Bridging & Commercial Magazine - The Education Issue

ISSUE 18 NOV/DEC 2021

On course for a better industry

Yes, we’re still talking about a bridging qualification...

+ The evolution of regulated bridging p24

Bridging finance

Need a rapid bridging finance solution?

We’ve got it!

With our bridging finance products and a range of solutions tailored to your customers, you could benefit from: Regulated and non-regulated loans available

Up to 75% LTV available

£0

AVMs available up to 60% LTV and with no fee

No maximum loan amount

Precise.

Contact your local specialist finance account manager precisemortgages.co.uk

FOR INTERMEDIARIES ONLY

Product and criteria information correct at time of print (22/11/2021)

Bridging Finance Specialist funding for refurbishment and property improvement

Find your BDM

Search

NOW

www.utbank.co.uk/find-your-bdm

Purchase | Capital Raise | Conversion & Refurbishment | Developer Exit T: 020 3862 1002 E: bridging@utbank.co.uk

we understand bridging finance

Acknowledgments Editor-in-chief Beth Fisher beth@medianett.co.uk Creative direction Beth Fisher Caron Schreuder Sub editor Andrea Johnson Reporter Andreea Dulgheru Contributor Hannah Godfrey Photography Andreea Dulgheru Sales and marketing Caron Schreuder caron@medianett.co.uk Special thanks Jayne West, bClear John Groothaert, Fiduciam Amanda Overland, Sancus Chris Oatway, LDNfinance Adam Tyler, FIBA Sam Baker, Clifton Private Finance Chris Whitney, Enness Global Mortgages Stephen Todd, VAS Group Sabinder Sandhu, Avamore Capital Michael Clarke, Paragon Printing The Magazine Printing Company Design and image editing Russ Thirkettle, Carbide Finger Ltd Bridging & Commercial Magazine is published by Medianett Ltd Managing director Caron Schreuder caron@medianett.co.uk 3rd Floor, 71 Gloucester Place London W1U 8JW 0203 818 0160 Follow us:Twitter @BandCNews | Instagram @BridgingCommercialMagazine

CBP008214

To read about our commitment to the environment and sustainable print publishing, please visit https://bridgingandcommercial.co.uk/page_magazine.

I

s there a better way to end the year than with an Education Issue?

I often feel in life that the bigger picture is misunderstood or, frankly, ignored. For example, in February, a rover landed on Mars in a mind blowing operation to search for signs of ancient life—one of the most outstanding NASA missions that will get us closer than ever before to answering some of science’s longest-standing questions about the Red Planet and extraterrestrial existence. Yet, I would bet big bucks that more people have talked about billionaires Bezos’ and Branson’s (pointless) race to space.

I consider the topic of a mandatory standard in our market overlooked in a similar way. Seven years ago, a bridging qualification won industry support, yet nothing has transpired since. This is despite constant conversation, articles and disputes that all brokers do not have the requisite range, depth and sophistication of knowledge. In the grand scheme of things, the answer is quite simple, yet the short-term thinking of the market has resulted in many lenders adamant that they wouldn’t change how they treat enquiries from those who aren’t qualified to take them in the first place. While 66% of the sector believes we should have a certification of some sort, I delve into why this hasn’t happened yet and what needs to shift to make it something other than a pipe dream [p30].

If this is a bit heavy to start with, you can find exclusive data from Market Financial Solutions and VAS Group over the next few pages in order to get the latest sentiment from property investors [p8] and why the gap between expected vs actual commercial property valuations has narrowed over the past two years [p12].

Later in this issue, expect to be schooled on how offshore bridging works and whether it’s the next export industry for the UK [p60], how an asset manager can save brokers and borrowers time and money in specialist finance [p64], whether stepped rates are out of step with the bridging market [p42], and top tips from eight brokers on how to sharpen your negotiation skills [p40].

You can also read an abundance of exclusive interviews: Spring Finance has decided to try its hand at bridging after recruiting Claire Newman [p14]; Salboy prepares to launch its new joint venture partnerships offering [p20]; and Alan Margolis and D’mitri Zaprzala discuss their ambition to lend more than £500m annually at Avamore Capital [p48].

