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Lending less ordinary
romafinance.co.uk 05/02/2021 11:33:05
Publishing Director Robyn Hall Robyn@mortgageintroducer.com Publishing Editor Ryan Fowler Ryan@mortgageintroducer.com Editor Jessica Bird Jessicab@sfintroducer.com Deputy Editor Jessica Nangle Jessica@mortgageintroducer.com Deputy News Editor Jake Carter Jake@mortgageintroducer.com Editorial Director Nia Williams Nia@mortgageintroducer.com 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 Victoria Hubbard Victoria@mortgageintroducer.com Production Editor Felix Blakeston Felix@mortgageintroducer.com Head of Marketing Robyn Ashman RobynA@mortgageintroducer.com Printed by The Magazine Printing Company, using only paper from FSC/PEFC suppliers www.magprint.co.uk
A changing of the seasons
s I write this, with a flurry of snow and icy temperatures outside my window, I think about the woes of a winter commute and cannot help but feel there are some serious benefits to lockdown – at least when you are lucky enough to have a job that works well remotely. I’m sure plenty of others are making the same comparison at the moment, particularly as we are increasingly seeing the light at the end of the COVID-19 tunnel. The prospect of a return to normality will likely have many rethinking their priorities in light of all we have learned during this strange 12 months. The debate continues to rage as to whether vast swathes of businesses will retain remote working practices, with advanced tech and video calling the now norm, or whether our social instincts will kick in, and see us gleefully return to the world of water coolers and coffee breaks. The consensus is largely that the world of work will change in some way, while retail and hospitality have already seen dramatic shifts. So, what does this mean for short-term lending? If offices as we knew them become a thing of the past, and the shape of city centres change, we can expect heavy uptake of the government’s efforts to facilitate property conversions from commercial to residential, and perhaps greater demand for holistic, mixed-use living, working and leisure spaces. On the residential side, research suggests that people will increasingly be moving away from urban living, opting for more space and access to the great, and much-missed, outdoors. Meanwhile, finances are becoming more complex, with self-employment, periods of furlough and even redundancy on the rise. All of this opens the door to those specialist lenders which can take an individual underwriting approach, provide flexible, fast-access finance, and quickly adapt to a changing market. B I
5 Harry Peradigou Avoiding delays in bridging 7 Kris Corns Warts ‘n’ all 9 Donna Wells Migrating north 10 Gareth Lewis Trends for regulated bridging 11 Chris Biggs The city is dead, long live the city! 12 Shoaib Bux Myths and misconceptions 13 Phil Mabb The good, the bad and the ugly… 14 Feature: What lies ahead for foreign investors in the UK? Jake Carter considers what the future has in store for overseas property investors 22 Changing appetites Jake Carter covers the recent round-table, which discussed the commercial and development sectors, and what trends might shape them going forward 28 Cover: Not built in a day… Jessica Bird catches up with Nick Jones, commercial director at Roma Finance, as the business delivers a major rebrand, to talk values, challenges and the future 34 Vic Jannels Bridging in action
Less ordinary. More extraordinary. Experience lending less ordinary at romafinance.co.uk Bridging_Introducer_Strip_Ads_180x29mm.indd 1
FEBRUARY 2021 BRIDGING INTRODUCER
We’re open for business. The bridging experts you know. Flexible and reliable. But smarter and faster. And maybe, like you, having to do things a little differently – for the time being, at least. But make no mistake; We’re still using our common sense. Still focused on delivering for you. With simpler products than before, All through a select panel of packagers.
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How to avoid delays in bridging transactions Harry Peradigou partner, Brightstone Law
here’s a lot of noise in the trade press at the moment about delays holding up bridging transactions, and much speculation about the cause of those delays. This speculation is rarely, if ever, backed up by data – so, what’s the real story? I work on bridging completions every single day, and I’ve personally completed a few loans recently in just three days. Transactions can certainly be done quickly if all parties involved are equally motivated. From my experience, the speed of a bridging completion is influenced by a number of interlinking factors – any of which can lead to delays. On the flip side, however, focusing on getting each of these elements right can lead to faster completion times. With this in mind, here are the seven main considerations to avoid delays and achieve faster bridging completions.
solicitors to pay its costs in the event the matter does not complete. If the borrower is informed at an early stage of the costs involved, they can place their own solicitors in funds for that amount, so the matter can be progressed immediately. The loans that complete quickly are often the ones where a costs undertaking is received within a day or two of receiving instructions. If there is a wait of a week or more, it often indicates a lack of urgency or preparation. Days can be shaved off of the overall time spent on a matter if this is dealt with quickly, and it can be helped by open and transparent information between the solicitor, lender and broker. SEARCHES
Knowing whether or not a full suite of property searches will be required by the lender involved, and whether they have been ordered by the borrower’s solicitor, will help with timelines. The local authority search is always the main one that causes delays, so knowing that a particular lender has title insurance in place to cover the lack of such a search or will accept search indemnity will impact upon timelines.
THE BORROWER’S LAWYER
Not every firm of solicitors is suited, or indeed used, to dealing with a bridging transaction. Using a firm that has dealt with bridging in the past helps a great deal. It’s also important to provide the lawyer’s correct details. Emailing an ‘info’ email address is never a good start, and with so many people working from home at the moment, sending a hard copy letter often does not help. THE COSTS UNDERTAKING
This is usually a good indicator as to the way a case will progress. Most solicitors acting for the lender, Brightstone included, request an undertaking from the borrower’s www.sfintroducer.com
Ensuring that the valuation is paid for by the borrower and instructed to take place as soon as possible will also help avoid delays. As a solicitor, the sooner we have the valuation report, the better equipped we are to raise relevant enquiries and avoid delays. In the absence of a valuation on the day of instruction, a very brief synopsis of the security is always helpful. Even something as brief as “residential property, fully let” or “semi-commercial property, ground floor shop vacant with tenanted flat above” will help the process.
THE LENDER’S LAWYER
It’s also important that lenders use a lawyer that is fit for purpose, as different firms will have different areas of specialism. So, for example, faced with a an £8m loan involving a ground-up development, some underwriters may look to firms with specialist teams in property, commercial and planning. Sometimes, however, it’s the very interaction between the teams, who’s doing what, when, and in what order, that adds the delay. At Brightstone, we have one team, trained and expert in all aspects, because we are specialists. So, if a lender has a matter that is instructed today and needs to complete in a week, we just might be the first firm it turns to. A lender choosing the correct panel lawyer is just as important as the borrower choosing the right lawyer. THE BROKER
Having a proactive broker involved, who is constantly liaising with the borrower and, if necessary, the borrower’s lawyer, certainly helps. I have completed many loans quicker than expected because the broker was helpful and proactive. LENDER DECISION-MAKING
Last, but not least, a lender that can act swiftly and decisively may well be the most important factor. There is nothing more frustrating for a borrower than having to wait days for minor decisions because everything needs to be decided via committee. Over the years, I have seen many lenders lose that focal unique selling proposition, becoming less swift and less decisive. It’s not just the decisions, administration too can have a devastating impact on speed – like arrangements for funding for example. The difficulty in becoming a larger organisation is that decisionmaking often becomes multi-layered. The lenders that avoid this retain a reputation for delivering efficiently. So, while it may be true on occasion, its not always just a case of ‘blame the lawyer’! B I FEBRUARY 2021 BRIDGING INTRODUCER
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Warts ‘n’ all Kris Corns operations director, Crystal Specialist Finance
ridging is a quickfire solution for many who require rapid short-term finance to address an issue, but a quick turnaround requires brokers and their clients to be upfront at the outset and through the application process, warts ‘n’ all. Over the course of a turbulent 12 months, we have witnessed bridging being increasingly used as a solution to buy borrowers additional time. For instance, when a sale hasn’t completed in time, short-term finance is required to save a deposit or the chain. Or, more commonly, a refurb project has been finished, but new funds are needed to extend the building time and maybe the marketing period to maximise sale value. By their very nature, these situations create a rush for additional funding at the eleventh hour, so things need to move fast. Operationally, this is where the problems can start. CRITERIA RIGHT VS CRITERIA FIGHT
As with every finance application, both to meet regulations and to protect the integrity of a lender’s loan book, the bridging process is rightfully thorough. It requires all the usual checks, from identity confirmation, to credit score history and proof of income. But bridging also requires an extra, critical level of information. Understanding the client’s circumstances, project plan and, most importantly, the exit route. No one should enter a bridge – and indeed no lender should lend – unless there is a definitive path ahead to clear the funds. This may be through the sale of a property or by moving onto another www.sfintroducer.com
term finance product, but the start and finish of the loan must be clearly identified to protect the borrower. To have all this at the outset should be a given, but everyone is aware that situations change.
With so many factors to consider, it required a constant dialogue to take the application from start to finish, but the broker and the client were both available at all times, and this ensured a successful outcome.
The market appreciates that specialist finance cases can often be complex, and that even during an application circumstances can change which will affect the whole process. Where building work is involved, there can invariably be delays which are not the fault of the developer, so if the conversion timescale slips because of labour availability or on-the-ground conditions, whatever the situation, an early conversation can make all the difference to an ongoing application. Importantly, if a bridge has been completed and the borrower’s situation changes, we would encourage early conversations with the lender to avoid any problems towards the end of the loan period. Here we tend to find the polar extremes in terms of information supplied and of effective and timely communication, which is the difference between a successful drawdown or a deadline being missed, often to the detriment of the client. FROM COMPLEX…
In one recent case, a lender had to look at the rebridge of a rebridge of a rebridge. The original lender had provided initial short-term funding which was required for works to get a dilapidated auction property fit for market sale, the works were completed, but then a flood caused damage. New funds were made available to rectify the damage via a further advance, but then works were delayed due to COVID-19, meaning the exit date was becoming imminent and increasingly pressured. Another lender then stepped in and provided funds to fully clear the existing loan, and the house has now sold subject to contract.
