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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.
March 2019 www.specialistfinanceintroducer.com
INTRODUCER After a number of years, we have finally seen the banks (well a bank) enter the bridging sector. March saw CYBG the company that owns Clydesdale Bank, Yorkshire Bank, Virgin Money UK and the appbased bank B launch a bridging loan pilot. It’s been long mooted and is great news for the industry. Historically the industry has been plagued by reputational issues. Seeing a big player enter the market can only be a positive. CYBG may not be the first bank to make tentative steps into the “We are now bridging market but it is seeing renewed the first to be so open about it. That aside the talk of a bridging market appears to be continuing as before. Some exam or a lenders are pulling in their bridging element oars as they await the outcome of our ever-loom- being expanded ing exit from Europe. on in CeMAP” Some lenders are capitalising on that slowdown to pick up business they may not have usually seen. And on top of that we are continuing to see an ever-growing number of new lenders enter the market. These are interesting times. However, despite the entrance of CYBG you wouldn’t be alone in thinking that industry has spent a long time anticipating certain things that haven’t materialised. One such thing that has never really happened is the wider education of brokers. Its been estimated that as little as two in 10 understand what bridging actually is. We are now seeing renewed talk of a bridging exam or a bridging element being expanded on in CeMAP. Now the market has seen one prediction come true – maybe the time is right for the market to unite and push the education piece further. We talk to Roger Morris from Precise about his take on education on Page 36. Finally Brexit may or may not happen. We’ll bring you the reaction next month. Watch this space.
5 Harriet Smith Adding value
7 Kevin Thomson
The benefits of using short-term finance for commercial property
9 Bret Jackson
Interesting times for the bridging sector
11 Brian West
12 Jonathan Newman
Brexit ramifications are entwined
Michael Lloyd considers the opportunities available in the bridging sector
25 Benson Hersch
The latest from the ASTL
28 Build a Better Bridge
Your questions answered
This month’s industry debate
36 Cover Story: Unlocking potential
The need for education
42 Alan Dring
The value of the right team
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The value of adding value There’s never been a better time to add value
The imperative to add value for clients has never been greater than it is now. The fact that we’re working through an unprecedented time of change has been comprehensively documented and acknowledged. But added to the current economic uncertainty is the fact that the market in which we’re operating has – conversely – been getting ever-more regulated, busy and competitive in recent years. In short, all the ingredients are in place for a trading period the likes of which none of us have experienced before. It’s for all these reasons that I believe the need for bridging finance – delivered in both a timely and appropriate manner – has never been greater.
At Crystal Specialist Finance bridging finance made up 30% of all completions in 2018. Key performance indicators saw the average time from application to completion down by 12%, and a lower average monthly interest rate across completed deals with 14 separate lenders.
Equally interesting is the fact that refurbishment bridging enquiries rose by 31% between August 2017 to September 2018, compared with the previous 12 month period. To my mind, these facts show that there’s an increasing need for appropriate bridging finance packages that match clients’ needs and expectations. And no less imperative is the need for brokers to address these evolving needs through specialist packagers. www.specialistfinanceintroducer.com
When it comes to the value of adding value, I think it’s important to look at each of these points in turn.
Creative new products
Since joining CSF, more than 60% of the bridging transactions I’ve worked on have involved refurbishment. Normally, the refurbishment clients seek to carry out is ‘light’ – although that’s not always the case by any stretch of the imagination. Certainly, there are myriad reasons why this refurbishment is undertaken. These include: changing the number of units within a building; changing the use to which those units are put; ensuring rental properties don’t fail their Energy Performance Certificate ratings; as well as planning gain opportunities across semi-commercial, buy-to-let and Houses of Multiple Occupation. As ever, a desire to add capital value and/or ensure higher yields lies at the heart of these changes. And lenders are taking a creative new approach to ensure that these increased and evolving needs are comprehensively catered for. For example, last December we finalised our first Precise Mortgages’ refurb buy-to-let product case, completing the application from startto-finish in just 17 working days. The lender’s new product is designed to help landlords maximise rental yields by refurbishing a property before they rent it out, bringing together the flexibility of bridging finance with an exit onto a long-term buy to let mortgage once the work has been completed. In my experience, the majority of investors want to move to term as quickly as possible. And that makes me think that brokers now – more than ever before as an increasing
Harriet Smith head of bridging finance, Crystal Specialist Finance
number of lenders move into the bridge to let space – need to take full consideration of the client life cycle and their intended future plans when entering the bridge. Few would disagree that traditionally mortgage brokers have no – or very limited – expertise of this type of transaction. Put simply, bridging finance has always been outside their normal remit. As the nature of transactions increasingly changes, both in terms of complexity and variety, I believe that specialist packagers will really come into their own. It’s companies like CSF that really understand the depth and breadth of the market and, as a direct consequence, will increasingly add value to clients, brokers and lenders alike. We recognise that every lender will have a different appetite for risk as well as a different underwriting process. The onus is on us to keep up to date with clients’evolving needs within the context of a lenders attitude towards risk. At CSF, we ensure that dialogue is consistently open between clients and lenders while also providing both parties with ongoing feedback. At the beginning, I stated that we’re living through an unprecedented chapter of uncertainty. But I also believe that the need for bridging finance and other specialist lending flourishes in both a bull and a bear property market. It’s part of our job at CSF to ensure that the right products to meet clients’ requirements are consistently in place at the right time at an appropriate cost. And that’s what we’re committed to doing regardless of what lies ahead in the wider economy. Put simply, we’re building bridges.
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Short-term and commercial The benefits of using short term finance for commercial property
There has been huge growth in short-term finance over recent years, both in terms of the popularity of this type of funding, and the number of specialist short-term finance lenders on the market. Thanks to this growth, shortterm finance is now viewed as a mainstream product rather than a “finance of last- resort”. Access to this type of finance is vital for landlords and developers alike, who often need to move quickly on a deal or risk losing the opportunity. The bulk of short-term lenders tend to work with borrowers on residential property developments and buy-to-let, but what if there is a commercial element to the property, either as a whole or in part? While this type of funding does tend to be seen more as a solution for residential, there are huge benefits of using short-term finance for commercial property, and the main reasons are similar to residential. Firstly, short term finance can be the right option when looking to acquire a commercial investment property in the first place. Whether the client is buying a commercial property at auction or has the opportunity to purchase at an attractive price, completion often needs to be achieved much sooner than a commercial term mortgage can be secured. Short term finance can also offer a solution for a buyer looking to purchase a commercial property with a view to development. This option is becoming increasingly popular with property investors because often the end result is a property for mixed-use or semi-commercial use. For example, when the commercial property in question is likely to get planning consent for enable buy-tolet flats to be built over and above www.specialistfinanceintroducer.com
the exiting commercial units, it then becomes a very attractive proposition for both lender and borrower. Just as a bridging loan can be the right solution for the refurbishment of a residential property, short-term finance can also be the right option for the refurbishment of a commercial property. Often, commercial property investors will be looking to refurbish a property before it can be leased. This could be for many reasons; usually to improve the property in order to gain a higher yield in the long-term, but also many will be having to refurbish in order to achieve the EPC requirements before they are allowed to rent the property out. Whatever the reason, a short-term loan can offer the solution, providing the finance
Kevin Thomson sales director, Connect for Intermediaries
needed to fund the refurbishment with longer-term finance as the exit route. In residential borrowing, bridging loans are often used to refinance a maturing debt and the same can be done with a maturing commercial debt. Even if a commercial debt is on a 20-year mortgage, it may well have a five-year term. Therefore, the debt matures after five years and if the commercial lender does not want to renew, the debt has to be repaid. In this situation, clients often leave it too late to obtain a standard commercial remortgage, and therefore a short-term loan is required. As can be seen, there are a number of situations where a short term loan can offer the solution to a commercial property finance issue. But, just as with residential bridging loans, there needs to be a clear exit strategy in place. With commercial property investment, while sale can offer the exit route, refinance is the usual exit, so ensuring the client can obtain the necessary refinance following a short-term loan is key. As a broker, you will need to carry out the full fact find and gathering all the right information to find the right lender to exit the loan. Needless to say, it will need to be presented in the best possible light – to both the short-term lender and the lender that will provide the exit – in order to obtain the best overall solution for the client. There are fewer short-term lenders who are prepared to lend when there is a commercial element in the deal, so, as always, it is the broker’s expertise in knowing which lender to approach or benefiting from the services of a specialist distributor, for example Connect, that will prove decisive.
