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5 Jonathan Newman Lending after lockdown
A bridge to the future
7 Jason Berry Stop the speculation
ver the past month or so, it feels like we have been able to lift our heads above the parapet somewhat, as the vaccination scheme progresses and the end of lockdown gets closer. Discussions have shifted tone, from crisis management and battening down the hatches to future plans and new challenges. It feels quite welcome to get stuck into subjects not entirely centred around COVID-19, even if they are daunting in their own right – such as the increasingly urgent need to address the property market’s impact on the environment, or the everpresent housing shortage in the UK. Other topics are more positive, however, such as the rising prominence and standing of the bridging market, which has stepped up to the plate during this crisis and will continue to do so as we deal with the aftermath. Short-term finance will have a key role when it comes to facilitating a changing market picture, from helping to fund commercial to residential conversions as our towns and cities shift, or providing sophisticated solutions to the complex issues around urban regeneration, environmentally friendly construction, and the creation of new housing. The ASTL recently found that 73% of bridging lenders are confident about the long-term prospects for the UK economy, while 87% think it likely their own business turnover will grow. The future may have fundamentally changed, but for this market it is still looking bright. B I
9 Donna Wells Relying on the specialists 10 Phil Gray Commercial finance is a matter of opinion 12 Chris Whitey Say no – but say it quickly 13 Daniel Sproull The all-important valuation 20 Feature: A greener future Jake Carter looks at the future of environmentally friendly construction and the role of bridging in improving sustainability 22 A market on the rise Jessica Bird outlines the latest Bridging Introducer round-table discussion, including the impact of the Budget, the future for bridging, and how to balance speed and service 28 Cover: Better together Tanya Elmaz at Together discusses quality, service and the rising tide of the bridging market 34 Vic Jannels A tale of recovery
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Lending after lockdown Jonathan Newman senior partner, Brightstone Law
ver since the early days of the first national lockdown last year, people have speculated about the ‘new normal’ and what the market might look like after the pandemic. Today, with more than half of the adult population having received a first vaccine and a roadmap out of restrictions well underway, we are much closer to that new normal. So, what do we know now about lending after lockdown? The first thing to note is that there is plenty of opportunity out there. Figures from the Association of Short Term Lenders (ASTL) show that, despite the pandemic, bridging applications were 11% higher in 2020 than they were in 2019. Lenders are confident that this will grow further. The ASTL’s latest sentiment survey found that 87% of lenders expect turnover to grow in the next six months. However, amidst this opportunity there lurk dangers. The KPMG Fraud Barometer, which records fraud cases of more than £100,000 reaching UK courts, found that the value of loan and mortgage fraud ballooned by 675%, from £9.7m to over £75m in 2020. Lenders that don’t take the right precautions at origination are putting themselves at an ever greater risk of fraud. For those cases that aren’t fraudulent, it is becoming harder, and taking longer, for lenders to recover their money. ASTL data shows that the value of bridging loans in default in Q4 2020 was almost 24% higher than the same period in 2019, with more borrowers www.sfintroducer.com
struggling to find a satisfactory exit for their loans. At the same time, a backlog in the courts system and additional processes as a result of COVID-19 are creating delays in the recovery process. Analysis of our own data at Brightstone Law found that in March, the average time for a review hearing was just over 11 weeks, the average time for a possession hearing from the review was just over seven weeks, and the total time from the initiation or reactivation of proceedings was just over 18 weeks. When we analysed this
“The picture for lending after lockdown is a mixed one. There are prizes to be had, but there are pitfalls along the way. The fundamental ingredients of these challenges are nothing new for lenders – lending money securely and being paid back – but COVID-19 has changed the recipe of considerations” data in January, the total time was just over 15 weeks; not only are timelines extending beyond four months – they are also increasing. When cases do eventually arrive at court, orders for possession are being made. Orders for possession at first hearing are broadly in line with preCOVID levels at 63%, and a significant proportion of hearings are cancelled along the way, as the process of pursuing enforcement encourages many customers to come to a resolution. The picture for lending after lockdown, then, is a mixed one. There are prizes to be had – with demand for bridging seemingly going from strength to strength – but there are
pitfalls along the way. The fundamental ingredients of these challenges are nothing new for lenders – lending money securely and being paid back – but COVID-19 has changed the recipe of considerations. I think this is a very interesting dynamic, and it’s one that every lender needs to address if it is to execute safe, profitable lending and improve the performance of its business as we emerge from the pandemic. So, at Brightstone Law, we have worked together with Westcor International, which oﬀers title and legal indemnity insurance, to produce a free digital event for lenders that tackles just this issue. It’s going to take place on 11 May, running for about 90 minutes, and will cover topics like conveyancing red flags and what can happen when a title insurer, lawyer and lender work together in a practical way. CG&Co will also contribute, oﬀering an LPA receiver’s insights into how to achieve the best results in the current environment. There are lots of digital events around at the moment, but we think what makes this diﬀerent is that it will be the only one where all of the content is specifically targeted to cover the intricacies of originations and recovery in short-term property lending, by experts who are immersed in the sector every day-in, day-out. With this in mind, we think it’s a must-attend for all lenders with an interest in the sector and improving the performance of their business, but the content will be particularly useful for senior executives, underwriters, and treasury and legal teams. If you are interested in attending, keep an eye on the Brightstone Law Twitter feed for more information, which will be available soon. Whether it is the new normal, or just a temporary one as we emerge from this strange period of the pandemic, there is little doubt that lending after lockdown carries very diﬀerent considerations to lender before the virus. We are all going to have to react to the unique challenges of the new environment quickly, to build a sustainable recovery. B I APRIL 2021
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Stop the speculation Jason Berry group sales and marketing director, Crystal Specialist Finance
peculative enquiries for finance solutions are very much part and parcel of our sector. Indeed, in previous lending roles I must have spent hundreds of hours in meetings, discussing ways to separate the exploratory opportunity from the more definitive submission – so, is there an answer? I was recently interested by an article served up by the Association of Short Term Lenders (ASTL) headlined ‘Speculative applications are driving down bridging conversions’. Written by Vic Jannels, the body’s chief executive and someone I respect greatly, some of the main numbers were presented as such: bridging completions for the fourth quarter of 2020 came in at nearly £918m; applications for the quarter came in at £6.69bn; for every £7 worth of bridging applications submitted during the quarter, less than £1 reached completion. Now, while a few fingers may immediately point at the COVID-19 pandemic and the change in customers’ approach to obtaining finance, the longer-term numbers definitely back up a worrying trend. The article goes on to state: across the whole of 2020 there were £25.82bn of bridging applications, but only £2.88bn of completions; in 2019, we recorded £23.19bn of applications and £3.99bn of completions; in 2018, there were £21.46bn of applications and £4.05bn of completions. As the reason for the numbers, Jannels said: “Speaking to a number of parties within the industry, both lenders and intermediaries, it seems the low application to completion conversion on bridging loans is from of a combination of brokers sending one application to multiple lenders to find at least one that sticks, and also the
increasing average length of time from application to completion.” These appallingly low conversions and reasons provided are deeply ingrained in our system, so just what can be done? SHOPPING AROUND
It is certainly natural for brokers to shop around – indeed it is their duty of care to do so – but this does create an immediate issue. Let’s say an applicant comes in requiring a bridging loan for a light duty refurbishment. By my reckoning, there are 25-plus lenders which would welcome an approach based on the project alone, but within that number, many have massively varying product offerings and lending criteria.
“ Sector experts with exacting knowledge and wide lender choice will ensure every enquiry is prepared and pitched at the right level. The lenders most likely to deliver the best terms and desired completion outcome will inevitably be selected” Let’s now assume the broker shortlists five. They’ve had good prior experience with a couple of these lenders, so they become early frontrunners, whilst the others currently have decent advertised rates. The next step is to complete enquiry forms – which may be online or offline – and pitch the project so that an agreement in principle can be made. That’s five enquiry processes to be completed, and most likely a minimum of five further phone calls to clarify certain aspects of the case. This goes on until one option is left in the pot. The result is a hugely time consuming process for the broker, which is also just as painstaking for the lender, and the poor client who
simply wants early confidence that a competitive, fair solution is available. So, let’s take a look at this from a different perspective. ONE-STOP SHOP
Specialist distributors exist to remove this burden from both the broker and the lender. One approach – or should I say one online form – is enough to start the process. Sector experts with exacting knowledge and wide lender choice will then ensure every enquiry is prepared and pitched at the right level. The lenders most likely to deliver the best terms and desired completion outcome will inevitably be selected. This is largely why lenders choose to partner with packagers. It is also why when choosing this route, broker effort is most commensurate to reward. Selecting a partner which expertly places and then administers each case from start to finish saves time and offers peace of mind. At Crystal Specialist Finance, we currently have a 58% application to completion conversion, and within 12 months our technology investment, plus increased headcount, will see this conversion rise to 75%. This may seem an audacious target, particularly against performance which already bucks the market, but I have no doubt the objective will be realised. CONCLUSION
The aforementioned article concluded by saying: “Brokers have a duty to their customers to explore all of the available options, and lenders do not want to be processing an unnecessary number of applications that don’t go on to complete. “If we can change ways of working and patterns of behaviour, we can improve the process and create a more efficient model.” I would argue that a solution already exists through specialist distributors, and would urge brokers to try this route. Let’s stop the speculation and all benefit. B I APRIL 2021 BRIDGING INTRODUCER
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Relying on the specialists Donna Wells director, F4B
ack in the Summer months I remember writing an article for Bridging Introducer around how a combination of the stamp duty holiday, the deadline and shifting economic circumstances will generate a heavier reliance on specialist lending and short-term finance. Within this piece I wrote: “31 March 2021 may seem like a long time away, but we all know how quickly this deadline will come around and how intense this period will prove to be when thousands of pounds of your client’s money is potentially at stake. “Despite all good intentions – as is usually the case when a firm deadline is in place – there’s little doubt that many residential and investment purchases will go right down to the wire. “Meaning that swift access to the right kind of short-term solutions will prove vital in facilitating a range of property transactions in a timely costeffective manner whilst providing a robust exit strategy.” Granted this wasn’t ever going to put Nostradamus out of a job, but here we are nine months later and it’s evident that a growing number of intermediaries and borrowers are more reliant than ever on a plethora of alternative lending solutions. And this trend is not going away anytime soon. SPECIALIST LENDING TRENDS
Focusing briefly on more recent trends. Knowledge Bank recently reported rising interest from new buy-tolet (BTL) investors. Its analysis of brokers’ searches in February found that intermediaries are working with potential new landlords, and the furlough scheme is still of huge interest in the residential market. The second charge market once again saw an interest in managing debt. Two of the www.sfintroducer.com
terms in the top five related to debt management. Potential clients were also looking to secure loans against their properties to benefit from lower interest rates. ‘Maximum LTV’ was the top searched term for the tenth month in a row. In the bridging sector, ‘second charge loan’ was in the top five for the first time since October 2020. This may be a result of clients turning to second charge bridging loans to inject capital into businesses or in making refurbishments to prevent disturbing their existing mortgages. These trends help highlight a mounting awareness around how various forms of specialist finance have been utilised to fund an array of projects for property investors in recent times. These range from light to heavy refurbishments and adapting commercial space which has been hit particularly hard by the pandemic. The key to these types of solutions remains a robust exit strategy and, as a packager, we are forming stronger alliances with our introducers – alongside their clients if necessary – and lenders to ensure responsible lending practices are maintained and plans are in place for sale or refinancing purposes. It’s clear that there is an increased level of intermediary confidence around a range of alternative financing solutions, and the last six months in particular has been pivotal in advancing the perception of specialist lending and the role of packagers within this. Although questions do remain when it comes to completion times in certain areas.