In another example, a client was looking to complete a straightforward commercial purchase of a pub, which he already leased with a partner. Other parties were interested in purchasing, so speed was important. When the valuation came in lower than expected, there was an unwanted shortfall of deposit for the commercial purchase, so in order to meet deadlines we were able to quickly offer a shortterm loan against the business partner’s residential home. The exit was agreed by way of a standard residential mortgage, with the bridge repaid just eight weeks after the pub transaction completed. Again, it was open and honest discussions following the valuation that allowed the deal to be completed, and for the customer’s ownership aspirations to be met. LET’S TALK
The role of the specialist distributor is to find the most suitable solution for your client. The distributor’s role is to equip you – the adviser – with the tools you need to reach help your client reach their desired outcome. But it is only by telling us what the client wishes to achieve – including all the positive points and potentially negative aspects – that the correct and most timely solution can be found at the outset. Any extra information that is required, or any further issues that arise because information has been withheld, only slows down the overall process from application to completion. When a bridge is the required solution, then speed is of the essence. So let’s talk, openly and honestly, warts ‘n’ all. B I FEBRUARY 2021 BRIDGING INTRODUCER
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Migrating north Donna Wells director, F4B
ack in October, we expanded our operations with the opening of a Manchesterbased intermediary support centre. It was seen as a bold step in the current climate, but it was a vital one for the business as we were conscious that we needed to provide the same level of local support for our northern brokers as we do for their southern counterparts – in a COVID-safe manner of course. The North West has been on our radar for some time, and we have forged strong relationships with introducers and lenders across the region. A larger presence proved an attractive proposition, as this region continues to operate from a robust platform after a real push in the supply of affordable housing and stronger commercial infrastructure over recent years. House price growth remains extremely optimistic in the North West. It has outpaced London since the 2016 referendum, and has recovered well post-lockdown. The latest house price index from Zoopla revealed that Manchester saw the largest increase in average house prices during the past year, rising by 5.7%. Leeds followed closely behind, with 5.6% growth. Nottingham and Liverpool had a rise of 5.4% and 5.3%, respectively. The index also revealed that the North West of England led the way regionally in UK house price growth, with a 5% year-on-year increase. Yorkshire and the Humber and Wales followed jointly with 4.9%. Manchester is a hotbed of regeneration, and there’s a huge amount of money being invested in the city. It has comparatively higher buy-to-let (BTL) yields than much of the country, and an active build-to-rent www.sfintroducer.com
(BTR) market. Additionally, there are plenty of developers in need of funding, many of whom – alongside property investors – will be looking to capitalise on some current ‘indifference’ within certain areas of the market. To highlight this growing demand, research from Accommodation.co.uk revealed that the North West came out top as the area that will offer the best property investment opportunities in 2021, with 32% of landlords opting for it as their preferred location. The South East was the second most popular region with 27%, closely followed by the West Midlands with 20%. Scotland, Wales and the East of England were seen as being the least attractive in 2021, all accumulating less than 5% of the total votes. In equally promising news, 81% of the respondents stated they were optimistic that 2021 will be a positive year for property investment as the economy recovers, and the sectors begin to return to a new normal. The majority of UK landlords still see property as a buoyant sector and a safe place to invest in the long-term. From a commercial property perspective, Manchester city centre’s office market enjoyed a strong end to 2020. Data from The Manchester Office Agents Forum (MOAF) suggested that a total of 349,543 square feet was transacted during the three
months to 31 December, representing the highest quarterly take-up of the year. Total take-up for the year reached 800,188 square feet across 146 deals. Outside the city centre, the South Manchester office market transacted 272,667 square feet across 179 deals, while Salford Quays and Old Trafford recorded 226,598 square feet across a further 62 deals. Despite lingering lockdown restrictions, the mood in the North West remains buoyant. The stamp duty deadline is driving even more activity within the region – and across the UK – with the short-term finance sector set for its busiest Q1 on record. Looking beyond this, our introducers and intermediary partners in the North West tell us that a variety of property professionals are positioning themselves to take advantage of the opportunities which will emerge in Q2 and over the rest of 2021. This is a fact which bodes well when it comes to maintaining momentum. Over the next year, these opportunities will be supported by a range of short-term and alternative financial solutions, as the marketplace becomes ever more complex. A growing number of advisers within this region will lean heavily on the experience and expertise of specialist distribution partners to help them tap into this demand. B I
Momentum is strong in the North
FEBRUARY 2021 BRIDGING INTRODUCER
Trends for regulated bridging in 2021 Gareth Lewis commercial director, MT Finance
s the mainstream mortgage market struggles to cope with increased demand created by the stamp duty holiday, and the desire from homebuyers for more space both inside and out, bridging lenders have stepped in and filled the gap. Subsequently, while a significant proportion of bridging loan activity is unregulated, last year there was a near-equal split between regulated and unregulated transactions. The MT Finance Bridging Trends survey found that the market share of regulated bridging transactions increased to an average of 49.4% of gross lending in 2020, compared with 39% in 2019, and 36% in 2018.
Speed is going to be a priority for many clients
MT Finance recently entered the regulated bridging arena, a decision that was some time in the making. Our aim is to offer competitive products with exceptional service and speed of delivery at the heart. Certainly, speed is going to be a priority for many clients in the first quarter of this year, with the end of the stamp duty holiday looming. At the time of writing, it looks unlikely that it will be extended, so we expect a significant spike in activity in coming weeks as buyers rush to transact. In realistic terms, even if a client borrows via a bridging lender they only have until the end of February to get their application in, because they will have to allow for a grace period. The volume of business coming into bridging lenders will only increase, and we will all become busier. Of course, there is still lockdown and the restrictions that brings with it to contend with. Many people will turn to bridging after going down the mainstream mortgage application route and that not working out, for whatever reason. Nobody wakes up in the morning wanting bridging finance – they have a specific transactional need. Delays in the mainstream market created by staff working from home, reduced workforces due to the pandemic and staff often trying to juggle home schooling as well, will only make regulated bridging more popular. It is said to take on average 120 days to complete the legal work for a transaction. That is a long time. There are so many factors that can hold things up, including being in a chain, the number of properties in said chain and how everyone else is funding their purchase, as well as which lawyers they use, and the list goes on. It is no wonder that people are facing such significant delays. After the flurry of business in the first quarter and the end of the stamp duty holiday, we are likely to see a softening in the market to a certain degree. There will not be so much urgency or desire to get deals through as quickly.
BRIDGING INTRODUCER FEBRUARY 2021
We will all take our time a bit more, there won’t be the same level of pressure, and demand on the bridging sector to save the day will soften. I wouldn’t be surprised if we see a contraction in volumes in the regulated arena at this point. However, given the time of year – and hopefully the fact that we will be coming to the end of lockdown, with more clarity on where the country is going – we should start to see clients looking at more nonregulated transactions. LIQUIDITY
There may be those wanting to strip money out of their assets to put into their businesses to get those rolling again. We expect to see more liquidity being requested in the second quarter of the year as we head into summer. We firmly believe that people will continue to transact in property, assuming the country emerges from lockdown reasonably unscathed. If unemployment is not too high and there continues to be a level of pent-up demand, it will be interesting to see where people’s mindsets are when it comes to purchasing property. Consumer confidence should be higher, because we will be out the back end of the pandemic to a degree, and confidence is everything when it comes to investing in property. The summer market could be rather disjointed; having been stuck at home for so long, there will be a desire to get away, but whether we will be able to go abroad, or whether restrictions will remain in place, remains to be seen. Ultimately, transactional flow and volume of business this year will depend on where people can go and what they can do. The stamp duty stimulus, followed by an uptick in confidence and a more positive outlook as we move into spring, will give everyone more hope and purpose. As the days get longer, the sun shines more and there are more freedoms to enjoy as lockdown starts to ease, it could well mean business will be brisker. B I www.sfintroducer.com
The city is dead, long live the city! Chris Biggs partner, Theta Global Advisors
OVID-19 has given rise to a seismic shift in operational and cultural norms in the workplace. Gone are the days of packed underground carriages, bustling platforms, and crippling traffic jams, as social distancing measures have forced companies to adopt remote and flexible working operations. According to the Office for National Statistics (ONS), 46.6% of people in employment did some work at home in April 2020, of which a staggering 86% did so as a result of the pandemic. This shows the extent to which the fallout of the pandemic transformed the face of working Britain. Now, as the British workforce is enduring a third national lockdown, it is likely that even more are putting in their working hours from home-based offices, as more and more companies have come to adapt to the new circumstances and offer remote working opportunities to employees whose roles were perhaps previously thought unsuitable. Many commentators and business leaders argue that COVID-19 has sparked a long-overdue rehash of outdated working norms – nearly half of all UK business leaders (45%) believe that the working environment will change for the better due to the virus, and the British workforce seems to agree. Research carried out by Theta Global Advisors recently revealed that two-thirds of working Brits say that commuting was the most stressful part of the day, and 57% of people do not want to go back to the normal way of working in an office environment with normal office hours.
It’s clear, then, that from the removal of the commute to boosted productivity when working from home, there are numerous benefits to flexible working that the pandemic has uncovered for millions of employers and employees alike. However, while there are huge swathes of prime office real estate right in the heart of the city that may no longer be justified, claims that offices are now completely redundant are equally unjust. Firstly, on-site training and team building is a key part of a successful working environment. Research from Theta Global Advisors also discovered that, since the pandemic, more than a quarter (26%) of people said they have not received the requisite training to do their job efficiently in lockdown, as they have not been able to benefit from a structured in-person training plan. Furthermore, team camaraderie, creativity and spontaneous problem
Having access to office space is still essential
solving are also suffering, with research from Workthere revealing that 49% of London-based office staff miss the social office environment, and more than a quarter reported that they can no longer bounce ideas off colleagues. Though perhaps there is no longer the need for the large, centralised offices and palatial company headquarters that dominate urban centres, having access to office space is still essential and will prove to be very useful in the coming months as the grip of the pandemic begins to loosen. Having a company office is extremely helpful for delivering training, building team camaraderie and a beneficial social component to the work environment, and encouraging spontaneous creativity and problem solving, to name just a few benefits. Whilst a huge office block may be somewhat outdated, having a network of smaller, distributed offices throughout the city and introducing staggered working could prove incredibly beneficial, and would allow business leaders and employees alike to enjoy the best of both worlds. Furthermore, the effects of the pandemic are likely to accelerate the pre-existing trends that were observable in the commercial property sector, which has seen newer offices being developed with a greater focus placed health and wellbeing, activity-based working, flexibility and the drive to make buildings smarter and loaded with more useful technologies. As buildings become smarter and more focused on sustainability, offices will become more useful in terms of the services they offer, and the access to technology and tools that it is simply not feasible to have at home for multiple employees. Business leaders would do well to realise that the ‘new normal’ of flexible, remote working is here to stay, and should adapt now to pivot their business, remove unnecessary overheads and commit to a plan for a post-COVID future. However, this plan should certainly take into account the benefits of on-site working and the numerous positive effects that an office, or offices, can provide. B I FEBRUARY 2021 BRIDGING INTRODUCER
Myths and misconceptions Shoaib Bux managing director, Arbuthnot Specialist Finance
ridge financing has provided an essential source of funding during the pandemic, and the market looks set to remain busy. As we move through the national lockdown, it’s important for individuals and businesses to understand the options available to them. So, what are some of the common myths and misconceptions surrounding the bridge finance market? A LOAN OF LAST RESORT
Bridging was often viewed as a last resort for people who have left financing too late or were unable to secure it elsewhere. This is no longer the case. Ultimately, property professionals seek bridging to overcome a short-term need, or their immediate strategy may not fit within a term loan and they do not want to be saddled with the early repayment charges (ERCs) that term lenders may require. For many experienced investors and developers, bridge finance is the
first choice to support their short-term property strategy. It is also becoming a more common funding choice for smaller property developers. Eligibility and due diligence criteria always apply. TOO EXPENSIVE
Historically, this type of financing has been more expensive compared to other forms of lending. This was due to the higher levels of risk for the lender, in the days where bridging was thought to be a last resort. It must be remembered that bridging is used when the strategy is shortterm; for example, when a property professional is refurbishing before selling on. The bridging loan is used until a term solution is needed. However, lending is fully analysed and priced on a risk basis, and as such, rates have noticeably decreased. The sector has become increasingly competitive, with cost levels varying significantly depending on the lender. Bridge finance can also be more expensive than other forms of lending as independent bridge lenders typically have an external credit line, which is used to provide loans to clients. But not all lenders are the same, and those that are part of a bank do not need to rely on an external credit line, reducing the extra cost passed on to the borrower.
