Bridging Introducer – May 2022

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BRIDGING Champion of the Bridging Professional

INTRODUCER www.sfintroducer.com

 ASTL  Bridging in-depth  Interview

May 2022

John Ahmed on what’s ahead for Movin’ Legal and the role of technology in mortgage lending’s new normal

Movin’ up



EDITORIAL

COMMENT

Managing Editor Paul Lucas paul.lucas@keymedia.com Deputy News Editor Jake Carter jake.carter@keymedia.com News Editor Richard Torne richard.torne@keymedia.com Content Editor Kel Pero Commercial Director Matt Bond matt.bond@keymedia.com Advertising Sales Executive Jordan Ashford jordan.ashford@keymedia.com Campaign Manager Amie Suttie amie.suttie@keymedia.com Production Editor Felix Blakeston Production Coordinator Loiza Razon Head of Marketing Robyn Ashman robyn.ashman@keymedia.com CEDAC Media Ltd Signature Tower 42, 25 Old Broad Street, London EC2N 1HN Information carried in Mortgage Introducer is checked for accuracy but the views or opinions do not necessarily represent those of CEDAC Media Ltd.

Contents

Getting the message straight

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nyone who has visited the Mortgage Introducer website recently will have noticed something of a revamp – a refreshed look, new sections (including one devoted to bridging), podcasts, videos, special reports and more. Another feature is the integration with our sister publications – Mortgage Professional Australia, New Zealand Adviser, Canadian Mortgage Professional, and Mortgage Professional America. You can toggle across and find out what’s going on in all of those regions at the click of a button. Overseas, one of the recurring themes is the rise of nonprime mortgages – or non-�M (non-qualified mortgages). These are home loans not meeting agency-standard documentation requirements as outlined by the Consumer Financial Protection Bureau (CFPB). What does this have to do with the UK bridging market, you might ask? Well, the answer is that both are suffering from an image problem. In the US, non-�M are scuppered by ties to the subprime mortgage crisis that occurred between 2007 and 2010, despite the fact that the two products are distinctly different: subprime included loans in which income was not regarded, whereas non-�M is designed for borrowers with unconventional circumstances. Meanwhile, here, Terry Pritchard, director of Charter HCP, told Mortgage Introducer in our most recent Bridging Roundtable, in association with Movin’ Legal, how the typical bridging broker was seen as a jeans-and-t-shirtwearing, “Churn ‘em and burn ‘em” type. Clearly, perception does not match reality – but our US counterparts are shouting loudly about the virtues of non-�M, and people are listening: the market is enjoying a breakthrough. Now the challenge is for bridging lenders and brokers to do the same. B I

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Paul Lucas

www.sfintroducer.com

MAY 2022

4 Reviews 16 Cover: John Ahmed Bridging Introducer spoke to the director of Movin’ Legal Ltd about plans for the future of the mortgage industry and the use of technology in this post-COVID environment 20 Feature: Movin’ with the times Conveyancing’s not so straightforward when it comes to specialist lending, but having access to an expert conveyancer can smooth the rocky road ahead 22 Roundtable: Experts in the bridging field discuss the challenges, remedies, and opportunities they see in this rapidly changing market

BRIDGING INTRODUCER

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REVIEW

SPECIALIST XXXXXXXXXLENDING

Demand for bridging finance remains strong Donna Wells director, First 4 Bridging

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he fact that we continue to see rising house prices reflects unwavering demand from an array of borrowers, even during these recent uncertain economic times. This was evident in the latest UK House Price Index data from the ONS and Land Registry, which outlined that average UK house prices increased by 10.9 per cent over the year to February, up from 10.2 per cent in January. Breaking this down, average house prices increased over the year by 10.7 per cent in England, 14.2 per cent in Wales, 11.7 per cent in Scotland, and 7.9 per cent in Northern Ireland. The South West and East of England were suggested to be the regions with the

”Even when operating predominantly in the specialist lending markets, it’s important to keep track of more general market trends as a growing number of potential borrowers continue to drift beyond mainstream lending criteria” highest annual house price growth, with average prices increasing by 12.5 per cent in the year to February. This was up from growth rates of 11.5 per cent (South West) and 11.4 per cent (East of England) in January. The lowest annual house price growth was in London, where average prices increased by 8.1 per cent over the year

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BRIDGING INTRODUCER   MAY 2022

to February, up from 3.8 per cent in January. Despite being the region with the lowest annual growth, London’s average house price was said to have remained the most expensive of any region in the UK, averaging £530,000. Even when operating predominantly in the specialist lending markets, it’s important to keep track of more general market trends as a growing number of potential borrowers continue to drift beyond mainstream lending criteria. In addition, landlords, investors, and property professionals are constantly looking to take advantage of opportunities as and when they appear. BRIDGING FINANCE

From a specialist lending perspective, demand remains strong, and we continue to see innovative approaches from an array of lenders as they bid to deliver a range of options to meet everchanging borrowing demands. When it comes to bridging finance, Knowledge Bank’s latest criteria tracker results revealed that ‘regulated bridging’ featured prominently in brokers’ searches in March, marking its fifth consecutive month as the mostsearched term. This popularity may be partly driven by competition in the housing market as buyers use bridging loans either to avoid the collapse of a chain when a seller pulls out or to buy a property before their own sells. COMPLEX BTL

Focusing on BTL, the tracker revealed that this sector is being dominated by searches from brokers working with inexperienced landlords. Interest in the rental market from both ‘firsttime landlords’ and ‘first-time buyers’ resulted in both terms landing among the five most searched in March. From our perspective, here at F4B, the more complex end of the BTL space is also experiencing

rising demand for houses in multiple occupation and changes in permitted development rights. In addition, a number of investors are scouring the market for suitable commercial properties to repurpose, wanting either to refit an office to accommodate hybrid work or adapt a retail space, as also highlighted as one of the main search areas within the tracker. COMMERCIAL AND SEMI-COMMERCIAL

