Bridging Introducer September 2021

BRIDGING Champion of the Bridging Professional

INTRODUCER www.sfintroducer.com

 ASTL  Bridging In-depth  Industry Comment

Real-world lending Assetz Capital on business growth, core principles and the market outlook

September 2021

£5

Real world bridging.

Speak to our team of experts today and see how our range of bridging solutions can support your clients. It all starts with a real conversation.

• Auction Finance • Development Exit • Refurbishment loans • Urgent purchases, refinance for residential, semi-commercial, commercial and land

Colin Mottram, Relationship Director: Bridging

Real world lending 0800 470 0430

assetzcapital.co.uk/bridging Assetz SME Capital Limited is a company registered in England and Wales with company number 08007287. Assetz SME Capital Ltd is authorised and regulated by the Financial Conduct Authority in respect of its peer-to-peer lending platform only. ’Assetz Capital’ is a trading name of Assetz SME Capital Ltd. Assetz SME Capital is registered with the Office of the Information Commissioner (Reg No: Z3338899) for data protection purposes.

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06/09/2021 13:50

EDITORIAL

COMMENT

September daze

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Publishing Director Robyn Hall Robyn@mortgageintroducer.com Publishing Editor Ryan Fowler Ryan@mortgageintroducer.com Editor Jessica Bird Jessicab@sfintroducer.com Deputy News Editor Jake Carter Jake@mortgageintroducer.com Editorial Director Nia Williams 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 Production Editor Felix Blakeston Felix@mortgageintroducer.com Head of Marketing Robyn Ashman RobynA@mortgageintroducer.com CEDAC Media Ltd Signature Tower 42 25 Old Broad Street London EC2N 1HN

s I write this, we are battling our way through yet another heatwave – the latest in a series of factors which have made it hard to keep track of the time of year.

Under normal circumstances, the property industry tends to track the passing months with a series of peaks and troughs in demand, particularly over the summer months. This year, even with most of us flocking to much-needed staycations last month, activity has barely abated. This follows from a 2020 that I don’t need to tell you bucked all the normal trends.

This lack of a clear change in the topography of the market, combined with the relentless summer sun streaming in the window, makes it hard to remember that we are about to enter Q4. It is also strange to think that this means we are creeping ever closer to the two-year mark since COVID-19 first hit our shores.

Change may well come with a shock, however, as Q4 could be set to have landmarks aplenty.

While the stamp duty holiday’s cliff-edge seems to have been softened, it is the furlough scheme’s end in October that could be one to watch and be wary. This is where we may discover how much we have been shielded from the full effects of the pandemic in terms of employment levels, individual financial circumstances and business performance.

Although all of these areas will boost the demand for support from specialist lenders in general, it is the latter where bridging will most likely come into play, particularly among those lenders accredited under the government’s Recovery Loan Scheme.

Hopefully, the latter part of 2021 will see positive change, to build on the strength that bridging has already exhibited during the pandemic. We have already seen protracted completion times for shortterm finance start to ease, with other factors such as increasingly competitive rates and ongoing tech innovation making this market an appealing choice for a wide range of borrowers – long may it continue. B I

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Jessica Bird Jess_JBird

Contents 5 Jonathan Newman Understanding is needed on rising PI costs 7 Donna Wells No one-size-fits-all in bridging 9 Jason Berry Development is alive and well 11 Brian Rubins The potential beyond residential bridging 15 Dave Pinnington Navigating the post-pandemic challenges 16 Feature: Out of office Natalie Thomas considers the nation’s changing relationship with work, and the use of bridging as a tool to facilitate the ‘new normal’ 28 Cover: Challenges and opportunities Mark Standley of Assetz Capital discusses the firm’s accelerated growth, fundamental principles, and outlook for the year ahead 34 Vic Jannels Making the most of our opportunity

Real World Bridging.

0800 470 0430

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SEPTEMBER 2021

BRIDGING INTRODUCER

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INSURANCE XXXXXXXXX

Understanding needed on rising PI costs Jonathan Newman senior partner, Brightstone Law

P

rofessional indemnity (PI) insurance has been a topic in the spotlight in recent years, particularly with regards to surveyors, as a hardening of the market has significantly increased costs for those looking for cover.

Insurers have reduced their appetite for PI cover, many have decided not to offer cover to riskier professions, and some have left the market altogether.

As a result of fewer competitors in the market and less appetite to offer cover by those insurers that have remained, premiums have risen.

As you probably know, PI insurance is not actually required by law in the UK, but it is a condition of practising for most regulated professional organisations – valuers, lawyers and accountants, to name but a few.

Even before recent premium increases, PI costs for a law firm were significant. Solicitor PI premiums have typically been the single largest overhead expense. Now, for certain firms practising in high-risk areas with chequered claims histories, the terms being offered are on the edge of becoming cost prohibitive.

Now we are being told that this expense is to increase by around a quarter, or even more. That’s a sizeable sum for any business to find, coming out of a COVID-19 lockdown and difficult period, even for those that have coped well.

For those businesses that struggled, they will have some work to do in order convince the insurer that they remain a ‘safe bet’, internally and financially.

Proposal routines and arrangements have always been detailed, and they now verge on the intrusive, with

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COVID-19 questionnaires and the requirement for detailed projections.

Many law firms – those that are run well and sensibly – have nothing to fear, except the increased costs. For the few on the edge, their very existence is at risk.

WHAT DOES THIS MEAN FOR LENDERS?

It’s worth looking at this from two sides. The first thing to consider is: does the law firm you choose to partner with have the adequate, appropriate level of insurance cover, from a reputable AAA-rated provider?

Just getting PI cover is not a tick-box exercise any more – not all policies are equal, so ask about the cover and who it’s provided by. For example, what insurance is in place for cybercrime and fraud? These are two huge risks which may not fall within typical indemnity cover.

What track record does your law firm have with its current PI providers? Are your professional advisers swapping insurance companies? If so, it’s worth asking why.

Is it their claims record? Are they cutting costs? There might be good reasons, but ask the question.

What does the choice of insurer say about your choice of legal panellist?

My firm picks the best level of cover from best-in-class insurers, because that offers it the best level of protection, and my clients the highest levels of comfort and peace of mind.

We also think it’s really important to have an established track record with one insurer, and there’s a good reason for this.

Lenders from time to time have need to resort to the professional indemnity insurers of their partners – not regularly, but from time to time.

Most often this is valuers, less often lawyers, and on occasion it is intermediaries.

These are the situations in which PI cover is put to the test. Changes in insurers means changes in terms, cover and exclusions.

Different insurers have different terms, and sometimes one claim can slip between the two, outside the terms of the insurer at the date of notification and no longer indemnified by the previous insurer – whose policy would have responded under previous terms.

An insurance claim becomes live upon notification of the claim, not when the insurable event took place.

So, it’s important that your law firm, your valuer and your intermediary all have the right insurance, and with the right provider.

A long-established track record is such a useful indicator. But it’s also important that you recognise how significantly PI insurance costs are rising for law firms, however good their claims record, oversight or reputation.

Lenders that want to work with a well-established law firm that carries adequate insurance should bear in mind the impact of these extra costs.

At times of budget tightening, professional fees are often one of the first things to be cut. So, spare a thought for your lawyers – not a trending pastime – and show some understanding about costs, pricing and overheads.

All professional advisers are experiencing an increase in costs.

Squeezing legal fees at the same time as overheads are increasing cuts profitability, which likely leads to cost-cutting in other areas, and this ultimately results in lowering capability, capacity or service standards.

NO RETURN TO THE BAD OLD DAYS

The rising cost of professional indemnity insurance is causing challenges for a number of industries.

Nevertheless, these challenges can, and will, be overcome.

Taking a relationship-based, partnership approach to working with your legal advisers will not only help them to overcome these challenges, but it will help to put your business in a stronger and more secure position for the future. B I

SEPTEMBER 2021

BRIDGING INTRODUCER

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Bridge to Let Short-term funding with a guaranteed exit option Our Bridge to Let option combines the best of our bridging and term products, providing short-term funding, plus a guaranteed exit option, should it be needed.