you consider how speed is often a key differentiator when making these types of transactions happen. Which leads to the question – why? Has the expanding profile of shortterm finance resulted in a greater number of speculative enquiries from the wider intermediary community? Are delays in the legal, valuation or administrative process causing additional time related issues? Are some lenders not coping? Are the applications being submitted not packaged correctly? I suggest some elements of all the above may be contributing to this. However, it’s vital to point out that such transactions can still be completed in a speedy manner. In Q1 2021 we have an average submission to completion time of 15 days with one particular lending partner and many others operate within a similar timeframe. This applies to short and longer-term cases and highlights the kind of positive outcomes which remain available for all those involved in the property process. This lending-packager collaboration is vital for introducers and intermediary partners who have a rising number of clients falling into the specialist lending bracket. And the fact that more and more mainstream lenders are unable to meet a range of borrowing scenarios means that such collaborations will only intensify in the coming weeks and months. B I
According to the recent Bridging Trends report, completion times averaged 50 days in 2020, up from 47 days in 2019 and 45 days in 2018. Despite all types of businesses facing some challenging operational conditions and service levels being hit, this rise represents a worrying trend. This is especially true when
Trends look bullish for specialist lending
Commercial finance is a matter of opinion Phil Gray managing director, Watts Commercial Finance
ollowing the last 12 months, we are seeing more and more that things are open to interpretation. Commercial finance – and indeed life – is most certainly about opinions. I’m always intrigued by the art world, as the value of a painting is arguably very subjective. An artist Watts has supported recently supplied six landscape paintings to a gallery for an exhibition, but hesitated when submitting one in particular, as she deemed it to be unsuitable or perhaps not to her personal taste. After encouragement, she submitted them all and guess which one sold first, for a higher price than she would have placed on it. So, someone disagreed entirely, actually purchasing the painting as the gallery owner was preparing for the event, voluntarily offering to pay a premium so that she did not display it! For a commercial broker, in the crazy world we currently live in, opinions make our life even more challenging than normal, as banks’ appetites and views understandably change as they adapt to changing circumstances. Of course, the high street and retail sectors have suffered immeasurably throughout the pandemic, with the lockdown forcing many stores to close. Only those with an established online operation have really been able to continue to trade. Equally, those that adapted swiftly to the changing market, and could foresee the impact of COVID-19, have managed to survive. A number of lenders are extremely cautious about supporting certain businesses until confidence returns to
BRIDGING INTRODUCER APRIL 2021
the high street – and more specifically when lockdown restrictions are lifted. That said, we have been enthused by those banks that have sought to support the right clients, namely those which have demonstrated flexibility. Numerous businesses have actually performed to a higher level throughout the last 12 months, due to the changes they have implemented throughout the pandemic. Many of these varied services or new ways of working will continue well after lockdown is lifted. It’s more common than you would imagine to hear clients say they have actually traded better throughout the lockdown period. DECISION-MAKING
Having said this, lending and decisionmaking are about opinions. Take a recent example of a family run restaurant which has traded for 20 years, with the owner’s son and daughter only taking control of the business 18 months ago. They had the opportunity to purchase the premises they had been leasing for all those years. Whilst we had some lenders that were confident with the longevity of the business, with the added plus of a very successful takeaway and delivery service created over the last 12 months, we equally experienced the other side of the coin, with an equal number dismissing the mortgage request simply due to the sector and nature of the business. Opinions. Many of our property developer clients create student housing all over the UK. This has become another area that divides opinion, with many banks seeing the attractiveness and strength of these rentals, and others choosing to withdraw from this market. Opinions. Finally, we regularly hear ‘I am purchasing the property for £X, but it’s worth more’. Is it really? Or is a house – or any asset for that matter – actually truly worth what someone is prepared
to pay for it? Those who may have watched ‘Million Pound Pawn’ will know that a collection of second-hand designer handbags rarely commands the premium price the seller expects. It’s arguably the same with property. That said, we again work with lenders which adopt a stringent ‘X loan-to-value (LTV) of the lower between purchase price or valuation’ policy, meaning they are lending against the actual price of the property, and equally ensuring the client still contributes their required 25% or 30% stake into the deal, irrespective of whether they have negotiated a lower price. Some lenders, however, are comfortable lending a higher amount – usually up to a maximum of 90% of the actual purchase price – assuming they understand the ‘story’ behind the transaction. This could be a motivated seller or a ‘tired’ landlord, for example. Again, opinions. There are other clients who will, conversely, be happy to pay slightly more than the ‘open market value’; perhaps as they already have a tenant lined up, or they can see the potential in an uplifted value following a refurbishment, for instance. I recall a conversation between a lender and developer in a meeting, in which the lender said, “focus on what it’s going to make you, not what the loan is going to cost you,” as the client was attempting to negotiate the terms. That particular client did in fact pay a premium for the city centre offices he purchased, but likely forgot about that, compared with the profit he made by converting them to apartments and selling them on. Other clients may not have been prepared to part with more than the open market value. It’s all about opinions. So, we continue to work closely with all our lending partners to ensure that we are totally up to speed with their opinions and appetites, so that we are arranging the most appropriate finance for our clients’ needs. In June last year, Sotheby’s facilitated what turned out to be the most expensive painting sale of 2020, with a price of $84.6m. I wonder if it was the same collector who purchased the landscape piece? B I www.sfintroducer.com
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Castle Trust Bank means Castle Trust Capital plc, a company incorporated in England and Wales with company number 07454474 and registered office at 10 Norwich Street, London, EC4A 1BD. Castle Trust Capital plc is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority, under reference number 541910. Buy to Let is not regulated by the Financial Conduct Authority or the Prudential Regulation Authority.
HIGH NET WORTH XXXXXXXXX
Just say no – but say it quickly Chris Witney head of specialist lending, Enness
have stopped saying how long I have worked in banking and finance industry. Five years seemed a reasonable marker to mention, 10 years credible, 25 a dedication, but beyond that just makes me sound older than I would like to be. One thing I haven’t stopped saying is this: a quick no is almost as good as a yes. Some lenders seem to feel obliged to analyse a deal to death in the belief that it shows they have tried their hardest, and you will look more positively on them when the next opportunity arises. I guess you could argue it is potentially meant with good intentions. However, it isn’t helpful. As a broker, I would prefer to deal with a lender that knows its policy and criteria and has an ability to offer a very early and accurate indication of appetite. Either way, what isn’t acceptable in my view is to take a loan proposal forward where the fundamentals mean the loan isn’t going to be forthcoming. Sadly, we do see more of these instances than I would expect in the industry, particularly in the high net worth (HNW) arena. Here, assets are likely to be ‘lumpy’ – often held in complex ownership structures, quite possibly in overseas jurisdictions. Ultimate beneficial ownders (UBOs) are likely to be ‘international’ in both personal and business terms. Some are entrepreneurs who weren’t born with a silver spoon in their mouths – they have fought their way up to success and possibly had the odd High Court battle to get there, leaving an interesting story on the internet.