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Banking on bridging Interesting times for the sector
Well isn’t March going to be a very hectic month? Preparations for the tax year end, the final weekend of the greatest sporting tournament, the Six Nations, (which England would be strolling to if they had beaten the Welsh) the day everyone suddenly becomes Irish, dresses up in green and decide they enjoy Guinness, Pancake Day and Mother’s Day. Oh, and not forgetting Brexit Day, or not as the case maybe. In what has been the most farcical political drama in history, we will soon know the outcome. When you look at the script, it could well be a drama series, premiered on Netflix or Amazon Prime, but in this case, it is Sky News. Plot: A Prime Minister, a staunch remainer is determined to take the country out of the EU. Against a far-left leader of the opposition, who is against the EU and would prefer us out, now proposing a second referendum to keep us in. Running daily on channel 501 until March 29. Just when I thought it had reached its peak of insanity, a former deputy PM comes out making a case for a second referendum with “Because a significant number of people, elderly people, who voted to leave have died.” Granted, there was more to the interview than just this, but if you take this analogy, the outcome will be changing daily. Everyday, new people become eligible to vote as they turn 18, people move and register to vote etc. The announcement CYBG is piloting a bridging proposition with a small selection of brokers, I found rather interesting. If successful, they aim to role this out to the wider market later in the year. What I found interesting is that this is the first high street bank to move into this market for years. Where www.specialistfinanceintroducer.com
specialist lenders have arisen and consistently grown this market, both in terms of size and reputation, will other banks be watching this with great attention, or leave the specialists to continue their great work? Banks are notorious for moving in and out of different sectors of financial services. Providing financial advice is a classic example. As regulation and practices changed, pretty much every high street bank closed their advice arms, apart from some maintaining a wealth and private banking division, for their HNW clients. Santander and HSBC have both expressed their position to move back into the advice market, which has been followed by the Lloyds/Schroders joint venture announcement. Advice firms and professionals have been expressing their concerns for banks entering this market, via articles and social media, but are they justified? Have they moved on from practices in the past? Only one way to find out. So why do I find this of interest? Specialist lenders and brokers have been doing an exceptional job of making this a credible sector of the industry. They have built up client banks and relationships with IFAs mortgage brokers, solicitors, accountants and other professional firms, as well as builders and property developers. These take years of effort and support to build and maintain. Banks have deep pockets, large back office functions and a huge client bank in which they can target. Some of their account holders could be clients of brokers and can target them.Their deposit base provides a very large funding line and could dictate the rates. On the plus side, banks are likely
Bret Jackson head of marketing and communications, BWD
to be only offering vanilla products for certain clients, therefore many lenders in the sector are not going to be affected. Also, it is only one bank piloting this on a small scale, so its not like the flood gates have opened yet. Another positive for me is reputation. As previously stated, the lenders and brokers in this sector have grown this from poor, at best, to a highly professional and respected area. For a high street bank to recognise this and come into the market, albeit as a trial initially, demonstrates the sector is no longer tarnished. Challenger banks have been flexing their muscles for some time now, branching out into the more
“Will other banks be watching this with great attention, or leave the specialists to continue their great work?” mainstream products offered by traditional banks, whilst maintaining bridging and development products at the core of their propositions. Deviating into products where the revenue is higher and with generally longer-term contracts, could impact the short-term products, but it hasn’t, further demonstrating the importance of bridging. Finally, congratulations to all the winners at the Scottish Mortgage Awards. It is great to see more and more lenders moving into the region, with some lenders hiring specifically for the country. For years, the country was underserved and is now being showcased with its own awards. Well done to Mortgage Introducer for recognising this. MARCH 2019 BRIDGING INTRODUCER
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Bargain Hunt Uncertainty gives rise to opportunity…
Last month this column drew inspiration from the long running BBC television show, Homes Under the Hammer, to explain how property related programmes have played an important role inspiring a generation of property investors and developers. In what may develop into a ‘TV inspired’ trend this latest article unashamedly steals its headline from another popular BBC show, Bargain Hunt! In February, Sonal Thakrar, partner and head of residential property at leading London law firm Mishcon de Reya stated that; “Brexit is creating huge uncertainty, but it’s also a fantastic chance for those who are savvy and brave enough to buy something to keep.” She was talking about a steady flow of high-end London property transactions that Mishcon are handling where buyers are securing very substantial discounts on the original asking price. Long before the term Brexit came into the public’s consciousness, the London market was disproportionately impacted by the stamp duty changes introduced by then Chancellor of the Exchequer, George Osborne in December 2014. He followed these up by introducing a raft of additional property taxes culminating, in early 2016, with an additional 3% levy on top of stamp duty charges for the purchase of second homes. In doing so he further compounded the downward momentum in Prime London house prices. Stretched affordability contributed further to this trend and means that today, despite over four years of falling prices, many properties in prime areas of London are still being heavily discounted before they are sold. Indeed, according to www.specialistfinanceintroducer.com
property data company LonRes, 56% of prime properties are being reduced before they find a buyer with an average discount of 11.5%. Of course, this average figure means that many prime properties are being discounted by much larger percentages. Whilst vendors that purchased prime property in 2014/15 are now often losing money the flipside is that many who have been renting in London for years and were previously unable to access the types of property that they wanted are finally seeing opportunities to buy a home. They have money, work in London, many are foreign nationals and they want to acquire a home here. The great ‘Bargain Hunt’ seems to be gathering pace and whatever the outcome of the last-minute Brexit negotiations this is a trend which seems likely to continue! If politicians in the UK and unelected bureaucrats in Brussels can finally find the morale courage to act in the national rather than their own self-interest, then a deal will be agreed, a significant degree of confidence will return to the market and prices could gradually start to rise. If they fail and Britain exits without a deal sterling will almost certainly weaken significantly, making London property look even cheaper to overseas investors, fuelling their demand and very possibly prices could gradually start to rise! From a London perspective it is a win, win scenario that has even prompted some estate agents to predict the bottom of the London market may just be reached in the next couple of months. For every purchaser that is put off by Brexit uncertainty it seems there is another who is being encouraged to look for a ‘steal’ and they are
Brian Strange Mike West managing director, Central director, Bridging Funding 365
anxious to close transactions before vendors have a chance to change their minds. Indeed, some cash purchases have even seen the return of ‘attended exchanges’ where the buyer’s and seller’s solicitors meet and exchange that day, before searches are returned. Anecdotally, at Central, we have seen a tremendous response to the launch of our new ‘jumbo’ loans from £5m to £50m in a single transaction. Crucially these are available with no maximum property value against both residential and commercial property. Ideally suited for both UK and Overseas investors, we have seen particularly strong interest from offshore companies and trusts for whom London never seems to lose its allure! The opportunity to secure a bargain is most definitely there for those brave enough to raise their head above the parapet and with an additional stamp duty levy for non-UK resident home-buyers currently under consultation by the government there is yet another incentive for overseas investors to move quickly. In closing, having been in decline for many years and at a point of maximum uncertainty surrounding Brexit, might London be about to once again demonstrate its legendary resilience in the face of adversity? It may be a little early to pronounce ‘green shoots’ but certainly there are some very encouraging signs. Whatever happens in the coming weeks there are well-funded bridging lenders, including ourselves, who stand ready to assist those for whom opportunity knocks… the Bargain Hunters!
MARCH 2019 BRIDGING INTRODUCER
The true value of valuations Brexit ramifications for resi, commercial and development are entwined
While this is hardly a ‘stop-thepress’ statement the fact remains that properties will continue to be sold and developments built out, and this is where the right valuer plays a more important role than ever in understanding current values and helping to reduce property specific lending risks. While I’m continuing to state the obvious, everyone understands the importance of an accurate valuation. Valuations are based on many different parameters and each needs local knowledge and experience to determine. Given the current economic uncertainty this makes life even more difficult for valuers as valuations are underpinned by transactional sales evidence. Lack of sales means valuers have to rely on historical data and their expertise to make the necessary adjustments to provide the most accurate advice possible. This is why it is more important than ever for lenders to be working with the right valuers.
planning status, appropriate valuation methodology and a large variation of other important analytical data. Here is the acid test. If a lender repossesses a property and puts it on the market, did they appoint the valuer properly at the outset and will they achieve a sale price in-line with the valuation advice provided?
Horses for courses
Alongside the skillset, speed and experience are also of the essence for clients, therefore finding the right valuation company first-time with the correct experience is critical to the specialist finance chain. Let’s say we have a semi commercial property, with a ground floor retail unit with flat above. Why go to a large multi-disciplined practice, which would be more expensive and most likely take longer to complete when a local
Stephen Mike Strange Todd managing co-founder director, and managing Funding VAS director, 365 Group
company can do the job far more efficiently? On the reverse we would not advise giving a local practice a large scale developments site, when a multinational practice with an array of internal departments with different property sector disciplines would be best placed to provide an overall picture. This clearly contributes to achieving the correct valuation with robust methodology and justification.
Neutralise the anomalies
In an ever more uncertain market – as we have at the start of 2019 – securing the best possible valuation firm is critical to reduce property specific lending risks. People and business still want to buy and lenders still want to lend, but valuations have to be looked at more closely than ever to best manage the unpredictable.
As everyone knows, the ramifications of not getting an accurate valuation are very unpleasant. Residential valuation requirements are generally more straightforward compared to commercial and development valuations. As such a good, local, knowledgeable, well-established practice is generally best placed to carry out the valuation. Commercial and development valuations have a far larger and more complex set of rules and requirements and necessitate an additional skill-set. As well as the building, location, condition, etcetera, a commercial valuer would also consider potential other variables such as tenancies,
When opportunity knocks Michael Lloyd considers the opportunities available in the bridging sector in 2019 and beyond
nother month brought another discussion of doom and gloom with bridging and the flat housing market but the bridging sector seems to remain robust. Members of the Association of Short Term Lenders (ASTL) wrote more than £4bn of bridging loans in 2018, up 14.8% from 2017. The value of applications rose by 13.4% to nearly £21.5bn and total loan books increased by 3.6%. “Our latest data survey shows continued growth in the bridging sector,” Benson Hersch, ASTL chief executive says. “In an uncertain economic environment, our members are continuing to provide useful, flexible finance for a whole range of purposes, and they are doing so whilst maintaining a commitment to high standards of underwriting. “This is very encouraging and indicates a sustainable sector that is built on robust foundations.” “There’s still plenty of demand and huge enquiries are coming through,” Harry Hodell, senior originator at Fiduciam adds.
Masthaven’s latest Broker Beat research found despite economic uncertainty, 84% of specialist lending intermediaries feel confident about their company’s
prospects over the next 12 months, with nearly one in five seeing short-term lending as one of the largest growth areas. “We’re confident but cautious,” James Bloom, Masthaven’s managing director of short-term lending says. “The bridging market grew by 15% in 2018 so it is clearly a buoyant sector and I am confident we will continue to see similar success this year, but we must remain mindful.” Paresh Raja, chief executive of Market Financial Solutions, says that although lenders can’t be overconfident and have to plan for Brexit, there are still reasons to be confident. “Based on the historical resilience of property as an asset able to overcome periods of economic and political uncertainty, I am optimistic about the long-term opportunities real estate will offer prospective investors,” he says. “As such, this means that there will likely be ongoing demand for bridging finance. MFS’s new funding line and expansion of the team is a reflection of our positive, ambitious outlook for the coming months and years.” Sam Howard, managing director and co-founder of Magnet Capital, is confident in the current climate due to having experience lending through difficult periods at its previous lender and having good previous
Continued opportunities in the bridging market The bridging market continues to present considerable opportunity for both brokers and lenders, but the nature of this opportunity, and the considerations required, differ for each. For brokers, short-term finance provides an excellent tool, particularly in the current environment, as it can offer the flexibility that people need to bridge the immediate uncertainty before moving onto longer-term solutions. The certainty of funding and quick responses that can be provided by bridging lending also makes it an important part of a broker’s armoury as it can enable investors to move quickly to make the most of an opportunity. Following tax and regulatory changes to buy-to-let in recent years, more landlords are open minded to alternative types of investment opportunity such as
Benson Hersch chief executive, Association of Short Term Lenders
property refurbishment or purchasing property for resale after cosmetic improvement at auction, and so the demand for bridging continues to grow. In fact, members of the Association of Short Term Lenders reported a 15% increase in lending last year compared to 2017. The market is growing for these lenders, but they are also operating in a competitive environment, which means that brokers, and their clients, can benefit from access to good rates, flexible criteria and product innovation. For lenders, this competitive market presents a challenge as they need to identify ways to stand out from their peers. But, for those lenders that are committed to the market and invest in the right people, processes and technology, there remains considerable opportunity. The key for these lenders is to focus on offering something
different to brokers, not getting caught in a race to the bottom on rate or criteria to win market share. Instead, lenders need to identify niches within the market in which they can establish a strong reputation for expertise and adding real value, with specialist quality underwriting that tackles an underserved demand. While demand continues to grow from borrowers, opportunity will also continue to grow for lenders and so it is important that they take a long-term view to building a sustainable short-term lending business. Lenders should also ensure that transactions are handled smoothly and that brokers are kept informed as to their progress. For their part, it is brokers’ responsibility to see that all the facts are presented so that there are no hold-ups, should negative information come to light.
