Bridging Introducer December 2021

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BRIDGING Champion of the Bridging Professional

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December 2021

 ASTL  Bridging In-depth  Movin Legal Interview

REFLECTING ON 2021 Looking back on the year that was



EDITORIAL

COMMENT

Contents 5 Jonathan Newman The ambulance chasers are coming, but don’t panic

Publishing Director Robyn Hall Publishing Editor Ryan Fowler Ryan@mortgageintroducer.com Editor Jessica Bird Jessicab@sfintroducer.com Deputy News Editor Jake Carter Jake@mortgageintroducer.com Editorial Director Nia Williams Commercial Director Matt Bond Matt@mortgageintroducer.com Advertising Sales Executive Tolu Akinnugba Tolu@mortgageintroducer.com Advertising Sales Executive Jordan Ashford Jordan@mortgageintroducer.com Campaign Manager Esha Gossain Esha@mortgageintroducer.com Production Editor Felix Blakeston Felix@mortgageintroducer.com Head of Marketing Robyn Ashman RobynA@mortgageintroducer.com CEDAC Media Ltd Signature Tower 42 25 Old Broad Street London EC2N 1HN

7 Donna Wells Looking back on the common bridging scenarios of 2021

Raising a glass

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have a sense of déjà vu, as this time last year I was writing about looking forward to the end of the pandemic, returning to some sense of normalcy, all the while with the threat of further lockdowns on the horizon. Here we are on the cusp of 2022, and it feels like not much has changed, as the Omicron variant brings with it the potential to backstep once again. But there is also a lot that has changed. For example, government schemes such as the stamp duty holiday and furlough have come to an end, and despite all the doomsyaing, the world did not end with them. Meanwhile, the buzz around COP26 boosted the green agenda even further, with all elements of the property finance market considering their role in reaching net zero targets. For bridging, the future looks bright. Continued supply shortages are still snarling up the development market, giving bridging the chance to step in and provide much-needed short-term release from time pressures. With larger development projects slowing, clients are making use of bridging for smaller refurbishment projects, auction purchases, and more. Regardless of what comes round the corner, the fact remains that the past two years have proven the resilience of the specialist market. Despite the uncertainty ahead, there is still good reason to raise a glass and toast to the health and wellbeing of bridging in 2022. B I Jessica Bird

Jess_JBird

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9 Jason Berry Positive times ahead for the bridging industry 11 Brian Rubins Not all loans are simple 13 Phil Mabb CBILS is dead, long live RLS 15 Daniel Yeo Why there is plenty to look forward to in 2022 16 2021: A year in review Bridging Introducer asks industry experts to reflect on the events of 2021, and look ahead at the horizon to 2022 26 Round-table: Building bridges Jessica Bird outlines Bridging Introducer’s round-table discussion, which covered the events of 2021, and lessons to take into the next year 32 Cover: Crucial Conveyancing Jessica Bird sits down with John Ahmed and Emma Hall, of Movin Legal, to speak about the challenges facing conveyancing and bridging, and why the business is well placed for the future

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Bridge to Let Development Exit option Short-term funding with a guaranteed exit option Our Bridge to Let option combines the best of our bridging and term products, providing short-term funding, plus a guaranteed exit option, should it be needed. With both options being underwritten from application, your client has certainty of an exit from the beginning of the transaction. Our bridging products offer: • Up to 80% gross day one LTV (up to 75% on Development Exits) • Up to 75% gross LTV onto a fixed rate term product, agreed at application • A bridging rate of 0.67% pcm • Term exit products from 3.82% We’ll consider applications from: • Experienced landlords and first-time landlords • Limited companies, SPVs and offshore companies • Ex-pats and foreign nationals Our Bridge to Let - Development Exit option is ideal for completed BTL projects that are looking to switch to more affordable bridging in the short-term, with a guaranteed term exit option.

Call us on 0345 241 3079 Visit www.castletrust.co.uk 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.

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Ambulance chasers are coming, but don’t panic Jonathan Newman senior partner, Brightstone Law

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t has become apparent that ambulance chasing firms are setting their sights on the bridging market. This is something I have written about previously, and now appears nearer on the horizon. Undoubtedly a cause for concern, the emergence of a functioning market with a degree of traction, places even greater emphasis on lenders and brokers to review processes and ensure they have their houses in order. At the same time, there is also no need for panic. There are good reasons why – on first glance – the bridging market would be attractive to these businesses, not least because the potential claims are much greater in monetary terms than their last, and most successful, breeding ground: PPI. However, there are some very significant differences to PPI – a product that was designated by the

regulator to be toxic, and almost never justifiable. So, the banks set aside large sums of money for compensation. There was no appetite to contest claims, reputational risks considered, so it really was a virtual no-lose claim organised by claims firms operating for small ticket returns but on a huge volume basis. In fact, claimants did not need the ambulance chasers at all, and could have achieved same results directly. The amounts involved in PPI were contained, with an average claim of no more than £5,000 to £10,000. Claim size is highly relevant to the ambulance chaser model. Where it falls below the fast track or small claims level, lawyers are usually deprived of opportunity to recover fees in litigation, so whilst the opportunity to earn for the claims management companies was there, claims lawyers were unable to gate crash the party. Mortgages and bridging finance facilities challenged at court offer much bigger rewards, including the opportunity to recover legal costs – but there is no no-lose certainty, the

Don’t slip up: Cover your business if you feel it is vulnerable to ambukance chasers

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litigation is costly, and takes time, currently lots of it. As a business model, that means little cashflow, requirement for funding, and all with the uncertainty of success. So, while there are good reasons why ambulance chasers might be attracted to the bridging market with emerging concerns around issues like secret commissions, the PPI style ambulance chasing business model is much less likely to succeed in our sector. Furthermore, no two cases are the same, so a workflow template model is unsuitable. Additionally, there are no true precedents of success, except in exceptional cases taken up against rogue small lenders conducting business off the radar and outside market range. You only have to look at the recent collapse of Pure Legal to understand the fragile nature of businesses built on claims management not properly thought through. The group, which incorporates claims firm Pure Legal, collapsed owing almost £25m to its funders and trade creditors from across the legal sector. It ceased trading on 2 November, with around 290 staff made redundant, and was running 28,000 cases when it folded. However, this will not stop firms testing the water until the model fails. Being spectacularly lacking in the quite complex skill, experience and expertise needed, they are likely to end up damaging their customers – so prepare for some pain, wasted time and costs for brokers and lenders alike, whilst the market is tested. By adopting a robust stance, far more robust than the banks did with PPI, all rank and file stakeholders can do their bit to prevent the growth of an unmeritorious cottage industry. If you are in any doubt that your business could be vulnerable to ambulance chasers, now is the time to make sure you cover off those vulnerabilities. Partner with experienced experts with specialist knowledge in the market and use this as an opportunity to ensure that your processes and documentation are fit for purpose, both now and into the future. B I DECEMBER 2021   BRIDGING INTRODUCER

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Season’s Greetings to you and your families

We look forward to working with you in the New Year 0161 817 7480 enquiries@romafinance.co.uk

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Common bridging scenarios of 2021 Donna Wells director, First 4 Bridging

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o say that 2021 has been a busy year for the bridging finance sector is a massive understatement. From an F4B perspective, we’ve seen huge advances in awareness regarding shortterm finance across the intermediary market, and a growing understanding of how to utilise this product and the type of property-related transactions which will benefit from it. This was evident in the specialist lending seminars we hosted across the UK in September, which drew full houses. It was great to be able to integrate some physical events back into the mortgage calendar as well, and engage with so many interested brokers on a face-to-face basis. After all, building relationships, understanding individual lending propositions, realising the benefits of working with a trusted packaging partner and identifying specialist lending scenarios remain key for advisers when it comes to growing their specialist business. As highlighted in recent data from the Association of Short Term Lenders (ASTL), it’s clear that bridging is fast becoming a more established and invaluable tool in the advice process. This is a fact which is being reflected in lending volumes as the sector continued to deliver strong, sustainable growth in Q3 2021, a period which saw applications and loan books both reach higher levels than in Q2. The figures, compiled by auditors from data provided by members of the ASTL, showed that bridging applications reached a record high of £7.72bn in the quarter ending September 2021, an increase of 4.9% on the previous quarter. While the value of completions in Q3 2021 dropped by 6.1% on Q2, completions still totalled £1bn in the www.sfintroducer.com

quarter, meaning that the value of loan books now stands at more than £5bn for the first time. This represents an increase of 6.8% on the previous quarter and a jump of 11.1% on the same quarter last year. In addition, average loan-to-value (LTV) ratios continued to hold at 59.8% in the second quarter, while the value of loans in default fell for the third consecutive quarter, a decrease of 4.1% over the first three months of the year and a fall of 3.6% on the same period a year ago. In terms of the types of cases where short-term finance is proving to be a key differentiator and delivering solutions which matter, let’s highlight some of the more common scenarios we have come across in 2021. The age old chain break has remained a familiar source throughout the year and this may well have been exacerbated by the stamp duty holiday, the subsequent extension and the additional pressure being placed on purchases leading up to these deadlines. We’ve also seen an increase in the number of property professionals taking on refurbishments projects rather than purchasing investment properties which are already completed and ready to go. The thought process behind these is often for such properties to be funded