Behind the scenes (and between the many mince pies, eggnogs, and December parties), the Bridging & Commercial team has been planning for an exceptionally exciting year ahead for the magazine. Thank you to everyone who has supported us during 2021 and already confirmed their patronage for the next 12 months—we couldn’t tackle the concerns of the industry without you.

On that note, we all wish you a very happy holiday season and a well-deserved rest. See you in the new year when we announce the highly anticipated Power List!

Beth Fisher Editor-in-chief

3 Nov/Dec 2021

Someone who is putting the time and effort into gaining an additional qualification should be viewed differently from those who aren’t” p30 4 Bridging & Commercial

8 14 24 30 40 42 48 60 64 76

Data News Exclusive Cover story View Zeitgeist Interview Explained Feature One Day MFS/VAS Group

Spring Finance / Salboy

The evolution of regulated bridging

66% of the industry want a bridging qualification

Eight brokers share their top negotiating tips

What’s the (cheaper) deal?

Alan & D’mitri

We’re headed offshore

The recovery position/A funder’s involvement in the decision-making process

The big debates

BRIDGING & COMMERCIAL MAGAZINE OPENS SUBMISSIONS FOR

2022

POWER LIST ISSUE 7 JAN/FEB 2020

ISSUE 13 JAN/FEB 2021

POWER

UNDER 35 POWER LIST

The industry’s most impressive list of young talent.

Get inspired

2021 LIST

Recognising those who go above and beyond

+ Double figures p15

Cast your vote for your favourite brokers, introducers and packagers for the 2022 Power List by scanning the QR code

SCAN ME

ISSUE 19 JAN/FEB 2022

?

Data

LATEST SENTIMENT FROM PROPERTY INVESTORS REVEALED MFS surveyed a collection of 512 UK-based property investors, all of whom own two or more properties in the UK; 331 owned between two and five, while 181 owned six or more.

The research explores how property investors have responded to the pandemic, with a particular focus on BTL landlords and their engagement with tenants. Respondents were also asked about their outlook for the year ahead and how they plan to manage their portfolios.

The team at MFS has compiled its key findings and commentary below

38% of property investors have bought a property since the start of the stamp duty holiday in July 2020, while 32% said they had tried to but failed

That two-fifths of property investors seized the tax savings on offer during the stamp duty holiday to expand their portfolios is perhaps not surprising. However, the fact that a third tried but failed to do so is more illuminating. Firstly, it underlines how competitive the market was in this period, with bidding wars common and prices rising sharply. Many property investors were also hindered by struggles to access finance—certainly at MFS we saw a spike in the number of clients contacting us needing a quick loan after another lender had let them down. As our research shows, many were unable to complete deals during the SDLT holiday, and the failings of some lenders will certainly have been a factor in this.

60% think the stamp duty holiday made the property market too competitive

Most people involved in property transactions will appreciate this sentiment—the SDLT holiday was a frenetic period, and property investors clearly feel that the surge in demand among prospective buyers made the market too competitive. There was less time to make decisions and prices rose steeply—one can understand why some investors will have found the initiative to be against their interests, despite the tax savings available.

44% have become more likely to consider rural areas for property investment opportunities since the

start of the pandemic

A great deal has been written about homebuyers leaving towns and cities in favour of the countryside. With remote working now more usual, and desire for space (indoor and outdoor) increasing all the time, the logic is clear. Evidently, property investors are also in tune with changing demands from prospective renters and buyers, and are therefore considering a shift in their portfolios to include more rural properties.

41% plan to downsize their

portfolio in the coming year; however, the majority (68%) said they still consider BTL investments to be appealing

Property investors’ portfolios are usually quite fluid. While some invest in a set number of properties and then sit tight, many choose to buy, renovate, rent and sell a range all the time—their portfolios are constantly evolving. Crucially, over two-thirds still find BTL investments appealing, which is a notable point. Many commentators have suggested that BTL has lost its gloss in light of tax reforms and legislative changes, but our data reiterates that this really is not the case.