Our bridging products can offer up to 80% gross day one LTV and up to 75% gross LTV at term exit onto a fixed rate product agreed at application.

With both options being underwritten from application, your client has certainty of an exit from the beginning of the transaction.

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We’ll consider applications from: • Experienced landlords and first-time landlords • Limited companies, SPVs and offshore companies • Ex-pats and foreign nationals.

Call us on 0345 241 3079 Visit www.castletrust.co.uk Castle Trust Bank means Castle Trust Capital plc, a company incorporated in England and Wales with company number 07454474 and registered office at 10 Norwich Street, London, EC4A 1BD. Castle Trust Capital plc is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority, under reference number 541910. Buy to Let is not regulated by the Financial Conduct Authority or the Prudential Regulation Authority.

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PACKAGING XXXXXXXXX

No one-size-fits-all in bridging Donna Wells director, First 4 Bridging

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istorically speaking, August tends to be a month when many sectors across the mortgage market take a collective breather, on the back of the extended school break and the holiday season really kicking into gear.

Of course, this year and last, we’ve seen wholesale changes in how, where and when people can head overseas, and this continues to encourage more people to holiday within the UK or embark on ‘staycations’. These are factors which might encourage people to check their emails a little more than they otherwise might.

This means that a greater number of ‘out of office’ messages are being followed up, and activity across the specialist lending sectors continues at a greater pace than many Augusts of times gone by.

Despite the inevitable lull from the extreme levels of property purchases seen over the past 12 months, activity levels remain robust. This is especially the case when it comes to people looking to redevelop or refurbish property, and there is still rising interest in semi-commercial cases.

may be of concern to some, as the sector has had some issues in the past providing finance to those who cannot get a loan or mortgage elsewhere.

Alongside searches for ‘maximum LTV’, brokers in the bridging sector have also been searching for the ‘minimum loan amount’. This may be due to some using bridging loans for smaller projects, like renovating a bathroom or light refurbishments to an investment property.

These results help outline just some of the variations in demand from intermediaries for bridging, and a small sample of the number of propertyrelated scenarios where this type of loan may be applicable, appropriate and responsible continues to grow.

However, with more lenders entering this market, extending their propositions and making criteria or policy tweaks, it can be difficult for intermediaries who are not vastly experienced in this product form to keep up. Across the specialist mortgage market, each lender has their own quirks, appetites, capacities and attitudes to certain transactions.

Service and underwriting values also differ, and the strength of relationships can make a real difference in getting a case over the line, particularly when time is of the essence – which is often of primary importance when it comes to securing a bridging loan.

GROWING COMPETITION

This is where packagers play such an integral role, and a strong lending panel sits at the heart of these offerings.

Building a comprehensive lending panel is an ongoing task, as new entrants will always emerge. Before adding these, any good packager will ensure that these lenders demonstrate the highest service standards, have competitive product ranges and flexible criteria, incorporate good quality support networks, and are backed by robust funding lines.

Focusing on existing lenders on the panel, it’s important to constantly revisit these relationships to ensure they remain beneficial to all parties.

From the other direction, we – as an industry – need to constantly look for ways to better educate and support intermediary partners and introducers in identifying the circumstances, property types and clientele who may benefit from a short-term facility, or if their needs might be classed as being a little ‘different’.

There is no such thing as a one-size-fits-all bridging loan.

This fact underlines the value of aligning with someone who is a real expert in their field. When doing so, advisers can rest easy in the knowledge that all their clients’ specialist needs are being taken care of. B I

From a lending perspective, this has become an increasingly competitive environment. This increased competition is not only helping to sharpen rates, but to also drive up professional standards.

This improved development and delivery of bridging is making a real difference to a wider variety of borrowers, especially due to some implications raised over the pandemic.

BRIDGING RELATED SEARCHES

When it comes to tracking demand and trends across various sectors, data from Knowledge Bank represents good source of information.

In the latest report, it was suggested that brokers are searching for maximum loan-to-values (LTVs) in their droves, with ‘maximum LTV’ either the most or second-most searched across the second charge, equity release, self-build, bridging and commercial mortgage markets.

Focusing on bridging finance, the report highlighted that the presence of ‘adverse credit’ in the bridging sector www.sfintroducer.com

Specialist lending is seeing heightened activity

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DEVELOPMENT XXXXXXXXX

Development is alive and well Jason Berry group sales and marketing director, Crystal Specialist Finance

W

ith permitted development (PD) rules changing to relax planning consents, there really never has been an easier time for investors to acquire a property which has previously been used for commercial or retail reasons, and then change it to residential purposes.

THE CASE

A very recent and successful opportunity we have just seen at Crystal saw a developer contact us who specialises in building bespoke contemporary living spaces in the West Midlands area.

Fortunately, this developer had a wealth of experience and their portfolio of completed projects spanned over 20 years. This made researching suitable lenders relatively simple, and extremely competitive pricing with low costs was easily sourced.

The developer had received a number of quotes before settling with Crystal Specialist Finance, and crucially the terms – and payment structure – offered flexibility and the very best possible outcome.

This project was the developer’s most ambitious to-date, as the former Selly Oak hospital was being converted into 46 luxury apartments.

On completion, the developed site was expected to be worth in excess of £10m.

THE CHALLENGE

Due to its complex listed status, huge care was required so that the building’s architectural heritage could be skilfully preserved.

This meant a specialist team of experts who possessed granular attention to detail was needed.

Importantly, site visits were arranged so the client met with the development team, plus credit risk representatives from the selected lender.

All parties collaborated, and a meticulous plan was drawn so that each understood their role, accountabilities and timelines for drawdown of funds.

Our own Sat Bhandal, corporate relationship director at Crystal, was

The former Selly Oak hospital was being converted into 46 luxury apartments

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really happy with the build quality of the proposed properties, and also the commerce that was being brought to the local area.

He commented: “After the slowdown of some projects during COVID, supporting developers who bring local jobs and high quality living space to the West Midlands area is very satisfying.

“You can feel the passion this client has. They genuinely want to see future occupants wowed by the end result!”

Crystal consequently worked tirelessly with the lender’s credit team to get the case structured effectively and ensure funds were sanctioned on time and every time.

This outcome-focused approach ensured the client had access to key stakeholders involved in the process throughout, irrespective of time or day.

THE RESULTS

Development deals are rarely straightforward, and with a site of this size the client and lender both faced many hurdles.

What undoubtedly helped overcome these challenges was the time taken upfront by the Crystal team in order to fully understand and digest the client’s vision.

As these barriers were presented, solutions were delivered to create an immediate fix.

This is an absolute necessity for all sizeable development deals in the current lending landscape.

Jaz Khunkun, commercial director of MIA Property Group, said of the experience: “There are many different issues which arise with development funding, especially with a site like this.

“Thankfully, the guys at Crystal were able to help us find the right funder at extremely competitive pricing. This allowed us to focus on the site whilst they negotiated on our behalf and in the end it was a win-win all round. We are truly grateful.”

For this particular transaction, a market-leading rate was secured for a development loan of £6m via Paragon.

Future projects are now in the pipeline, and the opportunity presented by the PD rule changes are truly driving the ambitious portfolio growth and build strategy of this client. B I

SEPTEMBER 2021

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COMMERCIAL XXXXXXXXX

The potential beyond residential bridging Brian Rubins executive chairman, Alternative Bridging Corporation Limited

C

ommercial lending opens a new world for enterprising intermediaries. It is an opportunity to operate in a less congested market, take on larger loans, and often enjoy repeat business.

What could be better?

Commercial is an attractive proposition for on-the-ball intermediaries, because professional investors and the business community are usually easier to deal with than owner-occupiers. They have a greater understanding and act with far less emotion. These borrowers have done it before and know what is expected.

However, to deal successfully with this market, introducers need to have access to – and understand – the various tools at their disposal.

The obvious product is commercial bridging, but there is more to this than organising loans for residential investments and shops with living accommodation over them.

COMPLEX COMMERCIAL

No, the interesting commercial loans are for industrial units, retail premises, office properties and mixeduse locations. The focus here is on the quality of tenant for investment properties, or the profitability of the owner-occupier borrower.