Bridging finance is an industry surrounded by myths
BRIDGING INTRODUCER FEBRUARY 2021
It is also important to look at the fee structure of a bridging loan. Does the lender charge ERCs, exit fees, minimum interest period fees, nonutilisation fees or default fees? The cost of some loans can be difficult to understand and it is critical to work with a provider that is transparent and up front on costing. LENDERS MAY LACK THE RIGHT FUNDING
Many lenders are dependent on an external credit line, which can lead to inconsistencies in providing or maintaining funding for clients. Cases may arise where a lender is not able to secure the funding, meaning clients may be disappointed during the agreement, especially if they are carrying out a refurbishment or development. Similarly, lenders may not be able to provide the full amount of funds straight away, needing to give it out in tranches, allowing them to manage their own balance sheet. It is important to understand the capabilities of your lender and to have frank conversations about what you will need from them and when. THE WILD WEST
There was a time when loans were offered with no consideration of the exit strategy. Some saw bridge finance lenders as being eager to repossess property, with an appetite for charging high interest rates and a ‘hard sales’ approach. However, an influx of property professionals into the market has seen the sector change. Lenders which understand your industry and the details of your requirements are better placed to assess and service your lending needs. As the market has become more competitive, customer service and lending standards have only increased. It is best practice for lenders to prioritise the client, so that both parties can work together on similar projects again. At its heart, true bridge finance is a relationship-led business. B I www.sfintroducer.com
The good, the bad and the ugly… Phil Mabb property finance broker, Bridge Development
arch 2020 saw the official launch of the Coronavirus Busines Interruption Loan Scheme (CBILS) by the British Business Bank – coinciding with the date of the first national lockdown. It had many positive attributes, but what a bumpy ride it has been ever since – and I am only referring to property finance facilities. I am not sure how the distribution model fromthe Bank of England Base Rate (BBR) to lenders came about, but from conversations with lenders it became clear that the application process was cumbersome and slow, probably due to the limited resources and the concentration of applications to get started. Early adopters opened up to enquires only to shut the door shortly after, as the deluge in enquiry numbers, finite CBILS funding lines, and interpretation of the eligibility criteria all proved very problematic. These issues remain today. For what was meant to be a state subsidised product that simply mirrored the lenders’ day-to-day lending appetite, at times I can only describe it as a bunfighting dog’s dinner. Initially there were accusations that lenders were using CBILS as a tool to transfer problematic customers onto state subsidised funding lines, despite there being a 20% capital cap on refinancing existing customers. Then came the question of what was included within the lender’s CBILS proposition. To be fair, all included interest cover, but there were differing offerings relating to lenders’ valuation fees, associated legal fees and in the case of development finance,
independent monitoring surveyor (IMS) and quantity surveyor (QS) monitoring and finally exit fees, if applicable. On development finance, some provide full lending cover, others limiting it to a kind of mezzanine piece, consequentially spreading the love across more needy clients. Some lenders only chose one or two subsets of their usual offering – developer exit (bridging), development finance, commercial term. PRACTICAL PROBLEMS
I took the same deal – a term loan – to two lenders, and one turned it down due to their interpretation of eligibility criteria, while the other did not. I am certain it qualified.
“It has been a bit of a bunfight, and one where luck has played a significant part in securing the holy grail of CBILS cash. I recognise the enormous benefits, and it is worth the fight” One lender that gave me an early steer of its proposition took receipt of 10 deals from me, but only ended up completing just one, having changed its mind about minimum ticket size, using the term ‘not preferred’ as reasoning for not wanting to progress further. All well and good, but where are the ethics in that? I found one lender’s lawyer charging what I believe to be disproportionate legal fees vis-à-vis previous non-CBILS lending, taking this opportunity to grab a piece of the action. Early on, there were instances of excessive profiteering by brokers offering to assist with completing a CBILS application for a fee, with no certainty of securing funding,
leading to the National Association of Commercial Finance Brokers (NACFB) intervening with a call for treating customers fairly and an instruction to members to limit success fees to a moderate sum, capped at no more than 1%. What I have found disappointing is the lack of distribution within the c118 registered providers. Fewer than 20 work in the property space, and many names – particularly amongst the banks – have chosen not to join the fray. There might have been legitimate reasons, such as ethics, and in view of the scheme limitations they might have felt it would take too long to apply before the scheme closed, but they have customers in dire need of a break. Further, they have the resource to make a significant difference – it’s not as if they are being asked to do something new, nor without remuneration for their troubles. In many cases, lenders engaged with third-party firms to provide underwriting reviews of eligibility, perhaps as an auditing conduit between lenders and the BBR? Often this led to offer withdrawals, but rather than dealing with it from the outset, regularly it would be some way down the application process, leaving prospective clients out of pocket and with nowhere else to go, having missed out elsewhere. If I sound disgruntled, well to some degree I am; but let’s face it, Rome was not built in a day, so it shouldn’t be too much of a surprise, with CBILS clearly being extremely popular – and quite right too. Who would not want free money? Putting it simply, it has been a bit of a bunfight, and one where luck has played a significant part in securing the holy grail of CBILS cash. I for one recognise the enormous benefits, and it is worth the fight. As of 17 February 2021, CBILS applications were extended to 31 March 2021, with my money on a further extension, as it is certainly needed. Whether there will be sufficient money available to meet the continued appetite is another thing altogether, potentially leaving many perfectly eligible clients short-changed. The jury is out. B I FEBRUARY 2021 BRIDGING INTRODUCER
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WHAT LIES AHEAD FOR FOREIGN INVESTORS IN THE UK?
Jake Carter considers what the future has in store for overseas property investors as the market faces the new post-Brexit normal
he past year has seen everyone question what lies ahead for the property market as a result of COVID-19, but with the prospect of a fully rolled out vaccine on the horizon, the post-pandemic future is starting to look a lot clearer. Nevertheless, there is still change in the air for foreign investors, not least from the looming issue of Brexit, which took a back seat during the COVID-19 crisis, only to come hurtling back to general consciousness when a deal was reached at the end of 2020, following three extensions, and three and a half years after the referendum. The removal of the ‘no-deal’ risk will be a relief to many, as this will lessen the impact. It is expected that once travel restrictions are removed, the overseas UK market will likely record an uptick
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in demand, alongside the prospect of a stronger pound, which rose to a near two-year high against the dollar on 24 December 2020 when Prime Minister Boris Johnson confirmed the UK-EU post-Brexit trade deal. At the same time, sterling was also up 0.6% on the Euro. The rise in the value of the pound, paired with optimism surrounding the coronavirus vaccine, is likely to encourage overseas investors to be active in the UK property market over 2021. KEY DEVELOPMENTS IN 2021 The year ahead is likely to see foreign property investors affected not just by the after-effects of Brexit, but also the impending stamp duty surcharge, as well as planning and development changes. www.sfintroducer.com
OVERSEAS INVESTMENT XXXXXXXXX On 11 March 2020, Chancellor Rishi Sunak announced that on 1 April 2021, a surcharge on stamp duty land tax (SDLT) would be officially announced, to be imposed upon non-UK resident buyers of residential properties in England and Northern Ireland. The surcharge, which does not apply to properties in Scotland and Wales, will mean that a non-UK resident will incur a further 2% on the standard rate of SDLT. For the majority of overseas investors, the purchase is likely to be for a second home or a buy-to-let (BTL) property; therefore, the new charge will be in addition to the 3% surcharge already imposed on second home and investment purchases. The stamp duty surcharge will apply to all non-UK residents, including individuals with fewer than 183 days residency in the UK, and companies and trusts registered outside the UK. According to the Chancellor, the income generated will be used to support preventative homes strategies and address rough sleeping. The surcharge is also expected to deter foreign investors from driving up UK property prices and taking away vital housing opportunities from UK residents, including first-time buyers. Vic Jannels, chief executive at the ASTL, believes that the surcharge is likely to dampen the market. However, he outlines that there are many variables when it comes to overseas investors, not least currency fluctuations. Jannels says: “Even with the increased taxation, investing in the UK property market could still look very attractive to some buyers. Then, of course, there are longer-term opportunities to consider, and UK property continues to be in high demand due to the under-supply and robust legal system.” Jo Logan, short-term lending and development finance specialist at Brightstar Financial, explains that as a result of the SDLT surcharge being added to the costs incurred by foreign investors, this could result in some paying a top rate of 17%. Logan adds: “However, the market is not driven by tax rates. It is driven by the fundamentals of supply and demand, and the UK continues to have a housing deficit that will make it attractive to overseas buyers from Europe and further afield.” Foreign investors currently make up 11% of the buyto-let market, and many market players are concerned that the added tax will result in fewer investing in the UK property market, which will then in turn negatively effect the economy. Andrew Weir, chief executive of London Central Portfolio (LCP), believes that in the medium to longterm, Brexit will not have an impact on London’s status as a global city of choice. Weir explains that London benefits from the rule of law, the GMT time zone, the presence of prestigious educational institutions, a global business language and a liberal culture. He also notes that pent-up www.sfintroducer.com
demand will likely be released as a result of the issue finally reaching something of a conclusion. He says: “Many buyers and sellers, particularly in London, have held off from transacting since the referendum, and we expect them to drive the market forward as soon as they are able to.” Weir believes that once a vaccine has been rolled out and travel restrictions are lifted, London will again experience an influx of demand from overseas buyers wishing to benefit from bottom-of-market pricing and attractive exchange rates. Looking to the potential 2% stamp duty surcharge, Weir believes that it will only have a limited effect on foreign property investors, as London will remain competitive against other global cities, including New York and Singapore. He says: “With evidence of pent-up demand from overseas, 2021 may well see the beginnings of a rally in prime London, similar to post-Global Financial Crisis, where prices increased by 61% between March 2009 and September 2012.” Islay Robinson, chief executive at Enness, says that the stamp duty as a whole will be a defining factor in the first half of 2021. Robinson questions whether the stamp duty holiday will be extended, or whether it will be scrapped entirely and replaced with an annual levy in the Chancellor’s Spring Budget. As the UK trades on its stable politics and taxation regime, he therefore believes certainty is needed in this area extremely quickly in order to enable a properly functioning market. Robinson says: “The second factor affecting foreign investors is how and when European residents can buy in the UK, and what mortgages will be available. “As it stands, this is still working itself out, and many banks have their positioning confirmed, but just like the converse, can UK residents use their holiday home in France? This all needs to be sorted out.” He adds that COVID-19 also remains a major barrier, despite the end being theoretically in sight. Robinson says: “The UK’s borders are closed, and there are talks of mandatory hotel quarantines and so on, all of which affect individuals travelling here to view property before they buy. “This physical viewing process is perhaps less relevant in the new-build and investment markets, but the purchase of a UK property remains a very important trophy, and one of the highest value purchases an investor is likely to make.” Chris Oatway, owner and director of LDNfinance, looks to another government incentive in the form of the proposal to issue three million British National overseas passports to Hong Kong residents. He says: “This is really encouraging property investment in the UK, as well as other motivating factors, such as the past tensions with the US and China over the last 12 months.” → FEBRUARY 2021 BRIDGING INTRODUCER
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OVERSEAS INVESTMENT XXXXXXXXX The new special visa opening to British National overseas passport holders in Hong Kong on 31 January is expected to result in a surge of overseas activity from buyers and investors from this location. As a result, it is likely that a significant number of Hong Kong residents will immigrate to the UK and invest in property. However, Oatway explains that the international intent is not just limited to Hong Kong and the Far East: “We have also seen residents from Dubai and Abu Dhabi looking to secure property in the UK on what they term ‘safer shores’. This includes expats who are looking to return to the UK and store their capital in a less volatile market.” Oatway says that the stamp duty surcharge has had an effect on demand from investors, but that the majority of the impact has been seen among domestic investors rather than overseas buyers, where exchange rates are often a greater influence on their decision. He adds: “2020 was clearly a difficult year for overseas sales, with a virtual embargo on international travel. That said, exhibition sales have continued apace; there were 400 UK property exhibitions in Shanghai alone in 2020. “This has been much helped by the massive increase in the use of virtual technology that has successfully allowed buyers the comfort to commit without actually having to view the property in person.”