Seeing opportunity where others see adversity There will always be those that see opportunity where others see adversity The way to look at business in 2019, despite the UK preparing to leave the EU, is in exactly the same way as we would in any other year, with optimism. If you start off believing that things will be bad, then it is more than likely that is what you will experience. A positive attitude has a positive effect, so we start the year looking forward to the opportunities it might bring. And, how we might influence things, to ensure we have a good year. This appears to be the way many people think, with respondents to the latest ASTL survey saying they are confident about the long-term future of the UK economy. Although we may all be wondering how business will be affected in the
Clint White director at Fiduciam
near term, until we have left the EU, bridging finance finished 2018 on a high and will continue to provide solutions where others may not. During times of uncertainty and a turbulent economy many borrowers will be looking for alternatives to mainstream lending, as appetite for risk tightens amongst the high street banks. Out of the need for alternatives, the bridging industry continues to evolve and the range of products and loan terms is changing all the time, which in itself shows how the industry is responding to opportunity. We do have to be realistic and, although there are always prospects even in the hardest of times, the property market itself could prove to be a challenge if property values continue to fall across the country. However, as a lender, we have to look at the reasons for the loan and of
course the probable outcome for the borrower. Even in a tough market potential provides the opportunity. Although we are not unique, we are one of very few lenders currently providing bridging finance in Europe, which means we are looking at more chances to lend than most. Europe is actually fairly untapped with very little bridging finance available in many countries. So, the potential is enormous. The country, or our government, is still in turmoil over Brexit, so the next few months are likely to be tough, especially if we leave with no deal. Nevertheless, there will always be those that see opportunity where others see adversity. Our job is to help these people succeed. We do that by looking at every opportunity and building solid relationships with our clients and their agents to ensure a successful outcome.
business relationships. It’s worth noting that the newly launched Magnet Capital is completely separate to Regentsmead. Jonathan Newman, senior partner of Brightstone Law, adds: “We’ve definitely seen significant volumes of new business. There seems to be a continuing appetite out there to lend and borrow. We’re positive for 2019.” However, Payam Azadi, director of Niche Advice which advises on both residential and bridging cases says with bridging you have to be very cautious and see how things pan out. “I think you should be cautious in any climate, you have to lend correctly, not on everything,” Hodell adds. Meanwhile Frank Dyson, commercial relationship manager at UK Adviser, says the business has a positive outlook for the year. “We are approaching the next few months positively, in order to capitalise on and cater for any eventuality,” he says.
Dyson believes that as more people are purchasing properties through special purpose vehicles (SPVs) and many borrowers having complex income structures, it’s a great opportunity to be able to offer and advise on products from specialist lenders. “It’s important to be knowledgeable about new and specific products with niche criteria, as these may hold
the key to a borrower financing their investment,” he says. Newman adds: “I think there’s an opportunity to cement relationships and establish new ones as the market adjusts itself.” Hodell says there’s an opportunity to improve lending, factor risk into underwriting and there are still plenty of hotspots around such as the North East, Manchester and Birmingham. Chris Oatway, director of brokerage LDNfinance, pinpoints the bridge to sell market as remaining strong for the rest of the year until the number of transactions and speed of purchasing increases. “Where we see opportunities emerging is in preplanning acquisition finance where developers are willing to enhance values of development opportunities, where the market will continue to recover while they spend time in the planning process,” he says. “Then by the time planning is approved and the sites are built out they should be selling their units in a market that is more buoyant.” Azadi highlights an opportunity for the bridging market as helping those portfolio buy-to-let landlords getting hit by the mortgage tax relief changes, but says it’s important the exit strategy is there and brokers have checked other avenues like remortgages and second charges too. He also praises product innovation by lenders, seeing www.specialistfinanceintroducer.com
Fast, flexible finance for intermediaries
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that as another opportunity this year. He highlights Precise Mortgage’s Refurb to Let product as great innovation, bridging the gap between a bridging loan, refurbishment and buy-to-let. One application form produces an offer for the bridge and an offer for the buy-to-let at the same time, by the same underwriter and the same valuer is used for both the initial valuation and the re-inspection. “As a broker I want less risk for clients and this enables clients to have more certainty, so it’s really welcomed,” he says. “I think other lenders will look at it closely if they have the means to do so.” Alan Cleary, managing director of Precise, says the product has received great feedback and solves some of the issues facing landlords at the moment, such as an increasing tax burden and more stringent underwriting checks driven by regulation. “Despite the political uncertainty and some nervousness about the global economy there are still plenty of opportunities for brokers and lenders in the bridging market,” he says. “There is still a shortage of houses and flats so anything that increases supply should be somewhat shielded from the uncertainty.” Howard says there’s still an opportunity to do ‘personal lending’, meeting clients on site. “And there are significant opportunities for those brokers and lenders who have the experience and grey hairs to lend sensibly in an uncertain climate,” he adds.
Brian West, director of Central Bridging, says the lender has secured funding lines that’ll back them on larger residential and commercial property loans ranging from £5m to £50m, something he spots as an opportunity this year. “Periods of political and economic uncertainty have always given rise to opportunities,” he says. “2019 sees the bridging sector well placed to respond to the needs of opportunistic investors in a buyersmarket and to the needs of the entrepreneurial SMEs who are the backbone of the economy, whatever the prevailing economic conditions.” Bloom says Masthaven is currently focusing on refining its offering such as developing a short-term broker panel to provide a faster, simpler and more efficient journey for advisers, with direct visibility of case application documents. Raja says MFS has expanded its bridging services into the Midlands and lowered its minimum loan amount to £100,000 to cater to the lower-end of the market, which he sees as having clear demand for finance. “We’ve seen a rise in the number of applications for bridging loans from property buyers outside of London and the south east,” he says. “And as more and more buy-to-let landlords and real estate investors look to diversify their portfolios into new regions, including the Midlands and the north of England, there are certainly opportunities for both www.specialistfinanceintroducer.com
Brexit can present opportunities When the Brexit vote was announced back in June 2016, the impact was instant – the pound crashed and the wider property market became stagnant. However, one area that did not seem to suffer was short-term lending. The bridging market was actually stronger than before the vote as investors struggling to get high street finance turned to specialist lenders for funding; the month following the vote was our most successful to date. Then, we were in an uncertain market; post-March 29 we should actually know what is happening, so that uncertainty will either turn into fear or perhaps relief, depending on what happens. But whichever way it goes, I
Jonathan Sealey chief executive, Hope Capital
brokers and lenders to become more active in these regional markets.”
The current consensus among the industry is that it’s Brexit’s causing uncertainty with many waiting to see what happens before purchasing property. However, some predict after the UK leaves the European Union on March 29 business may return to normal, leading to opportunities for the bridging sector. “Many buyers have been holding back to see what happens and as a decision is made and the economic uncertainty is lifted, we are likely to see a mini boom and a positive outlook for the remainder of the year,” Oatway says. “Post Brexit will revive confidence in the market leading to a quick increase in transaction levels, with those who were holding back now being keen to deploy their funds as new opportunities arise.” Newman reckons the market will see some optimism return when there’s a little certainty and reliable, positive end to the current Brexit uncertainty. “Typically, I’m always cautious but I’m actually reasonably confident that this sector is well set to withstand what Brexit throws at us better than most,” Newman says. “Faced with continued uncertainty regarding the outcome of Brexit it’s hardly surprising if some homeowners and businesses are increasingly sitting on their hands and waiting for the storm to pass,” West adds. www.specialistfinanceintroducer.com
think it will present opportunities for the bridging market. If we end up with a no deal Brexit, traditional lenders may find their funding channels start to tighten and investors will turn to specialist lenders – particularly principal lenders that are not reliant on external sources for funding – for solutions. But those who have a ‘one size fits all’ approach will struggle to take advantage of those opportunities. It will be flexible lenders, who are able to make instant decisions on who they lend to and what they lend on based on the borrowers’ individual needs, that will be able to seize those opportunities. Going into 2019, I also think we will see the uses for bridging continue on the trend we have
seen over the past 18 months or so, with the number of applications for loans for renovation and refurbishment continuing to increase. More and more borrowers are starting to realise that, rather than just being seen as a last resort or ‘emergency funding’ bridging loans can offer a solution for a range of borrowing needs, including buying at auction, financing a self-build, improvement to an existing property or funding a commercial project. Ultimately, I think there will be a mix of challenges and opportunities, but I think bridging lenders are better placed than the more traditional lenders to be dynamic and respond to the changing needs of borrowers in a post-Brexit world.