Of those who received a rental

income on one or more properties, almost two-thirds (65%) reported they have allowed flexibility with rent payments during the pandemic due to the financial upheaval it has caused to their tenants

This was positive to note, with MFS’s research highlighting that most UK landlords have shown compassion and understanding to their tenants during the 8

Bridging & Commercial

pandemic. Furloughing and redundancies have affected many household incomes, and it is only right that landlords have allowed greater flexibility around payments in response to this.

While 62% of landlords rely on an agent to manage their let(s), just 19% believe that agents warrant their fees

There has been a longstanding debate around the role of agents. It seems quite harsh that only one in five landlords believe letting agents warrant their fees, but it is likely a reflection of the fact that over the course of a tenancy, many thousands of pounds will go to the agent, which will rankle some landlords. We should not underestimate, however, the amount of work that goes into finding tenants for properties and then managing the let on a week-by-week basis.

55% of landlords intend to increase their rents in the coming year, but 80% said they will generally accept lower rents if it means having a more reliable or longer-term tenant in their property

Apparently, landlords are not purely fixated on achieving the highest possible yield.

Security, and looking after their properties, are key concerns—the vast majority of landlords clearly favour longer lets, and tenants that they feel will pay on time and respect the property they are living in. This means less risk of periods when their BTL property is without tenants, and hopefully less investment into refurbishments or replacing damaged items over time.

38%

of property investors have bought a property since the start of the stamp duty holiday in July 2020, while 32% said they had tried to but failed

44% have become more likely to consider rural areas for property investment opportunities since the start of the pandemic

41%

plan to downsize their portfolio in the coming year; however, the majority (68%) said they still consider BTL investments to be appealing

Of those who received a rental income on one or more properties, almost two-thirds

55%

of landlords intend to increase their rents in the coming year, but 80% said they will generally accept lower rents if it means having a more reliable or longer-term tenant in their property

65%

reported they have allowed flexibility with rent payments during the pandemic due to the financial upheaval it has caused to their tenants

62% of landlords rely on an agent to manage their let(s), just 19% believe that agents warrant their fees

60%

think the stamp duty holiday made the property market too competitive

C

M

Y

CM

MY

CY

CMY

K

Data

EXPECTATIONS NOW MORE IN LINE WITH COMMERCIAL VALUATIONS— BUT ONLY SLIGHTLY

The gap between expected vs actual commercial property valuations has marginally narrowed over the past two years. We look at how this has happened and what more brokers can do to further limit these exaggerated figures to protect their clients’ deals, lenders’ valuable time and valuers’ reputations

Words by

BETH FISHER

B

ack in early 2019, Bridging & Commercial published eyeopening figures from VAS Group that revealed commercial property valuations were coming in circa 10% lower than borrowers’ estimations during the three months from November 2018 to January 2019. It sparked a conversation on how over-inflated valuation estimates could cause problems when brokers source funding terms that will inevitably have to change once the actual valuation has been conducted.

While the past two years have seen a slight improvement, the issue is still well and truly here. Recent data exclusively shared by VAS Group shows that the current average gap in 2021 for commercial property has now contracted to -8%.

Recent data exclusively shared by VAS Group shows that the current average expectation vs actual valuation gap in 2021 for commercial property has now contracted to -8%.

The research across 2021 included 3,900 valuations worth £2.4bn of market value, in collaboration with 40 lenders. The valuations ranged from £20,000 to £24m, with an average value of £600,000.

There may be many reasons for the shift; either borrowers have realised that their expectations were too high over the past two years and have brought them down, or other parties involved (underwriters and brokers etc) are utilising more data to help better paint the picture of an asset’s true value.

Stephen Todd, CCO and co-founder of VAS Group—a valuation panel management, software and audit company that aims to reduce property specific risks by helping ensure the correct surveyors are specified

-10.3%

NOVEMBER 2018 – JANUARY 2019

-9%

NOVEMBER 2020 – JANUARY 2021

-8%

JANUARY 2021 – TO DATE

12 Bridging & Commercial

for every job—suggests that fewer transactions in the commercial property market during the pandemic— especially in the secondary/tertiary property space—has resulted in a lack of sales evidence to prove whether the market has reduced or declined. While the industrial sector is “really strong” with the growth of e-commerce, some companies have downsized their offices with the introduction of flexible working and capitalised on technology to interact with colleagues and clients.