Loans tend to be larger, and if cashflow is secure, interest can be serviced, leaving a larger net loan. If income is yet to be stabilised, interest can be part-serviced, part-accrued.

And remember, just having lots of shops does not necessarily mean a strong tenant – think about Arcadia, Debenhams, and many more which have vacated the high street. Look www.sfintroducer.com

at Experian to review the tenant’s financial wellbeing or inspect the company’s accounts, or do both.

Also, for investment properties, what is the average unexpired period of the tenants’ leases? If it is only a few years to expiry or to a break, or the tenants have weak covenants, the loan will be advanced against the vacant possession value of the property.

But that’s bricks and mortar retail, and as a result of COVID-19 and competition from online retailers, it is not the flavour of the month – particularly for shopping centres. In both cases, lower loan-to-values (LTVs) will apply unless they are let on long leases to strong tenants.

Lenders prefer office buildings to retail, but again this is no longer so simple, as working from home is changing this landscape.

All is not lost, however, as many redundant office buildings can be converted to flats, and where there are good quality tenants or a strong owneroccupier, there is appetite.

This leaves industrial and distribution properties, which just become more and more popular. This is particularly so with small, multi-let industrial units – after being the ugly ducklings, these have become very fine swans indeed.

They offer higher yields and experience shows that they are less liable to voids, as when one tenant hits hard times, another wishes to expand.

BEYOND BRIDGING

That’s commercial bridging, but what else is on offer? First, there is the term loan market provided for by Interbay, Aldermore, and other challenger banks, which although they offer low interest rates, forensically review the detail, and in particular the borrower’s proven ability to service the loan.

This will take time, so what can be offered instead? At Alternative Bridging, we have a commercial 3 to 5-year interest-only product where

decisions are made by people, not by algorithms. To do this, we meet the borrower and visit the property, and get to know the story. In this way, we can offer a mid-priced term loan, and if it is a recovery situation, or one where the rental income has not yet stabilised, we build in a facility to service interest until the asset is self-financing.

Sometimes, good loans exist in the most unexpected places. For example, corner shops and hot food takeaways, which generate strong cashflows that cannot always be evidenced.

By listening and being flexible and creative, a loan can be completed which may be declined in the mainstream – giving the borrower time to establish the evidence necessary to refinance at a lower interest rate after three or so years. A bridging loan could be used, but is usually limited to one or two years, which often is insufficient.

Another example of a useful product is the Alternative Overdraft, which operates similarly to an overdraft from a high street bank, allowing the client to borrow and repay on multiple occasions, initially over a 2-year term, without incurring setting up costs and delays each time funds are needed. It is ideal for auctions and urgent purchases, and as working capital for the business community. It is at its best when it is secured against under-utilised assets.

Lastly, there is residential development finance, but beware of some of the pitfalls of dealing with lenders new in this arena. The essence of the transaction is a land loan followed by further monthly tranches as construction progresses.

Small and medium-sized developers need these payments to be made promptly so they can maintain strong relationships with suppliers and workers. Unless the lender is organised, delays in payment can occur, causing ill will. Also, from the start of construction until the last sale, there will be twists and turns along the way; new lenders panic, old hands don’t.

Some brokers will be at ease with commercial lending, others will find it like a new suit that needs to be made comfortable. For both, commercial is full of opportunity. If help is needed, allow the lender to lead the way. B I

SEPTEMBER 2021 BRIDGING INTRODUCER

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MARKET

Repricing shows lenders are open for business Daniel Yeo founder and managing director, Specialist Finance Centre

T

he summer months are often a quieter period for those working in property finance, whether that’s mainstream mortgages or short-term property loans.

The fact that things have slowed down a touch of late has perhaps been even more noticeable, precisely because of how incredibly busy we all were in the first half of the year.

The stamp duty holiday drove an extraordinary level of activity.

Data from HM Revenue & Customs (HMRC) shows that in June there were around 213,000 transactions, the highest on record.

Obviously, it would be wonderful for the market to always be quite that busy, but that isn’t entirely realistic.

The frenzied activity we saw in the run up to that first stamp duty deadline could not continue, so some level of slowdown was inevitable.

RISING TENANT DEMAND

While the market has slowed somewhat since then, it’s notable that demand

within the bridging market remains really healthy. It’s clear the property professionals who often turn to bridging loans in order to swiftly secure those additions to their portfolios are still keen to do so.

There is good reason for this positivity among investors. New data from ARLA Propertymark, for example, found that tenant demand had risen to record highs in July – great news for any landlord with a quality property that needs filling.

That’s supported by the latest buyto-let (BTL) rental barometer from Fleet Mortgages, showing that rental yields across England and Wales sit at a healthy 5.6%.

There is no denying that property remains a seriously compelling investment asset, whether you’re planning to hold it as a buy-to-let or sell on for a profit after carrying out some property improvements.

OPEN FOR BUSINESS

What’s also been incredibly encouraging, in my view, has been the way that the market has reacted to the slight drop in activity levels.

Lenders, which almost uniformly announced record months in June, have recognised that they cannot simply rest on their laurels and

Lenders have recognised they cannot simply rest on their laurels

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expect business to keep heading their way. The bridging market has been competitive for some time, and that level of competition has forced lenders to review how they operate and the products they offer.

Borrowers have been the big beneficiaries of that competition, and the way the heightened activity levels have dipped has spurred a host of lenders to come to the market with eyecatching deals, in some cases the lowest rates they’ve ever delivered.

The message is clear: lenders are open for business.

ANOTHER DEADLINE ON THE WAY

It’s worth remembering that while the initial stamp duty holiday deadline passed at the end of June, it was only the first deadline.

Until the end of September, buyers can still benefit from a zero stamp duty rate on the first £250,000 of any purchase.

While that’s not quite as exciting as the £500,000 threshold of the first deadline, it still represents a potentially significant saving, particularly for property investors looking to add to their portfolios.

As a result, while the market may have slowed a touch since the initial deadline, it’s likely we will once again see volumes ramp up in the weeks ahead, as buyers work to get their deals over the line in time to secure the tax saving available to them.

Specialists have an important role to play here. Plenty of advisers will only deal with a handful of bridging loans a year, and so may not be completely au fait with what is available across the bridging sector.

Yet they want to do the best for their clients, for whom a bridging loan may represent the best option for completing an investment purchase.

Partnering with a specialist master broker like SFC – which deals with bridging cases every day – is a smart move, as you ensure your clients receive the best possible guidance, you enjoy a revenue stream without having to become a bridging loan expert yourself, and you improve your chances of retaining that client for their regular mortgage needs in future. B I

SEPTEMBER 2021

BRIDGING INTRODUCER

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A license to back your deals After a landmark summer for the business, we just announced a £150 million partnership with HSBC and Barclays to fund your bridging deals.

Let’s get started.

Property finance made simple.

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

For intermediaries only.

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MARKET

Navigating the postpandemic challenges DIGITAL REVOLUTION

Dave Pinnington CEO, Finance 4 Business

T

he bridging market has been subjected to some key challenges this year, and the biggest facing it right now are undoubtedly the aftermath of the global pandemic, and increased competition.

However, there are signs that the market is moving in the right direction, with property investment activity picking up, and developers looking out for alternative ways to keep the wheels turning.

While property prices have yet to truly stabilise following the Stamp Duty Land Tax (SDLT) holidayinduced hike, the opening of auction houses is definitely having an impact in terms of increasing buyer activity in the auction market.

Additionally, with the effect of the pandemic on a number of businesses – many of which may not need their premises or office space as a result – we are now seeing a lot of bridging loan requests from developers wanting to purchase sites like office blocks at under-market value and convert them into residential schemes.

The pandemic has also exponentially accelerated digital transformation, with hardly any sector untouched.

From technology to aid remote working scenarios through to solutions to automate manual tasks and create the efficiencies needed to remain competitive in tough times, digital disruption is all around us.

It’s no different in the financial sector. From open banking and biometrics to assist with underwriting processes, to automated loan or diligence process management, technology – although often fraught with implementation challenges – is becoming increasingly important.