“If a deal is agreed prior to March 29, even a relatively poor one for the UK as seems likely, it’s reasonable to assume there will be a positive response.” Raja from MFS also expects a post-Brexit jump in business but believes it won’t be sudden. “It might take several months after the Brexit deadline for this jump to happen, but one would expect there to be an increase in activity across the entire property market in the aftermath of the UK’s departure from the EU,” he says. Dyson believes an exit with May’s deal would lead to more confidence amongst buyers, developers and investors, which is all positive for the market, whereas a no-deal Brexit would lead to opportunities with expats. He describes that a no-deal Brexit would potentially cause a drop in the value of the pound, which could lead to more expats investing in property in the UK, in order to get more for their money. “In which case, we would expect a surge in demand for property and investments and, in turn, finance facilities,” Dyson says. “This is an opportunity for
“Typically, I’m always cautious but I’m actually reasonably confident that this sector is well set to withstand what Brexit throws at us better than most” MARCH 2019
Opportunities in rebridging for developers Bridging finance underwriting decisions have always been based on a combination of asset-based lending and GDV based lending. Where there is a development angle, there is an increased importance for borrowers to add value to sites due to the current market environment and therefore we will continue to see a swing towards GDV based decisions. In the months leading up to the Brexit decision, there are fewer new purchase opportunities due to both vendors and purchasers airing on the side of caution. Clarity across the board will hopefully assist in reigniting the market, but there are ways to find opportunities in the current circumstances. We have seen a high increase over the last few months in developers seeking pre-planning acquisition finance and this is a classic example of where lenders can target
Chris Oatway owner and director, LDNfinance
lenders to come up with innovative products for expats who are new to the market, or who have previously had foreign investments. “Savvy investors have a history of making money in times of uncertainty and even recession and we expect it to be the same. “There is always opportunity, it is just a matter of recognising it. If many people are waiting to see what will happen it also reduces competition for those who are less risk adverse.” In addition, Alan Dring, director of The Mad Approach, agrees that too many people are just waiting to see what happens but says there’s opportunities out there for people to spot. “Brokers have an opportunity to see where planning permissions are and seek out developers while smaller developers can capitalise on a fragile market that exists due to Brexit uncertainty,” he says. Gareth Lewis, commercial director at MT Finance, points to signs that investment is still happening, for example, a US hedge fund tycoon bought a £95m house near Buckingham Palace, the most expensive home sold in the UK since 2011. “If, as a lender, you are strong, well-funded and have an experienced and adaptable team you will be well placed to take advantage of opportunities post Brexit,
opportunities where the GDV can be enhanced to protect their security. Developers are currently targeting sites which do not have planning consent or where the current planning permission can be enhanced. The benefits of this approach can include; a lower acquisition price, higher potential profit margins but, most importantly, this strategy allows them the ability to concentrate on adding value through planning during a period where the market will hopefully continue to gain strength post Brexit. Profit levels are typically higher on pre-planning deals due to the extra perceived risk but with the right team and relevant level of experience there has arguably not been a better time to invest in these types of transactions. We also expect the demand for rebridging to be high over the next year. In 2018 this was an area where many of the established bridging lenders were
very strong, but in 2019 we expect they will have a more cautious approach with concerns surrounding the inherent complications these deals involve. They will also be concentrating on continually diversifying their loan book by attaining new business through auction purchases, refurbishments and mortgage delays, allowing them to reduce the percentage of rebridging cases. With the many new bridging entrants that have arrived in the market over the past year, we are confident the high levels of demand for rebridging will still be serviced even if more established bridging lenders take a small step back. Overall, we have a positive outlook for 2019 as the dust starts to settle in the property market. As confidence returns to the market, we expect activity levels to increase with continued growth in the specialist finance sector.
wherever these may come from!” he adds. Hodell says there’s an opportunity for good bridging lenders to continue lending to meet the continuing need for alternative finance. “I think if there’s any uncertainty and a mass pullout of lending, we’re here to be specialist, help the borrowers and find opportunities regardless of what’s happening in the market,” he says. Ronak Ruparell, co-founder and chief executive of Bridge Invest, predicts that transactions will increase dramatically, regardless of a hard or soft Brexit, given the pent-up demand with domestic and international investment being held back due to Brexit uncertainty. “At the moment funders are increasingly cautious and are holding back cash to seek equity opportunities during Brexit uncertainty,” he says. Howard says regardless of Brexit there’s still opportunities for Magnet Capital, although certainty will help them. “I see a post Brexit jump whatever the outcome as long as there is one,” he says. “Magnet Capital supports SME developers who don’t have the balance sheet to landbank or hold off developing for long periods, so we expect to see a bounce in demand for development finance. “But whatever happens post Brexit, people still need www.specialistfinanceintroducer.com
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Bridging compared to the housing market
“It’ll be good for more lenders to enter the smaller end of development finance” affordable, well built homes to live in and that is the lifeblood of our SME developer clients whom will need our finance.”
Although development finance is a smaller market, opportunities are still out there for this type of shortterm lending. Bloom says there’s a trend of property developers using development finance products in order to build new homes and Lewis says MTF has seen more development finance business. “Investors are certainly looking at adding value to property via development and heavy refurbishment and we have seen a notable increase in transaction requests over the last few months,” Lewis says. Magnet Capital formally launched to the market last October with the niche of serving the smaller end of the development finance market. “We think the small end of the development finance market is a great opportunity,” says Ashley Ilsen, chief executive and co-founder of Magnet Capital. “It’s poorly serviced with bridging lenders that don’t understand it and it’s just crying out for experienced people to fill this gap. “I think the main point is still building affordable houses. There’s an inherent demand for this. Particularly in rural areas, we’re looking at parts of the country where Help to Buy has helped.” “It’ll be good for more lenders to enter the smaller end of development finance,” Azadi adds. “Everyone wants big ticket deals but there’s more room for smaller developments.” Dyson says as the property market has been fairly stagnant since the Brexit vote, developers have been more cautious, which may have led to the slowdown they have seen in development finance applications. Similarly, Oatway says that while bridging finance has gone from strength to strength with a range of products available and the diversity of deals increasing, development finance is experiencing more caution rather than confidence. “Senior debt development finance now adheres an extra level of caution when looking at the length of term a deal will take from start to finish,” he says. “A solid exit is imperative for any development lender due to the sales period being considerably longer. “There are still many lenders in the market keen to deploy development finance, although they have become rightly more cautious which is reflected in the loan to costs and loan to GDV that they are offering.”
The housing market has been slowing down with Nationwide’s House Price Index showing a sluggish 0.4% year-on-year growth in January, whereas the bridging market has continued to grow with ASTL figures showing a year-on-year rise of 14.8% in quantity of loans written last year. “A rising property market is very good for liquidity while a flat market presents its own difficulties,” Newman says. Howard points to regional disparities in house prices affecting business with London dragging the market meanwhile the housing market has been flourishing in Magnet Capital’s heartlands such as the East and West Midlands and East Anglia. Dyson says the bridging sector is not reliant on the housing market and often UK Adviser uses bridging for land purchases and, in commercial settings, to enhance a business’s cash flow and working capital. “So, although the housing market remains flat, it hasn’t impacted bridging and the market has grown,” he says. West says the modern bridging market was borne out of the last recession and has proved that it can thrive whatever the prevailing economic conditions. “I believe the industry will end the year stronger, leaner and fitter and we all may well be celebrating another year of record lending volume,” he adds. Hodell says the bridging market is growing and becoming more widely used and accepted as a genuine realistic option for borrowers and if housing market activity is dropping then arguably more specialist lenders better suited to deal with issues are required. “A slower housing market isn’t necessarily better for the bridging market, but bridging lenders are better placed to deal with that uncertainty,” he adds. Similarly, Ruparell describes that borrowers are becoming increasingly aware of bridging products and turning to alternative lenders over banks and banks are tightening lending further. “Exits have failed as asking prices are not achieved so refinancing is required, or people are deciding to use bridge loans to refurbish or extend their homes rather than sell,” he says. “Therefore, bridging volumes can increase regardless of the performance of the housing market. In any case, the bridging market benefits.” So, opportunities are still out there and there’s quite a few of them too. Houses still need to be built people will still require money, and Brexit may throw up new opportunities after all. “Funding is always going to be required,” Hodell says. “It’s about providing a consistent platform for our borrowers and continuing to spot good opportunities. There’s plenty out there.” “We think that bridging will continue to grow this year as lines of traditional finance dry up and alternative finance becomes quicker and easier for business people who want to finance their investments in 2019 and beyond,” Dyson adds. www.specialistfinanceintroducer.com
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Uncertain but confident Cautious optimism amongst the chaos
At the time of writing this article, there is still little to suggest any political clarity beyond 29 March, and so the uncertainty continues. Yet, while it is clear that the chaos surrounding Brexit has had a dampening effect on the property market with transaction levels remaining historically low, lenders within the bridging market remain optimistic, and with good reason. In recent weeks, the Association of Short Term Lenders has published two of its regular benchmark data releases – a sentiment survey amongst members and lending figures compiled by the association’s auditors.
“The road ahead may be uncertain, but our research indicates that most bridging lenders are well prepared for it, confident they have the right processes and personnel in place” Given the current political situation, it is perhaps somewhat surprising that more than 57% of respondents to the sentiment survey said they were confident about the long-term future for the UK economy, compared to just 37% of those who were surveyed in March last year. The research found that bridging lender confidence in their own business also remains strong but has fallen slightly since March 2018. Three quarters of those surveyed say they expect their business volumes to grow in the next six months, representing a small www.specialistfinanceintroducer.com
drop of 3% on last year. There is, however, more caution about the outlook for the overall bridging market, with nearly 29% of respondents expecting it to shrink, compared to just under 4% last March. And lender expectations for property prices are gloomier still, with more than 70% preparing for prices to decrease in the next six months. Overall, positivity amongst members of the ASTL is up on this time last year and is higher than it has been since April 2016, which was before the EU referendum, and the results of the other benchmark data release goes some way to explaining why. Figures compiled by the ASTL’s auditors from its bridging lender members for the fourth quarter of last year show an increase in the value of loans completed, outstanding loan books and applications in 2018 compared to 2017. During 2018, lenders wrote more than £4bn of bridging loans, representing an increase of 14.8% on 2017, the value of applications increased by 13.4% to nearly £21.5bn and total loan books increased by 3.6%. The value of loans completed for the quarter ending 31 December 2018 increased by 13.5% on the previous quarter and the value of applications increased by 0.3%, although the value of outstanding loan books decreased by 7.1% during this period. This continued growth shows that, in an uncertain economic environment, short-term lenders are continuing to provide useful, flexible finance for a whole range of purposes, and they are doing so whilst maintaining a commitment to high standards of underwriting. It’s also pleasing that, while the results of the sentiment survey show
Benson Hersch chief executive, ASTL
an underlying confidence amongst lenders in the sector, this isn’t just blind positivity as the survey reveals lenders are realistic in their expectations for house prices and the growth of the bridging market. The road ahead may be uncertain, but our research indicates that most bridging lenders are well prepared for it, confident they have the right processes and personnel in place to ride out the storm and be well placed to benefit from future economic growth.