BRIDGING INTRODUCER APRIL 2021
If lenders are not comfortable in this space, that’s fine. Just don’t pretend you are if you aren’t really. There are plenty which are, and I think we will see more lenders coming to market to cater specifically for HNW or ultra-HNW (UHNW) borrowers. The private banking sector obviously does this already for predominantly straightforward term loans, but I don’t think we have this to any great extent in the short-term lending or development space. There are also varying degrees when it comes to a drawn out lending decision. Perhaps the valuation report you handed over on day one wasn’t read correctly, perhaps compliance checks weren’t done soon enough. We are all human, but there is some tightening up to be done. Because I hear it from some lenders, I accept that sometimes the borrower or broker decides not to mention certain material facts that will change a lending decision, in the hope no one will notice. Perhaps the client is a politically exposed person (PEP), has associations with a certain type of industry, or just faces adverse publicity. However, if someone like myself can Google a borrower and their businesses, then an eagle-eyed young underwriter certainly can. To quote a lending manager longer in the tooth than me: “disclosure is better
“Not for us thanks but please do call again”
than discover.” I think the majority of my peers know this. The very worst scenario is where a lending institution is fundamentally structured in a manner that can waste time and money. For example, where a lender looks at a proposal and issues terms, a valuation is instructed, legal works are commenced, and then, on the day of completion the person at the
“There are also varying degrees when it comes to a drawn out lending decision. Perhaps the valuation report you handed over on day one wasn’t read correctly, perhaps compliance checks weren’t done soon enough. We are all human, but there is some tightening up to be done” top of the tree has to look at the whole thing and give a lending decision. It might sound to the uninitiated that such a structure couldn’t exist, but I can tell you from first-hand experience that it is the case. Surely there is a better way? I would love to list my top 10 favourite ‘quick no’ underwriters, but I think that is best kept in my head for now. Open and honest two-way communication is key to a successful relationship between brokers and lenders. Ultimately we – and the borrower – want the same thing. In short, dear lenders, please don’t ask for a passport, asset and liability statement, and accounts, when you are told in the first line of the proposal that it is a £15m asset with a green door and your policy clearly states no large single assets and the underwriter hates green. Seeing a utility bill for the borrower isn’t going to change that. A broker won’t be offended by a quick ‘not for us thanks but please do call again’. Quite the opposite. My points here are aimed at just lenders. However, perhaps it could be helpful to remember in other areas of the industry as well, and possibly life in general… B I www.sfintroducer.com
The all-important valuation Daniel Sproull director, Devon and Cornwall Securities Limited
verybody knows – surely? – that most lenders require a valuation of a property to be carried out before advancing money to be secured by a charge on it. To a non-status lender, like Devon and Cornwall Securities Limited, the valuation is all important. With a regular regulated residential mortgage, of course, the borrower’s ability to pay is closely examined, and so the lender relies both upon this and upon the valuation it receives from its chosen valuer. For a non-status lender, the valuation assumes a far greater importance. Lenders do, however, approach valuations in different ways. Some have in-house valuers, some have a panel of valuers across the country, and some use central valuers who then value properties all over the country, sometimes themselves and sometimes by recruiting local valuers to do it for them.
Often we are requested to accept a ‘re-type’, which is where an existing valuation carried out for another lender is simply addressed to the new lender and re-dated. This is not acceptable to us. Our valuation instruction is very specific, and unless the valuer has received and accepted our instruction, not only will the valuation not meet our requirements, but there will be no proper contractual relationship between the valuer and the lender.
The valuer’s job is difficult, not only because of the skill that is required, but also because of the pressure they are sometimes put under by the borrower who – of course – would always like the property to be worth as much as possible! We ask valuers not to talk to borrowers about the valuation itself, but they are often pressured to do so. We are sometimes asked to try to persuade a valuer to increase their valuation, without it really being understood that what the lender wants is the valuer’s unbiased, professional opinion, based upon their own skill, knowledge and experience. Valuers are an essential part of the mortgage market, and a good one is worth their weight in gold, particularly to a non-status lender. B I
AN ART RATHER THAN A SCIENCE
As far as Devon and Cornwall Securities Limited is concerned, it is critical that the valuer is based locally to the property in question. This means that the valuer is not only able to rely upon the usual sources for the history of transactions in the area, but also has knowledge of the area, the market and often of the property itself. This is invaluable and enables us to be comfortable with the opinion given. We do come across cases from time to time where the importance of the valuation seems not really to be appreciated. www.sfintroducer.com
Valuers are an essential part of the mortgage market
APRIL 2021 BRIDGING INTRODUCER
A GREENER FUTURE Jake Carter asks experts from across the specialist finance industry to give their views on the future of environmentally friendly construction and the role of bridging in improving sustainability
ver the first few months of 2021, the UK has begun to see the light at the end of the tunnel in terms of the coronavirus pandemic. As at the end of March, more than 30 million people in the UK have received at least one dose of a coronavirus vaccine and 3.5 million have had their second. The UK government intends to have offered a first vaccine dose to 32 million people in nine priority groups by 15 April. From spring, it then plans to begin vaccinating the rest of the adult population in age order, which accounts for a further 21 million people. The government has also unveiled a host of new and extended support measures, designed to ease the transition out of lockdown and into general economic recovery.
BRIDGING INTRODUCER APRIL 2021
So, having spent the last 12 months focusing almost entirely on the concerns of the pandemic, and its effects on the property market specifically, it now feels possible to look past the immediate crisis and get back to considering other important long-term trends that are shaping the industry, and the world. One of the issues which has arguably stayed on the back burner during the pandemic has been the matter of sustainability, the environment, and specifically the role of the housing market in creating positive change. The government has committed to providing extra funding for green homes, but what can be said of the role of short-term lending in moving the market towards a more sustainable future? www.sfintroducer.com
SUSTAINABILITY XXXXXXXXX GOVERNMENT SUPPORT The UK is touted as a global leader when it comes to reducing its carbon emissions, with the government having pledged to reach net zero by 2050. Danny Belton, head of lender relationships of Legal & General Mortgage Club, says: “This is an ambitious target, and one which everyone will need to tackle head-on if we are to meet it successfully. “As part of this aim, we need to make significant improvements to the energy efficiency of UK homes, which currently account for around 15% of our total emissions, or 22% when energy generation is also factored into the equation.” The government has committed to an additional £300m of funding for green home upgrades, which increases the total spending on energy efficiency measures to £1.3bn. This funding will be used to deliver energy saving upgrades and low carbon heating to homes through local authorities in England. As a result, tens of thousands more low-income households will be able to make upgrades. While this support is a boost for environmentally friendly homes, the government withdrew the Green Homes Grant Voucher Scheme on 31 March, after only six months in operation. The £2bn scheme was designed to provide a grant of up to £10,000 per household to help pay for measures such as solar water heating and double-glazing. However, only 10% of the 600,000 homes targeted for the money were reached, amid claims that the grant was difficult to access. Looking ahead, a response to an initial consultation on the Future Homes Standard has set out proposals for ensuring that all new-build properties constructed from 2025 are ‘zero carbon ready’. Natural gas boilers and all other forms of fossil fuel heating will officially no longer be permitted in new homes from 2025. Chris Gardner, founder and chief operating officer of Atelier Capital Partners (ACP), points to the planned government legislation regarding new-builds as a positive step. Gardner says: “On the topic of potential legislation and restrictions, as there is no unified standard on rules for building properties; it makes it very difficult for the smaller developers to keep track and build homes correctly.” He goes on to say that there are numerous sustainability issues with regard to the construction of housing, and that a lot of work will have to go into correcting this. BUILDING TO SUSTAINABILITY Sustainable construction ranges from energy usage to emissions, with the industry having a large impact on the environment. The construction industry accounts for 36% of worldwide energy usage and 40% of CO2 emissions, according to research from the British Assessment www.sfintroducer.com
Bureau. The heavy machinery used in construction still largely uses fossil fuels, while inefficient electricity use can result in the unnecessary burning of fossil fuels further down the energy supply line. Four billion tonnes of concrete is poured every year, according to the British Assessment Bureau’s research, and the manufacture of cement produces about 0.9 pounds of CO2 for every pound, according to the National Precast Concrete Association. Research collected by the association also shows that, worldwide, cement manufacturing accounts for approximately 5% of CO2 emissions. Meanwhile, construction can also result in the production of hazardous waste, the improper disposal of which can create pollution. More than 10% of greenhouse gases come from the construction of homes, according to data from the United Nations (UN). Gardner says: “Carbon footprint and operation are two main points here. The UN figures are shocking, but they show that there is an opportunity to reduce the carbon footprint by building in a more environmentally friendly way.” Meanwhile, a report from the Committee on Climate Change (CCC) notes that the energy use taking place in the homes themselves accounts for 14% of total UK emissions. The report, ‘UK housing: Fit of the future?’ warns that the UK’s legally binding climate change targets will not be met without the near-complete elimination of greenhouse gas emissions from UK buildings. The report also found that emission reductions from the UK’s 29 million homes have stalled. The CCC identifies five ways in which the government can help to reduce the emissions from housing. For example, the way new homes are built – and existing homes retrofitted – often falls short of stated design standards. The committee also outlines that there is a skills gap within the industry in terms of house design, construction and in the installation of new technologies. It believes retrofitting existing homes and building new homes is essential to reducing the amount of greenhouse gasses, which are created when building and running existing properties. For Gardner, it is important to take a pragmatic approach: “Looking to existing housing, these buildings have already left a carbon footprint through the builds, so therefore it makes more sense to improve these structures, rather than knocking them down and building a new home in its place.” The CCC report notes that added finance and funding from the government is needed in order to support these measures. Scott Marshall, founder and managing director of Roma Finance, says: “The carbon footprint of construction is obviously very large, not least because there is a huge level of materials being moved all over → APRIL 2021 BRIDGING INTRODUCER
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SUSTAINABILITY XXXXXXXXX the place, all of the time. That requires a tremendous amount of energy.” As well as the environmental costs of building a property, there are the ongoing costs of running it to consider, Marshall notes. He adds: “They are substantial, too, although energy efficiency is becoming much more important in property development.” While Marshall believes the importance of sustainable construction is fundamental in itself, he adds that younger people are generally more environmentally aware, and therefore that lenders should look to appealing to this upcoming market if they want to future-proof their business. However, this demographic is also often priced out of the homeownership market. He adds: “It comes back to there being enough demand for the end product, and that product being affordable enough. “To really crack it we need to find a way to build sustainable and affordable homes that suit the budgets of homebuyers, as well as their morals.” NEW TECHNIQUES Modular construction is a modern approach to building which is more environmentally friendly than traditional methods. This is the practice of building properties offsite, which means the process can be better regulated and completed in a shorter time, resulting in lower carbon emissions. This method is growing in popularity, with Legal & General recently announcing it has doubled its workforce at its modular division. The 350 new staff at its Sherburn-in-Elmet facility in North Yorkshire will help the delivery of 185 new homes for Bristol City Council. Finding ways to make properties more environmentally friendly is not new; it is an ongoing process, with constant adaptation and evolution as our understanding of the issue grows. Gardner says: “In the 1970s, double-glazing was considered a green option, whereas now it is standard. The same will happen for solar panels, smart lighting and recycling black water.” Gardner believes that the housing and construction market is doing positive work in making these options more accessible. Belton notes that – while housebuilders can ensure that new properties are built with quality insulation and renewable energy generation – mortgage lenders are perhaps even better placed to incentivise ‘green’ strategies, such as home improvements. He says: “That is because they have a central position in the market and interact with most homeowners at some stage during their purchase journey.” Roma Finance, for example, has seen an increase in energy-efficient property features on its projects, such as solar panels, triple-glazing, recycling waste water, www.sfintroducer.com