Staying on the commercial theme, the lifting of COVID restrictions and a return to city lives for many has led to an increased spotlight on the potential of commercial and semicommercial properties, especially amongst the landlord community, as lenders demonstrate a growing appetite to lend. On the subject of semi-commercial, the value of specialist advice around this property type has been more evident than ever during these testing economic times, and we have certainly seen a rise in this type of business over the past 12 to 18 months. When operating in this product arena, lenders need to follow a more structured approach and be as transparent as possible in terms of how and where they can do business, not to mention how their service levels are currently stacking up. We work with many commercial finance specialists and these transactions tend to be highly complex ones that require a bespoke, customer-focused financing solution. Finding the best fit for particular deals in a particular location comes with experience and long-standing relationships that have evolved over the years – a factor that demonstrates the value of cultivating these types of relationships in the modern mortgage market. Whether this increase in demand can be classed as a longer-term trend remains to be seen, as we are still operating in a market full of unknowns. However, the commercial and semicommercial sectors are certainly areas worth following in 2022, especially if LTVs begin to gradually increase and further investment opportunities emerge. www.sfintroducer.com

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REVIEW

HMO XXXXXXXXX

HMOs mean opportunities, challenges there are two or more separate households Grant Hendry director of sales, Foundation Home Loans

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hen looking to diversify their portfolios and maximise rental yields, a growing number of landlords are embracing HMOs. The appeal of this investment type continues to rise – but, at the same time, some misconceptions around it remain, and it’s vital that landlords and intermediaries maintain a strong grasp of the basics in what remains a complex area of lending. So let’s take a step back for a moment to outline exactly what an HMO is and the required licensing process. HOUSES IN MULTIPLE OCCUPATION

A property is classed as an HMO if both of the following apply: at least three tenants live there, forming more than one household toilet, bathroom, or kitchen facilities are shared with other tenants A property is a large HMO if both of the following apply: at least five tenants live there, forming more than one household toilet, bathroom, or kitchen facilities are shared with other tenants A household is classed as either a single person or members of the same family who live together. A family includes people who are: married or living together (including people in same-sex relationships) relatives or half-relatives – for example grandparents, aunts, uncles, siblings ,step-parents and step-children LICENSES

Landlords must get a licence from the council if the below points obtain: there are five or more unrelated people living in a shared house

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Some councils also require other HMOs to be licensed, and some councils require all private landlords to get a licence. Landlords should always check with their local council to find out whether a licence is required in that area. Licences usually last for five years, but some councils grant them for shorter periods. When deciding whether to issue or renew a licence, the council checks that: the property meets an acceptable standard – for example, it looks at whether the property is large enough for the occupants and whether it is well managed the landlord is a ‘fit and proper’ person HMOs don’t need to be licensed if they are managed or owned by a: council co-operative health service housing association police or fire authority This may well be information you already know, but you’d be surprised by how many landlords and advisers are unaware of some of the specifics. HMO YIELDS

One of the driving forces behind the rise in prominence of HMOs is their potential yield. This was highlighted in Q4 2021 landlord panel research from BVA BDRC which showed that HMO lettings achieved the strongest yields at 7.5 per cent. Students provide the strongest yield of any tenant type at 7.4 per cent. The next highest yield was said to be multi-unit block flats at seven per cent, with the lowest yield coming from individual flats (5.4 per cent). While the HMO figure above is strong, landlords need to take into account associated costs attached to such properties. The research suggested that HMO landlords spent an average

of 24 per cent of their income on maintenance, compared to 20 per cent for non-HMOs. However, spending for both property types has declined Y-o-Y (by 1.1 per cent and 0.9 per cent respectively), and was said to be down substantially from pre-pandemic levels (by 4.2 per cent and 3.5 per cent respectively). THE BENEFITS

HMOs can help landlords reduce rental voids and lessen the impact of arrears, as there will be separate tenancy agreements in place within these properties; thus, if one tenant leaves or falls into arrears, there are other tenants there still paying rent. Demand also dictates that HMOs situated in the right location and priced appropriately are always likely to attract good-quality tenants. But such properties do need more time and control in terms of management. From a lending perspective, a wider selection of innovative and competitive products is emerging, with differing fee options that allow landlords to better control upfront and ongoing cost implications. Here at Foundation Home Loans, we recently expanded our green buy-to-let mortgage range to cater for HMOs with up to six residents, and we also offer a number of fixed-fee and fee-assisted options. In response to intermediary feedback, we’ve also expanded our closed solicitor panel from which borrowers can choose for their specialist property purchases and remortgages of HMOs, large HMOs, and multi-unit properties. It’s a real positive to see more HMO options emerging across the BTL marketplace, and there’s an emphasis on lenders who have the underwriting capabilities to assess such cases on an individual basis. In addition, professional landlords are seeing more value from the advice process because of increased levels of complexity and legislation. And this is a combination that bodes well for advisers and their burgeoning relationships with landlord clients and HMOs. B I www.sfintroducer.com


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REVIEW

BUY-TO-LET XXXXXXXXX

Avoiding BTL property pitfalls Louise Pengelly proposition director, Paymentshield

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n 2021, the buy-to-let (BTL) market grew at a rapid rate, with BTL purchase activity increasing to £18bn – up by a huge 83 per cent from 2020. This market buoyancy was certainly accelerated by the stamp duty holiday, which encouraged many landlords to take a more ‘professional’ approach to investing – for example, by running multiple properties or small portfolios. This year, experts predict no letup. And amid this booming BTL landscape, there’s an ever-stronger need for advisers to safeguard both their clients’ home and rental income. Central to this is for advisers to use any conversation with present or prospective buy-to-let clients to emphasise the merits of a quality landlord insurance policy. PROTECTING BTL PROPERTIES