Wednesday 19th June 2019
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Wednesday 19th June 2019 Hall 3a, The NEC 9.30am – 4.30pm
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Platform hosts 250 brokerages NACFB unveils findsmefinance web portal as key Member benefit
February saw the NACFB launch an enhanced online portal, findsmefinance, offering UK businesses access to the trade body’s membership of independent finance brokers. So far over 250 NACFB brokerages have since signed-up to the lead generation platform. The platform welcomes more than a thousand monthly visitors and the team behind the revised initiative are working to enhance SME awareness of the portal. We are working with our Members to ensure they are best equipped to process and record the leads they receive from the new platform, in addition to any other lead sources. Part of our remit as your trade body sees us provide opportunity and support throughout the entire broking process. In completely overhauling our targeted lead generation platform, we are confident in our
ability to increase broker exposure to UK small businesses whilst emphasising the benefits of the commercial broking community as a source of alternative finance. In addition to providing members with leads and expecting no commission in return, the association’s in-house regulatory support team, NACFB Compliance, are here to partner with firms; sharing guidance and assurance when adhering to the rules and standards set by the regulator. The free findsmefinance directory enables UK businesses seeking finance to simply filter their funding requirements by loan size, type and location and are then presented with a range of the association’s commercial brokers to approach. All full NACFB Members are eligible to sign up to our new platform and can do so in minutes - with
Nicholas Murphy NACFB Compliance
approval taking less than 48-hours. Each NACFB broker then has an updateable online listing and can monitor SME engagement through the platform via an analytical dashboard. Commenting on the launch of our findsmefinance platform, our chief executive officer Graham Toy reiterated the importance of increasing awareness: “Access to finance continues to be a key issue for UK businesses and we believe there is still a lack of awareness of the finance options available to SMEs. “In an era when some lenders are scaling back their face-to-face operations, the modern finance broker has inherited and enhanced the role of a local bank manager. Brokers are able to provide advice and products from a wide range of UK funders.” Our chair, Paul Goodman, believes the platform can also provide an alternative service for lenders who have to turn away direct enquires from SMEs: “The government’s bank referral scheme helped just 230 British businesses access £3.8m of funding in its first nine months, meaning that only 2.8% of the 8,100 businesses referred through the scheme were able to draw finance. Our findsmefinance platform is targeting over 5,000 SME searches in the first year alone. “The site will seek to provide a lifeline to those left behind by providing access to a wide range of brokers, all of whom adhere to an industry recognised Code of Practice. If a business uses a broker with the NACFB logo, they know they’ll be using a knowledgeable, experienced and trusted adviser.” It’s a great system and we would encourage full and regulated NACFB brokers to register via the site.
Build a Better Bridge
Bridging can help in many circumstances Sometimes you find yourself in a bind but bridging finance can help. Our experts answer your questions Two years ago my husband and I divorced. Part of the settlement was that he could remain in our marital home until our youngest son turned 18, which was in February this year. We have in excess of £1.5m of equity in the property over and above the outstanding mortgage. We put the property up for sale and we offered the full asking price, but my ex-husband needed to stay in the property until January next year, so the exchange took place with a delayed completion in January. I now have a pressing business debt which I have to pay within 10 days – can I borrow any money against my ex-home? Mel Fordham: In principle, there is no reason why you cannot borrow the money against your ex-marital home. Given you have actually exchanged contracts, and I presume your solicitors are holding a deposit, this would be considered “closed bridging” i.e. where there is a very clear defined timescale and method of repayment – the sale. However, whilst “in principle” this seems like a pretty straight forward enquiry; the property is obviously registered in your joint names and as such the lender will only consider this application if your husband makes the application with you. I fully appreciate this may be difficult to arrange/agree as he is risking his equity for a problem that clearly he has no gain from and could in the worst case scenario, potentially be risking the whole of the equity which he will realise in January. Additionally, you advise that you have a mortgage outstanding on the property, which will have to be redeemed at completion in January or sooner. On the basis you do not want to repay your existing mortgage to raise this capital, the lender that will provide the short-term lending will have to obtain confirmation of the existing/current redemption balance and consent from your existing lender to create and register the second charge whilst also asking for their interest to be recognised. This may take some time to obtain and may cause a delay that you should be aware of from the outset.
Phil Mabb property finance broker, Bridge Development
Mel Fordham chief executive, Centrado
Phil Mabb: In short yes. The real issue is securing agreement with your ex-partner who will need to agree to the proposal. Firstly, it is important to point out that due to being owner occupiers, a loan may be deemed as regulated, depending on which route you take. Secondly, the subject deal would be considered a “closed bridge”, where the exit is defined by way of the proposed sale, with a clearly defined timescale and repayment method – a positive for any lender. However, as the property is registered in both you and your husbands, he will need to be party to any application. Bearing in mind the time constraints, the next matter to consider is as to whether or not you want to raise enough debt to remove the existing first charge holder completely. This is of course dependant on the size of the outstanding mortgage and the value of your property among other things. With reference to the amount of equity that you have over and above the existing mortgage, I would point out that there is sufficient equity left in the property for a second charge to be considered. This will however require confirmation from the existing lender, something that can delay matters. Discharging the existing mortgage with the bridging facility may prove to be quite expensive so based on your circumstances and timeframe to conclude, a second charge should be the most cost-effective solution, with the purpose business based. This does however limit the number of lenders who will be willing to consider the deal. 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 is in need of significant works to modernise it. I have agreed with my brothers to remortgage it for £125,000 in my sole name and buy out their interests. However, the surveyor who inspected the property advised there is deflection in the rear flank and the property is not considered security for mortgage purposes. My mother had a structural
Build a Better Bridge
survey carried out some years ago and the report confirmed the movement was historic and nonprogressive. 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 solution, there will undoubtedly be a charge and the firm may want to send a surveyor out to re-inspect the property. Provided the firm is suitably qualified, has the required levels of indemnity and is acceptable by the lender you have applied to, if the report makes the same conclusion I can see no reason why the lender will not agree to 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, so the property is bought to a mortgageable standard; costs of which should be considered in the payment to your brothers. Should you feel confident with the original structural report, are absolutely satisfied the property is sound and want to progress matters with your brothers there are lenders that will consider the property in its current condition, and despite the structural integrity being jaundiced, it will still have a value, albeit diminished. The lender will be prepared “in-principle” to advance you around 50% of the current value. This option is clearly the most straight forward; it is clearly the most speculative and could leave you extremely exposed. In this respect, I would strongly recommend you obtain qualified independent advice before proceeding. PM: Sorry to hear about your loss. I am going to assume the surveyor employed who was identified was engaged by a traditional lender rather than a bridging lender, and possibly not a building surveyor with specialist skills to fully scrutinise the state of the deflection? Nonetheless, the issue is surmountable. Whilst I acknowledge you have an aged structural survey, it’s unlikely to be reusable (but the content of which could be used as a platform) and another should be commissioned, something that the bridging lender community will support. Depending on the outcome, remedial work can be carried out as part of your refurbishment program. If 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. My partner is a solicitor and I am a doctor. We have bought a plot with planning for a home
for us and in conjunction with the architect have developed a super-eco-friendly property that requires use of some materials which are considered to have a zero carbon footprint, are extremely thermally efficient but are certainly not traditional (such as rendered straw bale walls and wild grass, reed knotted roof) would this construction be acceptable to a bridging lender and can we obtain development funding? MF: With the awareness of and desire by more and more people to reduce their carbon footprint and reduce emissions enquiries for funding of properties with super-efficient capacity are becoming more regular and understood. However, in the main, the short-term development lenders are reluctant to provide funding using any property that is not built using recognised / traditional methods and materials as security, primarily due to pronounced limitations by long-term mortgage providers to accept the property as security, and the mechanism to repay the development finance. Additionally, the lenders are concerned that contractors experienced in these methods of construction are not widely available and should there be any problems getting alternative trades people at realistic rates could present a problem. In the same respect there could be issues in obtaining a warranty and satisfying building control. Putting aside the negative aspects I’ve outlined above, I would suggest the best way to secure your funding would be to obtain a defined agreement “in-principle” for long-term mortgage finance, available once the property is complete and habitable. With the security that there is a robust, recognised and reliable source to repay the development facility and I feel bridging lenders would be prepared to consider your application. PM: In short yes. As you are planning to live in the property yourself you would be restricted to a regulated mortgage loan on a self-build project and should source this with assistance from a suitably qualified mortgage broker. Long-term mortgage providers for non-traditional build methods are limited in number, but securing such a mortgage now, will go a long way to assuring a potential bridging lender of an exit. Further, it will increase the options available to you and potentially reduce the associated cost of finance, having more lenders competing for your business. I find some lenders reticent to lend without a clear exit, but having an offer to hand may persuade the hesitant. Additionally, if the land is unencumbered, should make the funding process more straight forward. Due to the nature of the build, be sure to secure a fair timeframe to build and refinance, as deals are, and ensure you secure a warranty - a prerequisite for new builds, particularly where mortgage providers are concerned.
Our panel considers CYBG entering the bridging sector and the need for further education
Return of the bank Ryan Fowler: We’ve seen Clydesdale Bank launch a bridging loan pilot scheme. What are your thoughts on this? Is it good to have a large banking group such as this look to be active in the sector? Richard Lawton: With the increasing levels of demand for specialist lending coupled with the decreasing returns for the mainstream markets, it’s inevitable that they would look to enter the bridging sector to increase their yields. I believe it’s good for the sector as it further increases the credibility of bridging finance, which is something we have all been working hard to achieve. However, what they need to be mindful of is the bespoke and complex nature of underwriting bridging deals. It’s not a one size fits all tick box underwriting process that mainstream lenders adopt for their long-term business. Terry Pritchard: NatWest had one earlier this year which didn’t go as well because they didn’t market it. I think it sets a precedent for some of the rates going out from big banks. I’ll be interested to see what Clydesdale does with it. Richard Deacon: Its product range is very vanilla and average. The pricing is not fantastic. I think the only good thing about it was you could pay it monthly. You could service it but who wants to service a half a million pound loan anyway? Who can validate that? I’ve seen it and it’s not that great. I think big banks coming into the market is fantastic because it just increases the exposure of bridging finance within the industry. The products aren’t fantastic but in my opinion it’s good to have them in the sector. TP: It’d always be very vanilla because of who their funding partner is. Roger Morris: I think we’ll see a bigger move in the amount of equity release loans for people downsizing. There’s more appetite. It’s only a snapshot but we’re seeing more of that business.