The UK Bridging Market Study, released by EY in April, highlighted technology adoption as a key challenge for 48% of its respondents across the bridging market, so it’s certainly not one to brush under the carpet.

But in our experience, while technology will undoubtedly become a true necessity rather than a choice, a high quality of service, strong broker relationships to keep origination capabilities high, and executing transactions with speed and proficiency are all key.

Technology can increase speed, but with all of the complexities that a post-pandemic world presents to

There are signs that the property market is moving in the right direction

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investors and developers, having access to lenders that can provide a human approach, underpinned by strong relationships and collaborative partnerships, is something that cannot be simulated.

SERVICE SYNERGY

As these complexities often throw up the need for synergistic services, partnerships with providers of such services can help lenders deliver the increasingly end-to-end solution that customers are looking for.

We think this will be an increasingly important factor as the post-pandemic emergence gathers pace.

It’s something that we have foreseen as a business, and our position as a member of a group that offers this next-generation consultancy approach will stand us in good stead as the investor market battles back towards prosperity.

CHALLENGES AND OPPORTUNITIES

The industry has also been affected adversely – with slow legal processes due to remote working being a major cause – and this is an issue that is ongoing, even as we slowly start to return to office life.

This simply highlights the importance for brokers to steer clients in the right direction and advise on which service provider to use when speed is paramount.

But a real boon for the market is access to some of the lowest rates recorded – which is demonstrative of the competitiveness of the market, and something investors and developers should be keen to capitalise on.

This, along with the imminent likelihood of property price stabilisation and permitted development schemes, present some good opportunities for developers right now.

While it certainly wouldn’t be true to say we’re entirely out of the woods, and the bridging market still faces a variety of challenges, the indicators as far as our experience and what we’re hearing and reading about from others in our industry show there’s certainly movement in the market that gives us reason to be positive. B I

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FEATURE REVIEW

CHANGE OF USE

OUT OF

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BRIDGING INTRODUCER

SEPTEMBER 2021

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FEATURE REVIEW

CHANGE OF USE XXXXXXXXX

OFFICE Natalie Thomas considers the nation’s changing relationship with working spaces, and the use of bridging as a tool to facilitate the ‘new normal’

P

rior to the COVID-19 pandemic, working from home was seen as a luxury few employers were willing to grant. Over recent years, remote and hybrid models have become more common, but this has largely been the preserve of particularly progressive businesses, or applied only to those employees able to demonstrate clear extenuating circumstances to justify an altered working structure.

Of course, this all changed when March 2020 brought a sudden and complete move to home working for office-based businesses. Within a matter of days, and with varying degrees of initial success, every industry faced a ‘new normal’, and those firms that had traditionally resisted adapting to more modern methods were given no choice but to do so.

Much to some firms’ surprise, this new way of working proved in many ways to be not only more cost-effective but, in some cases, also more efficient.

Once the initial push to implement viable technology and processes was done, many found that with the likes of Zoom and Teams, as well as cloud-based →

www.sfintroducer.com

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FEATURE

CHANGE OF USE collaboration tools, work could continue largely as before, at least well enough to last through what turned out to be a long period away from the office.

A year and a half later, and while many employees and businesses are either itching to return or have already started the process of re-entering the office, there is little doubt that this period of enforced remote working will have a lasting effect on how we view the world of work.

While the UK may not see the universal adoption of entirely remote working that some predicted during the peak of the pandemic, many businesses are looking now at hybrid models. Meanwhile, huge swathes of the population are reconsidering their relationship with the office altogether, whether this means moving to more flexible pastures, even selfemployment, or simply working with their current employer on a set-up that fits around their needs.

Such a radical shift in thinking has far-reaching consequences, not only for individual firms and their employees, but also on the property market.

While the image might not be so drastic as some predicted earlier in the pandemic, the fact remains that many businesses are reassessing their relationship with the permanent office. Particularly for those in London, high rents have been thrown into a new light now that many have discovered that central offices may not be a constant necessity.

As well as the potential for large amounts of unused office space, the other side of this coin is that many employees are now looking to their existing homes to fulfil their working needs, either permanently or in order to provide a flexible option for those days when the commute is unnecessary.

Bringing these trends together and extrapolating even further, some have touted the possibility that the UK will lean more towards holistic work-live spaces, combining office, commercial and residential areas.

As homeowners, investors and businesses all look to repurpose their existing space and align it more to the new way of hybrid working, bridging finance is coming into play, with brokers and lenders reporting a surge in demand for refurbishment products.

So, as our relationship with hybrid working continues to evolve, how can bridging help facilitate the current changing demand we are seeing?

SPOTTING THE OPPORTUNITY Property investors are usually some of the first to recognise the changing dynamics in a property market, says Jeni Browne, sales director at Mortgages for Business.

She says: “Property investors are always looking for ways to add value to property. The addition of a working space within a property is certainly higher up the agenda now than ever before – be it a traditional extension, going into the roof, reconfiguration or a garage conversion.

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BRIDGING INTRODUCER SEPTEMBER 2021

“The newest idea, which is certainly gaining popularity, is building garden pods.”

Browne adds that this trend is not limited to adding office space to residential properties, but that savvy investors are seeing the opportunities arising elsewhere, too.

“Even though many businesses are returning to the office, it’s clear that home working is going to feature more prominently for a lot of people, and they want separate spaces where they can focus, away from the rest of their household.

The pandemic has changed the way people think about their homes and investors are responding to this change, which is good news for brokers” “With more commercial premises becoming vacant and planning laws relaxing, further opportunity to create brilliant residential spaces is presenting itself,” she explains.

“The way each property investor would fund these will vary, but might include short-term or bridging finance, or utilising the capital in other investments.”

James Bloom, director at Alternative Bridging Corporation, is currently seeing strong activity among investors looking to take advantage of the demand for a home office space.

“Experienced investors are good at responding to the changing requirements of homebuyers and renters, to deliver accommodation that fits what they are looking for and can therefore command a bit of a premium,” he says.

“This has certainly been the case when it comes to refurb projects over the last year. Even though many businesses are returning to the office, it’s clear that home working is going to feature more prominently for a lot of people, and they want separate spaces where they can focus, away from the rest of their household.

“The pandemic has changed the way people think about their homes and investors are responding to this change, which is good news for brokers.”

GRAND DESIGNS Utilising a bridging loan for the refurbishing of a property might be nothing new, but investors are increasingly upping the ante when it comes to the scale of their refurbishment, and undergoing heavier refurbishment work, such as structural changes to a property. www.sfintroducer.com

FEATURE REVIEW

CHANGE OF USE XXXXXXXXX Gary Bailey, managing director at Hope Capital, says: “While there is no doubt still a demand for light refurbishment loans, there has definitely been a shift towards products which accommodate more medium to heavy works, following the pandemic.”

Overall, he has seen demand for refurbishment bridging loans increase by 12% in the last quarter.

Bailey attributes this to two things – either investors looking to take advantage of the booming property market post-lockdown and make up for lost time, or an increased demand for property which can also accommodate remote working.

“With many companies and employees considering working remotely as a permanent option, properties designed to meet this demand are being snapped up, sometimes within hours of reaching the market,” he says.

“As a result, the number of investors and developers focusing on refurbishment projects has spiked significantly over the last few months.”

Bailey believes that the bridging sector is also simply picking up some of the slack from an increasingly busy and over-stretched mortgage market.

“Some mainstream mortgage providers are struggling to handle the demand, which has subsequently created an opportunity for bridging lenders,” he says.

“In most circumstances, bridging lenders are able to arrange finance much quicker than mainstream lenders, often in days or weeks rather than months.”

CHANGING TASTES Raphael Benggio, head of regulated underwriting at MT Finance, has also seen a shift in user behaviour since the beginning of the pandemic.

“Leading up to June’s stamp duty holiday deadline extension, we naturally saw an uptake in regulated lending, with first-time buyers and home movers looking to take advantage of the savings,” he explains.