air source heat pumps, bore hole water supplies, air fin coolers and electric vehicle chargers. However, Marshall notes that new approaches to building are still a work in progres for many lenders. He says: “With off-site manufacturing there are some cost-efficiencies, but the sector is still relatively small and there are some hurdles for lenders. We need to physically see where our money is going during a build, which is not straightforward with off-site manufacturing. “The challenge is over the title to goods, but I am confident work can be done to make it easier to lend on off-site manufactured (OSM) developments.” REDUCE, REUSE, REPURPOSE While Gardner believes the implementation of solar panels, smart lighting and recycling black water are all important elements to reducing carbon emissions, he also says: “Solutions to improving the environmentally friendly nature of construction do not always need to be new techniques; sometimes the best solution is simply to repurpose a building.” He believes that developments such as repurposing buildings are just as important, in terms of sustainability, as the implementation of new technology. Gardner says: “Repurposing office buildings and the high street into ﬂats is essential, as it is a way to provide additional homes and generate a low amount of carbon emissions in the process.” To this end, from 21 April, unused commercial buildings will be granted permitted development to be converted into homes. The new planning laws, announced by Housing Secretary Robert Jenrick, mean that full planning applications will not be required when converting disused commercial premises in England into residential homes, which will instead be delivered through a prior approval process. This is therefore set to be a growing area of activity for the development finance market. As well as this, a fast track for extending public buildings, such as schools, colleges and hospitals will be introduced. Public buildings are currently able to have small extensions without the need for full planning application, but under the new rules they can extend further and faster with a more streamlined planning process. This shows the government’s intention to revitalise high streets and towns centres, which in turn supports sustainability. SUSTAINABILITY COSTS While it is important to focus on a sustainable and environmentally friendly future, the fact remains that this tends to be the more expensive option. Despite the increasing demand from consumers for sustainable housing, Marshall notes that the → APRIL 2021
SUSTAINABILITY XXXXXXXXX primary challenge is price, saying: “Are buyers prepared to pay the premium? Maybe they are if they can get that money back in energy savings over five years, for example. But if they cannot break even that quickly, how much of a premium will they be actually prepared to pay?” Nevertheless, the situation is improving. Research from Building Sustainable Homes shows that building to the 2016 zero carbon energy standard adds up to 12.9% onto build costs. In contrast, using the latest technology, through a mix of simple fabric measures combined with photovoltaic panels, would increase construction costs by no more than 4%. While sustainable housing is in demand, the UK is also continuing to face a crisis in the supply of affordable homes, and so a balance must be struck between the two. GOING GREEN The coronavirus pandemic, while arguably distracting from the immediate urgency of environmental issues, has also served to illustrate some of the problems at play. On the one hand, the early months of lockdown were dominated by news of pollution decreasing without the interference of mass travel. On the other, people have been faced with the realities of higher consumption within their own homes. Research from environmental charity Hubbub shows that 68% of workers have noticed an increase in how much electricity their household has used compared to the same time last year. In addition, 54% have noticed an increase in gas usage, due to the increased amount of time spent at home due to the pandemic. Belton says: “The Department for Business, Energy and Industrial Strategy [BEIS] recently announced a series of proposals aimed at mandating lenders’ involvement with the tracking and improvement of home [Energy Performance Certificate (EPC)] ratings in the UK.” Marshall notes he would like to see further government support for homeowners and landlords to increase their EPC ratings. Gardner concurs with Marshall and outlines that he too would like to see the government incentivise the construction industry and homeowners, through support for adding environmentally friendly features such as solar panels. Belton notes that buy-to-let investors are increasingly looking to renovate older properties and avoid an EPC rating of F or G, which would deem the dwelling unlettable. He adds that this is where the short-term finance market might particularly come into play as a facilitator for environmentally friendly projects. Belton says: “Bridging lenders typically provide interim support to purchasers of new properties, and could therefore help homeowners to make drastic EPC improvements, so they can access mainstream green lending products in the future.
BRIDGING INTRODUCER APRIL 2021
“A borrower could use a bridging loan to bring their desired property up from a G or F rating through to a C+, which would then give them access to a more favourable rate from a mainstream lender when they come to remortgage months later.” Several larger lenders have introduced ‘green’ mortgage products, which offer borrowers a reward for improving the energy efficiency of their homes, whether that is a more favourable interest rate or cashback. This suggests that the move to environmentally friendly dwellings is picking up steam. Gardner says: “Electric cars were once a fringe product, similar to how environmentally friendly built properties are currently viewed. Over the next few years, green homes will encounter the same shift.” ESG AND BRIDGING Environmental, social and governance factors (ESG) are becoming increasingly important to private investors, a trend which lenders would do well to keep track of and integrate into their approach to business. Data from OnePlanetCapital shows that 85% of investors view global warming and the effects of climate change as the greatest long-term threat to our planet, and are moving their investments with this in mind. In fact, 12% are planning to move investments to ESG-related funds this year, while a further 17% plan to move them in 2022 or later. In addition, 28% of investors are considering higher risk and return investments that tackle climate change, while 70% of investors would outright avoid investing in a business with a negative environmental impact. Marshall outlines that some lenders, in order to incentivise borrowers, are offering discounts on further advances to fund energy efficient home improvements. However, Gardner says: “Many firms do not pay ESG much attention; it is an area which needs far more focus.” He goes on to explain that rather than being a tickbox exercise, the job of a small dedicated team, or a simple mechanism to build into a lending approach, having a commitment to ESG should be a mindset that spans an entire business. Looking ahead, Gardner believes that environmentally friendly builds are the future, so lenders must begin to research and focus on this method of construction sooner rather than later to stay ahead of the curve. He adds that, in order for lenders to fully commit to ESG, the greatest thing they can do is invest in understanding the risks associated with the environmentally friendly construction. Gardner says: “Lenders should never decline to lend on a development because they do not have an understanding of the risks associated with the build. A lender is the facilitator within the process of construction, and they must be fully aware of this → www.sfintroducer.com
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SUSTAINABILITY XXXXXXXXX type of build and then consider whether to lend on the development or not.” As this type of construction brings additional risks that high street lenders may not feel comfortable with, Gardner points to the opportunity for short-term and specialist lenders to fill a gap in the market. Marshall agrees: “We will definitely see more of this in the bridging space, sooner rather than later. The market is moving in the right direction, but we need to need to look at what is in it for lenders.” He also believes it makes sense to lend on sustainable projects, as long as there is the demand for them and the end product is affordable. However, this matter of end product affordability is somewhat more complex when dealing with sustainable and environmental projects. For example, repurposing brownfield or contaminated land can incur unexpected clean-up costs. “Unless you know what you are doing, unexpected clean-up costs can make the value negative,” Marshall says. “It is very hard to assess clean-up costs, but they need to be nailed.” He adds: “We also need more government funding to help clean up brownfield sites, so lenders have more assurance that the contamination is not going to be a problem and developers have the confidence to invest in these projects.” Belton says: “While high street lenders have the potential to help a large cohort of borrowers to make efficiency improvements, bridging lenders may be even better placed to help in specialist cases.” He adds that this would be especially valuable where there are already limited lending options available due to complex environmental circumstances.
A FUTURE REALITY At the heart of the housing market’s approach to creating a sustainable future is the need to address the issues surrounding construction. While the costs may remain prohibitive at the moment, the hope is that rising demand will create an imperative, and that as more construction firms, lenders and other market players move towards environmentally friendly practices, they will become more practical and affordable. For now, those specialist lenders for which a commitment to ESG is a state of mind will have to lead the way. As time goes on, net zero commitments draw nearer, and younger generations move closer to homeownership, green measures will only continue to rise in popularity and accessibility. Gardner concludes: “The drivers of this change will be regulation, supply and demand; the direction of travel is only going one way, so it is a question of when, not if. “Lenders must follow the market and if they do not, then they will wither and die.” B I
Atelier Capital Partners helps revitalise disused Hertford petrol station
telier Capital Partners (ACP) worked with an The final phase of the project included completing experienced small developer to deliver six three- the construction of the properties. The family homes bedroom properties on the site of a disused petrol were built to the latest building regulations and energy performance requirements. station in the town of Hertford. The site was not just a local eyesore, but also required The properties were marketed at a price deemed decontamination and certification prior to development. affordable to most local dual-income families aged According to ACP, the developer in question has a between 30 and 60, using Help to Buy. reputation for delivering good quality homes in urban and established locations in and around the M25. ESG CONSIDERATIONS It specialises in sites that are economically unattractive This project fit ACP’s approach to environmental, social to large developers, with a gross development value (GDV) and corporate governance (ESG) in numerous ways, as it took a contaminated site that was remediated, a of up to £5m and unit values of less than £750,000. The developer is a self-builder employing a team of brownfield was repurposed, and the build was modern and energy-efficient. In addition, this was a sustainable local contractors and established local suppliers. approach to regenerating Although they form a fundamentla part the town itself and providing of the solution to urban regeneration and added housing options to the sustainable buidling, the fact remains that “The street has been community. Add to this a local many mainstream lenders have lost the transformed, as well as and team using appetite to serve small to medium (SME) providing six families new developer locally sourced materials, and developers, and this part of the market is homes. All of the materials the sustainable benefits therefore often underserved. are manifold. The developer sought to use ACP’s were locally sourced, built institutional capital, clean the site and For ACP, this is a prime example construct six three-bedroom mid- by locals for locals” of institutional capital being market family homes, qualifying for the deployed ethically and responsibly. government’s Help to Buy scheme. Chris Gardner, founder and chief operating officer of Atelier Capital Partners, says: “The developer repurposed KEY PRACTICALITIES an abandoned petrol station into six terraced houses, which The case included a gross loan with fees and interest at are considered affordable and qualify for Help to Buy. £2.5m. The GDV was £3.6m, with leverage at maturity “The site is in an urban area, and the abandoned petrol with interest at 60%. station was an eyesore for residents who lived on the road. The project created six units valued at £600,000 each, “In order to begin construction on the site, the developer and the term was registered at 18 months. had to first dig out the petrol tanks and remove all of the The first phase included engaging a professional firm contaminated soil. to assess contamination and make recommendations. “As the site is relatively small, larger developers did Atelier Capital Partners’ borrower then completed not consider it, however, it is still a very important significant remedial works, including removal of redevelopment. subterranean tanks and contaminated soil. The work was “The street has been transformed, as well as providing inspected and the site was certified as decontaminated. six families new homes. All of the materials were locally Moving onto phase two, the borrower’s local team sourced, built by locals for locals. commenced work on site. Materials were sourced, where “I believe this is the type of project more developers practical, from trusted local suppliers and Atelier Capital should be taking on, as it benefits a large number of Partners’ project monitor made regular visits to the site. people, as well as the environment.”