Bridging is relevant for a multitude of scenarios

via a buy-to-let (BTL) mortgage, which is certainly not beyond the realms of possibility. However, many lenders operating in the BTL sector need a greater element of certainty and by that I mean, tenants being lined up to take possession imminently. As is often the case in scenarios like this, more work is required than initially thought, timeframes elapse, work overruns and costs spiral. All of which can often result in lenders pulling the plug post-offer and borrowers having to turn to short-term finance to bridge the gap until the property is deemed suitable for a future BTL exit. Speaking of exits, there has also been a surge in cases where investors are looking for an exit from development finance. Often the development has completed but with a delay, so the property hasn’t sold by the time the loan has to be paid back. This is something we continue to see, even amongst experienced developers. We also seen several cases where developers have finished a certain number of units and they want to raise capital against those to fund the next site. Auctions are also featuring heavily in the business mix as physical auctions are now being able to take place with greater frequency, alongside online ones. In a similar vein to the refurbishment scenario, we’ve seen many cases where people have gone to auction and bought an investment property thinking that it only needs some new carpets and a lick of paint, only then to find that it requires a lot more work than anticipated and a BTL mortgage is inaccessible either due to timeframes or lending policy. This could be for a variety of reasons or something as simple as they realise that they don’t like the property or areas. I hope this gives some idea of the scenarios we are dealing with on a daily basis and to help identify the types of scenarios where short-term finance could provide the ideal solution for your clients. B I

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Go on. Make their day. Our competitive range of regulated and unregulated Bridging loans have become renowned for their speed, ease and flexibility. With thousands of them under our belts over the years, there’s practically nothing we haven’t seen before. So whether your client’s been left in the lurch by another lender or just needs to move quickly on their next investment, we'll work with you and apply our common sense approach to make it happen. Find out more togethermoney.com/maketheirday

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Positive times ahead for the bridging industry Jason Berry group sales and marketing director, Crystal Specialist Finance

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ften as you head towards the end of the year, you start to cast your thoughts back over the experiences of the previous 12 months. While it would be easy to be less enthused about that prospect than in previous years, given the ongoing struggles from the pandemic, the reality is the property market, and the nation as a whole, is in a far more positive place today than a year ago. What’s more, there are real opportunities ahead for advisers and their clients as they adapt to the new normal. CHANGING NEEDS

This is one of the key messages that comes through from the research we published recently as part of our THRIVE campaign. A good example is the fact 30% of landlords YouGov spoke to as part of our research are planning to make improvements to, or convert, some of their existing portfolio. There is no denying the fact that what we look for from our homes – whether we own outright or rent – has changed due to the pandemic, with more people looking to live somewhere that gives them the option of working from home at least a couple of days a week. There’s only so long that you can work from the dining table before it starts to become impractical. So, it’s positive that such a significant portion of landlords are looking to improve their properties and make them more appealing to the renters of today. Tenant demand isn’t going away, after all – the sharp house price rises www.sfintroducer.com

seen over the last couple of years have made ownership more challenging for many, meaning a steady supply of potential renters for landlords. The best way to stand out from the crowd is to deliver the sorts of properties those tenants need for next year and beyond, and not necessarily the sort of property they’d have opted for a few years ago. TACKLING DEBTS

Other borrowers have different priorities for the year ahead, namely taking control of their outstanding debts by consolidating them. It’s no secret that the pandemic has been a huge challenge on the finances of an awful lot of people, and as things start to settle a little, the time might be right to bring those debts together into something more straightforward and easy to manage. Those challenges aren’t limited to

residential borrowers either. There will be plenty of investors who see this as a chance to rejig their debts and loans, to refinance in a way that leaves their business on a stronger footing going forward. BROKERS ARE CRUCIAL

The bridging sector has a big role to play here, which is why it’s perhaps unsurprising that our research highlighted such positivity among advisers about the sector’s prospects. In fact, a significant 30% of advisers identified it as one of the top growth opportunities for the future. The demand is obviously there from borrowers, but the way lenders have bounced back from the pandemic, to deliver even more competitive product ranges and criteria changes means bridging customers are in an enviable position, even if their circumstances are a little more complex. The next year promises to be even more positive for the bridging industry. By working together with specialists, advisers will be best placed to deliver top-class advice to their clients and help them identify the right products for their circumstances. B I

There are opportunities ahead for advisers

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Not all loans are simple Brian Rubins executive chairman, Alternative Bridging Corporation Limited

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ridging has evolved from a simple quick fix to help Mr and Mrs buy one house before selling another, to what is now another source of short to mediumterm finance, available to call upon when the high street banks are not willing to lend. This quick fix has evolved to satisfy the needs of the property industry and business community. Not quite all things to all men, but almost. Whilst residential bridging loans to homeowners still account for approximately one-third of all loans, it is wildly competitive and only service, pricing and scale separate the various lenders. Now it is even common for borrowers to find their loan on the internet, without a broker being involved. Clearly in the future, it will be the other two-thirds of loans where the fun – and profit – can be found for intermediaries. BUSINESS OVERDRAFT

We have developed the Alternative Overdraft, which combines conventional bridging with the flexibility of a bank overdraft. Covering loans from £250,000 to £2m it is best secured by under-utilised assets such as a second charge on a private dwelling, a first or second charge on residential or commercial investments or for the business community, owner-occupied commercial properties. It is ideal for providing working capital or it can be used to top-up other loans. As for a conventional overdraft, an agreed limit is set, usually up to 65% of the asset value, against which the borrower can draw down as little or as much as needed, repay or reduce the facility and then draw again time and time again. It is cost-efficient with interest only paid on the balance www.sfintroducer.com

outstanding and a small non-utilisation fee on the unused portion. Importantly it is immediately available during its two-year term and avoids repetitive setting up cost each time funds are needed – literally liquidity on tap. At the end of the two years, we are willing to consider extending the term. COMMERCIAL PROPERTY

retention is applied at the beginning of the loan or as a standby. DEVELOPMENT FINANCE

Loans against commercial property assets tend to be larger than those secured by owner-occupied homes and need careful attention to detail to ensure underwriting is smooth, simple and quick. This is achieved by identifying and communicating the fundamentals at outset. Is the property vacant, owner-occupied or let to tenants? If it is vacant, what is the strategy for its future use and how will interest be serviced? If it is tenanted, you need to provide detailed information on each tenancy. Interest payments for commercial bridging loans can be from a retention, which will reduce the capital available to the borrower, or by monthly servicing if the borrower can show this can be comfortably met from their own resources, allowing more of the loan to be available for business use. Often there are circumstances where the rental income of an investment or the profit from the business has not yet been fully achieved and retained interest will be the solution for an initial period. Just as term loans are required for Assured Shorthold Tenancy (AST) investments, there is also a demand for three to 5-year interest-only loans against commercial properties and other residential investments which is being met by some bridging lenders. Often this is to support business expansion or recovery, and in each instance it is necessary to prove debt service can be met. This will be difficult where lenders have a formulaic process but there are ways to structure a suitable arrangement if the lender is prepared to listen and understand the proposed strategy whereby an interest

Residential development finance is now becoming as much part of the shortterm lenders’ armoury as bridging loans, but sadly not all of the lenders new to these arrangements have the ability to efficiently underwrite the loan or to demonstrate adequate asset management after the loan is drawn down. In the drawdown process, there will be numerous ‘issues’ to resolve. First, reviewing all the requirements of the planning permission and secondly if the pre-commencement conditions been satisfied? Often the answer is they have not, and it is then that an experienced lender can decide to allow this to occur as a condition subsequent. Also, is there a ‘rights of light’ issue, or party wall agreement to enter into? All of this needs careful consideration and constructive thought by a well-versed lender if delay is to be avoided. We cannot remember any prospective borrower asking us about our drawdown process for stage advances as construction proceeds – they should! We are aware of how urgent it is for developers to pay the contractor or sub-contractors on time and we ensure our asset management team stays in close contact with the developer’s professionals so that valuation certificates can be met promptly without fuss and bother. Not every lender does this and delay in payments causes ill will on site and often causes the programme to stop. Bridging finance, more properly named short-term lending, will continue to evolve. Not only will there be new players but also new products and adaptation of existing arrangements. Not all of the existing arrangements are simple and the likelihood is that as time goes by, to meet new challenges, they will become more complex. However, this will offer opportunities for those introducers who stay at the forefront of the industry. B I

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Market-leading bridging rates in minutes With rates from 0.49% and LTV up to 85%, you can access low-cost, high-leverage bridging finance for your clients quickly through our online bridging portal.