“However, one thing we noticed was the change in behaviour of these purchasers, who – probably due to the effects of successive lockdowns – now wished to live further out from the main cities and instead sought the luxury of extra square footage and open space.

“Following on from this, we have also seen an increase in regulated lending with regards to borrowers looking to refurbish or extend their current homes.

“A lot of companies are now offering flexi-working and the ability to work from home, which has resulted in more borrowers looking for funds to refurbish and extend their existing properties to maximise their potential. This is probably led by the same desire for extra space within their current properties.”

In fact, demand is so high for properties which can accommodate home working, that bridging is also being used in a bid to give buyers a headstart – usually for a larger property outside of the city. www.sfintroducer.com

Amadeus Wilson, director of SPF Short Term Finance, says: “We are seeing migration from cities to the countryside – with relatively few properties to choose from, once you find the dream remote working location you may be forced to act quickly.

“Taking short-term finance effectively puts the borrower in the same position as a cash purchaser, avoiding a potentially complex chain. The finance can be paid back once the existing property is sold, relieving the pressure to achieve a quick sale.”

The Royal Institute of Chartered Surveyors (RICS) reported in May last year in its Residential Market Survey that 81% of respondents across the UK felt that there would be an increase in demand for properties with gardens or balconies. Some 74% predicted an increase in demand for homes located near green spaces, and 68% were of the opinion that properties with greater private and less communal space would become more desirable.

“A lot of companies are now offering flexi-working and the ability to work from home, which has resulted in more borrowers looking for funds to refurbish and extend their existing properties to maximise their potential. This is probably led by the desire for extra space within their current properties” Luke Egan, director of bridging and development at Pink Pig Loans, says: “What has been a lot more prevalent has been people looking to move home in search of a bigger space, bigger garden or an office, etcetera – all the things that provided some respite during lockdown. This has often involved people looking to move further out of the city.”

This is not just the preserve of the residential market, says Peter Barnes, head of MfB for Intermediaries: “In the commercial space, we’re seeing a lot of ‘COVIDproof’ businesses – such as online suppliers – looking for larger commercial units as they’ve grown over the last 18 months.

“Investors are also purchasing lots of retail units with residential space above with short-term finance.

They’re moving clients in, splitting the title, and mortgaging the commercial and residential elements separately. Doing this leaves them a potentially unencumbered commercial unit, which they can convert at a later date.”

GOODBYE TO THE OFFICE? The UK continues to face an acute crisis in terms of housing supply. So, one much-needed change that → SEPTEMBER 2021 BRIDGING INTRODUCER

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sancus.com Residential | Semi-Commercial | Mixed Use PRS Schemes | Auctions | HMO’s Light to Heavy Refurbishment | Multiple Assets Indicative criteria only, each loan application is considered on its merits. Sancus Lending (UK) Ltd is regulated by the FCA, firm reference number 593992.

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FEATURE REVIEW

CHANGE OF USE XXXXXXXXX CASE STUDY

£2m bridging loan for office space conversion

T

he asset in question for this case study was a relatively small old office building in the UK, which the borrower planned to refurbish in order to change the purpose of the premises to serviced apartments, with full planning permission.

One partner in the business was abroad in Vancouver, Canada, so the time difference meant communication wasn’t straightforward.

An additional complication to the matter was that the ownership structure of the business wasn’t entirely clear, and there were several parties involved. This was a bit of a web to untangle.

Even when we discovered that one of the borrowers had historic credit issues, however, we were determined to find a solution that would work for them and us.

Gary Bailey managing director, Hope Capital

Once we understood the ownership structure and had completed the necessary due diligence, we then looked at the project plan for refurbishment.

We used an independent company to assess each development plan against build costs, timescales and planning permission.

This company would also then monitor the development, any building regulation and planning permission throughout the loan, adding its expertise by assessing again at each staged drawdown.

“Now, with even more businesses moving away from working in an office and instead introducing remote working, the sight of empty office blocks is becoming more the norm. There is no doubt that – even before the COVID-19 pandemic effect on city centre office accommodation – the UK’s traditional office environment was already being redefined, as the rise of technology meant that in-person requirements became less essential” could come out of a mass move out of offices could be their repurposing as residential properties.

“Clients are using short-term finance to fund the conversion of offices and buildings to residential, taking advantage of permitted development rights,” says Wilson.

“The fact is that we no longer need as many offices as we have, thanks to changes in working patterns, and we do need many more homes.”

Benggio has also seen clients using short-term finance to take advantage of permitted development rights (PDR) to convert not just disused office space, but other properties such as an old doctor’s surgery. www.sfintroducer.com

Given the clients had some experience of refurbishing property and had a team ready to go, we were confident they could achieve what they needed to in the timeframe.

The historical credit issues were explained, and we felt comfortable to lend. We offered a loan for £1,980,000 over 12 months at 60% loan-to-value (LTV) and agreed the drawdown stages with the borrowers.

We completed the deal in around two weeks, even though one of the business partners was abroad. The video calls we undertook helped get everyone on the same page and push things through, despite being across the pond.

The client drew down the funds during the refurbishment of the property pretty much as planned, and agreed and completed the refurbishment within the term of the loan.

“This can present some unique opportunities for buyers who can create a significant residential property with very little structural work needed, as usually most of the work involved is internal,” he says.

Gavin Diamond, director of bridging at United Trust Bank (UTB), notes that many investors will opt to use bridging instead of other forms of finance in such a scenario.

“Many clients prefer the speed and flexibility of bridging over other forms of finance to fund this, often using additional unencumbered or lowly-geared assets to minimise their cash requirements,” he says.

Bailey believes the trend of converting abandoned office space into residential premises is one that is set to continue.

“Now, with even more businesses moving away from working in an office and instead introducing remote working, the sight of empty office blocks is becoming more the norm,” he says.

“There is no doubt – even before the COVID-19 pandemic’s effect on city centre office accommodation – that the UK’s traditional office environment was already being redefined, as the rise of technology meant in-person requirements became less essential.

“For example, with meetings now commonly taking place via video conferencing platforms, the need for people to work in an office environment is no longer always a priority. This trend has therefore only been exacerbated, and in turn solidified, by the pandemic.”

He explains that this has created a prime opportunity for the UK to reimagine its city centres, in order to fit changing demands from residents, employees and property purchasers. → SEPTEMBER 2021 BRIDGING INTRODUCER

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FEATURE REVIEW

CHANGE OF USE XXXXXXXXX Bailey continues: “Following a significant number of businesses having closed permanently since the beginning of the pandemic, coupled with the demand for housing increasing at the same time, we are starting to see a rising trend of converting unused commercial buildings into residential or mixeduse premises.

“The idea of reinventing and transforming outdated workspaces into residential or mixed-use property is a smart move for investors, especially if it is in a right area and the demand is right, where it can be a very fruitful investment.”

Even for those businesses that do return fully to the office, there may still be a need to fund refurbishments as needs and priorities have changed, and are unlikely to fully revert to the old norm.

Victoria Short, chief executive officer of recruiter Randstad UK, says: “In the future, the nature and the design of the office will have to change as the workplace starts to compete with the benefits of working from home.”

She adds that, as office spaces become more of a choice for businesses, rather than a necessity, these properties will have more to prove in order to attract tenants, beyond the basic amenities.

“Organisations are likely to need less square footage as people work remotely more often. But the style of an organisation’s office, quite apart from its size, will also change.

“Demand for super-premium, high-end office space may rise, while demand for average, boring officespace – especially in London – is likely to fall away.

“Something for both brokers and borrowers to be mindful of with these types of uses of bridging finance is the whole cost of conversion and the return on investment. It is imperative to ensure the pricing of materials and labour are taken into consideration, given the sharp rise in these” “We may well also see the death of the open-plan office. Open-plan offices are terrible environments for introverts, who hate the noise, and for extroverts, who don’t feel able to have genuine conversations for fear of annoying colleagues.

“Open plan offices also drive up the use of email – but emails can be sent from anywhere.

“Workspaces will bifurcate into places that are genuinely sociable – facilitating conversation, generating serendipitous encounters, and helping teams celebrate – and libraries where people can work in perfect peace.”