Brian West: Reputationally it’s good having banks come to the bridging market but they need to bring on the right level of expertise to deal with bridging otherwise they’ll come unstuck. Phil Mabb: Knowing its rates now I probably won’t be knocking on their door any time soon. There’s plenty of specialists who know what they’re doing. There’s plenty of good choice already so until it’s proven I’m not bothered. Jonathan Samuels: I read in one publication that bridging’s underserved. I had to re-read it because it’s a saturated, very competitive market. It’s good another bank is joining the industry but they’re not going to have an easy mindset if they reckon bridging is underserved. I’ve been in this industry for about 10 years and it’s as competitive and well served as I’ve seen it. It’ll be interesting to see if the pilot ends up being a full lending division. RF: Why do you think a bank like Clydesdale would want to enter the market? Do you reckon it’s seen ASTL figures showing the market is growing? JS: It’s a growth market where everything else is falling flat. It sounds like they’re trying to get margin and volume. TP: Also, it looks like they’re getting marginal rate because if they’re not undercutting themselves because I assume their cost of funds is cheap, they’re looking for product they can get margin on now. BW: If it’s a pilot they’ll come in reasonably conservatively but if it goes well they may look to
(From L to R) Jonathan Samuels, Octane Capital; Terry Pritchard, Charter House Corporate Partners; Arthur Cole-Fontayn, Aspen Bridging; Jonathan Newman, Brightstone Law; Richard Lawton, Precise Mortgages; Richard Deacon, Masthaven Bank; Roger Morris, Precise Mortgages; Ashley Ilsen, Magnet Capital; Lee Carling, First 4 Bridging; Brian West, Central Bridging; Phil Mabb, Bridge Development; Harry Hodell, Fiduciam; Yasin Patel, Arbuthnot Specialist Finance; Arwel Griffith, Robert Sterling Surveyors LLP
12 month loans. You underwrite in a completely different way and as long as their board knows what they’re getting into like default rates, overruns, it’s alien to them. It is good having banks join the market. Having people like Lloyds come to the market shows credibility to what we’ve all built over the last 10, 15 years. sharpen their pencil but I imagine they’ll target their core customer base and see what they can get from that. TP: It’ll be interesting to see which brokers they choose to see, whether they’re specialists in that area or people introducing other products to them, going into the bridging market themselves for the first time. Its distribution might kill the pilot by choosing the wrong people.
RM: There’s 177,000 HMO properties invited into a mandatory club last year which needs some form of refurbishment, that does attract the big players. Most people think HMOs are four or five people but it’s actually three. It’ll be great when brokers understand it’s three non-related people renting and there is a lot of potential work under permitted development rights which could be needed. I think the lenders are starting to understand from the buy-to-let side.
RM: It’s a compliment they’re looking at it, showing the market’s big enough to appeal to Clydesdale but it’s a retention led product. And will the brokers they pick understand what the whole bridge is all about?
Arthur Cole-Fontayn: It’s good to see them joining reputationally. It’s good to see larger mainstream players getting into the market and it bodes well to all the work everyone has put in.
TP: We talk about the education of brokers all the time.
RF: The housing market’s experienced a slowdown according to figures. And last year the bridging market grew 15% according to ASTL figures. Are you worried about the year ahead or not, considering the market grew out of difficult market conditions?
Jonathan Newman: Does it signify something slightly more important that the banks are looking to lend more and in different areas which could be another positive in improving liquidity in the market? JS: That’s indicative of lots of buy-to-let lenders who have started off with narrow product criteria but have gradually pushed it out more and with buy-to-let not performing as well, they may have looked to bridging. Is it that it’s attractive or other things just aren’t attractive? And will it lead to other banks to move into bridging? Who knows? Yasin Patel: Having set up the bridging proposition for Arbuthnot the key thing is having a team that understand the space. Lloyds’s expertise isn’t currently in bridging. They probably haven’t done a lot of retain interest products especially for less than 24,
Arwel Griffith: I see a lot of activity in the bridging arena. There are a lot of lenders out there and I was disappointed seeing what Clydesdale was doing because it’s much the same isn’t it? I don’t see there’s a huge extra supply of people wanting to get involved in the housing market but I see niche areas developing like we do a lot of work with housing associations on shared ownership and they’re revaluaing a lot of their stock, monthly or bi-monthly because if a young person can’t get a mortgage to get onto the housing ladder, then you need something. And in retirement homes we have about 70 sites. A lot are retirement led and lots are ground up new builds and we’re having difficulty with the MARCH 2019
longer-term ones. It’s a niche product and you want a nice place for your parents. And the stock people have bought earlier but then died, is not wanted. No one wants a second hand one. These second hand stock are sitting here and being bought cheap and buying up that part of the market. I just see the housing market rumbling on because we all have to live somewhere. I think in particular there are difficulties perhaps at the moment and little niche areas changing, particularly in shared ownership and retirement. Lee Carling: Valuations are suffering slightly. I don’t know if it’s stagnating. After Brexit I think it’ll sort itself out. The revival of bridging was during the credit crunch. Will Clydesdale surround themselves with people that know what they’re doing or people that’ll tick a box and don’t understand the speed bridging has to be provided at sometimes? I’m optimistic as I don’t think anything will be terrible and crash but I don’t think it’ll be amazing this year. It’ll level out. YP: We’re quite optimistic. As a specialist lender it’s all about opportunities. If some of these lenders find an opportunity maybe retirement or second homes, then the market will still stay and grow. It’s a fairly small market we have in the grand scheme of things so I think it’ll grow. RM: I think the market’s huge for the people here. We’re able to look at a gap, understand it and create
a bespoke solution. It was relatively easy for the small lenders to implement the limited company taxation change while it can take years for the big lenders. Opportunities are against risk and ultimately the value of the property so, as long as we’re happy properties won’t devalue then the opportunities are just about our own limitations and understanding. JN: Anecdotally a lot of the slowdown has been factored in valuations and into the market. On the odd occasion where there’s a repossessed property the length of time taking to sell is not that bad anymore. During the last recession it was very difficult to find a buyer and that’s not happening now and we’re seeing sales within a reasonable marketing period. If there is a slowdown it’s already been factored in. There are exceptions like high value properties at the top. On the general type of properties most lend on we’re seeing them move reasonably quickly. JS: How long does it take to sell a property in your experience? JN: Our data shows sales are being achieved within a two to three month marketing period which I don’t think is bad. RF: Has anyone got any issues with valuations at the moment? JS: I wouldn’t say we have an issue. The market is the market. We’re seeing a lot of downvaluations and is it really a downvaluation because valuers value properties down by 10% than what the borrowers believe them to be worth? Over the last four months we’ve seen that more aggressively from valuers factoring that in but I don’t think it’s unreasonable they are doing that. I wouldn’t say we have an issue with valuations, but we have to be cautious. TP: Records show when you have downvaluations people spend more money on their own property, doing renovations so there are opportunities if you work in a regulated market.
“Investment in brand value, reputation and delivery will be key” Roger Morris
RF: How has the development market performed over the start of 2019 and what opportunities are there for this sector? Ashley Illsen: A lot of the development lenders in the
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market now have been there for a long time and have matured and grown so when you get a larger lending business it becomes less financially liable to write smaller loans so these bigger loans will be buying housing and large construction projects so projects with higher risks. The gap is smaller schemes where the SME housebuilder exists and where the inherent demand lies and we aren’t building enough houses. We’ve seen a good uplift from schemes like Help to Buy boosting a level of inherent demand helping our clients. I think the opportunity is that smaller end of the spectrum. RL: We are also seeing an increase in demand for developer exits at Precise. This is mainly from experienced developers who have completed their project but want to ensure they have sufficient time to sell the property to achieve the best return. The developers want to maintain their existing relationships with their development funders, to ensure they can move into their next project. Harry Hodell: My dad’s a developer and there’s a shortage there. Being specialists, a lot of brokers and lenders have been working in complex specialist markets and I think the opportunity lies in providing those sorts of services to good SMEs and continuing to grow there. PM: There’s a good supply within the specialist lending community for the SME builder. I did a deal with Leeds in two months. It’s about every deal and I can see people growing but has any legacy on their books failed to deliver like the builder going bust, making them be more cautious on what they lend on in the future? RD: I agree with Ashley. From Masthaven’s perspective we’re getting more enquiries for ground up developments and heavy refurbs and conversions. We’re one of very few lenders who do self-build ground up developments which is quite niche. The £1m to £10m dwellings are more of the SME market which Masthaven is involved in and two or three other lenders. It’s reasonably priced and we can meet on site like I know Ashley does. I think it’s never going away as the population’s growing and housing will be needed whether building or turning commercial into residential. If done correctly with the relevant due diligence you should be okay. RM: I also think a lot of landlords have to get rid of
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“Our data shows sales are being achieved within a two to three month marketing period” Jonathan Newman high mortgage, low yielding properties to revert the counteraction of section 24. Landlords are looking at Help to Buy, an asset lowly geared with highly returned rents. There’s a big demand for this at the moment. ACF: We don’t do ground-up development, but we do see especially in the last six months a big rise in developer exit stuff so finished or just about to finish, regional developments outside of London. There’s a shortage of quality housing for people to live. People are coming to us at the end of their development finance terms. TP: So what product are you using for them? ACF: Sometimes a light refurbishment product if just before practical completion or if it’s passed that then it’s just a straight refinance. TP: You want a longer-term deal when you’re coming out of that. LC: The amount of building sites and work carried out shows it’s obviously a healthy market at the moment. JS: Is anyone involved in development ground up concerned about costs rising, profit margins falling and where the manpower might come from with Brexit? We don’t do ground up developments but I would be focused on that.
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JS: It’s funding source that’ll dictate what the rate is. Rate reductions happen in waves. The first when challenger banks came into the market and lenders becoming banks and then others getting better funding lines. I would be surprised if we saw much movement. I don’t see there being much structural change. You price for risk. It would appear if you drop rates you’re seeing less risk and in the current market that’s not what we’re seeing. The odd lender might try to buy market share but that could be gearing themselves up for some sort of sale.
“The gap is smaller schemes where the SME housebuilder exists” Ashley ilsen AI: Absolutely it’s something we’ve had in mind for a while now. This is where the major housebuilders benefit from economies of scale. Some of the smaller guys will get hit potentially by what’s happening with Brexit. I think the main thing is it comes down to the quality of your underwriting. What I like about development finance is there’s more than one way to skin a cat. There’s a lot of different ways of looking at it and funding a development project, in my opinion some good and some not so good. I think as and when the market gets tougher development lenders’ lending practices will be put under the microscope more. RF: We have some of the most competitive rates now. Do you think we’ll see anymore movement on rates? Are they as low as they’ll get? RD: Shawbrook have come down reasonably cheap and are now one of the cheapest in the marketplace. I believe Octopus Property and Together have come down too. I think rates can come down but it depends on how you want to do it. United Trust Bank has come down too. Whether rates will come down I don’t know. I guess no one’s going to do too much until April, May with regards to Brexit and a potential change of government. It wouldn’t surprise me if they came down further. TP: Are lenders dropping rates by market share? It usually comes down to that.