Property finance made simple.

lendinvest.com/ intermediaries LendInvest Limited is registered at 8 Mortimer Street, London, W1T 3JJ (Company 08146929). Your client’s property may be repossessed if they do not keep up repayments on their mortgage. For intermediaries only.


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Death of CBILS, dawn of RLS Phil Mabb property finance broker, Bridge Development

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ugust 2021 marked the death knell of the Coronavirus Business Interruption Loan Scheme (CBILS). Overlapping this was the launch of its supposed replacement, the Recovery Loan Scheme (RLS), in a rather muted fanfare, starting on 30 April 2021. The RLS was recently extended a further six months to 30 June 2022, albeit with a number of additional restrictions. So, was it all that it was cracked up to be, and who are the winners, and potential losers? SUCCESS AND FAILURE

As far as CBILS goes, I think it would be fair to say that whilst it took a while for accredited lender adoption to manifest itself – including one lender only joining the fray a week or two prior to the application deadline – CBILS was both a success and sadly a failure at the same time. Why, you ask? Personally, I myself was not an early adopter, not recognising the enormous benefits being availed to the end user. When I did, there were huge bottlenecks with demand exceeding supply and an evident resource issue amongst lenders involved. The bottom line was that there was simply not enough money to go round, or for that matter, sufficient lender participation to assist with greater and fairer distribution. That said, it was undoubtedly a huge result for those clients lucky enough to have secured a facility. Whether the winners ended up actually needing it is a matter of conjecture – some of the losers being www.sfintroducer.com

those that could not complete on time, or where money was deployed only to be repaid very early after drawdown, and therefore not ending up with those with greatest need. Of the three core property finance classifications, namely commercial term, developer exit and development finance, I was fortunate enough to assist a number of clients with funding in the latter two. I won’t deny this had more to do with luck than judgement, with multiple lender applications running concurrently to see if anything was going to drop. I was in the same boat as everyone else, oh boy what a ride! With all their in-house resource and capabilities, I do think a number of challenger banks missed or side stepped the CBILS opportunity. Despite a number of conversations I had with the same, I am still not convinced I know why – but let’s not dwell, as along came RLS. CBILS is dead, long live RLS! I don’t suppose we could have expected the same level of state backed generosity from the RLS offering, and that it has proved. Financial terms are not so attractive – the word ‘free’ being totally alien here – and it came to pass that the number of property lenders

CBILS: Some banks missed the opportunity

involved shrank too, which was not exactly a surprise. Notwithstanding that, I hear you say ‘something is better than nothing’. Absolutely agreed – the anticipated economic downturn in the housing sector has been nothing like expected, in fact, it has been very positive in many quarters, and certainly unlike that felt in other equally or more deserving sectors. We should be grateful for small mercies, shouldn’t we? RESTRICTED PRODUCT SET

As we got used to – or became aware of – the state providing innovative lender support, or inducement to encourage continued lending, it has been disappointing to see fewer runners and riders into the RLS lending space. This has been compounded by the fact that several participants took a long time to enter, some focusing on closing out their CBILS obligations, others waiting on their accredited applications to be processed and others simply not sure on whether to enter the fray at all. With a smaller distributing channel, and consequentially a restricted product set, it was inevitable that an extension was on the cards, but we still run the risk of deserving clients missing out. At the risk of repeating myself, it does beg the question as to why there has been limited participation of challenger banks. On the one hand, there is undoubtedly a cost to process and transact, but on the other, the challenger banks have both technical and people resources, don’t they? Isn’t this their very memorandum operandi – to fill the voids created by high street lenders? I can see they are partially represented in other sectors, but why not property as well? What am I missing? Finally, there has been plenty of media noise on the potential fraud within CBILS facilities, and no doubt the same will be made of RLS, but right now the jury is still out. From my perspective, being property asset-backed lending, l would like to think it won’t be quite as bad as made out – a topic for the future perhaps? Seasons Greeting – see you in 2022! B I

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Plenty to look forward to Daniel Yeo managing director, Specialist Finance Centre

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hen looking back at 2021, it will go down in the history books as a year which has seen exceptional levels of property-related business across a variety of sectors. Much of this has to be attributed to the government’s stimulus package and the extension of a stamp duty holiday which has provided a shot in the arm for the housing market and the economy when it needed it the most. The pandemic continues to generate many shifting attitudes, outlooks and demands being placed on our homes. From an investment standpoint, we have seen investors looking to dilute their portfolios and maximise revenue from existing stock. There has been an increase in conversions, which have been helped by permitted development changes to bolster the number of commercial properties being converted to residential. In addition, the growing staycation trend has led to standard buy-to-lets (BTLs) being used as holiday lets where possible to maximise rental yields. Focusing on the bridging sector, the volume of liquidity in the market has generated a red hot lending environment which in turn meant that competition intensified, pricing was driven down and loan-to-values (LTVs) increased throughout the year. These positive trends were great for both borrowers and for an intermediary market which has really switching onto the benefits of short-term finance. A fact which was especially apparent around the stamp duty deadlines, with so many chain breaks across the residential arena. The quality and speed of service has remained vital to the success of short-term finance, and we have seen

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many lenders really sharpen their offerings in 2021. Especially when it comes to professional standards, raising awareness around how to identify the right scenarios for such solutions and in meeting intermediary/client expectations. Lenders, such as West One, have increased their sales team both internally and externally this year and in 2022 are looking to widen their visibility and make even further inroads to intermediaries across the whole country. Of course, this is not the only lender to make positive strides, many others have evolved from both a service and product perspective to help lower the industry average turnaround and

“As we head into 2022 – at the time of writing – speculation over an increase in the Bank of England base rate continues to gather momentum and when combined with increasing inflation levels then we could see house prices soften” average application to completion times. Although there remains plenty of room for improvement in both these areas. Looking at the types of business being written, the split between regulated and non-regulated business swung more towards non-regulated over the course of the year. There has been a substantial growth in auction finance in H2 2021 and it’s fair to say that residential investment remains the largest use for bridging and that this is likely to continue in 2022. So, what else can we look forward to in the year ahead? There are already a huge number of options available across the bridging finance sector and this is only likely to increase as new lenders will emerge

and product ranges will evolve to meet ever-changing demand from a range of property professionals. As we head into 2022 – at the time of writing – speculation over an increase in the Bank of England base rate continues to gather momentum and when combined with increasing inflation levels then we could see house prices soften. This may spark some additional activity amongst property professionals who are looking to take advantage of any lulls to add to their portfolios. I also expect to see a growth in mixed portfolios as more landlords and investors turn to specialist lenders and the intermediary market to help them diversify their portfolios in a bid to better manage risk and increase revenue. Finally, with energy efficiency rules changing in 2025 – landlords will be unable to rent properties without an Energy Performance Certificate (EPC) rating of C or above after this time – we have already seen some landlords embark on certain degrees of refurbishment activity. According to recent research from Shawbrook Bank, 17% of landlords have made efforts to improve the energy efficiency of their property, rising to 22% of portfolio landlords and this number is only likely to increase over the course of 2022. With many BTL lenders still not willing to lend on properties who are in need of larger refurbishment projects, short-term finance could prove the answer in funding these upgrades. Obviously a BTL can still prove to be a viable exit once the necessary works have been completed to the lenders satisfaction. All of which means that there’s plenty to look forward to and even more reason why intermediaries should utilise bridging finance to meet a wider range of their clients’ property-related needs. Or at the very least find a trusted specialist packaging partner who can do all the hard work for them. B I