He feels that smaller office space is becoming popular for those who no longer want to work from home, and retail still faces challenges, despite the opportunity for conversions in this area. “High rates remain an issue for many occupiers; we will not truly know what has happened to

Data

commercial values for a year or two until transaction levels get back to pre-Covid levels and businesses who have heavily relied on CBILS loans to keep going have to pay them back.”

The drop in inflated expectations could mean fewer deals are falling through as a result of ‘downvaluations’. “Eight per cent is not an insurmountable difference to deal with,” says Stephen, if the customer can afford to borrow slightly less then they wanted, find more equity to put into a deal, or if a lender can alter its LTV to make it work.

Another explanation of the trend could be from valuers extending the estimated time to realise the sale of assets during the pandemic. I am told that if a valuer believed it would take three to six months to sell a property to achieve market value, they would have added an additional three months on.

This makes you question whether the gap has shrunk due to this metric or if borrowers have become more realistic.

While VAS doesn’t track the differences between 180- and 90-day values, Stephen imagines that the disparity between both figures and market value would be greater than pre-Covid. “The basis of valuation the lender is prepared to lend off will be an important factor.”

Valuations are frequently cited as the cause of transactions collapsing, with bridging brokers and lenders often complaining of ‘downvaluations’ and how ‘expensive’ and ‘slow’ reporting is. While the concerns are genuine and will ultimately impact borrowers, are they fair? VAS Group aims to quash this by committing to reduce turnaround times and shortening SLAs to streamline the end-to-end customer journey. For example, on long-form commercial developments, the company works to a six to 10-day timeframe from inspection. Stephen is an advocate of improving relationships between brokers, lenders and valuers for greater efficiency and better customer outcomes, and notes that VAS rarely sees brokers or lenders contesting valuations. “If we do, we have a procedure in place to make sure that any challenge is suitably presented to a valuer so they can properly consider it. If there is actual sales evidence available that the valuer was not aware of when they did the valuation, then they should consider this in their review of the contest. Unfortunately,

most of the contests we see are based on other people’s/agents’ opinions of value or ‘on the market’ prices, which are considered low in the hierarchy of evidence and unlikely to change the valuer’s view, as they need to base these on actual sold comparable properties.”

Consequently, Stephen doesn’t think that brokers have done anything different to close the expectation vs reality gap. He emphasises the advantages to brokers and their customers if estimated values are checked in advance of requesting a valuation. “There must be so much time and money spent on deals that were not possible once the valuation came back in at values less than expected,” he shares.

To help further minimise the gap, Stephen feels that brokers should be building their knowledge and understanding of what is happening in the wider property market to help assess deals and expected values from the outset, such as changes to legal requirements around EPC and how this directly affects lenders’ appetites.

“There is a lot of data in the market for residential and prime commercial properties—however there isn’t for secondary/tertiary-type properties, which is where most of the bridging market lies,” he says. This means that deals involving shops and restaurants/ pubs that are not on the high street, or are on the outskirts of towns, in addition to older offices in less desirable locations, could see the biggest valuation discrepancy—and the largest problems when stacking up a deal. “I think it’s more important to look at the property in isolation and comparable sales in the nearby area to determine whether an estimated value is considered reasonable.”

Stephen highlights how there are several resources available to check auction, commercial and residential property sales—such as PropertyData, EG Radius, Ei Group, CoStar, Edozo and Rightmove Plus—along with the Land Registry, which provides sold price information. “Simple checks on these databases could help a broker determine if the estimated value is realistic or not,” he notes.

Stephen tells me that it is generally easier to pre-qualify residential values than commercial but, with a little training and education, vanilla commercial values could be challenged

forthright. “If the property has not been altered since it was purchased and the estimated value is much higher than the purchase price, it’s reasonable to ask ‘why’ upfront.”

Commercial property desktop valuations are also useful, especially on higher-value buildings where a full valuation might be costly. Considering how much they were utilised during the pandemic, I ask whether all deals should go through a desktop valuation before requesting a formal one, in a bid to save time and money.