Renting a house involves many risks that you don’t have when you live in your own home – from loss of rent to injury claims – and that, naturally, may not be covered by a normal home insurance policy if tenants live in a property. To insulate landlords from the broad spectrum of risk, there are policies such as Paymentshield’s fivestar Defaqto-rated offering, which provides comprehensive support to its policyholders with benefits ranging from alternative accommodation for tenants to malicious damage cover and new-for-old replacement. Moreover, in instances in which additional protection is required, this policy can provide optional support, including legal cover, rent protection, and

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landlord emergency. While landlords can certainly rely on a quality insurance policy to help protect them against loss, they cannot singlehandedly manage all potential risks. Renting a property is based on a relationship of mutual trust between landlord and renter, and each party bears some responsibility for ensuring the other’s financial and personal wellbeing. TENANTS’ ALARMING INSURANCE GAP

Unfortunately, the rental insurance void continues to prove wide and significant. Our 2022 YouGov survey, conducted among 455 private tenants, revealed that a worrying 46 per cent of tenants don’t have a contents insurance policy in place, meaning that this group would face significant financial risk were their possessions stolen or damaged because of things such as floods and storms – which, unfortunately, are becoming commonplace in the UK. And with the average value of renters’ contents amounting to £25,126, the expense they might have

BTL is becoming more complex

to incur in the event of one of those scenarios could be disastrous. DOUBLE THE RISK

Let’s be clear, though: tenants aren’t the only cohort bearing the consequences of a lack of contents insurance protection. A lack of contents insurance often goes hand in hand with a lack of tenants’ liability insurance, which is generally embedded in tenant-specific insurance policies and can crucially shield renters by recouping the costs of putting right damage to a landlord’s belongings, thus insulating landlords from unpleasant disputes. Unfortunately, our figures showed an overwhelming lack of tenants’ liability cover amongst renters – 83 per cent of those with no contents insurance in place were also uninsured for accidental damage to a landlord’s belongings. This rental insurance black hole can easily be a breeding ground for landlord-tenant contentions when a tenancy ends – and these aren’t only stressful, but can also be detrimental to landlords’ finances should they be left to recoup the cost of damage. With buy-to-let landlords seeing frequent influxes of tenants, it’s easy to see how the likelihood of financial damage can mount rapidly. Tenants’ liability insurance can sidestep this risk altogether, protecting both parties’ finances and their relationship. Believing that tenants’ liability should be the minimum protection any renter has, Paymentshield has been calling for all parts of the lettings chain to demystify the value of tenants’ liability to both renters and landlords. That’s why, with supporting advisers to echo this message, we’ve recently released landlord- and tenant-specific modules on our freely accessible CPD hub, GI Academy. From the point landlords let their properties to the minute renters vacate their homes, quality protection is key for landlords and tenants alike. The lettings industry as a whole bears responsibility for helping to support these cohorts, so that their homes, as well as their wallets, will be safeguarded at every turn of the rental journey. B I www.sfintroducer.com


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REVIEW

EPC XXXXXXXXX

People or environment first? Steve Goodall managing director, e.surv

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OVID, inflation, increasingly extreme weather events, and now the military conflict in Ukraine are the most obvious signs we are rapidly entering an era of protracted turmoil. Talk has turned from concerns about perma-inflation to an era of perma-crises. Big problems require big interventions. A combination of quantitative easing and ultra-low interest rates has effectively allowed things to march on as if nothing ever really happened. From monetarist policies such as the historically low interest rates of the last almost fifteen years to fiscal incentives (numerous first-time buyer supports, stamp duty holidays, furlough, etc), the state has had its hands on the levers of the market. The market in its turn has followed. What we are left with is a housing market in a perpetual state of undersupply, which supports house prices and pleases voters, but now puts more pressure than ever on affordability – necessitating more state support at the first-time buyer end. Inflation has meant that new lenders are queuing up to join the market, and many bridging and commercial lenders are eyeing the opportunities for refinancing that will come in the portfolio buy-to-let and residential markets. Good news for borrowers – maybe. The cake may remain the same size, but many more now want a slice because, as other asset groups such as equities begin to deliver poorer returns, the commercial interest in UK housing rises. There is good reason for this. UK housing performs well. It may not be the most liquid asset for investment, but it is robust in terms of long-term performance. Our issues and responses during the global financial crisis were all

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targeted at helping people. This time, too, as we move through the credit cycle, we should expect a reduction in the volume of low-LTV business as incomes are diverted to address energy bills – fuel for everyday necessities such as cars and food. The roofs above our heads are essential, but they are only one of many issues borrowers have to worry about. The news on arrears may be okay now, but I can’t have been the only person to have noticed the Bank of England last month highlighting a leap in credit card borrowing of £1.5 billion in February to £59.5 billion.

“We have a perfect storm of evolving macroeconomic dynamics and responses from policy makers and the market that are making the assessment of value a more complex business” This was the highest since records began in 1993, increasing unsecured lending by 90 per cent on the prior month. More months of this and we will see the pressure translate into the secured market. While I fully expect digital assessments of property value to continue, high-LTV lending will mean that a blend of methodologies, from AVM to physical inspection, will continue. This pressure on affordability is coming at a time when we as an industry are endeavouring to understand at a policy and market level what constitutes house value and how we assess that. Being ‘greener’ might well be a necessary part of this value calculation, but the lack of comprehensive data sets that exist across the UK’s property stock means the market will start to make its own rules, which may incur unintended consequences. One of these is the potential cohort of so-called green mortgage prisoners, who cannot afford retrofit upgrades to their properties