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FEATURE

YEAR IN REVIEW

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he start of 2021 found the UK as a whole still in the throes of the pandemic and resulting lockdowns, despite hopes that these might be left behind in 2020. The property finance market, and bridging in particular, had largely learned to cope with the demands of the ‘new normal’. Eventually, lockdowns eased and businesses were able to return to their offices, in person meetings, and non-virtual events. The stamp duty ended, taking with it a flurry of bridging activity as borrowers tried to make the most of the incentive while it lasted, but there was little sign of slowing down in regulated bridging. The pandemic has served to push this sector further into the mainstream consciousness, and more than ever it is seen as a useful tool in the wider property finance set. At the end of Q3, the Association of Short Term Lenders (ASTL) found that the overall value of bridging loan books stood at £5bn for the first time, while the

latest Bridging Trends data saw lending return to the highest level since 2018. As the country emerged from the pandemic, thoughts turned to other uses for bridging, beyond coping with chain breaks and supporting residential transactions where the mainstream could not. Green finance and modern methods of construction, refurbishment as people changed their wants and needs at home, conversion projects as high streets and city centres morphed into their next phase – all of these factors and more have played into the strength of the short-term lending market in 2021. However, as the end of the year draws closer, the world is faced with the newest COVID-19 variant, the potential for future lockdowns, and a general sense of uncertainty. Bridging Introducer asked experts from across the market to take a look back at the lessons learned over the past year, and consider what might be on the horizon for 2022.

Bridging Introducer asks industry experts to reflect on the events of 2021, and look ahead to 2022

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FEATURE

YEAR IN REVIEW

Echoes of 2008

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arket Financial Solutions (MFS) Paresh Raja marked its 15th birthday CEO, Market in October 2021. While Financial Solutions not a particularly old age for a company in the grand scheme of things, it is a fair innings for a bridging lender. I say this because, as I reflect on the past year, I see marked similarities with trends that took shape after the Global Financial Crisis in 2008, which few other lenders will have been around to experience. Then – as during the pandemic – many mortgage lenders withdrew products and became more risk averse, which meant property investors and brokers needed to source finance from alternative sources in order to press ahead with their purchases. This has been a key reason in explaining the strong performance of the bridging sector. Another, of course, is the stamp duty holiday – it fuelled a huge amount of activity across the property market, driving up both prices and transactional activity. We should not put the sharp uptick in house prices or transactions down to the tax break alone, though. Just like 13 years ago, there has been a palpable sense that investors have flocked to bricks and mortar as a safe asset class in the midst of economic turbulence and uncertainty. In many instances, people have not invested in property in spite of the pandemic’s shockwaves, but because of them. Unlike 13 years ago, the UK’s bridging sector is no longer a minnow. Its growth has been remarkable, as evidenced by both the number of lenders operating in the industry and the range of products they offer. The total value of firm loan books reached a record high £5.07bn in Q3 2021, according to the Association of Short Term Lenders (ASTL). Bridging applications also hit an all-time high of £7.72bn in the quarter. For context, in 2010, annual lending within the UK bridging sector totalled around £400m. We must, then, look back on 2021 as a successful year. The property market once again showed its lasting appeal, with frenzied demand among buyers. Bridging lenders, by and large, responded well to this demand, providing fast finance to allow brokers and their clients to succeed in such a competitive climate, not to mention plugging gaps left behind by traditional lenders that were unable or unwilling to react to increased demand. My outlook for 2022 is certainly positive. We should expect a different set of circumstances without the stamp duty holiday to contend with, but the challenges and uncertainty presented by COVID-19 – and its many variants – are likely to remain for some time yet. For MFS and many of its peers across the bridging market, we cannot allow the successes or growth achieved in 2021 to fuel complacency. Improving trust and transparency across the short-term finance sector remains of utmost importance – as property buyers and investors stride into the ‘new normal’ on potentially unsteady ground, they and their brokers will need trustworthy lenders able to support them in their endeavours. We must answer that call. → www.sfintroducer.com

DECEMBER 2021   BRIDGING INTRODUCER

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06/12/2021 14:53


FEATURE

YEAR IN REVIEW

More innovation ahead

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e are continuing to see competition increase in the bridging head of marketing, market. Over the past Brightstar Financial year, we’ve seen more lenders realise that they can’t compete on just doing vanilla business, and this has resulted in more innovation and lenders doing more interesting things. There are a lot more lenders doing heavy refurbishment and development finance now than there were this time last year, and we are even seeing some good options for heavy refurbishment on regulated bridging. This used to be really difficult to place, but now there are some very good options for borrowers. For a specialist in the bridging space, it’s now possible to place pretty much every case. There are so many options – the trick is to understand the right lenders for different situations, and then know which of those lenders will offer keener pricing. One key trend we have seen over the last year has been the demand for development exit loans. The challenges faced by the construction industry – in terms of labour shortages and supply chain issues – have been well documented, and a consequence is that many developers have found themselves approaching the end of their development facility before being able to secure an appropriate long-term solution.

Michelle Westley

“For a specialist in the bridging space, it’s now possible to place pretty much every case. There are so many options – the trick is to understand the right lenders for different situations, and then know which of those lenders will offer keener pricing. One key trend we have seen over the last year has been the demand for development exit loans” Another issue for developers in securing longer-term buy-tolet (BTL) funding is that many lenders are now looking for a full warranty, like the NHBC 10-year warranty, rather than being able to rely on a Practical Completion Certificate, and there are extra cost and time considerations involved in securing this. A development exit loan offers the option for additional capital raising, and usually a lower rate that any development or heavy refurbishment facility, whilst buying the investor the time to market the scheme for sale or to arrange longer-term finance. We expect this trend to continue into next year, and with competition still increasing, we’re likely to see yet more innovation and more bridging options for clients in 2022.

www.sfintroducer.com 14:53

Good year for bridging

2

021 has certainly been a strong year for the group sales and bridging marketplace. marketing director, Increasing appetite to Crystal Specialist lend from established Finance bridging lenders, plus enthusiastic new entrants created an improved competitive landscape which in turn delivered a period where the best ever short-term finance deals have been available. Additional government stimulus for the housing market during the pandemic was also most welcome, with not one but two stamp duty deadlines assisting the annual bridging transaction levels.

Jason Berry

“I’m pretty sure that the ongoing lender competition will keep rates and loan-tovalues consumer-friendly” The inevitable time pressures this incentive caused undoubtedly created increased opportunities for mortgage brokers, who were keen to ensure valuable purchase chains did not break. Separately, purchasing investment properties with essential need for heavy or light refurbishment has also been increasingly popular this year. In this area, it is evident that some mortgage brokers and their discerning clients really do get the benefits of using bridging wisely. Put simply, they adopt a formula which ensures bridging finance is a wealth creation tool. The multi-transactional bridging borrower readily accepts that this is not the cheapest form of funding, but very much understands the future value of the security they are purchasing. They also accept that alternative finance may not be available. It is by estimating this future value and offsetting costs once the security has been transformed by the cash released, that the wealth creation occurs; indeed, it is common for both the property value and the rental yield to have risen significantly by the journey’s end. Looking into 2022 I’m pretty sure that the ongoing lender competition will keep rates and loan-to-values (LTVs) consumerfriendly, which is extremely positive. Opportunities in the specialist marketplace are likely to mean that many of the newer bridging lenders expand their propositions, so buy-to-let (BTL) is incorporated. Government support will continue to assist bridging finance, but pivot to primarily assist with the relaxation of planning and change of use rules. In regard to mortgage brokers and their appetite to consider bridging, I was very encouraged to see results from our recent Thrive survey, which ranked bridging third behind Specialist residential and specialist BTL as an area brokers saw most opportunity for in 2022. By collaborating with an award-winning expert like Crystal, I am sure mortgage brokers can place and convert more of their bridging enquiries next year, and every year.