OUTLOOK FOR OVERSEAS INVESTMENTS The outlook of the UK property market from overseas investors is dependent on the external factors mentioned above, including Brexit and the stamp duty surcharge. However, despite the uncertainty around how these might play out, there is an air of positivity for those dealing with, and those making, overseas investments in the UK property market. A survey by international law firm DLA Piper outlined that the UK was the top global property investment hotspot. Of the 500 high net worth (HNW) investors and asset managers surveyed by the firm, a third said they wish to invest in UK property over the course of 2021. The report also showed that investors based in China and the US ranked the UK as the best prospect for residential property investment. Investors in the UK, Germany, France, Spain and Italy named the UK the third best place for property investment. Over the course of 2021, it is expected that overseas and foreign investors will continue to invest in the UK market at strong levels. This is supported by evidence that the market has remained robust during previous periods of political and economic unease. Therefore, DLA Piper believes that overseas investors will continue purchasing UK property, despite the continued uncertainty of COVID-19. www.sfintroducer.com
Roger Morris, group distribution director at Precise Mortgages, says: “When it comes to foreign national investment, they are mainly cash buyers. I live in Birmingham, and there is a significant Chinese student community here whose wealthy parents have bought apartments with cash. “In London it is also the same, it has always been a haven for the rich, and therefore they do not really need mortgages – a lot of properties are bought within limited companies wrappers, and therefore become an envelope dwelling, which comes under unique tax structures and payments.” Morris goes on to explain, however, that the government has clamped down on foreign investors with taxation, and especially with the rules around holding what is a residential property inside a company. Oatway says: “For much of 2021, we expect international buyers to remain slower to commit to a purchase in the UK, as a direct result of the current health crisis. Underlying demand, however, is still strong, particularly from the Far East where buyer motivation often goes beyond pure investment.” Similar to Morris, Oatway points to buyers seeking accommodation for their children whilst in education in the UK, combined with the potential for long-term investment growth beyond. He says: “Hong Kong and Singapore buyers very often have an affinity to the UK, having themselves attended universities here, and see it as a safe haven for investment. “In fact, many high net worth families we work with from the Far East are increasingly looking to secure a family home in Central London as they look to a life away from their home country and ongoing domestic uncertainty. “In the UK, they see education opportunities for their children, a rich and diverse quality of life and a prosperous property market.” Robinson believes that the first half of 2021 will be a challenge for foreign investment; however, once the resolution to coronavirus becomes clearer, investment levels are likely to surge. He says: “Last year we saw the start of this, as early movers and the international wealthy started buying high-value property.” Robinson also points to the rise in buyers from Hong Kong as well as America, followed closely by France, saying: “We feel this is a clear indicator that the UK will continue to be a key market for international real estate, and so the long-term outlook is a very positive one.” Weir believes that for overseas investors, 2021 will be a year of two halves. The first is likely to offer favourable opportunities due to the absence of international buyers. Once the vaccine has rolled out and travel restrictions are lifted, the prime London market in particular is expected to benefit from 12 months of pent-up demand being released. → FEBRUARY 2021
OVERSEAS INVESTMENT XXXXXXXXX Weir says: “The effect of COVID-19, the furlough scheme and the SDLT holiday has been to create hotspots and anomalies, as restrictions lift in the second half of the year, a period of rebalancing and normalisation will be ushered in. “There are multiple reasons for seizing this moment to buy: generally discounted prices in the order of 20% from the pre-EU Referendum peak in 2016, coupled with weak sterling, an SDLT discount on all purchases until 31 March, followed by a new surcharge for nonresident buyers commencing on 1 April.” With constrained overseas demand generally, price recovery in the prime London market has been slower than other markets benefitting from strong domestic demand. The current national lockdown is likely to further delay the return of many international buyers, creating favourable market conditions. “Landlords and buy-to-let investors should take reassurance that London will again experience an influx of overseas students, waiting in the wings to continue the metropolitan life that they have missed over the last year,” Weir adds. Jannels believes that economic indicators for the fundamentals that support property prices will remain well below 2019 levels; however, he does note that there is also continued demand for UK property, which will underpin prices and activity. He says: “The year ahead is likely to be challenging, but there is reason to be optimistic.” For Logan, the events of 2020 have shown that there are various reasons to be positive when looking at the outlook for overseas buyers in 2021. She says: “The last year has shown the resilience of this market, and having a confirmed Brexit trade deal gives greater confidence than a no deal. “There is also the potential that post-Brexit trade deals with other nations could create closer links with other countries and open up potential new markets.” THE IMPACT OF 2020 The defining feature when considering what impact 2020 had on any market, including that of international property investment, is of course coronavirus. Nevertheless, there were many other factors at play last year that might have been overshadowed in the face of global crisis, including Brexit and government alterations to property rules. Looking back to early 2020, the market was experiencing what was dubbed the ‘Boris Bounce’ following the General Election, and property was being purchased at greater levels following years of caution. Then national lockdowns were put in place, the first of which forced the housing industry to shut down. Weir says: “The first national lockdown did bring the property market to a grinding halt. Stock already under offer was generally offered a maximum further discount of 5% as sellers were unwilling to reduce their prices further.”
When the market reopened in early summer, and agents could conduct physical viewings once more, the market was surprisingly busy, including for international purchases. Weir explains: “The prime London market saw an increase in domestic buyers wanting to acquire central London residential property. “Despite travel restrictions, international investors were willing to blind purchase properties in the prime London market, to take advantage of the unique buying environment.” According to Weir, 22% of LCP’s acquisitions in 2020 were bought unseen by overseas buyers. He says: “Happy to capitalise on the lack of overseas demand, a large proportion of UK and EU tenants moved to prime London, attracted by widely advertised rent reductions, as landlords competed within a depleted pool of tenants.” Jannels adds: “I have spoken with Jack Coombs, director of Aspen Bridging, which is an ASTL member that is closely involved with this market. “He said the impact of 2020 forced players to adapt and, while there was suppressed activity in some months of the year, the determination of specialist lenders, brokers, agents and valuers to adapt, combined with a strong market overall, meant that more transactions occurred than expected.” Logan agrees that, while the market did slow down because of travel restrictions, it did not grind to a halt. She says: “We have heard stories of oversees buyers viewing properties with video calls and online walkthroughs. Anecdotally, there has also been a lot of interest from Hong Kong following political unrest in the region.” Meanwhile, Robinson points out that Enness Global had a strong year in 2020, and that many other firms did as well. Enness Global facilitates high-value purchases, refinancing for strategic reasons, and fixing any other problems that arise with unique, high-value property purchases. As a result, the business has been largely unaffected by the impact of the stamp duty holiday, as the tax relaxation only applies to properties that are valued at under £500,000. Robinson says: “Luckily we are not involved in the stamp holiday chaos. I can see that ending with a bang and lots of hard work disappearing as chains collapse. Without reform, I think the mass market will have a tepid year.” He adds: “Any change or disarray in the market is good for us, regardless of whether house prices are going up or down.” THE ROLE OF BRIDGING IN 2021 Many within the bridging industry believe that, going into 2021, this form of finance will be integral in terms of assisting with those deals likely to fall through due the deadline for the stamp duty holiday. www.sfintroducer.com
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OVERSEAS INVESTMENT XXXXXXXXX Oatway says: “There is a strong appetite to lend in the bridging market. A lot has been learnt from the first two lockdowns, and there is the new added incentive that the end is in sight, what with the vaccination programme now in full swing. “There is access to properties and sites, valuers can work and bridging pipelines are strong and healthy.” He believes the bridging market is set to have a very busy year, as a result of the constant uncertainty created by the pandemic. Oatway explains: “There are plenty of opportunities for investors, both overseas and onshore, looking to take advantage of investing now, while others are watching and waiting to see how the market plays out. “For example, we have seen more below market value purchases on newly developed multi-unit blocks, where developers are looking to offload the remaining units quickly and move onto their next project.” Oatway adds that LDNfinance has seen the development market experience a mini-boom over the last couple of months. This is due to the ability of many developers to negotiate with vendors and ensure that the acquisition price of their builds is at a level that gives sufficient room for fluctuations in the construction and sales market moving forward. Looking ahead to 2021, Robinson points to the importance of bridging finance when it comes to facilitating foreign national purchases. He says: “There are a huge number of [non-bridging] banks and lenders which will help foreign nationals buy or refinance UK property. “In my experience, though, bridging finance is needed for the bulk of foreign national purchases.” Robinson explains that in some parts of the market, a lack of lender access among the broker community leads to many international clients choosing bridging finance. He adds: “There are a huge number of new bridging lenders coming to the market, and those without a clearly defined niche or specialism will get dragged into this marketplace as more and more money needs to be lent. “A better development is the growing number of specialist non-bank lenders which look like bridge lenders, but are set up to help foreign nationals and other niches.” Robinson explains that these institutions lend at an annual rate, rather than a monthly one, which is preferable to many, as well as charging nowhere near the usual 1% per month. He says: “Bridging finance is, conversely, much more valuable in the very specialist parts of the market, [such as] development finance, helping un-bankable clients who run the life of their private bank deal, those who need fast cash for an opportunity, but are strangled by process or regulation.