to meet EPC requirements and therefore will be ineligible for cheaper finance. It was reported last month in Scotland that some banks, according to one newspaper investigation, are already refusing to give mortgages on some properties in anticipation of new legislation requiring houses to have at least an EPC energy rating of C. The £33 billion green order is expected to lead to some homeowners facing renovation bills of more than £10,000 before they sell. We may not be there yet south of the border, but affordability issues combined with retrofit requirements are changing people’s assessment of value – whether we are complicit in it, managing it, or agnostic about it. What we have seen from our own Property Watch survey is that installing electric vehicle charging points at a property is resonating with buyers’ perception of value. Energy Performance Certificates, for all their inadequacies, are already influencing buyer assessment of value. And we know too that many funders in the securitisation market are demanding ‘greener’ assets. The pressure to reshape our notions of value is very real. The upshot of all this is that we are perhaps about to create a host of additional micro-markets that go beyond geography and stock type into usage and energy performance. What this will mean for buyers is not fully understood. Will we see as many people moving up and down the property ladder? How will people not be trapped in poorer properties? Our understanding of these dynamics will demand a mix of current and new valuation methodologies to illuminate whether loans and purchase prices are based on the right value. We have a perfect storm of evolving macroeconomic dynamics and responses from policy makers and the market that are making the assessment of value a more complex business. We need to join the dots if we are to deliver a functioning market for everyone. B I www.sfintroducer.com


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REVIEW

REGULATION XXXXXXXXX

Where does the cheapest mortgage rule FIT? Steven Howard head of mortgage & lending intermediaries compliance services, SimplyBiz

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hat can I say about 2020 that has not been said before? Something called Brexit finally happened, a blockbuster-turned-bomb called Cats was released, and Liverpool FC won their first Premier League era title to the backdrop of an empty football stadium. Whilst I’m certain none of those events passed you by, I want to focus this article on a recent mortgage-related rule change that was perhaps less notable at the time. At the start of 2020, an important statement from the FCA hit mortgage firms and their advisers’ in-boxes in the shape of “Policy Statement 20/1: Mortgage advice and selling standards: Feedback to CP19/17 and final rules.” To give this some background, in 2019, the FCA published its Mortgage Market Study, which was a review of the impact of the Mortgage Market Review (MMR) – in other words, a check to see whether the MMR had resulted in any unintended consequences for consumers. Perhaps unsurprisingly, the regulator concluded that the mortgage market was working well, but some areas could be improved further. The FCA then set out proposals to improve advice and selling standards and distributed these under a consultation paper (CP19/17), which ultimately resulted in additional proposals and rules around the following areas: making it easier for firms to develop tools to help consumers choose a mortgage stopping consumers who want an

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execution-only mortgage from being unnecessarily channelled into advice preventing consumers from overpaying for their mortgages These rules seemed largely to apply to firms operating execution-only mortgage sales processes. So what was new for advisers? Well, there was one rule change that should have had a direct impact on advisers but that, on the surface, appeared to be well executed already. This rule stated that when considering mortgage lenders and their products, in instances in which advisers do not recommend the cheapest suitable mortgage from the range of products to which they have access and that meet the needs and circumstances of the customer, advisers must explain and record the reason why they have recommended to the customer a more expensive option over cheaper alternatives.

“On the face of it, most firms and their advisers are well versed on the requirements” There was a transitional period in respect of this new ‘cheapest suitable mortgage’ rule, and firms had until 30 July 2020 to adapt their processes. However, as this was always considered good practice, we at SimplyBiz recommended that firms implement this new rule with immediate effect. The new rule only applied to regulated mortgage contracts and consumer BTL, and did not apply to other BTL and lifetime mortgages, but we suggested it would be considered best practice to adopt the same approach for these products as well. Fast-forward to today and we could quite easily conclude that, on the face

of it, most firms and their advisers are well versed on the requirements, are adhering to much of the regulation, and were doing so prior to the implementation date. It is only when we take a closer look and investigate a little bit more deeply that we find that although there is indeed knowledge of the rule, that is not always demonstrated within mortgage-related client advice files. One of the most frequent questions I’m asked in relation to this area is how to explain properly why an apparently cheaper mortgage was not chosen ahead of the advised product and provider. As you know, the rule does not insist that the cheapest mortgage is the only solution to a client’s needs. Rather, it requires the client be given an explanation as to why an alternative product has been recommended. Luckily, this kind of feedback can often be dealt with quickly and effectively via additional file notes, either as a standalone notation or via actual written comments on the mortgage research to explain exactly why the provider has been chosen. Thorough and comprehensive notes should make it completely clear why the mortgage recommended was best suited to the client’s individual needs and circumstances. What is perhaps less appreciated is the fact that this area can have potentially serious SM&CR ramifications, especially around annual FIT assessments of certified persons, of which file reviews form an integral part. One question that I would always ask firms and their supervisors to consider when undertaking FIT assessments is whether they can, in good faith, sign off a mortgage adviser as FIT for another year if that advisor is consistently missing vital information around research, especially that which pertains to the cheapest mortgage rules – and the answer is usually a resounding no! My best advice for a FIT future is to ensure that the cheapest suitable mortgage rule is fully embedded throughout your firm’s advice process and to remember that the taking of additional notes is one of the most effective ways of telling the story of advice when constructing client files. B I www.sfintroducer.com


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REVIEW

ASTL XXXXXXXXX

Communication is key to everything we do Vic Jannels CEO, ASTL

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he bridging market is continuing the momentum it built coming out of the pandemic and there seems to be little sign of a slowdown in the number of new enquiries that are hitting lenders and brokers. This is great news, of course, but there remains an ongoing challenge for the sector. While enquiry levels are sky-high, the proportion of those enquiries that go on to then complete remains relatively low. There are a number of reasons for this. Sometimes it can be the result of a single case being pitched to a number of different lenders, or via a number of different brokers. Sometimes it’s due to customers changing their minds. In some cases, particularly in the current environment, it’s because the reason the bridging loan was initiated is no longer valid by the time the application progresses. The whole purpose of bridging finance is that it spans the gap to a longer-term solution, and there

Time is of the essence in the bridging market

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will always be occasions when that longer-term solution, such as the sale of a property or the completion of a term loan, happens more quickly than expected, and the bridging loan is no longer necessary. The longer it takes for a bridging application to progress to completion and release of funds, the more likely that the shortterm loan will no longer be required. Consequently, the longer it takes for bridging loans to complete, the more likely it is that conversion rates will remain low. IMPROVING THE PROCESS THROUGH GREATER COMMUNICATION