A MARKET ON THE RISE Jessica Bird outlines the latest Bridging Introducer round-table discussion, which considered the impact of the Budget, the future for bridging, and how to balance speed and service in the face of growing demand
he first quarter of 2021 was, unsurprisingly, an eventful one. From a somewhat bleak New Year spent at home, the country now has a roadmap out of lockdown and a light at the end of the tunnel. For the housing market, and bridging more specifically, a particularly important development has been the extension of the stamp duty holiday. This looks set to keep stimulating demand, while tightening criteria in the mainstream creates increased opportunities for the specialist market. At this month’s round-table, Bridging Introducer sat down with Together, Precise Mortgages, MT Finance, Shawbrook Bank, Finance 4 Business, Dynamo, Movin Legal and Brightstar to discuss how the market will cope with rising business levels and the trends of 2021. BRIDGING AND THE BUDGET In the weeks prior to Chancellor Rishi Sunak’s Budget speech on 3 March, both the mainstream and specialist markets were rife with debate. There were many areas for speculation, but one that dominated was the need for a tapering off or extension of the stamp duty holiday, originally slated to end on 31 March. The subsequent extension to 30 June, with a period of lower threshold until the end of September, has been broadly welcomed, particularly as vast swathes of borrowers were going to find themselves unable to reap the benefits, even with the help of short-term lending. Tanya Elmaz, intermediary sales manager, South at Together, says that this extension will thankfully be unlikely to lead to the kind of cliff-edge that was faced in the lead up to 31 March, but that short-term
BRIDGING INTRODUCER APRIL 2021
solutions will continue to be in healthy demand in order to get borrowers over the finish line. She says: “We’ve seen an increase in bridging finance among investors and borrowers who want to capitalise on that stamp duty saving. Now that the deadline has been extended, we really do expect to see more of the same. “Certainly, short-term lending is the best option to adhere to the deadlines that borrowers will be facing over the coming months.” Gareth Lewis, commercial director at MT Finance, adds that the timing of the Budget will influence how the extension affects buyers and the market. While there was a spike in activity due to the impending 31 March deadline, he notes that this was less pronounced than it might have been, due to uncertainty about the future and the lack of a roadmap out of lockdown. However, with the Budget taking place after Prime Minister Boris Johnson outlined the country’s journey away from COVID-19 restrictions, confidence is likely to increase, leading to an even stronger impact on activity levels. “You’re going to see people coming off furlough and re-establishing their businesses, which will see those people have more of an opportunity to enter the housing market or move home,” Lewis says. “Moving it further down the line will open the market up to more borrowers who are suddenly becoming financially stable and more palatable for both mortgage lenders and the bridging finance world.” Roger Morris, group distribution director at Precise Mortgages, believes that this extension, rather than an www.sfintroducer.com
MARKET ad hoc response, is in fact “a very calculated, staged release of a further investment in the UK economy.” He adds: “I think it will be a great positive for the economy as a whole.” James Danks, head of bridging and development at Finance 4 Business, agrees that this is a positive move, but adds: “Three or six months will fly by. Clients will think they have loads of time, but in reality all of a sudden there will be a slight spike, and then again in September.” A BRIGHT FUTURE In addition to the benefits of the extension, there are various reasons to believe that the specialist lending market, and bridging within that, will continue to be on the rise. Sy Nathan, mortgage manager at Dynamo, points to lenders entering the regulated market – among them MT Finance – as a positive sign for future growth. Lewis agrees that newly regulated lenders, and firms entering the market anew altogether, are an important factor for healthy competition and ensuring the industry stays service driven. Morris adds: “Lenders need to keep raising the bar and working together for the right outcome.” Jo Logan, short term lending and development finance specialist at Brightstar, notes that while bridging may be on the rise and more lenders are entering the regulated market, it is important to maintain the key elements that underpin this type of lending. She says: “If it is a bridging transaction it needs to be underwritten as a bridging transaction, with the flexibility and the service as well.” John Ahmed, chief executive at Movin Legal, notes that high street lending will likely reduce slightly, even with government support through the Mortgage Guarantee Scheme, leaving room for specialist lenders to take up the slack, with new institutions coming in and helping to ease pressure on the mainstream market. The specialist market is well placed to do this, especially with the changing environment many face post-pandemic, with elements such as furlough and payment holidays coming into play. Lewis says: “What you need coming out of this pandemic is flexibility and a commerciality when it comes to lending decisions, that ability to look at a
“Of course it’s important to offer a speedy service, but it is possible to balance that with quality. The ultimate goal is to provide quality, service and speed all together” TANYA ELMAZ www.sfintroducer.com
“It’s important to see collaboration and understanding from mainstream banks around what the specialist proposition is” SY NATHAN transaction on a manual basis. The specialist market, yet again, is going to be what helps prop up the consumer.” “We are going to see more rejections from the high street and the mainstream,” Elmaz agrees. “As the government pulls back schemes, that’s when borrowers will start to need more support. Even now we are starting to see it.” She adds: “On top of that, we are starting to see a tightening of affordability from the high street, and behind that there’s credit issues. If you put all of that together, it’s going to compound the issue further. “The ‘computer says no’ kind of approach that some mainstream lenders have adopted is not best placed to cater for the unique and evolving needs of borrowers moving forward.” While the outlook for bridging seems positive on the whole, Ahmed does note the pressure placed on the legal sector during these busy times, fuelled by the stamp duty holiday and the backlog created by increased demand. In addition, in the long-term, the support measures brought in by the government will have to be paid for, so this positive image might not last forever. Ahmed says: “[Tax increases] affect investment, our industry, the whole thing. “Hopefully at some point [the government will] announce tax cuts, attract investment, and incentivise more industry as a whole to come back to Great Britain.” EDUCATION AND UNDERSTANDING Morris believes that – while bridging may hold the solution for an increasing number of borrowers who find themselves outside the mainstream or in a chain break situation – there is still a disconnect when it comes to awareness and understanding outside of the market. He says: “More chains are breaking down at the moment than have done before – that’s attributed to lockdown, there’s more paranoia and aggression. You’ve also got time-related issues causing people to move, such as health issues and needing to downsize or move closer to children. “Brokers have a perception that short-term funding is just too expensive, but that’s not based on fact. We need brokers to be informed, understanding how they can give people the absolute control to be able to move while the chain completes behind the scenes.” → APRIL 2021 BRIDGING INTRODUCER
MARKET He adds: “Brokers need to change their reservations and their historical hang-ups around bridging and specialist lenders, where lenders are criticised for being perhaps only one of two in the market with a particular solution, and therefore being expensive. “It’s about giving lenders the respect that they’ve built an industry that has massively grown since the recession in 2007; a vibrant, positive industry that some brokers have never embraced or understood.” Elmaz agrees: “Brokers need to understand all the options, all the lenders, and all the solutions, so that they are presenting the right options to borrowers.” Nathan feels that this process of education and building awareness has already started, saying: “Over the last few months, among our clients, the understanding of bridging has been much more positive. There’s still that misconception around cost
“Embrace technology to digitally update your customers about what you’re doing. And invest in your own education every month” ROGER MORRIS
or the pitfalls, but there is a greater knowledge, as bridging in general has been out there in the forefront because of the stamp duty deadline. “I’ve seen more enquiries from our clients regarding bridging, which shows positivity in terms of the shortterm finance market.” Danks agrees: “We’ve found – and we deal with a lot of brokers as well as clients – a higher level of awareness, understanding and acceptance of bridging products.” He also adds that with the easing of restrictions will likely come an upsurge in demand and appetite for areas such as commercial bridging, which has been hard hit due to business restrictions. Morris believes that to maintain this momentum of positive conversations and continued education, it is important for lenders, packagers and brokers to be on the all-important “digital high street,” with websites and easily accessible resources identifying all areas in which they can help borrowers.