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“I think the market could do with one or two more that can properly facilitate these more unique needs for the more unique and often high-end client.” Meanwhile, Weir notes that trends in bridging finance are primarily driven by those wishing to capitalise on opportunities that have arisen from some of the challenges of 2020. He points to individuals looking to conduct refurbishment projects in order to create capital uplift and take advantage of the stamp duty holiday. Jannels says: “The view of the ASTL and our members is that bridging will have a large and growing role to play this year, particularly for the foreign purchase market, as term lenders fluctuate in both confidence and service levels. “We also anticipate that bridging will increasingly be used as a source of refinancing, rather than for supporting purchases.” Logan agrees, concluding with the thought that bridging has always played an important role, and will continue to do so into 2021, increasingly so as brokers look to assist clients in moving quickly. B I
Foreign investors in the UK
or Aspen Bridging, foreign parties investing into the UK property market accounts for roughly a third of its loan book at any given time. The lender has completed cases with applicants across six continents – remaining open to applications from Antarctica if they should emerge – with the majority currently originating from South East Asia. Jack Coombs, director at Aspen Bridging, indicates why the business has developed a reputation for supporting international clients: “We are unique in that we do not treat foreign borrowers differently to UK borrowers in our offering, including our rates and [loan-to-values (LTVs)]. “Our time-based service excellence targets are also the same, we aim to complete applications in under 10 days where possible. “Wherever you are in the world, you typically need, or at least expect, speed when engaging with a bridging lender. To do this we operate one person per case to ensure consistent service. “The underwriter aims to issue fullycosted illustrations within 15 minutes, and [decisions in principle (DIPs)] after searches in three hours, with the ability
to get legals and valuations instructed and payment taken all within the same day of making the enquiry. “Additionally, as well as working with translators where needed to e-meet clients to hear and understand their plans, we have also developed agreed remote legal signing and witnessing processes to aid international clients.” This approach has been recently reaffirmed, as Aspen completed a £1m bridge in four working days for an experienced Hong Kong-based buy-to-let investor, who risked losing a £100,000 deposit after facing delays from a major bank. The notice to complete had already been served on a newly refurbished three-bedroom maisonette in Holland Park, after the high street bank stated it could not meet timescales. The £1m, 69% LTV agreement was completed on Aspen Bridging’s flat rate product at 0.89% per month over a 10-month term. “The fact remains that the UK will always be an attractive proposition for overseas property investors,” concludes Coombs. “To attract this business, our aim is to offer a good service to clients globally.”
CHANGING APPETITES Jake Carter covers the key points raised at Bridging Introducer’s recent round-table, which discussed the performance of the commercial and development sectors, and what trends might shape them going forward
ver the course of a year that left no market or industry untouched, it is safe to say that retail and hospitality have been among the most heavily affected. MRI Software reported that in March 2020, close to £240m in commercial rent payments – over 21% of the total invoiced for the month via its platform Horizon – was left outstanding. This proportion was 29% in April, 41% in May, 29% in June, 30% in July and 52% in August. This may have had an understandable knock-on effect, causing lenders to reassess their appetite for certain uses, and reconsider what might constitute a stable investment in the future. Add to this the issues caused for development projects due to social distancing and lockdown, and it might have been a rocky year for both commercial and development lending markets. However, with the potential waning of traditional high street staples may come other opportunities. For example, with relaxed regulations around commercial to residential conversions, and changing consumer demand around style and location of living, we may see the shape of our towns and city centres shift, all of which will open up new avenues for commercial and development lenders. Bridging Introducer spoke to key industry figures from Roma Finance, LendInvest, Precise Mortgages, Movin Legal, Vantage Finance, Watts Commercial, and Brightstar to discuss the growth of the commercial and development sectors, and the trends that might shape them over the course of 2021.
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A NEW LOOK FOR THE HIGH STREET? MRI Software’s research found that in April, May and June 2020, the number of new commercial leases dropped to 433, 268 and 406 respectively, compared to 599, 524 and 630 during the corresponding months the year before. The number of commercial rent reductions logged on MRI Horizon were up by 46% in March, 82% in April, 27% in May and 11% in June, compared to the same months in 2019. The average terms of new leases were down to 52 months on average for March to June, from 69 months the previous year. This was all largely driven by the poor performance of the retail sector due to COVID-19. However, due to changing tastes and the rising convenience of online shopping, high streets were seeing a contraction even before the pandemic hit. So, how can the market respond? One option is in taking properties previously designated for retail and leisure, and converting them into much-needed housing to top up the country’s limited supply. However, Rob Jupp, group chief executive of Brightstar, says: “The unknown for me is whether the high street will be a decent place to live, because I am not sure that in a lot of places it will be. Lucy Barrett, managing director of Vantage Finance, adds: “There are space standards as well, a lot of the buildings do not lend themselves to the conversions. If you are still sandwiched between some shops, who does actually want to live in that situation? “In addition, from a mortgage lending perspective, flats above shops are not desirable. Therefore the conversions will not reshape our towns, cities and high streets very easily.” www.sfintroducer.com
MARKET At the end of January, the government concluded a consultation proposing a new permitted development right (PDR), which would enable more commercial, business and service premises on high streets to be converted into residential uses. The proposal is designed to support new housing delivery, and to help solve the challenges facing UK town centres and high streets. However, the move has faced backlash from The British Property Federation (BPF) and London First, which say that converting shops into housing will ultimately damage town centres. The BPF believes that the adverse effects would in fact outweigh any positive contribution to the housing market, outlining that post-COVID high street recovery would depend on an integrated mix of retail, residential, leisure, hospitality, education, healthcare, logistics and community facilities and services. Regardless of the perspective on whether an increase in commercial to residential conversions would be a positive or negative move, panellists tend to agree that growth within the commercial sector will need the help of government infrastructure projects to progress over the course of 2021. COMMERCIAL SECTOR GROWTH For the commercial and development sectors, there is space to grow business in the wake of some of the shifting dynamics within the retail market. Scott Marshall, managing director of Roma Finance, says that he has seen industry warehouse conversions preform well, whereas prime retail has performed particularly badly over the course of 2020. He continues: “The government will put a lot of money into freeports following Brexit, as well as HS2, so I see that there is huge amounts of investment required in property in order to make these projects viable and successful, with contractual accommodation and other forms of accommodation that is close to the areas of investment.” Looking longer-term, Marshall says that city and town centres will have to be repurposed, otherwise they will continue to decline. This trend has been exacerbated by the effects of the pandemic, which has forced people to reconsider their goals for homeownership and lifestyle, opting for more space and – in light of increased remote working – less
“Property and real estate has always been a people business, people like dealing with people. The best conversations and the best deals are always done face-to-face” STEVE LARKIN www.sfintroducer.com
“From a lender perspective, there is nothing that is more frustrating than a broker who does not understand the specialist market, as it is not all about price, and rather service” SCOTT MARSHALL reliance on being close to a major city. These trends have also affected residential developments. Barrett says: “We are seeing a lot of development opportunities for bigger units in country locations.” She outlines that in the past this type of unit has seen limited demand, but that there has been a shift in terms of quality of living. These larger units are all within a commutable distance to London, but far enough out that people are able to get more for their money in terms of size, as well as having access to a green space. Barrett says: “Due to the national lockdowns, I believe people are revaluating their living situation, which has pushed up demand for bigger units in country locations close to London.” Some, however, are still unsure about the likelihood of any seismic change. Roger Morris, group distribution director at Precise Mortgages, says: “There is an awful lot of conversation now that people will not want to return to their city centre offices; however, people soon miss socialising and the spending time with colleagues after work. “I think there may be concerns at first for letting large office blocks due to people being hesitant about returning to work. However, I think we will have to wait up to five years to see whether this is an entire social change, or if things will just slowly return to normal.” Phil Gray, managing director of Watts Commercial, agrees that the new way of living in terms of working from home may be a “red herring”. He says: “I think what lockdown has done is show that technology is actually not as effective as we thought it was, and that we do still need to come into the office in order to achieve the best results.” Barrett agrees: “I do not think people will want to stop commuting into an office, I think that it is deeprooted for many, as they have been travelling into work their entire career. “The disruptions caused by coronavirus have only contributed to a small portion of many individuals’ working lives, therefore I believe once the restrictions are lifted and things return to normal, people will want to return to work.” She does, however, note that larger business may reevaluate whether they want to continue renting office space in city centres from a cost-based perspective. → FEBRUARY 2021 BRIDGING INTRODUCER
MARKET Steve Larkin, head of development finance at Lendinvest, says: “Property and real estate has always been a people business, people like dealing with people. “The best conversations and the best deals are always done face-to-face, so I think most people will want to get back in the office at least a couple of days a week.” John Ahmed, chief executive of Movin Legal, says: “Some retail activity will return to normal in towns across the UK following the loosening of restrictions. I think, overall, we are pack animals and people like to spend time with one another, so I think it is likely, particularly for the younger generations, that they will want to resume normal activity post-COVID.” Jupp disagrees, however: “The concept of going to a location to shop is outdated, I think specifically the younger generation would rather shop online and save the time and effort of going to retail locations.”
“There is a lot of conversation now that people will not want to return to their city centre offices; however, people soon miss socialising with colleagues” ROGER MORRIS
Jupp explains that the retail industry is in a dangerous decline; however, when referring to converting unused high street locations into residential properties, he does not believe that in many places this would provide desirable living accommodation. CHANGING APPETITES Panellists note that many businesses have not felt the impact of coronavirus to the extent that might have been predicted. Gray says: “70% of businesses have not been affected by coronavirus, and we have seen plenty of liquidity within the market, so therefore I do not feel as if specialist lenders have had to rethink their appetite. “There is a more positive picture than what has been painted, and while home working has slowed the industry down, I don’t think the impact has been severe enough to disrupt specialist lenders from considering certain commercial uses.”
However, Morris outlines that some local authorities have began buying out prominent commercial real estate, as otherwise much of it would become vacant as a result of the impact of coronavirus. He goes on to say that he cannot see businesses filling these commercial spaces again, as the world has moved on, and the appetite for many shops has decreased significantly. Repurposing shopping centres is a particular issue that comes into question, as Morris notes that the demand for them is likely no longer there. Jupp concurs with Morris, and outlines that once larger retail shops – such as those that have faced disaster during the lockdown periods – leave the shopping centers, many smaller shops will no longer receive the footfall they once did, and may then themselves be forced to close. When referring back to Gray’s comment on 70% of businesses being unaffected, Jupp disagrees, and believes almost all businesses have been affected by COVID-19 in some form. He says: “While many companies have seen areas of their business report an uptick in activity or demand, another part of their business directly or indirectly has felt a negative repercussion of coronavirus.” He adds that the mechanics of commercial lending are changing: “10 years ago, the easiest deal to do was dealing with a tenant that was a bank; however, now when a tenant is a bank it is difficult to get them a loan, as the lender knows they will not be there very long.” Barrett agrees, adding: “Whenever there is something that has negatively impacted the market and the economy – in this case coronavirus – high street banks retrench, they say that they are open for business, but are restrictive with what they will lend on. “This is because the lenders are nervous about longevity of income and business failure, and currently a lot of businesses fall into this category as a result of coronavirus and lockdown restrictions.” Marshall outlines, however, that there will still be certain businesses which, although heavily affected by the coronavirus crisis, will not be able to make the move online, and will continue to be needed in a physical capacity by consumers. The most obvious of these being hair salons. “People’s livelihoods will be affected by other industries which are usually situated on the high street moving to the online space, as rental prices for those few remaining commercial spaces will record an increase,” he says.