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RL: I agree with Jonathan on rates, I don’t believe they should be going any lower. With bridging finance you have to price for the risk, any lower and you have to ask the lenders’ ultimate motives for doing so. RM: I think we are where we are and the investment in brand value, reputation and delivery will be key. I think brand value needs to be the importance going forward. RF: Some lenders charge exit fees and extension fees whilst others do not. What do you think about this? YP: We don’t charge exit or over extension fees. It goes back to reputation. We do price for risk and understand in this space you’ll have extensions but you need to work with your clients and borrowers. You can roll over and give them an extra few months. It doesn’t hurt anyone and you’ll get repeat business. I’ve seen some extension fees and some advertising cheap rates at 0.4%, 0.5%. If a broker doesn’t know much about bridging, on just a rate card the cheaper lender always wins until you factor in another 1.5%, 2% exit fee. It’s how you dress it up. Being transparent with the client and broker is important and brokers need to be educated not to just look at the rate. TP: I can see the point for a small extension fee for someone who’s overrun what they were doing but exit fees are built in and normally they half the completion fee and put it on the exit to spread it out. Sometimes it works as an advantage to clients as they’ll have more money than what they’ve got. It’s educating people that it’s not always the cheapest interest rate that’s the best deal for the client. RM: There’s an awful lot of time frames that people are in absolute fantasy about how long it takes to buy,
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acquire, get the necessary planning and get the labour and do the works. There’s a lot of naivety. RM: It’s down to education. JS: Some lenders also encourage that because they recognise they’ll get an extension fee at the end of it. People can think you can do it in nine months. It’s all about transparency that everything is laid out whether fees or interests. It can be structured to be favourable to the client. It also depends who’s introducing it like a packager needs to get a certain amount on the fee. PM: One lender charges 5% as an extension fee. AI: Do you think that reflects on us badly as an industry when there are lenders doing that to clients? PM: Back in my day of lending we used to have a 3% exit fee which I thought was pretty bad but 5% which is still around today makes me wonder why anyone would take something to that lender unless they have the right term. RF: Richard (Deacon) estimated only 10% to 20% of brokers are aware of the uses of bridging finance. What can be done to address it? RD: Specialist brokers should hopefully all know about bridging finance but I’m talking about the common mortgage broker and IFAs. Given the multitude of uses of bridging finance, I’m willing to bet if we ask 10 mortgage brokers who haven’t done bridging finance before if they’ve ever had a chainbreak situation or a downsize situation, or a client needing money quickly for example to pay off HMRC and ask them ‘what did you do?’, they would reply ‘I didn’t do anything, I couldn’t help them and had to pass on the deal.’ That’s the classic old school bridging scenario. My opinion is that only between 10% and 20% of normal mortgage brokers are aware of the uses of bridging finance and education is needed to address this. Roger you’re always on the move doing talks and seminars. But if they don’t want to be educated it’s up to brokerages and specialist distributers to educate the brokers that come to them. My job is also to go out to people who aren’t necessarily well educated within specialist finance arena. TP: Some networks don’t want brokers doing bridging because it’s reputationally difficult.
Looking to expand their property portfolio
RM: A lot of networks don’t want brokers to do bridging but are very happy for ARs to be educated to know what a bridging opportunity is and to refer it onto a packager. And the number of packagers has increased. I think brokers need to be educated whether they’re going to do bridging or not. TP: I think it’s about identifying what situations bridging could be used for. Most brokers think it’s just the use of bridging to buy a property before getting a mortgage. PM: There’s a couple of other sources of education, NACFB, AMI, Financial Reporter and FIBA. I now sit on the FIBA executive and we’re talking about introducing the bridging qualification, if you’re chucking it into the CeMAP qualification because everyone who does that does mortgages. BW: I went to the joint FIBA ASTL meeting last month and there was a lot of inertia around the table. Everyone talks about more education and introducing a qualification, but I think everyone sets the bar too high. I think you should cut your aspirations and at least get something in place. In the old days there used to be the FISA foundation course. I think there should be a bridging foundation course as a starter and build it from there. If you keep saying you can’t get a qualification at CeMAP standard because it’s too complex and you can’t bring everyone on board then you’ll never going to get anything. And when you get a collapse of a P2P lender that would be the scenario that brings the FCA to look at the industry. I’d rather be in a position as an industry to say ‘look we have been working on standards, we’ve got this foundation course and we’re looking at the next stage of that’. You have to do these things incrementally, otherwise you’ll never get things off the ground. For the last two, three, four years nothing has got off the ground. RM: I’m with the Chartered Institute doing a national tour, speaking on buy-to-let and a little on bridging. And for the first time there’s a 30-minute session on bridging within their course from a packager/ lender so it’s good they’re educating people. RL: Education is key; whether that is face-to-face with brokers, round table events, seminars or via marketing. More information brokers have to hand the better.
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Unlocking potential Roger Morris, sales director at Precise Mortgages, caught up with Ryan Fowler to discuss the need for education in the bridging sector and the value that knowledge can bring to brokers’ businesses Since time immemorial the need for education on the ways that bridging finance can help borrowers has been called for. Over the years a great deal has been done to change the perception of bridging in brokers’ minds. Indeed many brokers now see it as an integral part of their offering. And as such the sector is rapidly progressing from being a niche part of the market into a mainstream offering. This transformation has been fuelled by continuing education from lenders, packagers and associations alike. At the forefront of this has been Roger Morris, sales director at Precise Mortgages. Both he and the team at Precise Mortgages have been working hard to get out there and extol the virtue of bridging. We caught up with Morris to find out why he believes that education is the key to making a difference for brokers and their businesses.
Morris’s journey to Precise Mortgages is somewhat unique. An ex-firefighter he first started in the mortgage world in the mid-1990s. As a newcomer to the sector he was quick to pick up on the need for an education – mostly as he needed one himself. In those early days Morris would turn to the old hats of the industry for advice on where to place cases and on the appetites and quirks of lenders. And it was back in these early
days that he first started compiling a reference book that enabled him to quickly answer the questions that he, and others, had previously asked. “Back in the mid-90s it was common for brokers to ask a question without making any record of the answer,” he says. “As I found myself getting an increasing amount of cases, I realised that there was a need to record this information so it could be quickly referenced. “I started to record these questions and answers for myself to start with. However, once I started running the mortgage desk for a packager, I realised that this information was key for other brokers too.” It was from this humble beginning that Morris started hitting the road. Having set up his own packager he bucked the trend of having a sales force and instead chose to get small groups of brokers together and help them increase their overall knowledge of the sector. “What I realised was that if I could provide the key messages that brokers required to take away the headaches they had, whilst increasing their business levels, it was something that would really add value,” says Morris.
financial crisis. At this point he first joined the specialist market as sales and marketing director at Affirmative, working for Eugene Esterkin and Gary Lederberg. Morris was quick to pick up on the fact that the bridging world was even less well served than the mainstream market when it came to information. As such he brought his mainstream education model to the specialist market. He says: “Back in 2008 the bridging market was massively underserved when it came to education. What I did to help combat that was get back on the road and see brokers. “The big thing was not to go there and advertise Affirmative but to add value to brokers businesses.” Indeed, to this day Morris is keen not to advertise his employer – he sees that as a by-product of what he does. His talks today do not just cover the Precise Mortgages offering but are more all-encompassing. They cover how the industry works, which lenders fit which models and how bridging finance can help build a broker’s business. “It’s not about just giving people statistics,” he says. “It’s about providing brokers with the knowledge that they need and helping them work out how they can put it into practice.”
Move to specialist markets
To Precise Mortgages
Morris ran his packager, em-Financial for almost eight years but, as with many, was hit by the global
When Morris made the move to Precise Mortgages in March 2011 he hit the road once more. This time www.specialistfinanceintroducer.com
three people residing in it and sharing facilities that aren’t family.as any property that has three people residing in it that aren’t family. This can impact the exit of a bridge. It’s about the wider structure.”
The nature of HMOs is one of the big pushes for Morris in 2019 as he continues to educate the market on the 2004 Housing Act. These are big changes but Morris fears that many brokers are unaware of how it can impact their businesses. He says: “So many brokers don’t know what an HMO is. I’m working hard to help brokers get to grips with these changes.”
accompanied by Precise Mortgages’s managing director Alan Cleary and the team on a vintage Routemaster bus. They travelled the length and breadth of the country visiting brokers and helping to educate them, not only on Precise Mortgages but on the wider uses of bridging finance. But whilst the proposition at Precise Mortgages may have evolved over the years, one thing that hasn’t changed is that the lender very much sees education as being at its core. “We’ve always had education at our heart,” says Morris. “If we put on an event now we get 30-40 brokers attend. These brokers come to hear something different and hear how they can enhance their offerings. This is what we provide.” But don’t be mistaken thinking this is just new brokers who attend. Morris also spends time with seasoned operators who are looking for advice. Morris says: “I often get calls
from people who have been in the market for years. They will call me and ask what they should do with a certain case. “For these people it’s often a refresher as they may not do a lot of bridging finance. I’ll take time to help them with the whole journey from how to deal with the bridge to the exit strategy.” Alongside his role in the bridging team at Precise Mortgages, Morris wears a number of hats which help him to help brokers on their journey. He is also an expert in buy-to-let and has found that many brokers are also turning to him for advice on the market as it is currently in a state of flux. “We are seeing brokers ask questions about buy-to-let and some of them are simple things,” says Morris. “One we keep coming up against is ‘what is an HMO?’” “Many don’t realise that an HMO (House in Multiple Occupation) is classed as any property that has
Alongside his day-to-day work with brokers, Morris is also spending time working with the mortgage desks at networks to ensure that they have the right details to help their members. And he is full of praise for these desks, as well as new resource systems that have come to market such as Knowledge Bank and Criteria Hub. “The work of the mortgage desks and systems such as Knowledge Bank shows that people have realised that there is so much more that can be done to educate brokers,” he says. “It’s great that we are seeing people working hard to help brokers build their businesses.” He also reserved praise for the underwriters at Precise Mortgages. Unlike at some lenders, brokers have direct access to the underwriters at Precise Mortgages. The team, headed by Richard Lawton, head of short term lending at Precise Mortgages, are available for brokers as a way of ensuring the best outcomes for everyone in the chain. Morris says: “Our underwriters take the time to sit down on the phone with brokers and help take them through the journey. They take ownership of the cases and take them to completion. “We are seeing brokers take the time to follow this up and thank the www.specialistfinanceintroducer.com
underwriter for their hard work which gives them a great deal of satisfaction.”