“It’s also important to see collaboration and understanding from mainstream banks around what the specialist proposition is,” adds Nathan. “It’s easy for mainstream banks to say that if the client doesn’t fit a certain profile they will not help – [the specialist market] is a real solution for those clients, possibly a better one than the high street banks can offer. “Now is a great time for the industry to collaborate and have that education piece.” The positive outlook for the specialist market is only going to increase as the pressure on the high street grows, calling for common sense underwriting and flexibility to come into the fore, and for preconceptions and misinformation to be tackled. Ahmed says: “Clients hear ‘specialist’ and think ‘expensive’, but it’s not about basis points, it’s about whether you can get the loan at the right money, with the flexibility. “I think that will be promoted to the general public, and specialist lending will become more mainstream.” While the issue is that many brokers not currently steeped in specialist lending have preconceptions about the market, the onus is also on lenders to take control of the education piece. “We have a responsibility as well,” Lewis explains. “Sometimes you can find that lenders become too gimmicky in how they’re placing products in the marketplace, and that has its pitfalls. “If you have that misunderstanding of what the product is about, heightened because a lender has masked it in some way, that can then have a negative impact on the broker’s journey, because when they get under the hood it isn’t what it was made out to be. That then has a negative impact on the rest of the marketplace. “Lenders have a responsibility to clearly define what their product is, what the rates are and what it stands for. It’s all well and good having an element of gimmick to try and stimulate transactions, but the reality is you also have to show what you truly do, so that a broker’s journey isn’t tainted by misunderstanding.” BALANCING ACT So, in the current climate, the importance of speed, service and flexibility should theoretically outweigh concerns about price. However – and particularly as we look ahead to stamp duty pressures mounting again throughout the year,
“Clients hear ‘specialist’ and think ‘expensive’, but it’s not about basis points, it’s about whether you can get the loan at the right money, with the ﬂexibility” JOHN AHMED and more customers turning to this market – how can specialist lenders strike a balance between providing both a fast solution and a personalised service? Elmaz says: “Of course it’s important for lenders to offer a speedy service, that’s what bridging lenders are in the market to do. But it is possible to balance that with quality. The ultimate goal is to provide quality, service and speed all together. “In fact, the first thing to focus on is quality – the quality of information a lender receives from a partner is the first step in making sure a transaction gets the best service and the quickest decision.” While she calls on brokers and intermediaries to take some responsibility for this, Elmaz also highlights that lenders must commit to regularly evaluating and streamlining their processes, considering the importance and eﬃcacy of the information they are asking for. This includes a focus on automation, where appropriate, to underpin and improve the individual approach offered by this market. Automation is indeed about a balancing act, Ahmed says: “I don’t think there’s any sector that actually works being completely automated. A portion of it can work, if it assists a human being.” The need to find the right mix of streamlining and automation balanced with the human touch also feeds back into the issue of price. Although traditionally more expensive than the mainstream, specialist lending bases much of its appeal on being able to find solutions for complex situations, and provide an individual service and underwriting approach. Ahmed adds: “I want to make sure the intermediaries get a good service, because if they do the price isn’t that important, even right down to the client. If you sell on service, you can charge a bit extra. The client just wants to get the job done eﬃciently, correctly and without stress.”
For Lewis, speed is perhaps a less prominent concern in comparison to the need for certainty of liquidity. He says: “Compliance plays a big part in that desire to transact for price rather than the right transaction to get you to the end goal easily and eﬃciently. “A lot of compliance teams have been saying the best price is always the best solution, because it was the easiest thing for the suitability letter. “The reality is that in our environment you need an opportunity to clear the transaction eﬃciently, on a needs-based underwrite, together with an appropriate price which is good for the client.” When it comes to automation, while lenders benefit from the ability to gather information eﬃciently, the specialist arena must also rely upon people understanding a transaction and finding a solution for it, which cannot yet be done entirely through technology. Gavin Seaholme, head of sales at Shawbrook Bank, says: “You can get the data, it’s all available, but for complex cases with specialist needs, you need to have that manual decision-making, that person in the middle providing the main crux of the answer. A computer can’t do that.” This focus on human underwriting, Lewis continues, also allows the market to consider clients in the longterm, with a view to where a transaction might lead in the future, and what investment and business opportunities might come with it. This human approach comes back to the need for well informed brokers and packagers, who are not only willing to challenge a decision and engage with the lender, but understand in the first place what is needed to make an informed judgement. One area that has seen increased automation, through both necessity and innovation, is valuations. Elmaz explains: “That’s something you can easily automate, and that frees up senior underwriters to →
“Some businesses are ﬁnding out they don’t actually need the space, so a lot of people may think about converting oﬃce space to residential housing under permitted development” JO LOGAN
“What you need coming out of this pandemic is ﬂexibility and a commerciality when it comes to lending decisions, that ability to look at a transaction on a manual basis” GARETH LEWIS “
actually look at cases that need handholding. You can’t automate everything, but you can always be looking at whether the information you’re asking for is of value, and listening to feedback from brokers.” From the broker perspective, Danks says: “The way it works well for us is when we have access to underwriters and people who can look at a deal and it can come to life, whereas if it’s all uploaded into a system and you get a result, you don’t know the nuances and the quirks of the deal.” Danks adds that clients tend to look for rate, leverage and speed, which cannot always be found together. He says: “What we tend to do is give them a couple of options, where one is the lender with the best rate, but might be a bit slower, whereas another is more expensive but the service is better. We find a lot of the time that they go down the service route. “There are a number of ways, as brokers, we can make the client journey better: knowing our lenders, our stakeholders, and how we can add value throughout the process.” SUPPLY AND DEMAND While measures such as the stamp duty holiday – as well as pent-up demand during lockdown and the changing tastes and needs of the consumer – are fuelling demand across both the mainstream and specialist markets, the other side of this coin is the UK’s continued housing shortage. There might be a solution in the form of unwanted oﬃce space, as the ‘new normal’ may well see many workers stay at home or start working in a hybrid arrangement, with less need for oﬃce space. Logan explains: “Some businesses are finding out they don’t actually need the space, so a lot of people may think about converting oﬃce space to residential housing under permitted development [PD].
“That’s going to be a good stock for us moving forward, especially on the bridging side.” Commercial to residential conversions also have a role to play in creating student accommodation, or flats for young professionals. However, it is diﬃcult to know if the trend away from city centres and oﬃces is a long-term one, or if life will in fact largely revert. In addition, Morris notes, many oﬃce buildings are not suitable for residential living. Particularly postpandemic, occupants will be looking for space and fresh air, which means that a blanket approach to converting oﬃce space may not be the silver bullet for the housing crisis some expect it to be. Lewis agrees: “A premium has been placed on space, and a huge percentage of people are not going back into oﬃces. That’s going to be of big relevance. “So, what the government needs to focus on when it comes to housing is going to be houses – and demand is going to outstrip the build yet again. It’s just so hard to get that space, so you have to look at how you can stimulate the move away from London.” A combined approach, which utilises redundant oﬃce space where applicable and desirable, but also works on building up suburban and rural areas and making them better suited to greater numbers of people, seems to be the consensus. Whether the trends created by the pandemic around oﬃce working and city living stick, the fact remains that hospitality and retail have been fundamentally affected by the events of the last year. Seaholme says: “The big, homogenised high street will not be the same anymore, and we’ll be looking at a more boutique picture, with a lot of space turned into residential. That in turn creates an opportunity for investors to create the stock that’s needed. “That’s going to be a big pull for people to move back into towns, as well.”
“There are a number of ways we can make the client journey better: knowing our lenders, our stakeholders, and how we can add value throughout the process” JAMES DANKS
MARKET Whatever the method, Nathan says that there are encouraging signs that the government is trying to work with developers in tackling the issue of housing stock. He adds: “One of the biggest things the government can do is try to incentivise the bigger housebuilders which have land available in their pipeline to unlock that, or make sure they are building a certain amount. Then we can somehow meet some of those supply issues.” Seaholme agrees: “They need to continue to make it easier, for example with planning and PD schemes and expanding that out, rather than people just land banking and sitting on it.” For Ahmed, the importance lies in a mixed approach. He says that the government will likely want to encourage people back into city centres eventually – not least to make use of costly public transport infrastructures – and does not see land banking as too much of an issue. The key, he says, is that image of the boutique high street. “Local shops are seeing a tremendous increase in takings as people just don’t want to travel to the big hypermarkets,” Ahmed says. “What can the government do? It needs to make planning overall a little more attractive, and also needs to incentivise developers and investors to allow them to open up and create cheaper properties as well.” LESSONS FOR 2021 Looking back at the events of 2020, Logan notes that while much of the market reacted well, there were still many issues. She explains: “A lot of lenders panicked, there were a lot of knee-jerk reactions, reducing loan-tovalues, pulling products and leaving people halfway through transactions. However, recovery seems to have happened very quickly. This year it’s suddenly taken off, and I think that’s going to continue throughout the year.” Ahmed reiterates that going into the rest of 2021, communication will be an important element that the specialist market can bring to the table, which Logan agrees – combined with education across the entire industry – will lead to a smoother period. Some of this communication might include honest, and perhaps unpopular, answers about whether a solution can be reached within a given timeframe. Across the board, the panel reinforces that honesty and clarity is just as important as regularity when it comes to communication, especially in a market that will continue to face turbulence.
“Being honest with each other about where you are at with a transaction will put you in a good place for the relationship moving forward,” Elmaz explains. “The key takeaway for us from the last year is the importance of all those relationships, built on the theme of honesty, transparency and communication.” Morris adds that 2021 will see industry players reconsidering how much turnover to invest in digital systems and resources.