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Bridging Introducer Mag - Home Loans.pdf

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FEATURE

YEAR IN REVIEW

The year of the possible

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021 has been a year of the possible when director of bridging it comes to the bridging and development, market; a year when Pink Pig Loans various factors combined to put bridging firmly on the radar for many advisers, not least because many borrowers required this type of finance in order to meet the numerous deadlines set throughout the year. To my mind, this year showed exactly why bridging finance is so important in our market, and the fact we also had an incredibly competitive array of products to choose from – with lenders showing strong appetite right across the piece – is testament to the demand that is there and the acknowledgement by lenders that this is a sector of the market worth supporting. With this competition has come some incredibly competitive pricing, which is always going to go down well with advisers, especially when they are utilising the services of a business like our own, which has access to the full range of options. This might not be the case if the broker is attempting to ‘go it alone’. However, as we all know, the price of products is not the be all and end all of bridging. It tends to be an option for those who are ‘time poor’ and, from my perspective, 2022 is more likely to be a year when service, completion and turnaround times are prioritised over and above price. For instance, in recent weeks – and this is likely to be an ongoing trend – I have been talking more and more about the technology

Luke Egan

“To my mind, this year showed exactly why bridging finance is so important in our market, and the fact we also had an incredibly competitive array of products to choose from – with lenders showing strong appetite right across the piece – is testament to the demand that is there and the acknowledgement by lenders that this is a sector of the market worth supporting” bridging lenders can offer which can have a real difference. I’m not suggesting we replace manual underwriters or human beings in the process, but in certain areas, for example having robust automated valuation providers, can take a week or two off completion times, which is always going to be beneficial. Add in the growing use of something like open banking in order to speed up decisioning and the process, and it is possible for lenders to gain a significant competitive advantage, in a market which is hotly contested. In 2022 I think we’re therefore likely to see bridgers competing on service and tech rather than just price, and I suspect the ‘winners’ will be those who are able to hit a sweet spot on both.

www.sfintroducer.com

A strong trajectory

2

021 has been another great year for commercial director, bridging. Obviously, the Black & White figures clearly show Bridging progress, with the last bridging statistics from the ASTL showing that the total value of member loan books was £5.07bn in the quarter ending in September, which is an increase of 6.8% on the previous three months and a jump of

Damien Druce

“Strong competition from an increasing number of lenders has created a truly competitive environment which, on the face of it, is good for brokers and their customers. However, some lenders need to concentrate on making sure that their propositions are more transparent in respect of the service they offer and headline pricing must be seen to be achievable” 11.1% on the same quarter last year. Applications also hit a record £7.72bn in the quarter, an increase of 4.9% on the previous three months. That, in itself, is a cause for celebration, but it is the image and status of bridging that has been reinforced this year. Bridging is now without doubt a fully mature and robust component of the mortgage market and part of most brokers’ armoury. Short-term finance has never been more popular, because of the multiplicity of its uses and the enhanced ability it gives customers to purchase, renovate, sell on or allow the time needed to act as a stopgap while arranging longer term funding. Strong competition from an increasing number of lenders has created a truly competitive environment which, on the face of it, is good for brokers and their customers. However, some lenders need to concentrate on making sure that their propositions are more transparent in respect of the service they offer, and headline pricing must be seen to be achievable and open to more than just a few selected cases. 2021 has been the year when the positive perception of shortterm lending has finally been fully embedded. 2022 already looks – new strains not withstanding – very positive. Demand remains high and current supply is more than capable of meeting next year’s demands. Whilst all-encompassing regulation is no more likely than it was in 2021, we all need to be aware that in 2022 self-regulation will rely on all industry players continuing to take their responsibilities to customer welfare seriously. There are likely to be more concrete proposals for industry qualifications in 2022, which should help to reinforce the continuation of self-regulation.

DECEMBER 2021

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FEATURE

YEAR IN REVIEW

A return to city living Marios Theophanous credit manager, London Credit

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u r i n g a ye a r i n which the bridging market began recovering from the hit caused by the 2020 COVID-19 lockdowns, a highlight

has been the London market. As people and businesses have gradually returned over the year to city life for work – even if only for three or four days a week – and hospitality has reopened, the allure of the capital has returned. Take a walk through Soho during any evening of the week and you’ll be excused for thinking the pandemic never happened. What we are seeing in London is strong interest from investors looking to snap up those properties which may be in need of a little TLC. Some of the properties that have struggled to sell over the past year or so have been those flats which need refurbishment. They don’t match the standard of rival properties in the area, and as a result they have lost out even in the midst of the extraordinarily busy market we have at the moment. However, by making use of a dedicated refurbishment loan, the investor can secure funds not only to cover the purchase of the property itself but also to finance the required improvement work. Once that work is completed, they can put the property back on the market again, safe in the knowledge that it will hold its own among rival homes and flats and deliver a profit whether they want to sell it on or hold it as a buy-to-let (BTL) investment.

“Savills has forecast growth of around 1.5% in London house prices this year, jumping to 4% next year. By 2025, it predicts that prices in the capital will be around 12.6% higher than they are today – a fact that should prick up the ears of property investors” While investors may need to be a little cannier about precisely where they invest in the capital, and the sorts of properties they invest in, they can be confident that it will continue to catch the eye of those looking to get a real return from putting their money into property. While property price growth has been slower in London, it’s important to remember that property in the capital costs far more than other regions – a 5.2% rise on such an expensive asset translates into a pretty large cash return. Further growth is expected too, as the reopening of the city reminds buyers and tenants alike of the appeal of living in the UK’s capital and a so-called ‘world city’. Savills has forecast growth of around 1.5% in London house prices this year, jumping to 4% next year. By 2025, it predicts that prices in the capital will be around 12.6% higher than they are today – a fact that should prick up the ears of property investors.

www.sfintroducer.com

Keep the wheels turning

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he industry has experienced one of the most turbulent CEO, Finance 4 times in its history since Business the start of the COVID-19 pandemic in 2020. The shockwaves have continued, still affecting us now – but what were the main changes and market factors of 2021 in the finance world? Property prices soared, mainly as a result of the Stamp Duty Land Tax (SDLT) holiday, which saw residential buyers scramble

Dave Pinnington

“Opportunities to repurpose developments have grown, as office space becomes less desirable, with social distancing restrictions still fluctuating and therefore guidance ever-changing. Many firms are making the most of their forced investment in remote working processes and reducing office space requirements” to take advantage of this saving, which pushed prices up, and arguably made savings less advantageous. However, the appetite for this was unwaning, and prices are still yet to fully stabilise, despite the holiday ending in October. This has affected the available property for developers to invest in at the right price to make a profit. Supply shortages presented huge issues for developers in 2021, as factors such as Brexit, the Suez Canal container ship blockage, and hikes in container shipping fees resulting in major shortages of key building materials. The situation is starting to ease, but remains an issue. Opportunities to repurpose developments have grown, as office space becomes less desirable, with social distancing restrictions still fluctuating and therefore guidance ever-changing. Many firms are making the most of their forced investment in remote working processes and reducing office space requirements. Similarly, the pandemic has forced closure of some hospitality venues. Developers have been able to capitalise by repurposing office, retail, or leisure-destined space for much-needed residential dwellings, to keep the revenue streams flowing. What will 2022 hold? While the landscape is still in flux and the effects of 2020 and 2021 will continue to be felt, as developers continue to take a creative approach and seek outside-of-the-box solutions, 2022 should present an opportunity for brokers to be just as creative in sourcing their lending solutions. Traditional lending sources will remain, but with a growing pool of funding from private lenders, family office wealth and other equity holders, brokers must be prepared to up their game in creating the right relationships to leverage these funding sources for clients and keep the wheels of economy turning.

DECEMBER 2021

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Showcase your specialist finance expertise by featuring your business in the next Specialist Finance supplement - out with the June 2022 issue of Mortgage Introducer. If you specialise in Bridging Finance, Buy-to-Let, Commercial Finance, Development Finance, Asset & Invoice Finance or Secured Loans, contact us today to secure your spot in the guide.

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SPECIALIST FINANCE GUIDE - OUT JUNE 2022

For the latest news and developments from across the UK specialist finance sector, visit www.specialistfinanceintroducer.com


ROUND-TABLE

MARKET

Building bridges Jessica Bird outlines Bridging Introducer’s round-table discussion, which covered the events of 2021, and lessons to take into the next year

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he past year has certainly been eventful, including seeing the UK finally emerge out of lockdown and return to offices, events and public spaces, as well as the end to historic government interventions in the stamp duty holiday and furlough schemes. With the focus shifting finally away from COVID-19 earlier in the year, thoughts returned to other themes, such as the housing crisis, the market’s role in addressing climate change, and the public’s changing relationships with working and living spaces. However, as the year draws to a close, there is a sense of déjà vu, as the Omicron variant creeps onto UK shores and the prospect of another lockdown looms. Will 2022 bring more of the same, or are new challenges on the horizon? Bridging Introducer’s December round-table brought together experts from Movin Legal, Precise Mortgages, Together, LendInvest, CrowdProperty, Aldermore Bank and Bridge Development to discuss the trends both behind and ahead of market.