In a competitive market, lenders compete on service and speed of delivery, but as we all know, the pace at which an application progresses is not influenced by lenders alone. It relies on brokers and customers providing any required information or documentation promptly – and, importantly, the speed at which the valuation and legal work are managed. In this respect, we have become aware of concerns from some members and brokers that, in some instances, the valuation and subsequent legal work timescales have become protracted. If this is so then it may be exacerbating

the circumstances of application to completion numbers being lower than might be preferred by all parties. Is this a result of poor communication? If so, rather than pointing fingers of blame, or simply accepting protracted bridging timeframes, it might be sensible to renew focus and effective dialogue and communication among everyone who has a part to play in the process – lenders, brokers, lawyers, and valuers. If we can communicate more effectively, we will improve the experience for everyone involved. ENGAGING WITH THE REGULATOR

As part of our role in representing the wider interests of our sector, we recently met with the regulator following our submission in response to the FCA consultation CP21/36 – A New Consumer Duty. Present at the meeting were Sara Woodroffe, FCA head of mortgage policy, and Keith Hale, chief technical adviser. The meeting was largely productive, and we will be reporting back to our members on its details shortly. Our brief was to seek further consideration of the 12-month maximum term on regulated short-term lending in cases in which a self-build or development project may be at risk of overrun. EXPANDING OUR VOICE

I am pleased to say that we are expanding our voice at the ASTL, as we now have more than 40 lender members. We recently welcomed The Bridging Group and Family Finance as the latest lender members to join the association. It is generally considered that there are up to 50 ‘recognisable’ bridging brands active in bridging, so we can safely say that we represent the interests of the vast majority of the market. This strength of memberships means that we have a louder voice in our conversations with the regulator, policy makers, and the media, and this is ultimately of great benefit to our industry. If your favourite bridging lender is not a member of the ASATL, ask them why. Their support will serve to make us stronger, and this can only be good for the end user borrower. B I www.sfintroducer.com



COVER

INTERVIEW

Technology, bridging and COVID Bridging Introducer spoke to John Ahmed, director of Movin’ Legal Ltd, about plans for the future of the mortgage industry and the use of technology in this post-COVID environment.

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he pandemic has affected people from all walks of life, with many enduring financial hardships due to the difficulties it has caused. For example, the number of borrowers who have picked up some sort of adverse credit has grown significantly since March 2020. According to Pepper Money’s Adverse Credit Study, 6.29 million adults in the UK have experienced adverse credit within the past three years. Of these, more than 880,000 intended to purchase a property to either live in or let out in the next 12 months. From a specialist lending advice perspective, this has created opportunities, and advisers are going to be in demand. This is mainly because many of these borrowers have never been in such a position before and are unsure about their situation with regard to securing a mortgage or remortgage. At the height of the pandemic, Movin’ Legal continued to urge brokers to carry on instructing conveyancing cases in order to keep their pipelines topped up. The firm outlined that much of the mortgage market remained open despite the pandemic, and it said that brokers should have been preparing for a return to

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normality. Government guidelines at the time advised that moves to another property should take place only if an individual had already exchanged. However, the firm pointed to the remortgage market, which it said remained very active during the pandemic. PROPERTY MARKET MEASURES – AND THEIR TRUE IMPACT In order to keep the property market afloat, the government introduced the stamp duty holiday, which came into effect on 8 July 2020 and ended on 30 June 2021. The stamp duty holiday was originally due to end on 31 March 2021. Following the end of the holiday, a transition period was implemented between 1 July and 30 September 2021. During the transition period, the initial zero rate threshold was reduced from £500,000 to £250,000. Chancellor Rishi Sunak announced the introduction of the stamp duty holiday in his 2020 summer statement as part of the economic response to the COVID-19 pandemic. The changes to stamp duty were designed to support the housing sector through the crisis. However, while the stamp duty holiday did benefit many in that they needed less cash up front, it also www.sfintroducer.com


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COVER

INTERVIEW resulted in an increase in property prices. House prices in the UK have generally been going up since the financial crisis. However, they spiked during the tax holiday, with property values rising 10.2 per cent between March 2020 and March 2021. This represented the fastest annual rate of growth for 14 years. Prime Minister Boris Johnson has now removed all COVID-related restrictions as he seeks to encourage the UK to return to as close to normal as possible. THE NEW NORMAL IN MORTGAGE The lifting of restrictions has resulted in a flood back into offices and cities across the UK. However, hybrid working has continued to remain in place for many businesses, while most now have an increased online presence and digital focus. The mortgage market is no exception. Expanding investment in technology helps brokers, bankers, and clients streamline the lending process and gain access to up-to-the-minute data. According to research from Legal & General Mortgage Club, using technology could save advisers time equivalent to a working month each year. Its study mapped out the typical time required for advisers to complete a mortgage journey and investigated the impact of digital tools on their work. As it stands, the data shows that intermediaries currently save an average of 41 minutes per case by using Legal & General Mortgage Club’s criteria search and affordability calculator tools. This equates to three and a half hours per week, or the equivalent of 137 hours over the course of a working year. On top of this, 89 per cent of brokers surveyed agreed that having less time-consuming processes would allow them to advise more clients, and 83 per cent agreed that having more time with clients meant a greater opportunity for them to cross-sell and explain the benefits of protection and additional products and services. Looking to the importance of technology, 31 per cent of brokers said digital channels play a critical role in ensuring their business achieves its objectives, while 87 per cent ranked digital tools as a seven out of 10 or higher when it comes to importance. Meanwhile, 88 per cent of respondents said that they would like more automation and less duplication in the affordability and criteria search stage. REACHING THE NEXT GENERATION Turning to methods for teaching employees remotely, at the back end of last year Movin’ Legal launched a CPD-accredited conveyancing course to help introducers learn more about conveyancing and how the process works from start to finish. The 60-minute course is available for free to brokers and introducers and explains issues such as what property searches and indemnities are required for,