It is not quite as simple as seeing a wave of downsizing as businesses relinquish the need for desk space for every employee, however.

There are also those that are looking to expand, having prospered and grown during the pandemic.

Indeed, many in the property finance industry, and →

CASE STUDY

Loan to convert period building into apartments

F

or this case study, United Trust Bank’s (UTB) bridging team was approached in order to assist a client with the purchase of redundant office space situated above a bank in a period building, and to fund the works for its subsequent conversion into two apartments.

Between the exchange of contracts and completion, the borrower obtained planning permission for the change of use from A2 to C3, which paved the way for the office space to be turned into two 1,250 square foot apartments.

The purchase price of the office space was £270,000, while the conversion works were estimated to cost a further £125,000.

The gross development value (GDV) of the completed apartments was estimated to be to in the region of £550,000.

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Gavin Diamond director of bridging, United Trust Bank

UTB agreed to provide an initial advance of £162,500 and to fund 100% of the works.

The total facility, including the initial advance, loan fees, rolled up interest and works costs totalled £315,000, representing 57% of GDV.

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FEATURE REVIEW

CHANGE OF USE XXXXXXXXX CASE STUDY

Mapping the trends

I

t’s been both an interesting and challenging 18 months for the bridging sector, with COVID-19 impacting the market in both negative and positive ways.

With the restrictions around international travel and subsequent increase in staycations, we have seen an increase in residential buy-to-let (BTL) and home improvement refurbishment bridging loans.

Bridging is now also being used more to convert existing property into holiday lets and AirBnB opportunities.

Changes to the Stamp Duty Land Tax (SDLT) these past 14 months have also driven the growth in the residential BTL housing market. With extended timescales, this has led to short-term finance being utilised to ensure purchases completed before the stamp duty holiday deadline.

However, the past changes to tax liabilities, the proposed changes to Capital Gains Tax (CGT), and the almost forgotten Brexit vote, has all led to a slowdown in the rental market in parts of the UK over the past year. For example, Inner London rentals have dropped by up to 11.5%.

So, property investors have been looking outside of the major cities for investment, which may offer stronger returns – especially when looking to refurbishing the existing housing stock to keep up with the everincreasing pressure for improved Energy Performance Certificate (EPC) ratings.

The rush to beat the SDLT holiday also had an impact on regulated bridging. With the delay in housing completions, people were using bridging to buy a property before they had sold their own, so they could take advantage of the tax break and rising asking prices.

Nick Jones sales director, bridging, West One Loans

HEAVY REFURBISHMENT We’re seeing an increase in heavy refurbishment, specifically on conversion applications, due to the changes in permitted development rights (PDR) last year.

This has made it easier to transform a property than before, as full planning permission is not needed.

As mentioned earlier, we have seen an increase in converting investment properties from long-term to short-term lets, such as holiday homes, to increase not only the revenue but also increasing square footage.

In addition, the pandemic has led to people wanting more space, particularly to create a home office by adding an extension or even another floor.

COMMERCIAL PROPERTY Over the past 18 months, there have also been more commercial property conversions.

Commercial property prices have dropped, as opposed to the heated residential market, which is why we are seeing investors diversifying their property portfolios to maximise their returns.

There is still a housing crisis in the UK, and having existing commercial buildings where the conversion cost is significantly cheaper than developing from the ground up makes it a hugely attractive opportunity.

Only time will tell if the continuing move towards hybrid working means more office

especially within the growing specialist market, might count among this number.

RISKS AND REALITIES One thing to remember in all of this is that – while it might be easy to get carried away with images of town and city centres being revitalised and reimagined, all while providing a much-needed injection of housing stock – these conversions are not always simple or straightforward.

To start with, towering office blocks or disused commercial properties, while offering a great deal www.sfintroducer.com

buildings become vacant. If buildings remain empty, the owners might want to cut their losses and either sell to property developers or convert the buildings themselves to residential accommodation, or look to remodel the space to allow for more flexible working patterns.

Either way, this is still a massive area of opportunity for the sector.

MATERIALS AND LABOUR SHORTAGES Something for both brokers and lenders to be mindful of with these types of uses of bridging finance is the whole cost of conversion and the return on investment.

It is imperative to ensure the pricing for materials and labour are taken into consideration, given the sharp rise in these over the past couple of years.

Understanding the full cost of works from the outset will go a long way to assessing the viability of the investment.

According to the Department for Business, Energy and Industrial Strategy, the cost of materials for repair and maintenance work rose 2.1% between May and June this year and increased by 15.6% between June 2020 and June 2021.

The shortage of materials – such as wood and steel – coupled with the shortage of labour due to Brexit and the more recent ‘pingdemics’ has driven these increases.

What’s more, the prediction for the future is that this trend is likely to continue in the short to medium-term.

Despite these current issues, the demand for bridging finance is healthy, and I expect the sector will maintain this momentum going forward.

“Workspaces will bifurcate into places that are genuinely sociable places – facilitating conversation, generating serendipitous encounters, and helping teams celebrate – and libraries where people can work in perfect peace” SEPTEMBER 2021

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CHANGE OF USE of much-needed square footage, may not naturally make good residential properties.

This is particularly true considering the pandemic has seen many renters and homeowners shift their priorities away from central locations, to focus more on light, space, gardens and access to local communities.

These are elements that a Central London tower block, for example, might struggle to provide.

Therefore, buyers, developers and lenders must be aware that demand may not be sufficient postconversion to justify the initial investment.

Nevertheless, while this may not be a panacea, there will always be those properties that do fit the bill. Bailey notes that the most important thing, as a lender, is to ensure the borrower is fully informed and has the right priorities before agreeing to funding.

“As a borrower looking to convert a property for residential or mixed-use purpose, it is critical to obtain planning permission first, create a budget, and confirm any expectations, etcetera, before approaching a lender,” he advises.

Bailey notes that it is important to have confidence in the borrower and the works they are looking to complete, adding: “That is why it is important to have all of the necessary sign-offs in place, including planning consents, plausibility of the project and schedule of works, before approaching the funder.”

“One thing to remember in all of this is that – while it might be easy to get carried away with images of town and city centres being revitalised and reimagined, all while providing a much-needed injection of housing stock – these conversions are not always straightforward. To start with, towering office blocks or disused commercial properties may not naturally make good residential properties” Benggio also stresses the need to give lenders as much information as possible from the outset. This should include the full backstory of the client, and the circumstances which led to them needing the bridging loan, why this is the best choice, the client’s proposed intentions, and what their proposed exit would be.

Benggio explains: “The importance of having the full story behind the need for a loan, its intended use, and the repayment vehicle on day one cannot be underestimated.”

For most experienced bridging brokers and lenders, the influx of demand and opportunity is good news,

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BRIDGING INTRODUCER SEPTEMBER 2021

“We are seeing a worrying number of inexperienced brokers who don’t do bridging full time who are dabbling in it, which can create all sorts of problems” and these details and realities are well known. However, there may also be those who are tempted to step into a market in which they lack previous experience, and who need to understand the risks.

“We are seeing a worrying number of inexperienced brokers who don’t do bridging full time who are dabbling in it, which can create all sorts of problems,” says Wilson.

“There are a number of deals doing the rounds, because if clients speak to someone who doesn’t know what they are doing, they need a second or third opinion.

“Brokers also need to be mindful of the chain-break element, as the Financial Conduct Authority [FCA] has mandated that the maximum tenure of these loans is 12 months. This means the client may need a Plan B if the property they are moving out of hasn’t sold in time; you need to think about fall-back scenarios.”

Browne agrees that the exit strategy is something that needs to be at the forefront of brokers’ minds: “You need a strategy by which to pay off that loan, otherwise they can become quite expensive. For many developers, the sale of the property at the uplifted value pays off the loan and gives them profit.

“For landlords and homeowners, releasing equity via a remortgage to pay off the loan is the most common method. My best advice is to talk to an experienced property finance broker about your plans, to be sure you’re getting the most suitable solution.”

Another consideration when embarking on a conversion or refurbishment in the current environment should be the cost and availability of materials.