“We’ve also got an inflationary risk, and Brexit as well, and that will compound and be the issue. “But as for the lending side of the business, we’re all set up remotely, and so are the professionals, so hopefully we wouldn’t flinch too much.” Tom Short, associate director of CrowdProperty, notes that while many businesses have adapted to remote working, there are some that faced particular difficulty during previous lockdowns. “We all saw the work of valuers and lawyers becoming a bit more difficult in the market last year,” Short explains. Even if we were prepared, that’s probably the key thing that will stop things progressing in a timely fashion, which is the key bit for bridging – being a fast and efficient type of product.” Matt McCullough, national sales manager at Aldermore Bank, agrees that it is not the lending, but the moving parts around it that is a concern if a new lockdown is on the horizon. “It’s the context around it,” he explains. “If the cogs are turning, it should be OK.”

A NEW LOCKDOWN As the UK steps deeper into winter, the threat of lockdown has re-emerged. Faced with a potential return to those restrictions the market – and the country as a whole – would rather have left behind, Emma Hall, key relationships director at Movin Legal, says that luckily, provisions are already in place at most businesses – the prudent ones, at least. Justin Trowse, director of bridging finance at LendInvest, agrees that – by and large – the market is already prepared for lockdown following the past year and a half. However, he warns that ongoing supply chain issues could be exacerbated even further in the event of more restrictions coming into play. He explains: “It’s quite early to say whether we will have a lockdown – hopefully not, but if we do, the largest impact will be on the supply chain, for getting materials. “Again, that market is already squeezed and we’re already seeing some quite severe knock-on effects.

YEAR END TRENDS The hope is that lockdown does not have to set in again, and that the market can continue the process of emerging and recovering from the effects of the pandemic. To this end, it is worth looking at some of the trends within the bridging market as the end of the year approaches. With the stamp duty incentive having passed, one trend is a lessening of the frenzy of purchases – and therefore the need for residential bridging – meaning that other uses of short-term finance can perhaps come to the fore. Emily Machin, head of specialist finance at Precise Mortgages, notes that one result of the recent flurry of activity is now a decrease in available stock, and that this in turn is perhaps shifting the market away from regulated bridging slightly. “It is because of the lack of stock,” she explains. “It isn’t really about purchases at the moment, it’s about going to auctions, and getting properties up to some sort of standard so that they can turn them out.”

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ROUND-TABLE

MARKET She adds that the other area that is coming to the fore now is the opportunity to do work to improve a property’s Energy Performance Certificate (EPC) rating. Machin explains: “People are looking to improve those via a bridge, before they can term it, and so it’s quite an exciting time for the bridging market, but it is obviously quite challenging due to everything else that’s there mentioned in terms of Brexit, lack of stock materials, supplies all of that.” Machin adds that more lenders will likely be focusing on the development exit space, as well as commercial bridging, particularly if this was an area of priority prior to the original onset of the pandemic. Short agrees that due to various delaying factors, developments need more time, opening a space for bridging. He says: “People naturally are coming up to the end of the terms of their development loans, not having had time for a sales exit, so are buying more time with bridging. “We’re still seeing a lot of that in terms of volume. People are just needing a bit of help with a bridge at the end of the day.” He adds: “The resi market might have died down a little bit, but we’re still seeing loads of competition for development sites, due to scarcity, so people are getting outbid, or they are just needing a bridge to secure a site quickly before moving to a development loan in due course. That need for bridging at the front end is as strong as ever at the moment.” McCullough confirms that this is a trend being seen at Aldermore, too. He says: “We do a lot of exits, especially from development, and what we see a lot of is retaining developments because – unfortunately – people have taken out large bridges to renovate and do up properties, but actually they’re struggling to sell them. “So they’re retaining them. They’re changing their portfolio, retaining 30% – maybe upwards of that sometimes – onto their current bricks and mortar portfolio book. Then we’re looking to exit that development and keep them as a landlord on that property. “So, we’ve seen more interest in the exit, but the retained exit.” For Trowse, current bridging market trends reflect

“Any time new lenders come into the market, it’s great, ultimately, because it drives competition…it wakes [the market] up a little bit” EMILY MACHIN

www.sfintroducer.com

“There seems to be this communication gap between the instruction and the lawyer as to what’s actually required, and it’s a gap that needs at closing” EMMA HALL wider social trends, including changing attitudes to working and living spaces. He cites an increase in bridging for refurbishment, as well as purchasing commercial sites, and refinancing of deals as a result of delayed planning. He continues: “We’re going to see a lot more commercial stock being repurposed for residential use because of the availability of land.” Marylen Edwards, regional account manager south at Together, agrees that there has been an uplift in commercial purchases and permitted development (PD) conversions, in particular. She adds: “We’ve also seen a lot of first-time landlords coming onto the market, buying properties that they then do up and sell so they get some capital gain, but also looking to convert to [houses in multiple occupation (HMOs)] to capitalise on the rental market. “So again, they are new to the market and they need that time period to get everything in order, so that’s where we’ve seen the growth in bridging.” Short notes that, although the market is doing well to emerge from the trials of the lockdown periods, the fact remains that some areas are still moving slowly, and that things taking longer to get over the line will continue to be a trend through the end of the year and the beginning of 2022. LESSONS FROM 2021 For Phil Mabb, property finance broker at Bridge Development, one of the key lessons from 2021, has been to watch how lenders have behaved. This, he argues, will likely influence their popularity with clients and intermediaries well into the future. “Good behavior will be something that I think reputationally will be quite important next year,” he explains. “We’ve already been there to some degree in the last year or so, and if we have another lockdown we could be revisiting old ground. I certainly have my catalogue of lenders who were good and behaved a little nicer.” A further lesson from the pandemic is the importance of contingency planning and time, which is where a product like bridging comes in. Short explains: “There’s a collection of different things that are driving a growth in our bridging loan book, but front and back, bridging is becoming ever more → DECEMBER 2021

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ROUND-TABLE

MARKET

“The bridging market is bigger than it seems, and I think it has been maturing all the time. It’s been cleared up, it’s looking a bit more glossy” PHIL MABB

important just to give people time at all different points in the project lifecycle.” Overall, the key takeaway is perhaps the strength and solidity of the bridging market as a whole, and its emergence even more as a tool to be used to maximise an investment, rather than as a last resort. “I’ve always had a view that the bridging market is bigger than it actually seems,” says Mabb. “And I think it has been maturing all the time. It’s been cleared up, it’s looking a bit more glossy, and I think it’s massive. “This market has been around for a long time, and it’s getting better. We’re all proud of the industry we work in, and long may it last.” COMMUNICATION AND EDUCATION The growth and maturity of the market has led to an increasing need for education and communication. As new brokers and intermediaries start to dip their toes into an ever more popular and widely known product pool, there is a danger that newcomers lack a full understanding of its intricacies. For Hall, this is particularly true when it comes to the complexities of conveyancing in this field, compared to the more simple requirements of mainstream lending. “One of the big problems is that the cheap conveyancing market doesn’t suit working in this market, unfortunately” she explains. “People will go for the cheapest, without actually picking up the phone to the lawyer to say what they’ve got to do and by what date. There is the presumption that every lawyer can just do everything as cheap as chips. “That really isn’t the case, and it’s something I know we’re going to be doing a lot more on next year – and we do it now. If we see a bridging case come through our system, we will go to the broker and explain if the lawyer is not going to suit them.”

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Hall continues: “There seems to be this communication gap between the instruction and the lawyer as to what’s actually required, and it’s a gap that needs at closing.” Machin confirms that this can be a problem in the bridging market, particularly when the client wants to use their own solicitor, who might lack the relevant experience. This need for education goes beyond the complexities of bridge conveyancing, of course. With increasing numbers of brokers entering this space for the first time, the Association of Short Term Lenders (ASTL) and the Financial Intermediary and Broker Association (FIBA) recently launched a proposal for an education programme, covering bridging, development and complex buy-to-let (BTL). Edwards says: “Brokers need to understand what they’re getting their clients into – the exits, the types of properties that they’re buying – because they don’t want to be buying something that they can’t exit. “There’s a lot of non-standard properties coming onto the market at the moment, where they’re either going to get restricted [loan-to-values (LTVs)], or some lenders won’t even touch them, depending on their criteria. “Also, the exit penalties can be quite steep if a client doesn’t exit in time. “We get a lot of new first-time buyers just wanting to go for six months, but you can’t always guarantee you’re going to get a remortgage within that six-month period, because a lot of lenders won’t touch it until six months. So it’s about trying to encourage them to do longer terms, because the interest will be prorated back on a redemption. “It’s saving them an awful lot of money if they suddenly don’t meet the deadlines, and I think that’s something brokers sometimes neglect to tell their clients, unfortunately.”