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“We have already shown that our systems and processes continue to work while handling a large increase in demand, which we saw during the stamp duty land tax holiday” and what happens behind the scenes of a property transaction. According to Ahmed, the conversations between Movin’ Legal and its introducers over the last 18 months have made it clear that there is an appetite to learn more about what conveyancing is. COVID has affected the financial services industry drastically over the past two years. However, resolutions are beginning to become clearer, with technology providing a way to improve the bridging market, as Ahmed explains in this Q&A. The bridging market has experienced increased demand so far this year. What is expected for the rest of 2022? I am expecting to see a reasonably steady market as some activity from high street banks drop away, which I believe will lead to an increase in bridging. How does Movin’ Legal maintain quality during busy times? Movin’ Legal has a large bandwidth of intermediary legal firms that we can expand, including experienced HO and field employees, to handle any increase in business. We have already shown that our systems and processes continue to work while handling a large increase in demand, which we saw during the stamp duty land tax holiday. Has there been a move away from the “race to the bottom” in terms of bridging rates? I think there is always a constant adjustment in rates depending on economic risk, volume, and appetite of lender. Has the pandemic improved the view of the bridging market? Has it become mainstream? Certain experienced clients have viewed bridging as mainstream for some time; however, the pandemic has certainly moved on the awareness of bridging as a flexible lending proposition. Awareness and use of bridging finance will continue to grow. www.sfintroducer.com


COVER

INTERVIEW What do current bridging customers look like? Who are they?

world economy and what new world strategies the war in Ukraine brings.

Landlords, developers – anyone, really, who needs a flexible but secure approach to financing property projects. I do think there is a changing customer profile, though, with a wider acceptance of bridging as a more mainstream solution in today’s market.

What plans do Movin’ Legal have for the remainder of the year and beyond?

What has Movin’ Legal learnt over the course of the pandemic? The pandemic brought a perfect storm. With an increase in property sales from the stamp duty land tax holiday and the reduction in work from various organisations, councils and HM land registry all came under pressure. Now at Movin’ Legal new processes and a flexible expansion of bandwidth to speed up client and intermediary service make tasks far easier, faster, and more responsive.

That is a really simple one for me: continued growth. What makes Movin’ Legal different from similar companies in the marketplace? Another simple question for me: service. As a business with good financial services and legal services, knowledgeable business development managers and HO staff, we have the ability to serve our intermediaries, making sure they and their clients are happy with our service. B I

“ Technology will become more of an inherent part of property transactions, with Movin’ Legal continuing to invest in technology for easier, more transparent client service” Has Movin’ Legal’s relationship with technology changed over the last two years? If so, in what way? Yes, technology continues to advance. Technology will become more of an inherent part of property transactions, with Movin’ Legal continuing to invest in technology for easier, more transparent client service. What are the big challenges on the horizon for the bridging market? I think the challenges will come in the ability to access flexible and efficient debt funding, as well as the ability to access equity capital to then grow the adoption of technology into the sector, given the views of increased risks with a possible recession being close. Exit certainty has proven to be difficult for some during the pandemic. How is this part of the process now? I think that exit strategies have improved. However, as I mentioned, with a possible recession, it may start to become more difficult again. We will all need to see what develops with the www.sfintroducer.com

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IN OUR OPINION

Movin’ with the times Conveyancing’s not so straightforward when it comes to specialist lending, but having access to an expert conveyancer can smooth the rocky road ahead

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ovin’ Legal is a simple, quick, and efficient way to refer your clients to our specially selected panel of law firms. We are a team of experienced professionals from the financial services and legal sectors. Movin’ Legal is a conveyancing comparison site that offers exceptional professional services that you can pass on to your clients. Using our comparison tool, we can source the best conveyancing services for your clients. Our conveyancing comparison search engine consists of solicitors from around England, Scotland, and Wales who are able to provide their services at fair and competitive prices. However, it is not just about price. We only offer conveyancing specialists who have proven track records of service and who work to our SLA principles. This is why we believe Movin’ Legal offers a unique service in today’s marketplace. If you would like access to Movin’ Legal’s special panel of law firms, then all you need to do is enter your details in our quick and easy registration form, and once you have registered, we will email your

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Commercial property Our expert panel of solicitors offers high-quality services on a wide range of commercial property transactions We can help with purchasing of freehold or leasehold commercial property new commercial leases (acting for the landlord or tenant) buying development land plot sales the purchasing a business via an asset or share sale We offer sensible pricing, fixed fees, no hourly rates, and we make sure that our experts follow the Movin Legal ethos – “Sensible, practical advice every time.”

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Movin’ Legal Benefits username and password to your inbox immediately. It is that simple. Once you see how effortless our service is, we promise you your business will benefit greatly from using Movin’ Legal. OUR MIDDLE NAME IS “TIMELY” We know that bridging transactions are, by default, generally of an urgent nature. Your client will normally need to complete quickly. And we can help you. Our panel provides the following solutions: access to a panel of experts in the fields of investment and development property, both residential and commercial tightly managed and monitored deadlines no more hourly rates with our Movin’ Legal fixed-fee guarantee That means: Movin’ Legal mortgage and remortgage clients benefit from our exclusive range of highly competitive fixed-fee conveyancing rates purchasing clients use our professional proactive approach for speed and efficiency when bridging. At Movin’ Legal, we know this is a highly specialised area of law. Our proposition provides clients access to bridging experts, at a sensible fixed price, with no need to clock-watch. B I www.sfintroducer.com