“The big, homogenised high street will not be the same anymore, and we’ll be looking at a more boutique picture, with a lot of space turned into residential” GAVIN SEAHOLME “Think about having contact with the customer, not just waiting for that fixed rate to come up,” he says. “Use Zoom, embrace technology to digitally update your customers about what you’re doing. And invest in your own education every month – what do you give back to your customers by having an informed approach and wider knowledge? “COVID-19 has created a new generation of customers who, more than ever, are going to need help.” Nathan adds that the main lesson from his perspective going into the next year is stakeholder management, saying: “Everyone along a transaction has learned that it’s important for all of us to work together, be it brokers, lenders, agents, valuers or solicitors. “The end goal is delivering for our clients. That collaboration piece creates a stronger bond within the property market.” Lewis adds to this that the diversification of partnerships will be important in the future: “Having all your eggs in one basket can jeopardise your ability to transact when the going does get tough.” Seaholme concludes: “We’ve all learned a lot, and people evolved quickly. The lesson is that we can all continue to do that. “Enhance that journey, make sure you can build on those relationships and that technology. Fundamentally, it all comes down to trust.” B I
Better Together Jessica Bird speaks with Tanya Elmaz, intermediary sales manager, South at Together, to discuss quality, service and the rising tide of the bridging market Together prides itself on having a
commitment to quality and service – what does this mean in the day-to-day? We put the broker and the client at the heart of every decision we make to get the best possible outcome. That means that listening to feedback is something we do every single day. Going the extra mile is also not something we occasionally do, but something we seek to do all the time. We want that to be part of our ‘business as usual’. We want our partners to know that they are valued, so that means listening and communicating, but ultimately what we do is deliver. How do you ensure quality and service in a changeable and sometimes turbulent market? It doesn’t really matter what happens to the market, we are always going to focus on quality and outstanding service. No matter what challenges we get, that’s still going to be our absolute commitment. As long as we continue to communicate well and educate brokers on what quality means to us – and as long as that feedback loop is open – then we’ll continue to give brokers the service they require. Do these elements set the specialist market apart in general? It’s not always about price – if you haven’t got the right solution for a customer, then your pricing is neither here nor there. There are lots of scenarios in our industry where the price is a little bit more, but if speed is your priority – and certainly if service is your priority – then the price doesn’t really matter. Quality is really important, not just in bridging but in specialist lending as a whole. There are times when a broker or borrower might be rate driven, but quality and service are always going to be key. For years, the specialist market has had a bit of a negative reputation for being more expensive than it might need to be, and sometimes brokers who
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are not experienced in this market try to compare rates with the mainstream, when it’s a completely different ball game. Specialist lenders are providing solutions that often don’t exist in the mainstream. It’s about whether the transaction can happen, and luckily specialist lenders are flexible, agile and diverse enough to be able to look at scenarios and match their solutions. In the earlier months of 2020, Together had to make some difficult decisions. Can you talk us through those choices? In the first lockdown we managed to get our entire workforce working from home within two and a half weeks. At that time, we had hundreds of millions of pounds of cases in the pipeline at binding offer stage within our regulated arm. That had to become our priority. Then the government announced payment holidays and the furlough scheme, and at that time we decided we had to focus on our back book, which at the time was around the £4bn mark. While payment holidays were not a concern, we did want to analyse their impact. We felt it was the right thing to do to focus on our back book and those existing borrowers, rather than continuing to lend new funds. There was no crystal ball at that time – every lender had to decide what was right for them. That time allowed us to analyse the situation and where we were within it. Would you have done anything differently, with everything we know now? Even now we’re not in a situation where everything is completely clear – it’s still evolving. What we have seen, though, is that the property market is so resilient that it wouldn’t be entirely unfair to say that we may have acted quicker than we needed to. However, when you have a loan book of about £4bn you have to make that your priority. I don’t think we www.sfintroducer.com
INTERVIEW could have done anything different. It would have been irresponsible to not look after our back book in that way and to continue to lend more.
instances you don’t need to upload payslips and other documentation, the system will check it for you. That saves brokers and underwriters time as well. We looked at our documentation requirements and probably got rid of eight or nine different pieces of paper – that is a continued project that we’re working on, really streamlining that process. Then of course there were the automated valuation models (AVMs), the Hometrack valuations. We enhanced our use of those and the criteria around them, enhancing the loan sizes, the loan-to-values (LTVs), and the way in which you can use an AVM. We’ve always used desktop valuations and Hometrack, for bridging and auction finance. It’s been a welcome change during lockdown for lenders as a whole to use them, but this is not something that’s new to us. We have just used the time to look at our proposition and massively improve it. For example, we’ve gone to 75% LTV instead of 70% on our AVMs, we’ve increased the loan sizes, and we’ve really widened the scope. Now almost half our residential transactions are with a Hometrack valuation. The impact of that on the broker and client is phenomenal, because we can do a valuation in two minutes, and the cost saving is amazing. Another initiative which we haven’t rolled out yet to intermediaries – but we are hoping to at some point this year – is our Together app, which will enable the return of documents easily and quickly, and provide live updates on cases as well. These enhancements were always part of the journey. Obviously having the time to focus on them was important, but also the need – everybody’s life changed, causing the acceleration of technology in all areas.
How did the business cope during the rest of the year? What measures did you take to get back to business as usual? We took a lot of time to focus on modernisation, automation and transformation – to simplify our products and reset our range. We looked at all our criteria to assess our flexibility, and actually there was no change in the level of flexibility we wanted to offer. We also widened our distribution panel and reviewed our systems. We used that time really well. We’d already started looking at those things, but this really accelerated it. One of the first changes we made was E-files – we no longer have paper-based files in the office, so that reduces the time underwriters take to prepare a file and to look at a case. We also changed some of the fields on our broker venue sites, making them more user-friendly. We put in place income verification, which means in some
How do you feel the pandemic has affected the specialist market in general?
First, you’ve got to think about the effects on people – job losses, job changes, and circumstantial impacts. Those financial situations may have changed, but need for borrowing is still there. As credit profiles become more complex, the mainstream is going to have more of an issue. That’s how it impacts the specialist market, because there are more opportunities from that fallout. Mainstream issues with credit profiles, affordability and property types are all opportunities for the specialist lending market to just do what it has always done and provide solutions that the mainstream isn’t able to. It has meant that the specialist market can do what it does best, really. This will help put the specialist lending market onto the agenda for the mainstream borrower, because people have been financially impacted by → APRIL 2021 BRIDGING INTRODUCER
INTERVIEW the pandemic who weren’t expecting to be. People will find themselves suddenly not fitting the mainstream. You also have brokers who may not be active in the specialist lending market now needing to understand the options and solutions it can provide, because they need to be able to offer those to their clients. Together recently refreshed its product range – what led to this move, and what does it reflect about the market and the business? We updated our product offering so we could provide more options for investors. We increased our LTV to 75% and reduced our bridging rates to 0.65%. Of course, all our bridging rates are guides, and we like to talk to our brokers about what we can actually offer. The residential market remains buoyant and obviously a big part of that is stamp duty and the changing needs of borrowers – all of this led to us expanding and changing our offering and making it more attractive and improving it. We believe the market will continue to be stable, and will return to health with regards to rentals and buy-to-let (BTL). We’ve seen a lot of investors seize opportunities in two main areas: the UK holiday accommodation sector – with the anticipated increase in staycations – and borrowing on commercial sites like shops or offices to convert them to residential dwellings, using bridging or refurbishment bridging. We’ve made those enhancements to our products to satisfy what we’ve been told by brokers, and what we have seen is needed out there. Are commercial to residential conversions going to become more common? We do see this being a growth market, certainly for this year, but we don’t predict the demise of the high street completely. Similarly, whilst we like working from home, there’s nothing like going into an office. However, it’s that issue that’s always in the agenda of needing more housing, and we now have a situation where we don’t need as big commercial spaces, so there is an ability to look at spaces and convert them. We do see that being a trend. A lot of spaces can be easily converted – not all, but some. For an experienced investor, those types of projects are quite straightforward, so we do see that trend growing this year. Are there any other advancements or changes you’ve made over the past year that you see as being helpful long-term? We are continuously looking at how we can make our processes easier, how we can make interactions with brokers easier, and what parts we can automate
BRIDGING INTRODUCER APRIL 2021
to free up underwriters so they can handhold those cases that actually need handholding. What we want to do – and what we are doing successfully – is build flexibility into our processes. We don’t want to turn into a ‘computer says yes or no’ situation, so automation is great but at the same time the ability to be flexible and agile, and to apply common sense and take things out of the process when needed, is really important to us. That’s something we continue to put a lot of time, effort and energy into moving forward. Together formed a number of new partnerships in 2020. How do you approach these? Partnerships with our specialist distributors are the cornerstone of our business and our role as one of the UK’s leading non-bank lenders, particularly in the bridging space. The partnerships that we’ve got now have been built up really carefully over time – with a good partnership it takes time. All our partnerships are really important to us because we learn from those specialist distributors. The feedback loop is important – we don’t just wait to get feedback, we seek it out and try to act on it as much as possible. Through regular feedback, we can learn about innovations needed within our processes and products. You need good communication, trust, and to be able to educate your partners on what your offering is and on the quality piece, as well as how you want to receive and look at information so you can give the best service possible. A lot can be said for the communication and trust in the two-way relationships that we have with our specialist distributors. How do you think the Chancellor’s Budget will affect the bridging finance market? The Chancellor recognised that the property market is really important for the UK economy as a whole, and there was also some good support for business, which would at least give them some respite for the rest of this year. For example, no increase on Capital Gains Tax (CGT), which will take a bit of pressure off landlords, as well as business relief for the hospitality sector, and a continued reduction in VAT for holiday accommodation. The stamp duty exemption is the big one – it will encourage more buyers to either to move, sell or invest, and as they enter the market and find delays or issues in the mainstream, they will look to specialist lenders for support. It’s important that brokers really understand everything that bridging can do, that they know all the options and understand different lenders and niches. It’s more important than ever that brokers www.sfintroducer.com