“Probably the biggest thing for people coming into the market, and for new brokers, is having an understanding of the government changes and the impact they’ll have” MARYLEN EDWARDS

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ROUND-TABLE

MARKET Machin adds that, beyond simply needing to know more about the various options available, some brokers should be asking themselves serious questions about whether they should be working with clients in this space in the first time. This includes honestly considering whether they know enough about the industry, whether they understand all of the key players and what is available and advisable. Machin continues: “My fear is that – particularly for brokers that don’t do this kind of business regularly – they don’t necessarily understand the market in its entirety, and what lenders can offer, and actually therefore are they aren’t giving their customers the best deal. “That’s part of what FIBA and the ASTL are trying to do – come up with some sort of education, some sort of qualification that brokers can take to get them up-skilled before they actually enter the market and do business with clients.” Edwards notes that in some instances, having a full understanding of the market will mean finding a term product rather than a bridge – in theory taking business away from the short-term lending sector, but ensuring that the quality of lending is maintained in the long run. For example, McCullough adds, with the recent rise in popularity of auction purchases, bridging is an ideal project that can take a run down property and make it ready to sell on. However, a knowledgeable broker might be able to see that not all auction properties are in such poor condition as to need short-term finance. He says: “A bridge is a great product, but not all of the auction purchases are in a bad way. New curtains and fresh paint on the front door could be done in two weeks – actually what it needs is more lenders to be open to that fact “I think that’s where the education bit comes in – I think you just need to educate deeper for new entrants. It’s about pros and cons – why should you do this over a term deal? At the minute it’s all pro bridging, or pro mortgage, there’s no con on either side, and I think people need to talk more about that.” Hall adds that this market might be comparable to equity release, where there are enough differences and complexities compared with mainstream, vanilla mortgages, that brokers have to take a qualification in order to enter the market. Hall adds: “That market is seen as having an element of risk, and you can’t advise an equity release without that exam. Obviously this is a case of regulated and

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unregulated markets, but it’s something to look at.” Machin also points out that having a qualification alone does not necessarily make someone a good broker, and that there is a deeper need for communication and understanding. However, having an official qualification would certainly be a start. Short agrees: “There’s probably also a basic financial literacy element to it, as well. When you look at different lending terms, with various different fees and charges, just the basic difference between whether you’re compounding interest or not, and how you’re compounding it, makes a massive difference to the total cost proposition. “People really need to understand the actual total cost and value of an offer, rather than just naturally focusing on what’s the net day one and what’s this headline interest rate?

“It’s quite early to say whether we will have a lockdown…but if we do, the largest impact will be on the supply chain, for getting materials” JUSTIN TROWSE

“There’s so much detail behind it in the specialist market, which really affects the total cost to the borrower, that not everyone really grasps, so I think just some basic financial literacy training would probably help a lot of people as well.” From the broker’s perspective, Mabb adds that he is a great advocate for the qualification, though how it manifests itself remains to be seen, and that having a high bar for entry will help maintain standards in this market. However, he adds: “There is an onus on the lenders to look at who you are and determine whether they want to take your business as well. So education is only part of it, it’s got to be top down as well. Education is just another piece to improve and polish our industry as a whole.” Another element of education that the ASTL has been focusing on recently is informing – through growing relationships with the non-trade press – the →

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MARKET public about what bridging is and how it can be used. Ideally, with more clients equipped with at least a basic understanding of this and other specialist products, they will be more likely to prompt brokers to explore all the options, and perhaps make referrals to those better equipped to advise on bridging. The hope is also to shake any lasting negative perceptions of short-term lending that might linger in the public consciousness. McCullough says: “I think the mainstream media focus far too much on the issues rather than what the opportunities are.” However, Hall says, there is much more to be done to lay the foundations before specialist products can join the agenda. She explains: “Education needs to start with basic finance and basic mortgages, and actually start educating people from children upwards. “It’s probably been an overlooked gap for many years.” INCREASING COMPETITION While the influx of more brokers looking to capitalise on the rising importance of bridging might be a concern if many do not understand the complexities of the market, the fact remains that competition has its benefits. The same might be said on the lender side. With Knowledge Bank finding that the most searched term in this market in October was ‘regulated bridging’, this side in particular could do with more lender investment. However, it is more complex than that, Machin explains: “Any time new lenders come into the market, it’s great, ultimately, because it drives competition. “So for those of us that have been in the market for years, it wakes us up a little bit. It makes us look at whether we can do things differently, and that’s the fantastic part. There’s always areas of the market that are underserved, as well, and it’s great that lenders can

“People naturally are coming up to the end of the terms of their development loans, not having had time for a sales exit, so are buying more time with bridging” TOM SHORT “

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come in and will take a niche area and do that bit really, really well. My concern is, however, just making sure those lenders are coming out with the right products, treating their customers fairly, and making sure that their fees are benchmarked against the competition.” This, she adds, is relevant across the market, not just on the regulated side, and is perhaps even more important within non-regulated bridging. Machin adds: “Any lender can come out and go ‘we’re going to do this, great product, and charge the customer through the roof for it’. Is that the right thing to do? No. Lenders that are coming in just need to be careful and make sure that they’re benchmarking against the their peers that are already in that market.” Mabb reiterates this point that having new entrants on the lending side is good news, particularly for the end user. However, he notes that the barriers to boosting competition on the regulated side are particularly high, whereas he suggests that “we see an unregulated mortgage lender appear every week at the moment.” He continues: “The application process to become a regulated mortgage lender is not actually that easy. But more importantly, it’s about the funding, because regulated mortgage finance tends to be a little bit cheaper than the unregulated stuff, so you’ve got to get a lot of money to actually lend it out. So, you’ve got one element which is fitting the criteria with the [Financial Conduct Authority (FCA)] and having your infrastructure in place, then you’ve got to find someone who’s actually going to give you a lot of money to do it.” Nevertheless, it is worth persevering, according to Mabb, as the high street banks are facing erosion, and the specialist market is stepping in to fill in the gaps as a core future source of lending. A CHANGING WORLD With COP26 having taken place not long ago, the world is considering climate change now more than ever. The property market has a significant role to play in the UK’s efforts to move closer to net zero, and this applies to every element of the process, not just mainstream mortgages. For example, Edwards says that second charge bridging is going to be particularly important when it comes to helping landlords work on improving their properties’ Energy Performance Certificate (EPC) ratings. Short adds that as green finance becomes more of an agenda item in the mainstream, so will it have to influence bridging.

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MARKET “Selfishly, it’s about credit risk,” he explains. “We know mortgage lenders, term lenders, and pension funds are all going to look at this for their term books, which is our exit in a lot of cases. “We’ve got to look ahead to those viable exits, with regulations increasing massively at the moment, and continuing to go up. So, we’ve got to be thinking about what we can do to protect our exits, really.” McCullough adds that this is again where the education piece is important, so that brokers can help borrowers understand what options are available to them as more complex issues around climate change and the green credentials of properties arise. One of the most important elements of the move towards a more sustainable property sector, aside from the push to improve EPCs, is changing construction methods. Short says: “With development lending being at the core of our books, we’re certainly looking at products and the underlying cost of capital from some of our institutional partners that will fund different priced loans for different kinds of sustainable end products.” While this is more about development finance than bridging, per se, Short adds that there is a role for this market in providing the breathing space for borrowers to reassess their methods. He explains: “Bridging might provide some time for people to reject their plans or re-tender to go out to modern methods of construction [MMC] instead, or something like that, but it will be time to reject their plans rather than nothing at specialist bridging products.” Edwards, however, argues that there is a more direct role for bridging in creating a more sustainable development market. She points to some PD conversions, for example, which can be dealt with under heavy refurbishment bridging, rather than development finance. “Some bridging products will take those away from the development side, and there’s a lot of lenders that are piloting and dabbling with heavy refurb,” she explains. There are PDs that allow you to put extensions on, or go up into the loft, and other things, without the need for development funding, as long as it is under the permitted development. “So, there is a part for bridgers, to do, but it’s about how the lenders adapt their products to do that.” One of the significant trends spurred on by the pandemic, although it arguable emerged long before,