Stephen states that any property can be considered for a desktop in advance. “Where the price for a full valuation is significant, this can help keep costs down until there is more certainty around the value. If a full valuation is subsequently instructed, then this should be at a reduced price, because some work has already been done.” This would ultimately limit the costs spent early on.

Stephen also highlights the importance of brokers using provincial knowledge to help predict property trends, especially during a volatile market. “These firms know their local markets and, if they are a multidisciplined business, they can leverage advice off sales, lettings and development teams etc.”

Looking at residential property valuations so far this year, the gap between expected and actual prices has reduced to 5%. Stephen attributes this to it being easier for investors to understand what residential values are worth. “There is so much free data available and the approach to value them is usually more simplistic than for commercial properties.

Getting the data to value commercial properties is generally far more expensive; databases and commercial properties require a different skill set with numerous methods of valuation required in order to work out their values. So, these reasons probably explain why there is a difference.”

While the trend is moving in the right direction, we are not on solid ground.

It is clear that data, technology and commercial property expertise will continue to be vital components of the commercial finance market—exploiting them to the full will help ensure you do all you can to manage your own and your clients’ expectations.

13 Nov/Dec 2021

News

Spring Finance set to enter bridging market Ten-year-old specialist lender Spring Finance is starting the next chapter of its story with a move into bridging early next year—headed up by new recruit Claire Newman

Words by

BETH FISHER

Photography by

andreea dulgheru

15 Nov/Dec 2021

News

ounder and former CEO of Masthaven Andrew Bloom purchased the majority shareholding in Spring Finance in October and will join the board of directors as chairman, subject to regulatory approval. He has also made a seven-figure equity investment in the company in a bid to help it become a leading non-bank lender in the UK specialist finance market.

When Andrew stepped back from his role at Masthaven— which he founded with just under £50,000 and grew from a nimble bridging lender into a specialist bank with more than 180 employees—in early 2020, he planned to later return to the sector, but as an investor. He has since been approached by numerous lenders and management teams looking for backing and expertise.

“When I got a call from Spring, after a relatively quick period it became obvious to me that it was a really good match. I felt that Spring had very significant potential.” Its infrastructure, investors, funding lines, FCA approval, solid team and circa 1,000 loans on its balance sheet all played into his decision. “Spring is actually a much larger lender than people probably realise.”

It’s important to remember that the company—which, since its launch in 2011, has earned its reputation as a specialist secondcharge mortgage lender—has had to endure considerable sadness.

Its founder, Stuart Epstein, passed away in December 2016. “Even though I’d only met Stuart once or twice, he had a group of people who really believed in his vision that Spring could be a sizeable and successful non-bank specialist lender,” Andrew shares. “Tremendous credit must be given to the existing management team of Martin [Chesler, co-founder and director] and George [Benninger, CEO], together with many other individuals who have been incredibly loyal over the past five years and kept Spring together. Stuart was not able to fulfil his dreams for Spring, but I feel very honoured and privileged to have that opportunity to take it forward.”

Under Andrew’s leadership, ‘Spring 2.0’ is expected to grow with multiple offerings and distribution routes, starting with widening its second-charge mortgage proposition with a product refresh in early 2022. While the business is currently funded through a combination of senior debt lines and mezzanine finance from a series of investors, since Andrew came on board it has already started meaningful talks with a number of additional senior debt funding lines. During his first two weeks in September, he hired four new people to make some of his plans a reality—one of whom is Claire Newman (née Wasbrough).

16 Bridging & Commercial

News

Claire first started working with Andrew during her placement year at university, at a property investment company, before an opportunity at Masthaven arose. She joined the business as an assistant underwriter and, in the space of 10 years, worked her way up the ranks to head of underwriting for short-term lending, where she had circa 30 people reporting to her and oversaw hundreds of millions of pounds of lending. “I’ve known Andrew for a long time and it’s nice to be working together again,” Claire says. She tells me that everyone at Spring is excited about the direction going forward and she wanted to be in the thick of it. “It was an easy decision.”

Claire’s initial role as head of bridging will be to launch a pilot bridging finance range in Q1 next year, covering both regulated and unregulated lending. While Spring has its existing relationships with a wide array of brokers in the second-charge mortgage space, Claire believes many are likely to require bridging finance, too.