“We’ve seen extended timelines to obtain or amend planning permission, or obtain a certificate of lawful development for the proposed scheme. This may impact both the value and term of the loan facility provided,” Diamond warns.

Finally, Egan advises brokers to follow their gut when it comes to applications, saying: “If something is not quite right to you, then it’s likely to be the same for other people – a properly packaged case should be vetted in a way that you are happy to put your’s and your company’s name to in recommending a certain product or lender.

“Make sure you check and double check the numbers, so they are robust and there is enough money in the scheme for it to work for both client and lender.” B I www.sfintroducer.com

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COVER

INTERVIEW

Challenge and opportunity Jessica Bird catches up with Mark Standley, national commercial director of Assetz Capital, to discuss the firm’s accelerated growth, fundamental principles, and outlook for the year ahead How has the business changed since its launch in 2013?

I joined the business in early 2016, at which time Assetz Capital was actively growing the front-line origination team and enjoying strong growth, which has since continued.

Over the years, Assetz has shown itself to be highly adaptable and able to rapidly evolve – most recently to successfully deliver hundreds of millions in Coronavirus Business Interruption Loans Scheme (CBILS) loans, through what for some lenders was a difficult period.

We are now back in the market and we are confident that well controlled growth in lending volumes will be maintained.

Are there fundamental principles that underpin Assetz Capital’s approach to lending and service?

Our fundamentals are as follows: expert review of the initial enquiry, early engagement with credit to ensure their support, and meticulous execution to ensure that we reliably ‘do what we say we will do.’

Assetz Capital has expanded its bridging team this year, with a view to accelerating growth in this area – how is this expansion going?

It’s going very well. A third bridging and intermediary relationship director, Mehwish Mirza, joined the business in August, and already has a rapidly growing pipeline of loans in progress.

The concept is already proven, with the product set and service promise proving to be extremely popular. Watch this space for more good news to come.

One of the issues plaguing bridging recently has been lengthening completion times – how does Assetz approach balancing speedy delivery with a market that is naturally more complex?

We strike this balance through reverse engineering.

We look to agree a completion date at the point we instruct a valuation, taking a project-style approach to each case, and so ensure that all key stages can be achieved in good time, often running more than one step in parallel where time may be short. →

Real World Bridging.

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assetzcapital.co.uk/bridging

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INTERVIEW

Mark Standley

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SEPTEMBER 2021 BRIDGING INTRODUCER

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COVER

INTERVIEW How is Assetz Capital set to handle the increasingly competitive nature of the specialist market?

There will always be someone seeking to buy market share, whereas Assetz Capital is here for the long game, with commercially maintainable competitive pricing.

For that, we go out of the way to ensure the outstanding and reliable service experience that is so valued by our borrowers and introducers.

What lessons did the business learn from the pandemic and lockdown, and how might these learnings translate into future developments?

It is an old phrase but one that still holds true: the only constant is change, and change can bring both challenge and opportunity in equal measure.

At Assetz Capital, we showed that we could be light on our feet and adept to refocus on new opportunities, consequently modifying our activities and going on to deliver excellent trading results through the pandemic.

That means we can continue to invest in our strong business with an eye to risk management and structuring, ensuring that we can continue to be successful in all stages of a cycle.

Assetz, you will note, was born out of the financial crisis.

How does peer-to-peer lending differ from traditional models?

A borrower will receive the same excellent service experience whether their loan is provided via our peer-to-peer platform or with funds from one of our institutional relationships.

How do you balance tech-enabled solutions alongside the human elements of service?

We seamlessly blend fintech with traditional values and ways of doing business.

Significant development facilities, for example, would be delivered via a face-to-face site meeting with a highly experienced property relationship director, who will then go on to work with the borrower throughout the build.

Many of our bridging loans can be delivered without this formality, however, making good use of tech and ensuring we can meet the pace required to excel in this sector.

Assetz Capital was accredited under CBILS, and has since become a Recovery Loan Scheme lender – what do you think of these schemes, and what is the role of specialist lenders in supporting business recovery?

CBILS carried an effective government grant support, known as the Business Interruption Payment (BIP), and made a significant difference in terms of keeping the economy moving, which was timely and appropriate in what were very worrying times for many.

The Recovery Loan Scheme (RLS) has many common features, and so remains as an enabler for viable eligible propositions, though – perhaps sensibly – the BIP has fallen away as we move back towards normalised market conditions.

As a specialist lender, we delivered hundreds of millions to developers and small to medium enterprises (SMEs) impacted by the pandemic, and as an industry our role has been critical in to meet the level of eligible demand – and therefore need – that existed.

What are some key trends within the development market at the moment?

Futures for timber have fallen recently, but otherwise supply issues continue to press on prices which may not have peaked.

It would be fair to say that Assetz saw this coming, where through our CBILS lending we required higher than normal contingencies. This has enabled borrowers to carry on without the need to revisit and increase facilities.

As ever, we continue to have informed and supportive conversations, the most appropriate loan facilities for our developer customers.

Refurbishment was certainly a feature through lockdown, and one which has played out as a shortage of trades in the building industry has been compounded by ongoing disruption to supply chains, driving material inflation and stock shortages.

Real World Bridging.

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COVER

INTERVIEW

Assetz Capital HQ Supply chain issues continue, and strong demand for refurbishment funding is still there, though I would see this as stable rather than rising.

Do you see there being a significant change to our high streets and city centres post-pandemic?

If so, what is the role of specialist lenders like Assetz in facilitating this?

The loss of Debenhams and others has come as quite a blow to the retail sector, impacting both town centres and employment within the industry.

Similarly, the nature and ongoing demand for office space is not yet clear, other than reduced commuter footfall, which compounds the impact the pandemic has on retail.

The earlier trend for out of town retail parks has had a similar impact, where we have seen redevelopment to much needed residential space, and permitted development rights (PDR) by way of a prior approval application has often helped to make this process easier.

If local demand for shops and offices falls away, then residential redevelopment is the most effective use of space, and of course, remains a key funding opportunity for Assetz.

What interesting developments or new directions can we expect from the business over the next year or so?

Where to begin? Post-CBILS, and with funding from both our peer-to-peer platform and institutional relationships, we have launched what I believe is an outstanding proposition.

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We can bridge it, build it, and term it – often as part the same structured loan facility. We serve a wide range of customers, from lightly borrowed all the way up to 75% loan-to-gross-developmentvalue (LTGDV) for the right scheme and developer, and always at highly competitive pricing.

We are actively recruiting to meet demand, with four relationship directors having joined Assetz in just the past couple of months, and there are several more outstanding professionals due to be with us over the coming weeks.

Anyone with the right skill-set and a passion to deliver optimum solutions for the customer should call us right away.

What message would you like to get across to brokers about what it’s like to work with Assetz Capital?

We do what we say we will do! That has been my mantra since joining in 2016, and continues to hold true. We take great care to understand a case at the outset, ensuring that key internal stakeholders are on board, and then go above and beyond to deliver for your clients.

We are bound by commercial common sense rather than policy, and basically just have the best people in every part of our business to make that happen. B I If you haven’t worked with us yet, please do call. We have relationship directors waiting to hear from you in all parts of the UK, including Northern Ireland and Scotland.

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IN OUR OPINION

Lending for the real w Assetz Capital’s national commercial director Mark Standley discusses the lender’s increasing appetite for bridging and its ‘real-world lending’ philosophy

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t’s been a very interesting year in the lending market, to say the least. Firstly, we wave goodbye to the successful government-backed Coronavirus Business Interruption (CBILS) scheme from the British Business Bank, with almost £400m supplied from Assetz Capital to UK businesses which needed help and support throughout the pandemic.

The furlough scheme has since ended, the country has opened back up, and our retail loan book has started to take entries again, so it feels like things have started to return to a sense of normal.

We are now an accredited Recovery Loan Scheme lender, too, which will support the next phase of UK small to medium enterprise (SME) finance assistance as we exit the pandemic.

Since the great reopening, I’ve noticed several topline bridging rates getting slashed here and there, as lenders compete for an increasing market share.