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“A bridge is a great product, but not all auction purchases are in a bad way. What it needs is more lenders to be open to that fact” MATT MCCULLOUGH

has been a changing relationship with living and working spaces. Hall notes that she is already seeing projects go ahead with combined office, living and social spaces, including amenities and schools, which suggest that this trend is gathering momentum. Hall adds: “They are going on the plan that that is the way we’re going to live and work – in smaller areas, not commuting, in communities. But I think time will tell on working from home, or living where we work.” Machin agrees that the future of live-work spaces is somewhat uncertain, saying: “It’s too early to tell, but I can’t believe that some of those big companies that have got big City offices aren’t going to want their people back in them at some point at full capacity. “There’s lots of research that that says people are more productive at work, and then on the other side there’s lots to say that they’re more productive at home, so I think it really depends, but I think long term we will see a return to offices. While Machin expects to see an increase in the kind of live-work spaces Hall describes, she is unsure how well it will take off in the UK, specifically. Nevertheless, there are some historical staples that she agrees will change for good. “Shopping the high street was always going down the pan,” she explains, “The pandemic just made it happen a lot quicker than it was going to. What will our high streets look like going forward? Who knows? “There’s obviously the changes to [permitted development rights (PDR)] and increased changes to residential from commercial. But for those people who are assuming that it’s really easy to do it just because it falls under PDR, there’s still a lot of regulation that you have to go through. “It will be an interesting couple of years to see what happens.” B I

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INTERVIEW

Crucial conveyancing Jessica Bird sits down with John Ahmed, director, and Emma Hall, key relationships director at Movin Legal, to speak about the challenges facing conveyancing and bridging, and why the business is well placed for the future How has Movin Legal coped with the events of the pandemic, and what lessons has the business learned? John Ahmed: We were lucky in that, as a business, more than 50% of our staff already worked remotely from home. So, the transition to move the rest of our staff to remote working was as a seamless as it could have been. All online communication via our portal remained unaffected. During the start of the pandemic when we were in the unknown, we found that on top of our portal, verbal communication was key. We were constantly picking up the phone to both our solicitor partners and introducer partners to offer all the support that we could. Everyone was in a similar situation, though all at different levels and stages in terms of how we could move forward in the most efficient and effective way. Our business actually grew during lockdown, not only in terms of business volume – due to our strong ongoing support and being available throughout – but also in new staff hires. It had always been in our business plan to grow our team, but we had not accounted for a pandemic or a lockdown! Nevertheless, the time was right and we became an additional service to our introducers’ business in what was a difficult and unnerving time. The COVID-19 lockdown also allowed us to review our business offering, allowing us to introduce more services, including a wills and probate offering to our introducers. What lessons has the bridging market as a whole learned from recent events? JA: The bridging market was potentially better placed to deal with lockdown and the pandemic due to the existing procedures many lenders had

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in place as well as their technology. What has been brought into focus is whether there is the need for physical face-to-face applications. Given the right relationships and procedures, virtual meetings can be just as risk adverse and secure with good introducing brokers. The conveyancing market has been under particularly high pressure during the pandemic. What needs to happen to help ease the process in the future? Is technology the answer? JA: It was not only the pandemic that brought pressure to an already stretched service, but also the stamp duty holiday, resulting in increased volumes over a shorter space of time with – in many instances – reduced staffing levels due to the crisis. Technology over the years has always been an area of debate. I think we can all agree there is some way to go in most industries, and the conveyancing sector is no different. Many areas are still heavily reliant on a physical presence to operate what, in many specialist cases, is a paper file. Technology can take this so far in the early stages of transaction, ID, conflict checks, order searches and the like. However, at some point at the present time, we need a solicitor to pick this up, collate and review the information in order to report to the client and lender. The sector, without a doubt, is moving to be more technological savvy. As an industry, we need to collaborate to make sure we don’t all head in different directions. What is the role of technology in Movin Legal’s offering, specifically? JA: At Movin Legal we are already a technologically based service, with our constantly evolving technology providing compliant conveyancing quotes, offering an exceptionally professional www.sfintroducer.com


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John Ahmed

service that adds to a more solid, faster experience for intermediaries in terms of their service for their clients. We also have a team of experienced professionals from the legal and finance sector who work alongside our introducers and our solicitors. We do not just focus on price. Far too often it’s a race to the bottom on fees, which will ultimately impact on the quality of service the client receives. Our solicitor partners have proven track records on service and work to our strict service principles. Therefore we believe what we offer, combined with our experienced team, makes us one of a kind in the marketplace. Is there a need for greater education and understanding around the conveyancing side of transactions among other market players? JA: Everyone can always learn more. During lockdown, and as we emerged from this, it became clear to us that there was and still is a gap in education on the conveyancing process to fill in for our introducer and lender partners’ day-to-day managing of their clients. This is not to suggest that our introducer www.sfintroducer.com

Emma Hall

partners should do the job of the solicitor, but a greater understanding of the process can go a long way in helping their clients. Ultimately, the client will always go to their introducer as a first point of call for help at any stage of the transaction. To be able to have a grasp of what happens, when and why can create confidence to that client. There is also the time saving element. If a question can be answered on that one call that will save time for everyone involved. Movin Legal recently launched a CPD conveyancing course – would the specialist market benefit from an increased focus on qualifications? Emma Hall: As we head into 2022, I can see education and its benefits being discussed even more as a means to smooth the conveyancing process for everyone. We launched our CPD course for several reasons. Firstly, we noticed there was a gap we could fill to enable our introducers to have more understanding of the process – and therefore confidence with their clients – once the conveyancing stage was reached. → DECEMBER 2021    BRIDGING INTRODUCER

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INTERVIEW Secondly, so much time can be spent going backwards and forwards on the phone and email, which could be avoided with just the basics of knowledge. The uptake for our conveyancing process courses has been fantastic, and we plan to roll with this in 2022. Hopefully it will be face-to-face, now that we’re pretty much back out again, and remember, the intermediary is credited with a CPD certificate. What has been brilliant is that lender partners also have got involved to expand the knowledge of their business development managers (BDMs) so they can also add strength and value to their introducing brokers. What particular trends or challenges are facing the bridge conveyancing market at the moment? JA: Moving into 2022, specialist and bridging lending will become more important than ever. Post-Brexit and the pandemic, we are going to see clients’ needs not fitting the high street as they once perhaps did before. With potentially increasing demand for this type of lending, we may start to see transaction times creep up due to the sheer volume of cases that will have been instructed and the need for more staff to facilitate this. Speed will always be of the essence and picking the right conveyancing partner will be more than ever crucial. I think green mortgages are also going to come more in to play – especially in the buy-to-let (BTL) space. If they are not already, then lenders may start looking at this now and start building this into their criteria. Finally, time will tell, but will the way we live actually change? Many moved away from city living, both during and post-pandemic. Local high streets that were already in decline, the pandemic has brought forward an interest in local living again. Could we see a new way of living and working in a commercial property all combined as one? If so, then it would be the developers that would lead the lenders and we would need a diverse range of competitive products that we have never really seen before. It’s certainly food for thought in these ever-changing times. What are the core values that underpin Movin Legal’s approach to service? How does this make your business stand out? JA: Service and support are key to everything we offer to our introducers, and we achieve that in more than one way, such as our investment in technology, and our experienced team to support them and work together with Introducers.

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Movin Legal’s BDMs cover all of England, Wales and Scotland with areas of the country they are always there to help and support introducers and each other if needed. Our team all have experience from within the financial services and legal sectors, which means we can provide meaningful help, advice and support when called upon – this includes the residential, specialist and even commercial markets. Having that all-important initial call on any deal can ensure it runs through smoothly. Communication is key and it is far too often overlooked. What do you look for in new additions to your legal panel? JA: We are always looking to add conveyancing firms to our panel to help grow our reach across the country. To that end, we’re always happy to engage with solicitors with an appetite to work in the specialist market. For us, communication is key. As we have discussed earlier, technology can take us so far, but verbal communication is so crucial, especially when time is of the essence. Movin Legal recently joined FIBA. What is the role of professional associations in the market, and particularly in the conveyancing process? EH: I am going to come back to education again. Yes, our focus is very much on the conveyancing side as we have talked about, but there are so many other areas to educate around when it comes to specialist lending for those introducers who are new to that market and need the right guidance. What plans do you have for the future of Movin Legal? JA: More of the same growth and investment in technology, service and to make it easier for our introducers and partners to do business. What message would you like to get across to intermediaries who have not worked with Movin Legal yet? JA: Talk to us! Our position is simply to be an addition and add support and value to the introducers’ business. It’s not just about getting the instructions in – it’s about getting it over the line with a happy introducer and client at the end of the day, helping empower that dream of home ownership. B I www.sfintroducer.com


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