She will also be promoting its new proposition—which will steer away from ‘vanilla’ deals and treating people and their situations as a ‘tick-box’ exercise—to brokers she has and hasn’t worked with before. “Brokers will be able to pick up the phone and speak to me and the sales team who can make decisions and provide a personalised, bespoke offering for their clients.”

Claire adds that communication will be key to the process, along with making it as easy as possible for everyone involved. Spring’s bridging finance will be accessible to borrowers in England and Wales, with plans to expand into Scotland, where it already offers second-charge mortgages. The team is currently shaping the product range—which involves second-charge bridging—and a limited number of brokers will have access to it at the start of Q1 2022 during the pilot phase. After this stage, all brokers will be able to utilise Spring’s bridging products.

The business also intends to offer commercial bridging later in the year.

In the second half of 2022, Spring intends to enter the ground-up development finance market. “That’s why we’re hiring staff and investing in IT now; that’s what my money is there to do,” Andrew divulges. The company now has 14 team members, including a new director of legal services, additional compliance support, and Masthaven alumna Abby Butler. It aims to double its size with additional sales and underwriting roles over the next 18 months, as well as recruit a new managing director.

Andrew—who is a big supporter of multiple funding avenues, having had the experience of losing debt lines during the 2008 crisis—currently has terms with two different senior debt lenders to support Spring’s bridging and second-charge mortgage business.

“Who wants to fly a plane with only one engine?” he posits.

The funding is expected to help Claire’s ambition of sensibly, steadily and successfully growing the bridging division while expanding Spring’s existing product areas. “We want to build something that we’re proud of. We don’t just want to make a quick buck then disappear.”

Andrew highlights that being in a position to invest in a business such as Spring takes the pressure off. “It means you can focus on doing things right, rather than having external investors you need to grow for. Here, it’s basically only my money, and I’m very clear on what we want to do.”

The sentiment aligns with what Bridging & Commercial has been questioning for most of this year: why the industry can be equally short-term in its thinking. Andrew empathises that, unfortunately, there won’t be any long-term if these lenders can’t do the business expected of them. “But we don’t have that challenge,” he says.

18 Bridging & Commercial

The Platform for Development Finance and Bridging Lenders soprabanking.com/aurius-df

Aurius-DF from Apak Group, a Sopra Banking Software company, is the only solution specifically designed to meet the needs of the Development Finance market.

Lending for Development Finance presents unique challenges: • the flexibility demanded by the highly changeable nature of the projects being funded • the need to monitor complex deals to make sure they stay within their agreed parameters • the involvement of brokers and multiple third party professionals • the requirement for close management of the relationship with the developer • the difficulty of producing clear, consolidated business information in order to be able to manage risk and predict cash flow Meeting these challenges is vital to a successful Development Finance lender in order to manage risk and increase efficiency. This helps control the cost of managing these complex loans which ultimately increases the margins available in this competitive and dynamic market.

Based on Apak’s Aurius platform, Aurius-DF meets the business needs of Development Finance lenders by providing market specific functionality, including: • Loan Schedule Modelling (both pre-approval and in-life) • Facility Limit, Advance Limit and Loan Tranche Management • Tracking of involved Brokers, Third Parties and Professionals • Guarantees and Security Monitoring (including tracking constantly moving LTVs) • Notes and Diary Management On top of the Development Finance specific functionality, Aurius-DF clients benefit from access to all the underlying Aurius platform capabilities: • Open API access through the Aurius connectivity suite • Configurable, embedded workflow and document management • Tried and tested accounting, payments and transaction handling Delivered using a cloud-based Software as a Service model, unlike traditional software delivery models, lenders have a low cost of entry and pay based on the amount of business handled by the solution.

Want further info?