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“Some retail activity will return to normal in towns across the UK following the loosening of restrictions. We are pack animals and people like to spend time with one another” JOHN AHMED COMMERCIAL TO RESIDENTIAL The government has proposed plans to allow any premises in Class E a PDR to convert to housing. Class E includes offices, shops, restaurants, professional services premises, light industrial units, GP surgeries and nurseries. The proposal includes a greater range of properties for the first time, as well as lifting the size limits previously in place. However, national lockdowns have resulted in many people wanting more outdoor space, which is unlikely to be provided by a commercial conversion. Morris asks: “Do people want to live in the centre of a city in a high rise building, which was previously an office block, without a patio, without fresh air and without access to an outdoor space? It is alright converting these buildings into residential properties, but is there the demand and desire from clients to actually want to purchase them?” Ahmed agrees that people are unlikely to want to live in converted office blocks, adding: “People also do not want to be stuck in-between a takeaway and a hairdresser, so I cannot see the demand being there for this property type.” Jupp goes on to say that despite concerns about demand and quality, the only way local development housing plans are to be met is by converting commercial locations; he points to the Southern-centric idea that London is where the job market is strongest, which continues to draw many to the area, contributing further to the lack of space. As a result, many young families and individuals may well have to purchase converted commercial property, whether they would like to or not. Barrett agrees: “I have not seen many converted commercial buildings sitting vacant for very long, the demand is there because people need somewhere to live.”
However, she notes that a lot of the converted high-rise properties are sub-standard. As a result, the government is enforcing minimum size requirements for the properties being converted in the future. Looking to the responsibility for construction standards, Larkin believes that experienced developers will understand how to turn old retail buildings into desirable accommodation. He says: “There was a shift eight or nine years ago when a lot of commercial buildings were converted into residential properties. However, developers ran out of office buildings to convert and the movement began to die down. We are starting this see this unfold again, as the number of potential commercial properties which could be suitable as residential accommodation is becoming less and less as more is built. “This move towards converting commercial buildings into residential property is often left by the high street lenders as they view it as too quirky; however, this then opens the door to us specialist lenders.” THE ROLE OF SHORT-TERM LENDING Where mainstream lenders might shy away from these more complex projects, the panel agrees that shortterm lending may hold the key to stimulating growth. Marshall says: “The mainstream banks and building societies do not want to lend on projects where the customer is doing something on the property to get it from A to B. This then leaves a gap for the short-term lending market, which can supply this demand.” The panellists feel that the short-term lending sector is only likely to increase in importance as towns and cities across the UK begin to look very different. “Typically, our customers have taken an unloved property, particularly nowadays this means a commercial property, and they are trying to improve it and generate wealth from it. When turning commercial property →
“Bridging is a product which is always at its strongest when things are most difficult – it is always the hero product, which offers the greatest flexibility” LUCY BARRETT
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“I think what lockdown has done is shown that technology is not as effective as we thought it was, and that we do still need to come into the office in order to achieve the best results.” PHIL GRAY “
into residential, there is the likelihood of a rise in value, as residential housing is more desirable than vacant shops, so therefore we as specialist lenders view lending on this type of deal as low risk, because the property is likely to rise in value once the alterations have been made.” Morris says: “While the current market is different to what we had in 2009, when there was no real funding available, I do not believe lenders are going to provide loans for conversions on the big expensive shopping centers. However, I do feel as if the bridging market will develop through permitted development rights.” Larkin adds: “I think the high street banks have been risk averse since 2009, as they were all affected considerably by the recession. What this did was open the door for specialist lenders and the challenger banks, which now support the quirky side of the market. “A lot of developers I have seen have incurred issues surrounding cashflow as a result of coronavirus, so now I feel a lot of developers are looking for leverage in order to recoup some cash. This then leads to lending on the more specialist, quirky deals, where the margins for profit are higher.” Larkin goes on to outline a key challenge revolving around the number of residential properties which need to be built every year. He explains that the mainstream banks usually support the large majority of conversions and new-build constructions, as specialist lenders do not have the capital to do so. Larkin refers back to Barrett’s earlier point on how high street lenders are retrenching, and becoming more restrictive with what they will lend on. As a result, the question is now around whether bridging can fill this gap left in the market. Looking to Homes England data from the six-month period between 1 April and 30 September 2020, there were 11,313 housing starts on-site and 11,358 housing
completions delivered. This is the lowest level of starts since 2012-13, and completions were the lowest since 2015-16. According to Homes England, the reduction was a result of a slow-down in housebuilding activity caused by the COVID-19 pandemic. Furthermore, government data reveals that it intends to build 300,000 homes in England per year by the middle of the decade beginning 2020, in order to support the quantity of demand. Gray agrees with other panelists in that high street lenders are less likely to want the ‘quirky’ deals, and that there is currently a very high number of specialist lenders which are capable of supplying the demand and thereby helping address the issue around low residential supply in the UK. Barrett says: “Bridging is a product which is always at its strongest when things are most difficult – it is always the hero product, which offers the greatest flexibility. “If someone needs to borrow, and the deal can withstand the rates associated with bridging, then it will always support individuals who need a loan.” She goes on to say that even after the 2008 financial crisis there was bridging money available to those who needed it. Gray agrees, to an extent, but says that the big difference between now and the last financial crisis is the emergence of challenger banks. He says: “The only option available post-Credit Crunch was bridging, the difference this time around is that there is now also a selection of tier two lenders who sit just below the mainstream lenders.” Barrett counters that while the challenger banks will often lend on deals which the high street lenders will not, when it comes to vacant buildings, they too will often reject them. She says: “If there is a shift period where the building does not earn any income, as it no longer lends itself to its previous use, or the tenant has failed, that is where then the majority of challenger banks will not lend.” BROKER DIVERSIFICATION Considering the growing importance of the specialist market, it is likely that the market will see a rise in brokers diversifying the support they can give to clients, and looking to branch into more specialist fields. Considering this trend, Jupp expresses concern: “The prospect of this feels me with horror. I feel as if it will be similar to the charge to bridging four years ago, when everybody became a bridging expert, which resulted
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MARKET in many poor loans being confirmed. The person that feels the detrimental affect of this is the client.” The panellists feel that any mortgage brokers looking to diversify must focus on gathering an understanding of the market. Morris says: “If you are a standard mortgage broker, we know the high street lenders are facing more and more pressure against the margins, from product transfers, comparison websites, and as technology improves more customers will go direct to lenders. “So, where is the future of mortgage brokers? The specialist market. You do not have to become a specialist in it, but by being able to broker this area of the market, then brokers will continue to see business flowing in.” Larkin says that for brokers branching into this space, it is about finding the correct individual to work with: “At LendInvest we operate with a development team, a buy-to-let team and a bridging team. Brokers increasingly want to place deals with the correct person, and there is less likelihood of individuals wanting to place business with people that they have a working relationship with, but who may not be the best person to complete the deal.” Marshall agrees with Jupp that a key concern when it comes to an influx of new intermediaries is around their understanding of the market. He says: “From a lender perspective, there is nothing that is more frustrating than a broker who does not understand the specialist market, as it is not all about price, and rather service. “There is an encumbrance on lenders to educate brokers, packagers, and customers to understand not only about on what goes right, but also what the implications are for something if it is to go wrong.” Regardless of where the onus lies in terms of educating brokers around the differences between the specialist and mainstream sectors, another significant hurdle raised by the panel is that of professional indemnity (PI) insurance. Jupp says: “PI will prevent most intermediaries from getting involved within this sector, this is because PI insurance will not cover them. If you are completing one to two commercial loans a year, or three to four bridging loans a year, it will be too expensive.” Brightstar, which has not made a claim in the last decade, has seen its excess and premium increase almost tenfold per annum, and Watts Commercial has experienced much the same scenario.
Gray says: “I think it will be interesting to see how the banks police this. I have already had several large brokerages calling and saying that they are not going to bother renewing, because it is not [a Financial Conduct Authority (FCA)] requirement and you are rarely asked to display your PI license.” Ahmed says that this issue is industry-wide and has been picked up politically, with debates on how to encourage insurers to provide forms of cover: “It is
“PI will prevent most intermediaries from getting involved. If you are completing one to two commercial loans a year, it will be too expensive for brokers to operate” ROB JUPP not just mortgage brokers that are affected by this, it is the entire marketplace.” “The government is predicting that the high insurance rates will continue for at least the next 18 months, which has been delayed as a result of coronavirus,” Gray adds. He also notes that prices are unlikely to return to the levels that they were previously. SPECIALIST SERVICE Whatever trends shape our towns, cities and high streets over the years to come post-COVID, be it widespread conversion to residential property, finding ways to regenerate and reenergize the high street, or simply helping the old normal to return following the devastation of the pandemic, it is specialist lenders that will facilitate the change. There is little doubt that this side of the market has risen even further to the fore during the challenges of 2020, a trend that is set to continue no matter what the next year brings. When assessing the most important attributes for a lender in the commercial and development sectors, the consensus is that service is essential. Marshall concludes: “Specialist packers, specialist brokers and specialist customers, who are experienced in the market, understand and also know that the most important thing is service over price.” B I
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Not built in a day… Jessica Bird catches up with Nick Jones, commercial director at Roma Finance, as the business delivers a major rebrand, to talk values, challenges and the future
Roma is launching
a major rebrand as we speak – what’s changing, and why? Roma Finance has evolved and matured over the last 12 months during the pandemic, and the look and values of the brand need to reflect that. Something that we are really conscious of is making Roma into more than just a bridging lender, that’s key to us. Other than the name – we are keeping the Roma part – the whole look, feel, image and tone, the whole brand, will feel more modern, new and fresh. We’re reflecting our growth as a business. Last year was our 10th birthday – we’ve been here for a long time and a lot of the things that we do are very well recognised and well documented, but I think that we need to shout more about them as we have so much more potential. We need to be recognised as one of those shortterm lenders that all intermediaries should have on their panel. We have a good, wide variety of products, we’ve developed those over the past 12 months as well, branching into things like buy-to-let (BTL), commercial and more development as well. So, as we’ve grown and expanded, we need to tell the story that we’re not just short-term finance, that there’s a lot more depth and breadth to who we are and what we do.
Collaboration. We work closely both internally – between sales and underwriting, underwriting and customer care – and with intermediary partners. It’s about understanding how we can recognise opportunities and educate more intermediaries to come into this field, working a lot closer with more people on how we can enhance the offering and the business, theirs and ours. For us, collaboration is certainly a big, key part of what we do. In short-term finance there must be a lot of understanding around the property transaction, the customer, what they need to do, and where they’re looking to go as well, so collaboration is important. Agility. Obviously in the last 12 months being agile has been paramount to business survival. This means reacting to what challenges are thrown our way and pre-empting the market and trends to stay ahead. Remaining agile in a complex world like short-term finance is very much key in general as well. Learning. We are continuing to grow as a business and individuals, and we strive to be limitless in what we are doing. Couple that with the last value – enthusiasm – and it’s a really strong ethos to put out there. We can help and support our colleagues both internally and externally through the engagement that we’ve had with them, and by having the enthusiasm to deliver for everybody that requires our help. Those are our brand values, the acronym being ‘SCALE’, which is what we’re looking to do.