Simple online quote and instruction With our powerful but simple-to-use software, you can compare, instruct, and track online. You can choose your law firm by mortgage lender, location, price, and service rating Real-time all-inclusive and guaranteed quotes The price you are quoted is the price your client will pay. No hidden charges, no additions to your client’s bill that they weren’t expecting, allowing them to budget their conveyancing costs effectively

should your client’s property purchase fall through Secure document upload A facility allowing you to upload documents including certified ID, mortgage offers, fee agreements, and proof of funds directly to the solicitor handling your client’s case Law firm ratings Star ratings on all law firms based on your direct scoring at the end of each conveyancing completion

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CURRENT BRIDGING MARKET CHALLENGES Jake Carter recaps the bridging roundtable discussion, which looked at the challenges the bridging market is facing, and what the current economic uncertainty means for the market

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hallenges seem to be the order of the day for the UK mortgage market – whether those involve emerging from the steep rise in inflation, interest rates steadily increasing due to the Bank of England raising the base rate, the cost-of-living crisis with energy bills soaring, or the continued uncertainty surrounding the Ukraine-Russia conflict. So what does this surge in issues mean for the bridging market specifically? In association with Movin’ Legal, Mortgage Introducer brought experts together from United Trust Bank, Octane Capital Ltd, Charter HCP, Saxon Trust, The London Money Group, Hope Capital, Sancus Lending, and Movin’ Legal itself to discuss what is next for the market. INFLATION AND THE IMPACT OF EDUCATION According to Liam Lawlor, sales director at Octane Capital Ltd, the impact of interest rate rises is already being seen in the mortgage market generally, albeit with the bulk of the impact on the bridging sector largely still to come.

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“Lenders have been continually increasing rates over the last few weeks, which has put a squeeze on the cost of funds and the profit margins being made, especially on the buy-to-let tier,” he said. “I don’t believe they have had a big impact on the bridging market just yet – but they are certain to eventually.” Roz Cawood, director of sales at Hope Capital, believes the rises could have some knock-on effects for lenders depending on what their funding models are and the cost of funds that they purchase. With this in mind, Terry Pritchard, director of Charter HCP, believes it’s vital that education be placed at the forefront for clients. “The clients, at the moment, they have still got their heads stuck in the sand and most of them have not taken on board the increase to rates,” he said. “We need to educate them.” “The problems with some of the price increases haven’t been seen yet,” said Lawlor. “In the last two to three months we have seen an increase in development exit inquiries where the original deal started out with just senior development debt and the cost of actually building it out has gone up, which has had a knock-on

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“Our industry might sometimes fail itself a little [on education]– we need to educate people on a regular basis, rather than waiting for the eleventh hour” EMMA HALL

effect on the build facility and borrowing, and profit margins have been squeezed. But it’s not played out entirely for this back book of loans yet.” “The reality is that many are still selling for a lot more than they expected because prices are inflated – it’s when that changes that things will start to adjust,” added Brian West, head of sales and marketing at Saxon Trust. “For me, the key is education across the board – these issues are not talked about enough,” said Emma Hall, key relationships director for Movin’ Legal. “Our industry might sometimes fail itself a little – we need to educate people on a regular basis, rather than waiting for the eleventh hour.” Lawlor said education is better received among refurbishers. “We find that when we get a refurb deal and you say the build costs are light or the contingency is non-existent and you actually model it out yourself and say, ‘Well, you are buying this, and paying stamp duty, and these are the build costs, and you’re looking for a 15 per cent profit on costs,’ they listen more,” he said. James Adkin, mortgage adviser at The London Money Group, explained that many consumers will not pay attention to what they are told about the market until it affects them directly. As a result, he explained that his firm has largely seen consumers carrying on as normal; however, he expects to see this change once the bridging market is more heavily affected. With the Bank of England increasing the base rate

to one per cent in May, and the energy bills increase in April, the issue was raised as to whether bridging would be used as a solution for credit issues. “Some use bridging for tax reasons,” added Cawood, “for business expansion and things like that. You did see a large number of people go down the bridging route near the stamp duty deadline.” At the moment, however, she has noticed more people using bridging for auction finance purchases. Lawlor also noted that auction finance purchases have become increasingly popular. “As it stands, bridging on land or sites for planning commission is also on the rise – there is not really the ability to delay completions on those sites anymore,” he added. “Developers are now just going into sites that already have planning – in these areas the speed of transaction with bridging is a big plus.” BRIDGING USED TO IMPROVE EPC RATINGS With the rise in energy bills, as well as the government requiring rental properties to improve EPC ratings to a C by 2025, the question of whether bridging has been used to assist in this shift was put to the participants. Jaxon Stevens, head of sales at Sancus Lending, said that so far he has not seen too many homeowners or landlords looking to use bridging to improve the EPC rating of their homes. Cawood added that with lenders in other spaces of the market producing green products, she could →

“I think bridging will begin to incorporate more green elements within its funding and offers, but it will be consumerdriven” BRIAN WEST

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“The clients, at the moment, they have still got their heads stuck in the sand and most of them have not taken on board the increase to rates” TERRY PRITCHARD

see the bridging industry looking to develop more of this product type. “I think a few people are looking at greener products where you can do a refurb to improve the ratings and the energy efficiency of buildings,” she explained. Lawlor agreed that he has so far not seen many landlords looking to bridging to improve the EPC rating of their homes. He did note, however, that there may be a shift closer to 2025. He went on to say that there had been movement in the last couple of years for landlords, with many looking to enhance yields, and this had resulted in a rise in the number of HMOs, which are typically higher-yield as they house a larger number of people. Stevens explained that he can see landlords using bridging to improve their properties, but waiting until they absolutely have to. “You could say that things have been going on in this area since 2015. It goes back to education,” Bentley said. He believes that the government has not clearly set out what the requirements will be and when they must be completed. Looking at property types, Bentley said that with auction finance, people are typically going to purchase a home with the intention of improving or replacing the heating and electrics on the property. The number of landlords looking to do this is only likely to increase as requirements behind heating and electric become tighter.