Whilst some lenders have notably dropped away, there does seem to be an abundance of funders out there at the moment, which is great to see!

Total gross lending in the sector has risen from £144.5m in Q1 to £146.5m in Q2 of this year, and bridging applications were up 25% on the same period in 2020, so the demand is certainly there to support new entrants to the market.

If I had to give my advice to those lenders which seem to be driving their rates down, it would be to stop trying to reinvent the wheel constantly. Of course rates are important, but for me, service is the key to any successful lending proposition.

technology, particularly in the past 18 months. We still like to go out and meet our borrowers face-toface and shake hands – or nowadays bump elbows.

We want to see their development site or business premises and really understand their operation – it means we can interpret their needs on a stronger level and really build the relationship.

That’s not to say that the technology isn’t important, but it has to work in harmony with the human side of our business, and that is really important to us.

Our ‘real-world lending’ philosophy – which is embodied by our team of UK-wide relationship directors, who are on the ground sounding out deals – is to try to rationalise and use our experience and judgement to deliver the most appropriate outcome for every client.

Mark Standley

REAL-WORLD SOLUTIONS With that in mind, we have always had a very strong social conscience in terms of doing the right thing for our borrowers, providing real-world solutions to their growth plans, and ensuring there is ‘fairer growth’ for all involved. We take care to ensure that our lending decisions are right, so that the borrower receives the optimum solution to carry out their project.

I think it’s important to remain somewhat traditional in a world that has been possibly over-reliant on

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IN OUR OPINION

l world If there isn’t one, we will create one – there is no ‘computer says no’ with us.

OPPORTUNITIES FOR GROWTH That philosophy has mostly delivered development finance and commercial mortgages, certainly prepandemic, with development making up more than 50% of our lending of just over £1.3bn.

For the past 18 months we have tackled the pandemic through our CBILS lending, which has been hugely successful, and we now plan to reach similar levels through the Recovery Loan Scheme.

During that time, we have had the chance to reflect and have re-evaluated our traditional finance avenues, in particular bridging.

We see this as a potential area for strong growth and a great opportunity, so we want to start shouting a lot more about it.

We have a solid foundation with our brokers who know and associate us with development lending and managing complexity; we want to build on that to grow our recognition and share of the bridging market.

We have put together a new underwriting function and a specialist bridging team to remove potential friction points and to retain our core lending fundamentals, which will not change.

We are prepared to lend in sectors such as hospitality and care, where we have the specialist knowledge to identify supportable businesses.

The market does seem to be saturated, with the bulk of lenders seeking vanilla residential deals.

We are in the mix for those deals, absolutely, but we are also looking at sectors that may have struggled due to COVID-19.

Change brings opportunity, and businesses with the potential to succeed in all sectors will need bridging finance to help them grow – we want to support that.

We have the ability to lend a bit more too; we can now provide bridging loans up to £5m.

Our growth is always controlled in a measured way, but remains strong even during what has been a challenging period.

We want to be market-leading through all our disciplines, and to deliver the best solutions for our borrowers through their brokers.

I believe we are a great business, with a friendly and expert team behind the business, who all work incredibly hard to provide the best service experience possible. We have remained constant throughout the pandemic, and we are looking forward to a bright future. B I www.sfintroducer.com

Assetz Capital HQ

SEPTEMBER 2021

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REVIEW

ASTL XXXXXXXXX

Making the most of our opportunity Vic Jannels CEO, ASTL

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t finally seems that we are emerging from the pandemic, and we’re doing so with the bridging market in good shape. The latest lending data from the ASTL shows an almost universally positive set of results for bridging lending in Q2 2021, with completions increasing, applications remaining strong, and defaults falling.

The figures, which have been compiled by auditors from data provided by our members, show that bridging completions were £1.1bn in Q2 2021, an increase of 23.2% on Q1. Bridging loan books reflect the increase in completions, now standing at upwards of £4.7bn.

Applications fell slightly – by 1.7% to £7.36bn – compared to Q1, but applications for the year ending 30 June 2021 were still 26.9% higher than in the year ending 30 June 2020.

Average loan-to-values (LTVs) showed a small increase since the March 2021 quarter, now at 59.8%.

The value of loans in default continues to fall, showing a decrease of 7.6% on Q1 2021, and the number of repossessions also fell again this quarter, suggesting that lenders and borrowers are in good shape to tackle challenges in the future.

We’re very excited about the potential for the short-term lending industry. Over the past year, the market has demonstrated its resilience and ability to adapt.

It has also demonstrated its maturity and commitment to robust underwriting and working with customers, evidenced by the reduction of loans in default and repossessions.

However, there remain challenges ahead, as the economic recovery must

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negotiate the withdrawal of financial support packages. As bridging starts to reach a wider audience of potential customers, it is more important than ever that we protect the growing reputation of our sector.

At the ASTL, we have a role to play in this, and we will continue to promote high standards and the benefits of working with our lender members, which all commit to our rule and Code of Conduct.

“The reputation of shortterm mortgage lending has improved significantly in recent years, thanks in no small way to the good work of the ASTL and our members” BREATHING SPACE

One area of concern we have recently noted is the way in which a minority of intermediaries have interpreted and used the the introduction of a new piece of legislation: The Debt Respite Scheme (Breathing Space).

Breathing Space was introduced to give borrowers in problem debt the right to legal protections from creditor action for up to 60 days, including pausing most enforcement action and contact from creditors, as well as freezing most interest and charges on their debts.

It works on the basis that borrowers should maintain interest payments on the principal in secured debt throughout, at least providing them with time to identify a solution without their financial position worsening.

On bridging loans, of course, there are rarely any ongoing interest payments to be made, but this hasn’t prevented Breathing Space being used, and potentially abused, in the sector.

BRIDGING INTRODUCER SEPTEMBER 2021

Breathing Space can only be applied for on behalf of a borrower by a Financial Conduct Authority (FCA) registered debt adviser, and we have been made aware that there are firms with both debt advice and finance capabilities which may be using the legislation as a means of blocking enforcement action and suppressing charges on bridging finance while they attempt to refinance the borrower.

This is against the spirit of the legislation, and is ultimately detrimental to the customer, as brokers who do not forensically assess a case before applying on the debtor’s behalf are likely to be unsuccessful in refinancing the loan. This is likely add to the emotional distress of the customer, and leave the debtor in a far worse position.

SOLUTION THROUGH DIALOGUE

At the ASTL, we have recently written an open letter to intermediaries in the trade press. Our request is this: please make use of legislation, like Breathing Space, in the spirit within which it was originally intended.

Where a borrower is in genuine difficulty, I know that any of our members will be open to engage with the customer to reach a satisfactory outcome through the usual open and direct channels.

Our lenders are committed to treating customers fairly and look to find sensible resolution; Breathing Space prohibits lender contact at a time when the best outcome is, more often than not, found through dialogue.

Misuse of Breathing Space is detrimental to the reputation of brokers, amongst customers and within the industry. But it’s also detrimental to the reputation of our sector as a whole.

The reputation of short-term mortgage lending has improved significantly in recent years, thanks in no small way to the good work of the ASTL and our members.

Now we have a great opportunity to grow our market, we must all take some responsibility for protecting its reputation. As we emerge from the pandemic, the bridging market is in good shape. Let’s make the most of this opportunity. B I www.sfintroducer.com

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Real world bridging.

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Advances from £150k - £5m LTV up to 75% 1-24 month terms UK limited companies, LLPs & sole traders All security types including HMO & holiday lets Rates from 0.65% pcm, based on LTV NOT property type Typically retained interest & will consider serviced Ex pats & foreign nationals acceptable First time buyers / first time investors considered Charlotte Weaver, Relationship Support Team Manager

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assetzcapital.co.uk/bridging Assetz SME Capital Limited is a company registered in England and Wales with company number 08007287. Assetz SME Capital Ltd is authorised and regulated by the Financial Conduct Authority in respect of its peer-to-peer lending platform only. ’Assetz Capital’ is a trading name of Assetz SME Capital Ltd. Assetz SME Capital is registered with the Office of the Information Commissioner (Reg No: Z3338899) for data protection purposes.

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