What are the core values of the business? How do you make these values stand out? For Roma moving forward there are five key areas and values that we’re about. Success. We are striving for a better future with professionalism and integrity. We support our stakeholders internally and externally and treat them as individuals. It is about understanding how they want to do business with their clients, and helping them be successful.
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The core of our business is its people, and I think that having values people can buy into and be engaged with makes the brand. That’s been evident in the way that our staff have worked tirelessly through the last 12 months, changing the way they work to support intermediaries and customers. www.sfintroducer.com
INTERVIEW The company was named after Scott Marshall’s grandparents Rose and Max, and it really does have a family feel. At Roma we make people feel supported and we have taken that forward with this project. Every single member of the team has had a say in our new identity as everyone has played a role in where we are today.
It also comes down to the intermediary’s bank of clients, and where their business origination comes from. If new business origination is based around high street mortgages and purchases, mainly for people’s homes, with one transaction every two or three years – or a refinance or remortgage – and that’s your core of your back book, it’s going to be more challenging to move into a new area. It’s different if you’ve got a diverse client bank – portfolio landlords, builders looking to renovate and convert properties or build ground-up. Getting into the specialist market is a lot easier now than it ever has been, with the internet and social media making it easier to find these types of clients. There are forums, targeted groups on social media for example, where you can start – with time and research – to find opportunities and start to build relationships and understand the workings of different types of specialist finance. Anyone can get into it, but you have got to have that desire. It’s about recognising the opportunity for bridging, understanding what a client’s goals are, what type of funding they need and making sure the appropriate finance is provided.
Can mainstream brokers easily enter the short-term finance market, and if so where should they start? Anyone can enter the short-term market – it comes with recognising opportunity. Not every customer is going to ask for a bridging loan, but it’s about understanding the customer’s desires and requirements, which will eventually help the intermediaries spot those opportunities. Even by asking a simple question, like when does the applicant intend on repaying? If that’s inside 12 months, then a bridge should be a consideration.
What is your distribution strategy, and how do you see that changing? The distribution strategy is all about growth. For many years, there’s been a transactional ethos around the business. What we want to do is build a more relationshipbased strategy with a lot of the partners that we’ve got, making sure that we build the right partnerships with those intermediaries who want to develop their portfolios and clients, and those who share our values as well. Less can be more if you build a true relationship based around service delivery and positive customer outcomes. We recognise that specialist distributors, business and commercial intermediaries, appointed representatives (ARs) and directly authorised (DA) firms are all key to the future distribution of Roma Finance. Having a good mix of distribution between volume and more specialist requirements is a good mix for business. With more and more lenders coming into the market, building those relationships is key to a sustainable future. Were your funding lines impacted by the events of 2020?
Our funding lines weren’t impacted at all during 2020. The relationships that you have with your funders are key. → FEBRUARY 2021 BRIDGING INTRODUCER
INTERVIEW We have multiple funding lines in place supporting different elements of our product range, giving us added security. This strategy also allows us to secure exit routes so that borrowers can stay with us throughout the lifecycle of the project, in some cases taking it all the way from land with planning, through to development, and on to bridging, then to a term product if it is being rented out. If you’ve performed year after year with your funding lines, then that trust and that relationship is strong enough to withhold the most extreme challenges. Those lenders that lent prudently pre-COVID won’t have an issue in the future. Portfolios like ours have performed well, we’ve continued to show strength and we’ve bolstered the book and grown it over the last 12 months as well, so I’m confident in our funding arrangements, given our strong relationships, based on performance and trust. Roma paused new applications at the end of March but came back with renewed strength in May. How did the business fare in general through 2020? At the time, like everyone, we saw there was a lot of uncertainty in the market, and with several lenders stopping lending altogether we wanted to make sure that we were able to continue. We wanted to make sure that we could assess our position as well, take some time to have a look and collectively see what the future could be, what the outcomes and implications of the current climate would be. I think any business would need to do that. What we didn’t want to do was blunder through and hope for the best, because we are trying to protect a 10-year history and keep the prospect of growing further as well – we wanted to make sure we were making the right changes. So, during that four-week pause we reassembled, reviewed, assessed our position, our pipeline, and our funders. This allowed us to come back stronger and support the market in a productive way with good outcomes on all sides. Working from home was a big change obviously, and Roma Finance adapted quickly, thanks to our fantastic IT team. We’ve seen some benefits to homeworking and will be encouraging our colleagues to work flexibly where it suits them, although we can’t wait to get back to the office once it’s safe. We took on new technology and put procedures and frameworks in place to support intermediaries and customers throughout challenging periods, such as when builders’ merchants were closed and materials were unavailable. It was not only my appointment that took place in 2020, but that of Deborah Chaplain too.
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As the head of collections and customer service, Deborah enhanced the team and the processes she put in place kept customers on track. An example was the implementation of the Fees Free COVID programme, to give customers the breathing space they needed to complete their projects in extended time, to budget and move on to the next one. Are there any particular traits that have helped specialist lenders weather the storm? I think the main challenge for any business – whether high street or specialist – is around staying agile and flexible in the continually changing marketplace. Everybody’s in a similar place, whether you’re in finance or any type of business. If you’re in business right now you need to stay agile and try to steer your ship through the pandemic, lockdown and the after-effects that will come towards the back end of this year. It’s not necessarily the strongest that survives, it’s the one that adapts to change the best. Roma has launched a number of products over the last year. How has the business ensured that its range reflects demand? 2020 gave us a lot of opportunity to reassess what Roma Finance wanted to do, and where it wanted to go. I think myself coming on board in August has opened conversations in different areas that previously hadn’t been considered, and created the opportunity to explore different things and to understand the marketplace in a wider way. Roma was doing the planning for all this anyway, but a lot of it was accelerated by bringing new very talented people on recently. Adding to that experience, that knowledge and understanding of both the marketplace and of intermediaries has allowed us to grow quicker than previously. The conversation that we had with our intermediaries focused around what we do and what it was they wanted us to do. Those open conversations with intermediaries right across our portfolio of distribution were massive. It was about actually understanding and listening to the people who are out in the market speaking to customers – getting that information is invaluable to a business like ours. As we continue to grow, broaden and strengthen, we’ll continue to support our partners where we can. There are other areas we would like to go into, but obviously there’s a lot of work that has to go into that. Over time, we’ll continue to grow what we do and try and offer more solutions to more of our intermediary partners. www.sfintroducer.com
INTERVIEW What key trends do you predict will arise over the rest of this year? Looking forwards at 2021 we can see already through the enquiries we’ve received and conversations that we’re having that development and commercial conversion will be strong. The government’s relaxed planning around conversion from commercial to residential allows more opportunities, and commercial property is in a bit of flux at the moment, with town centres changing and home working becoming more common. There’s a real opportunity here as well, as there’s still a shortage of affordable housing, so I certainly think there’s going to be more opportunities for mixed-use semi-commercial, and conversion from commercial to residential. Residential BTL and houses in multiple occupation (HMOs) will remain strong. Landlords are looking to maximise revenue in their portfolio in light of the changing tax position as well. Commercial investment is also going to be an area of growth, as investors all look to capitalise on the drop in price, with a look to convert to residential and mixed-use as well. There are certainly areas there for specialist lenders and specialist brokers to gain lots of new business opportunities this year. Will we be seeing a change in the high street and town centres as a result of these trends? The hospitality trade and things like gyms are still certainly going to be a big part of city life and town centres. I think what we’ve got to do is bring the people in so that they can use the facilities. As houses – and potentially affordable housing – in town centres brings those people in, then naturally they will need places to go and things to do. So, I’m still quite enthusiastic around town centres, and certainly the opportunity for buildings being transformed, converted, and refurbished into these lifestyle types of uses. I think that with Brexit coupled with the pandemic, what you’re also going to have is a big spike in ‘staycations’, certainly in the next three to 10 years as it becomes more costly to go abroad. We need to have more things to do on those staycations, so hotels and gyms and everything else all feed into that. You joined Roma last summer, what drew you to the business, and was it like taking the reigns as commercial director in 2020? I think the people and the culture were the instant draw – from the top down there’s a really positive and supportive feel about the business. www.sfintroducer.com
I love the vision of the company and felt that I could add some value to the journey that it was wanting to embark on. I think the plans that Roma Finance has in place and what it wants to do make the perfect fit for me really. Starting in the middle of a pandemic wasn’t the easiest of challenges, but I ensured I met all the team face-to-face – socially distancing and with masks – for the first few weeks over August. This helped me with understanding the business, the roles, and what the challenges were, and after several weeks we got a clear strategy in place for the new business origination strategy and the marketing, and we’re getting on with implementing them and embedding them. The team have been absolutely fantastic, they’ve embraced the changes that have come their way, and that’s all to do with having a clear vision of where we’re going and what we’re doing. What is the growth plan for the business? Beyond the rebrand, what should we be looking out for from Roma in 2021? The growth plans are around distribution and strengthening relationships throughout that specialist, bridging and commercial marketplace. There will also be diversification into new products – commercial and also some of the innovative development products that we can offer. That’s an area where we’re really keen to do things differently. We’ll build on our already excellent reputation on service, and we will be looking at streamlining some of the processes for the more straightforward short-term applications, to see how we can transact these quicker. We’re looking to bring in more technology on that side as well, outside of the automated valuation models (AVMs) and electronic ID processes that we already have in place. We’d like to build the business, not just with good people but the best people. In financial services, the strength in the business is built on the people you employ, train and put out there. It has always come down to people, they are the culture and deliver the strategy. What key message would you like to get across to brokers about working with Roma Finance? The key message is: use us now. Over the last six months we have changed our focus and our ways of working, and we have become a lot more intermediaryfriendly. We’re a different business from 12 months ago, and I’d like to welcome any feedback. We are trying to become a business that is wholly supportive of intermediaries, and to build on how we can help and support them along the journey of short-term finance. B I FEBRUARY 2021 BRIDGING INTRODUCER
IN OUR OPINION
Roma reinvented Lending less ordinary comes as standard when you put people before property
t just 13 years old, Roma Finance has the ambition, enthusiasm and creativity of any successful, growing business. Our team is driven and confident, and there’s a tangible buzz about the office – when we can go into it – and about our future. But don’t be fooled by our youthful exuberance, because behind it lies a wealth of lending experience, from the senior leadership team to the business development managers (BDMs) and admin staff. At Roma, we know what we’re doing and where we’re going. INTEGRITY AND AMBITION We’re growing quickly, and we have a sustainable expansion plan, which includes boosting our distribution, productivity, funding and team. Underpinning our growth are strong and diverse funding lines, from high street banks to venture capital funds, that ensure we have a continuous and steady lending capability. We spent 2020 making key hires throughout the business and planning our rebrand. Now we’re ready to move to the next stage of our plan – the most important element of which is a commitment to remain a lender with integrity. LOOK AGAIN AT ROMA Roma’s rebrand has been deliberately timed as we become bigger and more accessible to intermediaries. You’ve might have heard of us, but if you haven’t yet submitted a case, you may not know what makes us different. That’s what we are working to change, because we are no ordinary short-term lender. Roma always acts with integrity, professionalism and transparency – and always will. We don’t shy away from complex non-standard cases, but we do take a different approach to most short-term lenders. Here’s how: PEOPLE BEFORE PROPERTY In order to assess our potential customers, we meet them face-to-face, every time. This is important to us, because we underwrite your client’s application based on their ability to repay the loan through their project. The property value or equity level of the property project isn’t the most
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important factor, and that makes us really different to other short-term finance lenders. Working in partnership with intermediaries and borrowers on every application means better outcomes on the projects we fund. We work with your clients throughout the life of a project and we’re excited to help them create wealth through property. Your clients are encouraged to tap into our experience and expertise in this sector, as well as our funding, because a collaborative approach helps us all. We have experienced landlords and property developers on our team who can, and do, provide invaluable insight to our borrowers. At Roma, we have the confidence in our experienced underwriters to give them genuine autonomy over decision-making when they underwrite the applicant, not just the asset. They understand how to assess risks and mitigate them, and this only comes with experience – there is no substitute. We believe in looking creatively at projects and funding structures. We can, and do, pull apart cases to see if they can be structured differently to produce a better customer outcome. It’s a strategy that makes us stand out from the crowd, but it’s one we believe
How we can help your clients Roma is a short and medium-term finance lender, providing first and second charge loans from £30,000 to £3m. We operate in all the key market sectors you would expect, including bridging, buy-to-let, development finance and commercial. We are careful to balance our lending across these markets, to minimise our risks and maximise our support of a diverse range of property projects. Roma is a specialist lender, so we underwrite individually and will consider applications from those who might be excluded from mainstream lending criteria. This includes borrowers with unusual income streams, the selfemployed, those with a credit blip and those looking for funding on non-standard property types.