INTERVIEW who use the specialist market are up to date, and that those who don’t – or haven’t used it regularly – have access to specialist distributors who are experts and can give them the advice they need, or that they reach out and learn about what bridging is, because ultimately their borrowers are going to need options as the deadline for stamp duty looms. Specialist lenders do have a part to play in educating and reaching out to those brokers through various means and platforms, such as clubs, networks and specialist distributors. Together’s Channel 4 sponsorship focuses on auction finance – what trends are shaping this area of the market? We’re really proud of our partnership with Channel 4 and the support we’ve provided for ‘The Great House Giveaway’. The first day it aired was such an exciting day in the office, there was a real buzz. Programmes of this nature show you don’t have to be an experienced investor to be able to benefit from an picking something up at an auction. We’ve been supporting the auction market for over 15 years, including residential transactions, houses in multiple occupation (HMOs), commercial and semicommercial. You can pick up all sorts of transactions in auctions. Actually, 2020 has been a real growth year for auctions. There were 40% more properties – by value – sold this way compared to 2019. The auction market was so quick to go online, it migrated so easily. This opened it up to a whole new set of buyers who typically might not have wanted to go into an auction room and bid. In this pandemic there have been lots of things that have been uncertain, but at least with an auction you know the date you’re completing and selling. There’s a different type of peace of mind you can achieve. We are a nation that is very interested in property, and I think the only new dynamic here is where to start that process. A non-experienced investor might not have found themselves in an auction, but these programmes show how straightforward it can be, and the fact that there’s now opportunities to take part online makes it even easier to access. What are the key trends facing the bridging market over the rest of the year? Apart from the continued boom in auctions, there is also the growth in change of use. We will continue to see an acceleration of that. Motivated vendors is also a trend; lots of people have been affected financially or circumstantially, so we will continue to see more properties come on the market, and more motivated vendors. www.sfintroducer.com
Another trend will just be a stable property market. We’ve seen over the last year how phenomenally resilient the market is, and we’ve also seen the lengths to which the government will go to protect it. If you put that together with more properties being sold and pent-up demand from first-time buyers as well, these things will continue to keep the market stable and buoyant. The buy-to-let market has had issues and has been under government scrutiny, with lots of tax changes over the last few years, so investors and landlords are right to have let out a sigh of relief over last year, because the government has supported the industry. On the other side of it, there’s so many schemes for first-time buyers, including shared ownership and efforts to put together affordable housing. The Budget took some serous steps to protect the market. So, I think we’ll continue our love affair with property and investment as we always have done. What will we see from Together in 2021? We will grow our loan book, expand and improve our personal finance products and our commercial finance products – by which I mean loan sizes, LTVs and rates. We will continue cementing our relationships with specialist distributors and forge some new relationships as well. Together will continue to focus on quality. Quality is high on our agenda, and as a result our service is outstanding. Our turnaround times are phenomenal, and we can do that because the quality is there. So, we will continue focus on quality and service. What message would you say to brokers about what it is like to work with Together? Whatever the property ambition, we want to help intermediaries help their borrowers achieve them in this year and beyond. With 46 years in the business, we’ve seen a fair number of transactions. We’ve also got award winning sales and underwriting staff, so you’re in good hands. We’ve got a wide range of products and solutions that are not available on the high street, and if we are faced with a transaction that we haven’t got an exact solution for, then we will find a way to present some sort of solution to the borrower – that’s what were really good at. Together also has certainty of funds, we are very well capitalised and will continue to be. Finally, everybody at together is focused on outstanding service. We will continue to ask for feedback and to act on it wherever possible, and we will continue to have take a common sense approach and use flexibility. It’s not something we have to try hard to do, it’s in our DNA. B I APRIL 2021 BRIDGING INTRODUCER
IN OUR OPINION
Bridging: The road to r Sundeep Patel, director of sales at Together, discusses the strength of the bridging market and how innovation and attention to detail means flexibility and a personal approach for clients
he coronavirus pandemic and subsequent national lockdowns have failed to put the brakes on the continued growth of the UK’s bridging market. While completions were down in 2020 compared to the previous year, applications grew by more than 11%, according to trade body the Association of Short Term Lenders (ASTL). This highlights the enormous potential for bridging lenders such as Together to provide brokers’ clients with viable funding solutions in troubled times. The latest figures show the value of applications last year for flexible, short-term finance increased to £25.8bn, up from £23.2bn in the previous period, with a surge in applications in the third quarter of last year driving an increase in completions of more than a third (34.9%) in the final quarter of 2020. Our own estimates indicate that Together’s bridging finance accounts for more than a fifth (20.5%) of the total loan book, positioning us as a leading lender in the bridging market. New and returning brokers know this better than anyone, and continue to bring their clients back. Recent cases – such as the delivery of a £3m unregulated bridge in the space of four hours and a £4m land deal – go to show that we are one of the most flexible, fast and reliable partners for almost any project. With the bridging sector expected to return to almost pre-pandemic levels of operation, according to researchers, unregulated bridging loans are expected to make a recovery as property owners and developers adapt to new working environments. As mainstream lenders continue to restrict loans to specific sectors, bridging lenders will be able to make the most of the vast opportunities available. CHANGING TIMES In the 46 years since we provided our first loan, we have seen the financial world become a different place. Trends come and go, and the speed of change has been increased over the past year because of the many challenges of COVID-19. Thankfully, the roll-out of the vaccine seems to be progressing well
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and we seem to be heading back to some level of pre-coronavirus normality. However, the pandemic has allowed us to take the time to focus on our business, make enhancements to our financial offerings, and consistently work with the input we receive from our brokers and packager partners to deliver improvements. We have thereby implemented process changes that are speeding up delivery, and system enhancements which make us easier to do business with.
Right: Sundeep Patel
IN OUR OPINION
o recovery post-COVID This attention to detail is paying dividends. Despite the pressure that the coronavirus lockdown has put on the entire industry, Together has not only weathered the storm but continued to grow, with a renewed focus on innovation and digital transformation to automate many back office functions, making it easier and quicker for our partners to get the finance they need for their clients.
“A high quality service relies on a personal approach, with dedicated and knowledgeable human underwriters – as well as solicitors and valuers – working together to deliver finance quickly”
At the same time, we’ve simplified our product range to focus on the things that matter most to borrowers, with competitive rates and flexible criteria. DELIVERING RESULTS Our customers and partners are already seeing the benefits. In our latest results, we revealed that average monthly lending was up to £74.4m per month – up 70.6% on the previous quarter. We are well capitalised and successfully issued a £500m bond in January – the first Sterling corporate bond issuance since the formal completion of the Brexit process, giving us £1bn to support new lending. In addition, earlier this month we completed our first small balance commercial mortgage-backed securitisation. The £200m Together Asset Backed Securitisation is supported by a portfolio of first and second charge mortgages secured against small value commercial, residential and mixed use properties and is the first transaction of its type in the UK since the global financial crisis of 2008. This complements our four public residential mortgage-backed and four private securitisations. THE FUTURE We have already accelerated our technological transformation programme, designed to automate some back office functions. By introducing electronic files last August, we have been able to cut down the time it takes to process applications. Future innovations – such as extending further our use of digital valuations through HomeTrack for more customers – are expected to speed up processes, allowing increased time for our underwriters to concentrate on more complex cases. While some of the work can be automated, a high quality service relies on a personal approach, with dedicated and knowledgeable human underwriters – as well as solicitors and valuers – giving each case the attention it deserves while still working together to deliver finance quickly. The fact that Together is a private company means that we’re not constrained by short-term targets. The emphasis is on creating long-term value, while remaining true to the values set down more than 46 years ago. We are about long-term stability and growing the company by lending prudently, while continuing to listen to our partners and their clients and treating them as individuals – even if they don’t fit the mainstream mould – so as to continually deliver the finance they need to meet their ambitions. B I
APRIL 2021 BRIDGING INTRODUCER
A tale of recovery Vic Jannels CEO, ASTL
t the ASTL, we periodically survey our lender members to understand their thoughts about the prospects for their businesses, the bridging sector and the UK economy, so that we can track the sentiment of the industry over time. We also ask a couple of extra topical questions to establish the thoughts of our members. We last undertook our sentiment survey in 2020, just after the emergency Budget in July, during which the Chancellor first introduced the stamp duty holiday. The property market was already busy ahead of this
“Compared to last July, our members are slightly more positive about the longterm prospects for the UK economy. More than 73% expressed confidence about the economy, up from 64%” announcement, having been allowed to reopen in early May, and so the mood had improved since the depths of the first national lockdown. However, much was still unknown about the virus and the path out of the pandemic remained unclear. There was also, of course, the threat of the UK crashing out of the EU at the end of the transition period with a ‘no deal’. HOW HAS THE OUTLOOK CHANGED?
We surveyed our members again, shortly after the most recent Budget, to try and gauge the mood of the industry. Compared to last July, our members are slightly more positive about the long-term prospects for the UK
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economy. More than 73% expressed confidence about the economy, up from 64%. This is understandable. Despite the ongoing challenge of the last nine months, the UK is leading much of the world in its vaccination programme and there appears to be a clearer road to economic recovery. PROSPECTS FOR BRIDGING
It’s around the prospects for the bridging sector that the starkest contrasts between now and last July can be seen. When asked about their expectations regarding business turnover in July, 43% expected turnover to grow and 41% thought it would shrink. In the most recent survey, in comparison, 87% expected turnover to grow and nobody expected it to shrink. This is particularly striking when you consider that the second half of 2020 saw an unexpected boom in the bridging sector and other areas of mortgage lending. According to our own data at the ASTL, bridging applications were 11% higher in 2020 than in 2019, despite the property market being effectively closed for many weeks. So, our members are bullish about the prospects for their businesses in the next six months. They are also, unsurprisingly, positive about the prospects for the bridging sector as a whole. In the latest wave of research, 77% expected the turnover of the bridging industry to grow in the next six months, compared with just 41% last July. This growth in turnover is expected to attract an increase in competition to the market. Last July, only 5% of respondents expected an increase in competition in the bridging sector in the following six months. More than 57% thought competition would decrease, and 38% expected it to remain the same. This time around, 43% think that competition will increase in the next six months, with just 10% anticipating a
ASTL members are bullish about their prospects
decrease and 47% expecting it to remain the same. A combination of increased turnover and more competition is great news for intermediaries and their clients, of course, as it’s the sign of a vibrant and competitive market, with plenty of choice and innovation, which benefits the customers. All of this positivity has also fed through into expectations for property prices. Last July, 23% of respondents expected slight growth in property prices, 43% anticipated a decrease and 38% thought prices would remain the same. Today, 63% expect slight growth and 7% think that prices will fall, while 30% think they will remain the same. This latest sentiment survey of the ASTL’s members is an important one. Not so much for the positive outlook that it conveys – and it is a very positive outlook – but more than this, it is important because it gives us an opportunity to take a step back and reflect on the year we have been through. When the days of lockdown restrictions all seem to merge into one, it can seem as though we are making no progress. We are, however, in a much stronger position than we were last summer – on current and recent business volumes, the route out of the pandemic, and the very positive outlook for our sector. We rely on the information our members provide, and the recent sentiment responses clearly indicate positivity. We are well down the road to recovery. B I www.sfintroducer.com
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