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Cawood went on to ask the question of what will happen to those properties that cannot be improved to a higher EPC rating. “You know, your non-standard construction,” she explained. “You have properties with a thatched roof or that are 200 years old.” “It’s so individual,” Stevens responded. “Is it better to knock down the house or to change what is already in place there? And you’ve got different rules and impacts on the environment for both of those avenues as well, and the finance would be different depending on the asset itself,” he added.   West believes surging energy bills will be a big incentive for many to push bridging in the green market. “I think bridging will begin to incorporate more green elements within its funding and offers, but it will be consumer-driven,” he added. He went on to say that the younger generation is more focused on ecological matters and because of this are also more likely to push the green agenda. However, he does not believe there will be a drive from consumers until it becomes tougher for them to pay their energy bills. PERSPECTIVE ON BRIDGING The bridging market has sometimes suffered from negative perceptions in the past, but where does it stand now? “Consumers and people who have never used bridging before still think of the market [as] how it was in the past. However, those who have used this

“Is it better to knock down the house or ... to change what is already in place there? And you’ve got different rules and impacts on the environment for both of those avenues” JAXON STEVENS

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“We’ve moved from a situation where people just thought bridging was a really expensive last resort to [it] being a mainstream product in the specialist finance market” ROZ CAWOOD type of finance know the market has progressed over the last few years,” Pritchard said. Lawlor believes the view of bridging is largely generational, with many of the older generation having a more negative view. “In general, I think bridging is used more now in the marketplace in terms of mainstream borrowers than we have seen before,” Lawlor said. He believes this is thanks to mainstream lenders suggesting bridging to borrowers who are then using it to further their next projects. Cawood agreed that if people come to advisers looking to make a purchase, those advisors are now realising they may be missing a trick by not offering bridging loans as a potential solution. In reaction to this, Adkin pointed out that people are realising they can do their own mortgage themselves with nine out of 10 mainstream lenders. “Whether you want to or not is a different matter, but the facility is there, whereas 10 years ago, 15 years ago, that was not the case,” he said. “So, add that to the fact that brokers need to diversify, otherwise they are not going to survive, and also there are more recognised lenders doing bridging now,” Adkin said. “So you can speak to advisers doing buy-to-lets, for example, and they say, ‘By the way, these guys also do bridging.’ Suddenly it’s become more acceptable because it’s coming through a brand they know. So yes, people’s perceptions are changing – but it comes down to brokers. They need to switch on to different areas

and educate clients more on the benefits of bridging.” Bentley said it is important to make bridging more accessible and well-recognised in order to encourage more people to try this finance type for the first time. “That means investment in IT platforms, so brokers are able to conduct decisions in principle, and selfservice – this is something that is already available in other markets – so when brokers might try their hand at bridging for the first time, they might actually be pleasantly surprised,” he added. Pritchard added that there are still issues over the image of the bridging broker. He said that if someone were to draw the typical bridging broker they would be in jeans and a t-shirt and have a “Churn ‘em and burn ‘em” attitude. However, he said, that perception no longer matches reality. IMPROVING EDUCATION Looking to how education can be improved within the bridging space, Adkin said that is something people have been trying to accomplish for years. He went on to say that it is only really the younger brokers who are likely to want to further their bridging education and change the traditional ways of working. Cawood believes that the message is beginning to get across to people, however, and brokers coming into the market are taking the education side more seriously. “Education is an ongoing process, but I think we’ve moved from a situation where people just thought bridging was a really expensive last resort to [it] being a →

“There are more recognised lenders doing bridging now” JAMES ADKIN

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MARKET mainstream product in the specialist finance market,” she said. “I think what is really useful from a broker point of view is to know who is funding the bridging,” responded Adkin. He explained that people feel safer using a brand they know, so if the bridging is being provided by a well-known brand, the client is more likely to choose this option. Lawlor believes that the bridging industry is becoming better educated because mortgage brokers have been adding more specialists to their ranks in recent times. “But I think it’s also about the pools you fish in for your business. If you’re known for doing regulated mortgages, why is someone going to come to you to get development finance? It’s unlikely.” Decent brokers want their clients looked after, added Bentley, emphasising the need for specialists. He pointed out that a happy client will likely return in the future. He explained that even if a broker has passed a client off to a specialist introducer or specialist packager, the client will often want to use the broker’s services again, so it is important they be correctly matched with whoever is most likely to benefit them. “A good broker is going to want to make sure that the lenders that they are speaking with are going to be able to not just put a deal in place for the client, but [also] be able to see that deal through and look after them,” he added. Hall believes it is down to the client and the broker to do proper research as to whom they are

“A good broker is going to want to make sure that the lenders are going to be able to not just put a deal in place for the client, but [also] ... look after them” OWEN BENTLEY “

“In general, I think bridging is used more now in the marketplace in terms of mainstream borrowers than we have seen before” LIAM LAWLOR

picking. Ultimately she believes that in the bridging market, while computer systems are great, there is a need to pick up the phone – and this applies to lawyers as much as anyone. “The value of the lawyer is crucial,” Lawlor agreed. 2022 AND AHEAD Looking to what is expected for the bridging industry over the remainder of the year, Pritchard said there is a lot of business out there, so companies are looking at how they can separate themselves from the pack. “There is a correlation here between what happened pre-credit crunch and what is happening now,” said Cawood. She explained that there have been more new entrants in the market recently. This, in turn, is creating more competition over the pricing of products, which drives rates down and benefits the consumer. Lawlor touched on inflation and the energy-bill rise as likely to continue to affect the bridging market. Pritchard also pointed to the situation in Eastern Europe. “The combination of the war between Ukraine and Russia and the pandemic are putting a lot of strain on the economy, which in turn puts strain on the bridging market,” he said. Overall, the contributors felt that external factors are likely to play a major role in the progression of the bridging market in 2022, and that it will be a real struggle to detail a picture of what the market will look like by the end of the year. B I

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