Projects we lend on include refurbishments, renovations, change of use, property auction purchases and ground-up developments on residential investment, commercial and industrial properties throughout England, Scotland and Wales. We also offer a bridge-to-term product which gives borrowers the security and reassurance that they can exit their short-term plan into a longer-term solution. It’s particularly important in the current climate, where many construction and renovation projects have been delayed by the pandemic and repaying short-term loans has sometimes proved challenging. Our customers are usually property investors and landlords, both experienced and first-timers, as well as homeowners looking to finance an investment project.
IN OUR OPINION in, because we see it work in action. When we meet applicants, they can learn from our experience and we can better assess their suitability for the loan. These in-person meetings often throw up different opportunities, such as working outside of criteria or structuring the application in a completely new way. As a lender with an ambitious growth strategy, we realise that meeting all our customers will begin to pose challenges, but we’re going to work hard to continue doing it. It supports our approach to lending, and results in extremely low default levels. As we grow our volumes, we’ll make sure our service is always personal and individual. LOOKING AHEAD There are more than a few bumps ahead this year, but at Roma we’re optimistic. We believe that we can de-risk projects by ensuring they are structured right from the outset. Therefore, this challenging market actually presents us with plenty of opportunities. There will be inevitable short-term volatility, of course, especially after the Q1 rush slows down, and we’re prepared for that. But we’re also confident the short-term finance market will quickly return to its long-term growth trend. Specialist lending is set to see increased demand, because ultimately mainstream lending criteria will remain tight. This will throw up a huge opportunity for those who can look more closely at borrowers with different needs or more challenging circumstances, assessing them individually rather than using a tick-box approach. Some of our more experienced investor customers are already waiting to see if property prices fall and they can purchase at a lower price later this year. Plus, the private rented sector (PRS) is likely to be strengthened as residential purchases potentially fall, and we see rising demand from tenants, sustaining the current high rents. Professional landlords are still looking for higher yields and the market for houses in multiple occupation (HMOs) is strong, particularly in northern cities. The professionalism of buy-to-let is accelerating, with first-time investors put off by increasingly onerous rules and regulations. But larger landlords are taking the opportunity to expand. The commercial market has been hit hard by the pandemic and some sectors – such as retail, for example – are volatile. However, developers are also using permitted development rights to convert retail units into leisure or residential properties. Our towns and high streets are being reshaped and reimagined into multi-use facilities that bring more people into town centres for entertainment as well as shopping. We’re confident that we will see increased demand next year and beyond, and we plan to grow the business alongside it. www.sfintroducer.com
Roma lowdown Roma was founded in 2008 by Scott Marshall with a couple of desks and one employee. He’d worked at Together – previously Lancashire Mortgage Corporation – as credit and risk director, and before that at Ford Campbell. The name Roma comes, not from a fascination with the Roman Empire, but from close family ties – Scott’s grandparents Rose and Max inspired the name. Scott launched the business to provide personal, competitive and innovative lending to property investors and homeowners. Those enduring values remain at the core of the business. Roma has grown steadily and organically, with strong
funding lines and a tailored approach to underwriting providing a solid foundation for the business. Now we have 35 colleagues based at our head office in Manchester and around the country. We support intermediaries nationally, and work closely with you and your clients to fund successful projects. Nick Jones recently joined the business as commercial director, along with underwriting relationship manager Emma Barker, head of customer service and collections Deborah Chaplain, and key account manager Laleta Buctkuar. We will continue to grow our team in 2021, deepening our lending and distribution expertise, all the way from senior management to experienced administrators.
BETTER FOR EVERYONE At Roma, we know that the short-term finance sector is competitive, and we think that’s a great thing for intermediaries and your clients. But there’s a place for our ‘lending less ordinary’ approach, which puts your client, not the property, at the centre of underwriting. It’s been challenging 12 months, but we are resilient. Not just at Roma, but throughout the bridging, development and commercial sectors. We’ve seen experiences shared between business leaders, intermediaries supporting clients, and lenders juggling demand like never before, with payment pauses on mortgage lending and extensions on shortterm borrowing. It has been great to see the specialist sector pull together throughout 2020, and we hope it leads to a more collaborative approach to business over the next year and an even greater focus on improving the lending experience. If you haven’t dealt with us before, give us a ring, drop us a line and – when it’s safe to do so – let’s meet for a coffee and a chat. Our BDMs, underwriters and other colleagues will be pleased to talk you through what we do and how we could help your clients, or we can discuss a particular case to see if we can help. At Roma, we’re really excited about our rebrand, our growth plan, but most importantly about helping your clients achieve their property goals and giving you a level of service beyond your expectations. We can’t wait to show you what we can do. B I FEBRUARY 2021 BRIDGING INTRODUCER
Bridging in action The bridging lender was able to move quickly to get the borrower through the process, achieving a valuation in just 24 hours.
Vic Jannels CEO, ASTL
he most recent ASTL lending figures showed a record level of bridging applications in Q3 last year, and feedback from the market indicates that customer demand for short-term property finance has continued to be strong going into 2021. So, what is driving this demand, and how is bridging being used? We asked our members to provide examples of areas where they are currently seeing growing appetite for bridging finance. Here are just four of those examples – and we will cover additional trends and case studies in future articles. SAVING A PROPERTY TRANSACTION
Bridging is increasingly being used as a means of saving property transactions for a number of reasons. Clearly, the impending stamp duty deadline has put greater emphasis on transactions needing to complete quickly, so when chains have been broken or term lenders have dragged their feet on assessing applications, bridging has provided a valuable tool to keep things moving. It can also help when a customer has been let down by a term lender, because it has changed its criteria or even withdrawn from lending for a period. An example case from Association of Short Term Lenders (ASTL) member, Market Financial Solutions (MFS) provides an excellent demonstration of this in action. The customer was looking to purchase a buy-to-let (BTL) property for their portfolio. The issue they ran into was that their lender withdrew from the market, or changed criteria, just as the deal was supposed to complete – a fairly regular problem both in the first and second lockdowns.
Access to capital is crucial for businesses at any time, and is proving particularly important at the moment. Consequently, there is a strong demand for bridge finance for business purposes. Here’s one example from ASTL member MT Finance. The customer required funds to redeem an existing second charge loan, secured over their home in Knightsbridge and used to invest into their business. The existing charge was coming to the end of its term, and they urgently needed £753,000 to redeem the charge, with the remainder of the funds being injected into their business. The lender came up with a solution that enabled the customer to redeem their existing second charge loan within the deadline and inject further funds into their highly profitable business. The exit route for the bridging loan was sale of the property, which was valued at £6.65m. DEVELOPMENT EXIT LOANS
Property developments are often subject to delay at the best of times, and the impact of multiple lockdowns and stalled supply chains has made it even harder for developers to complete schemes on time. So, bridging finance can be used to enable developers to exit their development finance, complete a scheme and release capital. Here’s an example from ASTL member Avamore Capital. The customer had planned to take out a development loan in March 2020 for the conversion of an oﬃce into 21 residential units, but the original lender pulled out due to the first lockdown, and the customer decided to self-fund the project but ran down his cash reserves part-way through the scheme, needing additional funds to complete the project.
The bridging lender worked with Building Control to assess the quality of works to date and was able to use its in-house expertise to understand the scope of the project and issue a £2.1m loan to complete the build and cover the exit period. PROPERTY CONVERSION
Property conversion is always a popular use of bridging finance, and is another area much in current demand. Commercial to residential is particularly common given changes to permitted development rules and downward pressure on some commercial property values, but other conversions are also proving popular. ASTL member Shawbrook Bank has provided this example of the conversion of a single-family dwelling into a sixbed house in multiple occupation. The property, built in 1910, was noted as ‘significantly dated throughout’. Repairs and general maintenance had been neglected for several years, and a substantial amount of work was required to modernise it. Although the current state of the property would most likely deter many buyers and renters, its desirable location meant there were no concerns around saleability, and rental demand should be strong following completion of the works. With this in mind, the lender was able to provide the funds needed to complete the purchase quickly and undertake the heavy refurbishment required to transform the property. The customer secured the exit route to a term mortgage, enabling them to recover the deposit and the refurbishment funds spent, as the value had increased by almost 40% from the original purchase price. These are just some examples of bridging in action. Brokers should be alert to the opportunities to use flexible short-term property finance to solve the funding needs of their clients and, of course, when it comes to choosing a bridging lender, always look for ASTL membership as a kitemark of quality. B I www.sfintroducer.com
0345 241 3079 www.castletrust.co.uk
Give your clients the confidence and certainty they need Bridge to Let provides the stability your client needs to continue investing and growing their property portfolio. With a 9 to 12 month term that can roll into a guaranteed term if needed, your client can rest assured that there is a back up plan in place at a time when the future is difficult to predict. For more information, or to find your local BDM, visit www.castletrust.co.uk
Castle Trust is the trading name of both Castle Trust Capital plc (company number 07454474) and Castle Trust Capital Management Limited (company number 07504954) both registered in England and Wales with registered offices 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. Castle Trust Capital Management Limited is authorised and regulated by the Financial Conduct Authority, under reference number 541893. Buy to Let is not regulated by the Financial Conduct Authority or the Prudential Regulation Authority.
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At Roma, we like to be extraordinary. Because of this, we stick to our decisions, meaning our intermediary partners are never left feeling uncertain when working with us.
Lending less ordinary
romafinance.co.uk 05/02/2021 11:32:52