Talking to Morris it is clear that he lives and breathes education. If you are a connected with him on LinkedIn it’s common to see him traveling up and down the country every week in the different offices of brokers. There’s no doubt he goes the extra mile. But what makes him unique? One of the main things is his experience. He’s one of the few people in the industry that has been there in every part of the chain. He’s an experienced landlord, a developer, he was a mortgage broker, packager and is a specialist lender. He’s been in the position that everyone involved in a deal has been. Does he think it counts? “Absolutely” he says. He points to the day when then Chancellor George Osborne announced restrictions in the
budget on mortgage interest relief as an example. “When I saw it I didn’t sleep for the first four weeks! I worked out very quickly what I needed to do. Being a landlord helped me understand it quickly. “It’s not essential to be a landlord to speak about it but the real-life experience brings it alive.”
Indeed that real-life experience does bring the uses of bridging finance, or his lessons on buy-to-let, alive. Brokers who have attended Morris’s events will know that he’s not one for quoting aimless statistics. Instead Morris points to examples that he’s seen in the industry that helps people get a real feel for what the products can be used for. For example he points to how one broker was holding back from bridging finance due to price when in fact it was the best tool to break a chain. He says: “I had a friend of mine Sam who had a customer called
Heather come in who wanted bridging finance. “He told her that she didn’t want bridging finance as it would be better to just sell her house due to the costs involved. They marketed the house and it sold the next day without pictures due to the area it was in. “The customer returned and asked him to arrange her bridging finance. He asked her why? It was because the person she had sold the house to was in an 11 chain deal. She was pregnant and needed to be in the new property quickly. This was on 18 October. “He arranged the bridging finance and the customer moved in four weeks later. The chain didn’t complete until 8 January. “The bridge gave them control and allowed them to dictate their own time frame. So many brokers don’t understand it they just see the price and times it by 12.”
So having seen many brokers over the years what does Morris suggest brokers do to upskill their bridging knowledge? “I’d ask them to come along to a workshop,” he says. “If you don’t have a workshop locally ring your local BDM and we will do one. “If you have a small brokerage of say five to six people let us know and we’ll come and do it in your office. “All we ask is that we get a separate room, you switch off your phones and your screens and let us show you how these opportunities arise. “The marketplace is going to change. If your income base is built on straightforward mortgages and product transfers you need to be thinking about the future.” “Bridging and specialist lending will be the norm in the coming years. Read publications like Bridging Introducer, go to road shows and understand what is happening in the market around you.” Sage-like advice. It looks clear that now is the time to get ahead of the curve on specialist lending.
Is your customer looking for a new way to maximise rental yield and increase capital value? The introduction of a raft of regulatory and tax changes over the last few years has resulted in many landlords investigating other investment opportunities. The 3% Stamp Duty Land Tax surcharge, the phased reduction of mortgage interest tax relief and stricter underwriting standards has seen many landlords opting to refurbish their existing buy to let properties so they can increase their rental income and boost the value of the property. Other landlords have been looking to buy properties for below market value at auction that need improving to a liveable standard before they can be let out.
What problems are landlords facing? Landlords have traditionally faced difficulties in securing the finance to refurbish a property together with a buy to let mortgage to repay the bridging finance once the work has been completed. This can deter landlords who want to purchase properties at auction to improve before letting them out and those who want to refurbish existing buy to let properties, for example customers with properties that don’t meet the Minimum Energy Efficiency Standards (MEES) and the minimum Energy Performance Certificate (EPC) ‘E’ rating that is now required. A survey carried out by BVA BDRC1 found one in ten landlords have been impacted by the legal requirement for all rental properties to have a minimum EPC rating. This figure increases to more than a quarter of landlords with 20 or more properties.
How can Precise Mortgages help? As the UK’s leading specialist lender2, we’re always thinking of new ways to help landlords. Our Refurbishment Buy to Let proposition is available across all of our Buy to Let specialist lending schemes and is designed to help landlords maximise rental yields by refurbishing a property before renting it out. It offers customers the best of both worlds – the short-term flexibility and speed of Bridging Finance to carry out refurbishment work together with the long-term security of an exit onto a Buy to Let Mortgage (providing the property meets the expected valuation after the works have been completed). Landlords can borrow up to 75% LTV on the bridge with rates starting from 0.49% per month and up to 80% LTV on the post-works valuation. They can choose from a range of Precise Mortgages’ Buy to Let Mortgages with rates starting from just 2.99%. No mortgage repayments are required whilst refurbishment works are being completed with interest rolled up during the bridging phase. Bespoke Interest Cover Ratio options are available, allowing brokers to tailor affordability assessments to their customers’ personal circumstances.
Brokers are supported by a streamlined process which includes: • One application, which we will key for you. • One expert underwriter providing support for the entire case. • One valuer for both the Bridging Finance and Buy to Let Mortgage. • One conveyancer with discounted legal fees. • Two procuration fee payments. • Two offers issued simultaneously – the Bridging Finance element allows up to four months for the work to be completed and the Buy to Let offer is valid for six months from the date of the initial valuation to guarantee the rate and allow a swift straight-through process. It could be ideal for: • Properties needing works to meet the minimum ‘E’ Energy Performance Certificate (EPC) rating, such as boiler repair. • Properties purchased at auction that require light refurbishment to be acceptable for mortgage purposes. • Landlords choosing to refurbish in order to maximise the rental yield of their property. Our simple two-step Refurbishment Buy to Let calculator on our website www.precisemortgages.co.uk, shows how it works. The first step gives an indication of the costs of the Bridging loan, including the gross loan amount that will need to be repaid at the end of the term, while the second step gives an indication of the costs of the buy to let mortgage to be used to repay the Bridging loan, including any additional funds that the landlord would like to borrow at that time. If your customer is a landlord looking for a different way to maximise their rental yield and increase capital value, our Refurbishment Buy to Let proposition could enable them to do so. Why not get in touch with your local Business Development Manager or speak with our dedicated support team on 0800 116 4385 to find out more?
Source: ¹ BVA BDRC Landlords Panel Q2 2018 2
BVA BDRC Project Mercury Report Q4 2018
FOR INT US
Case Study Example for illustrative purposes only.
Mr Richards wants to buy a four bedroom house at auction and carry out light refurbishment work to convert it into a six bedroom buy to let property.
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Property valued at £240,000. Customer borrows £180,000 via a Bridging Loan at 75% LTV to purchase the property at auction. Precise Mortgages completes Bridging element
Customer spends £20,000 renovating the property. Following completion of the refurbishment work, the property is revalued at more than £300,000. Customer exits on to a long-term Buy to Let Mortgage, achieving a net equity growth of over £40,000.
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Get in touch
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Contact your local BDM 0800 116 4385 precisemortgages.co.uk
FOR INTERMEDIARY USE ONLY.
Precise Mortgages is a trading name of Charter Court Financial Services Limited which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority (Financial Services Register Firm Reference Number 494549). Registered in England and Wales (company number 06749498). Registered office: 2 Charter Court, Broadlands, Wolverhampton WV10 6TD.
Teamwork makes the dream work Is team morale driving your growth?
Never has the attitude of staff been such a vital element of a business’s growth aspirations as it is today in all financial sectors. Forgetting Brexit, this week (24/2) I have experienced the two extremes of how a high and low morale environment can drive success or seriously jeopardise performance and results. My long-time friend Robb Jupp and his wife Clare and their 57 strong team at Brightstar Financial, were acclaimed as The Sunday Times best small company to work for in the UK. This will be the greatest stimulant the business could have as it builds on its exceptional success in very competitive markets since the recession. At The Mad Approach our mantra is fulfilled using five words, attitude, common sense, knowledge and confidence and I believe that these are everyday approaches that are at the centre of the culture that drives the Brightstar proposition In Clare’s words: “Our team at Brightstar share an outstanding attitude to work. We believe that we have created a working environment and business culture where there is a strong sense of belonging and where people feel cared for, motivated and
rewarded for their contribution and achievement”. Contrast that sense of confidence with the morale sapping goings on at the Carabao Cup Final when the Chelsea goalkeeper blatantly defied his manager and in front of his ‘team’ and around five million watching the game refused to be substituted. Such a public display of disregarding instructions from your manager only served to confirm that there is serious unrest within the business that is Chelsea Football Club and gave a clear message to the competition that in no way will they (CFC) have any competitive advantage when they face their next challenge. No way will that be the case at Brightstar. Their competition will be taking notice (to be fair they have been for the last seven years) of what Clare and her team have done. Rob has been his usual generous self in giving her the credit and so yet again we have an example of how egos should never get in the way of progress and how it shows a great deal of common sense that all 57 members of the team are involved in the collaboration, communication and education, that ensured the award was there
Mike Dring Strange Alan managing director, director, MAD Approach Funding 365
for the taking. It was no surprise to anybody that Chelsea FC did not pick up any awards. I have been privileged to have managed several award-winning teams in my career and believe that how morale is sustained over a long period (Brightstar have a major task ahead of them in sustaining this level of achievement) lies in the quality of your recruitment and how successful new recruits fit into the existing structure. As Clare says, attitude determines the success or otherwise, and not what an individual has achieved in other jobs in the past. Past performance is important, but the Chelsea goalkeeper was their record transfer signing and he should have been a role model to the rest of his team. Instead his actions away from his ‘field’ performance were seriously detrimental to the team performance and as would be the case in any business, triggered failure. Brightstar will deservedly become a role model for many as they have got it right. They have worked with all their back-room staff to ensure that they have a happy dressing room with the right attitude and common-sense approach to their responsibilities and each of them knows their role in the team. All that gives the coal face sales team the confidence to go out there and win the business. Well done Brightstar and any other ambitious lender, broker or distributor who appreciate your staff and give them everything they need to drive your business forward and becomming potentially the next Sunday Times Best Small Company to Work for in the UK. What an achievement that would be. www.specialistfinanceintroducer.com
WE’VE GOT IT ALL COVERED £20m PI cover. Almost unprecedented for a surveyor of our size, this level of PI gives our clients the reassurance that if there’s a problem, you’re covered. So, no matter what the size or type of development you’re working on, we are the Surveyors to speak to.
For further info call 0845 8380930
SPECIALIST LENDING SOLUTIONS BRIDGING FINANCE
Short term financing to bridge the gap Our Bridging Finance could help your customer get a quick solution to their short term borrowing needs:
Regulated and Non-Regulated Bridging Finance products available
AVMs (Automated Valuation Model) available subject to criteria
Joint legal representation
Contact your local BDM 0800 116 4385 precisemortgages.co.uk
FOR INTERMEDIARY USE ONLY.
Precise Mortgages is a trading name of Charter Court Financial Services Limited which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority (Financial Services Register Firm Reference Number 494549). Registered in England and Wales (company number 06749498). Registered office: 2 Charter Court, Broadlands, Wolverhampton WV10 6TD.
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