 2016, 2017 and 2018. Yes, 2019 is going to bring a number of significant challenges with Brexit, but ultimately it’s about whether the loan book you’ve created to date can support a potential downturn in the market. All the decisions you’ve made over the past few years are going to be put in the spotlight. When we launched we were fully aware that Brexit was coming and have created a book that is well positioned to support a correction. Our average LTV is 62% and we’ve already hit £150m of redemptions. Anyone can lend but in 2019 it’s about whether you get it back. Who have you been lending to and what have you been lending against? Having a blended loan book with a mixture of super-clean low LTV deals and more exotic ones is key. GM: Agree with Matt. If you’ve made bad decisions, they’re going to catch up with you. The triggers this year are likely to be exits if transaction levels drop further, significant down valuations as prices cool, development projects being mothballed and, crucially, retaining


MS: The fundamental difference between #3rdgen and conventional lending is experience. LTV-based lending, even the specialist kind, can be a box-ticking exercise but #3rdgen lending is having the confidence and ability to think outside the box. It’s the underwriting equivalent of freeclimbing — no ropes. #3rdgen lending is also a mindset: it’s the desire to make a deal work rather than simply say no. GM: Without experience, having no products would be intimidating. You’re staring at a blank canvas with no set parameters to work from. But this ‘product-less’ approach gives you a freedom and flexibility that is unachievable within a conventional LTV matrix. It also means you can say yes to a deal when any conventional risk process would say no. For brokers that’s key. MS: We can refer to ourselves as a #3rdgen lender because there isn’t a deal out there that Graham and I haven’t worked on. Between us, we’ve done mortgages, regulated

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Matt Smith and Graham Macaulay

mortgages, buy-to-let, secured lending, bridging, development, light refurb, heavy refurb and commercial — from £10,000 all the way up to £50m and beyond.

Any views on the property market in 2019? MS: It’s a peculiar market right now and while there could be a correction, I’m not expecting anything like 2008-9. Many areas of the UK are actually doing OK, with prices growing at a healthy rate and transaction levels ticking along. Everything is being skewed by prime and super prime central London, which is now paying for its over-exuberance. The irony is that there are pockets of London that are doing quite well. GM: At a nationwide level we’re unlikely to see anything other than low single digit growth but for a lender like us it’s the specific micro-markets

you’re exposed in that matter most. Two areas a mile apart can have completely different growth stories. Macro is important, but micro is more important as that’s where your asset is.

Do either of you have bad habits in the office?

What makes Octane Capital tick?

MS: The office is full of bad habits but we’re all adults, we all get on and we’re all here for the long run.

MS: Octane is full of entrepreneurial spirits, people who love building businesses that are somehow different and genuinely shaking things up. Corporate environments where you can’t help shape the picture of how a business looks fill us with terror. Octane is the third start-up Graham and I have helped grow together. GM: We pride ourselves on the quality of our loan book. Anyone can lend money but getting it back is the important bit. We’re good at that. We’re also good at learning from loans that have gone into default. In fact, it’s the deals that don’t perform that teach you the most.

GM: I’m not sure Matt does anything that doesn’t get on everyone’s nerves…

Joined at the hip As of 2019 Smith and Macaulay have worked together since 1995 at the following companies: • igroup (acquired by GE Capital) • MoneyPartners • Link Lending • Dragonfly Property Finance • Octopus Property • Octane Capital





Moving forward together If we do the success takes care of itself

Henry Ford once said: “If everyone is moving forward together, then success takes care of itself.” It’s a fair assessment and as I am writing this piece just ahead of the Christmas break and thought rather than wracking my own brain I would pilfer much of the content from others much wiser than myself. The shambles that has been the Brexit negotiations has been the perfect example of what happens when too many agendas are set by too many who have only their own interests in mind and the importance of collaboration is not on their agenda and the needs of a broader programme are left unfulfilled. No more about Brexit but plenty more about what can be achieved when businesses get together and agree the actions that they will work together on to produce an agreed outcome. That is the definition of collaboration. Let’s look at a few quotes that may stimulate the minds of lenders, brokers, valuers, lawyers and developers in 2019 to help all in the specialist lending sector to get more for their efforts. 1. If everyone is moving forward together, then success takes care of itself.” - Henry Ford 2. “No matter how brilliant your mind or strategy, if you’re playing a solo game, you’ll always lose out to a team.” - Reid Hoffman 3. “Many ideas grow better when transplanted into another mind than the one where they sprang up” - Oliver Wendell Holmes 4. “Individual commitment to a group effort - that is what makes a team work, a company work, a society work, a civilisation work.” Vince Lombardi 5. “No matter what accomplishments you make,



somebody helped you.” - Althea Gibson 6. “No one can whistle a symphony. It takes a whole orchestra to play it.” - H.E. Luccock 7. “If I have seen further, it is by standing on the shoulders of giants.” - Isaac Newton 8. “Collaboration has no hierarchy. The Sun collaborates with soil to bring flowers on the earth.” - Amit Ray Not one of these is rocket science only common sense, but many businesses, whilst not arguing with the sentiments, really exhaust the potential because they do not commit to the reality of the fulfillment of the sentiments. It is not easy for different professions to develop a joint development programme especially when more that two businesses are involved but to fulfill their growth ambition they must be focused on this objective. All businesses should be constantly asking themselves, “Do we have the talented individuals with the required interpersonal skills that gives us the confidence that we can work with a wide variety of similar professionals with various personalities that need to be blended together to deliver the agreed objectives?” The main considerations that a collaborative programme should deliver should include; • Growth objectives for all parties • Create a clear and compelling action plan that delivers joint goals. • Mutual operational benefits • Evidence team work across all involved businesses. • Streamlined processes for all. • Potential to develop a portal that drives everybody’s ambitions. • Improved 21st century


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

communications delivered by talented individuals with outstanding interpersonal skills. • Build independence and, TRUST, the most important word in the financial service sector. • A social programme that strengths the team ethic. • Encourage innovation. • All parties to keep promises and honor requests. • Create an environment that naturally leverages individual strengths for the benefit all. An increasing number of lenders in the bridging market are striving to establish a stakeholder proposition that is driven by the need to engage with partners who have collaboration at the core of their model, but a great deal of work still must be done to ensure their clients reap the benefits of such a programme. Henry Ford did ok with his approach, I look forward to seeing more financial service businesses achieve the levels of success he did. Happy New Year!

Short Term & Refurbishment

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Whether your client is looking to refurbish a property for a quick turnaround, or simply replace current development finance awaiting sale, we can help them maximise returns in a time frame to suit across light and heavy refurbishment projects. This award-winning range allows access to 100% of the refurbishment costs up to 85% LTV, under a single larger facility that is available on day one – helping your clients realise their ambitions.

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Octane has lent over ÂŁ350 million in the past 18 months in bridging, buy-to-let, developer exit and refurbishment loans. To find out more about our #3rdGen, product-less lending call us now on 0345 222 9009 or visit For use by mortgage intermediaries only. Octane Capital Ltd (Reg No 10481270) and Octane Property Finance Ltd (Reg No 10483453) are private limited companies registered in England and Wales having their registered office at Labs Triangle, Chalk Farm Road, London NW1 8AB.

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Bridging Introducer January 2019  

Bridging Introducer January 2019