Continue the conversation and contact us at apak.info.team@soprabanking.com

Salboy steps up its game with national expansion plans WORDS BY ANDREEA DULGHERU

Following the rebrand of its finance division, Salboy is set to take a big leap towards its goal of becoming a nationwide development powerhouse. As it prepares to launch its new joint venture partnerships offering, I speak to managing director Simon Ismail to find out how the hybrid company aims to bolster its development footprint across the UK and support developers in scaling up their operations

News

W

e’ve seen many finance providers and developers pause to take stock during the pandemic, so you’d expect property developer and funder Salboy to have done the same. Yet here it is, with a new look unveiled following the rebrand of its finance arm (now Salboy Build Partner) and plans for expansion. But perhaps the most intriguing advancement we will see is its new partnership option for existing clients—one that is set to put the business on the map as a national development finance lender, as well as help it reach its £650m lending target for 2022, a huge increase from the £30m it lent this year.

The joint venture product, launching in January 2022, will offer developers that have a proven track record with Salboy the chance to scale up their operations and embark on longerterm projects with Salboy Build Partner’s financial backing. According to Simon, this was born out of the company’s desire to continue working with talented developers they’ve collaborated with before. “When you find someone that’s really great to work with, you don’t necessarily want to say, ‘Thank you very much’ and move on. You want to keep working with them, so this is a formalisation of that,” he explains.

This is not your traditional JV offering, however. It will be available only to property developers across the country—but outside of London, Manchester and Cornwall, which are Salboy’s focus areas for their own developments—that have been hand-picked

by Simon and the Build Partner team and have shown proficiency and potential through previous work with the company and other schemes, but who may not have the necessary funds to grow.

It is also completely bespoke, based on how much funding the developer might require.

Salboy will initially provide a total facility of up to £50m, agreed over a five-year term, with the possibility of securing additional funds, should the client need to. The money can be used by developers to construct one or multiple schemes within a 40-mile radius or a one-hour drive from their offices, to ensure each partner has a designated area of work and that no two builds are in the same place.

While Salboy primarily looks to target housing schemes—including conversions, as well as modular and new-builds—as this is what it sees as currently in demand, it is open to other types of projects, as long as it feels confident the developer can deliver on their promise. “We’d expect the developers to continue with what they’re good at. If they’ve got a successful track record in building houses, we wouldn’t want them to try out something wildly different,” Simon adds. “It would vary for each developer,

but from the point that the joint venture is agreed and signed up fully, they’d go out and do what they do well for five years and try to deliver on as many things [as possible] under that facility.”

And it’s not just money that developers will benefit from—they’ll also receive advice and support every step of the way, especially when complications arise. “Success in development requires speed, so any help to remain on the programme’s critical path is priceless,” says Simon. He adds that on top of the formal yearly or quarterly check-ups included in the agreement, the Build Partner team will visit sites throughout the construction period for the benefit of both parties.

“It’s interesting that we’re doing this now, when everything’s a bit of a challenge,” Simon notes. “Property development is complex and things don’t go to plan, and a partnership is about working together to overcome most issues. So, as long as everyone is working in good faith . . . and they’re delivering what they’ve promised, we’ll continue to work with them.”

While the significant sum of money and bespoke approach may seem like the offering’s USPs, Simon explains that it is Salboy’s experience as both a developer and a lender that makes the partnerships invaluable and unique, as it affords them skills and insights that regular lenders lack. “There are instances when a lender needs to understand complexities on planning, cost or construction, and no matter how many valuations they instruct or how many QS appraisals they read, they will never really grasp the amount of detail and experience required in piecing together a site,” he says. “They may not appreciate how much local relationships and reputation affect speed of construction, nor the art of completing a scheme within budget and on programme.” He further emphasises that a developer must be assured that their lender is fully behind them when problems hit—something he thinks is inevitable. “As a developer and a lender, we see and assess deals differently. We can spot potential problems and opportunities that other lenders or developers may miss.”

With the JV product launching in the new year, the rebranded lender is aiming to bring 10 long-term partners on board initially to deliver schemes in different regions across the UK. And it’s not just geographical growth that the hybrid company’s focused on; it’s currently considering expanding into a new sector in 2022 as part of its ultimate goal of becoming a national development powerhouse.

As reach and experience becomes increasingly important to developers when it comes to their finance team, this news can’t come at a better time.

21 Nov/Dec 2021

Refurb funding you can rely on...

Multiple Drawdowns Loans up to £10m Net Works Funding up to 100% 75% LTV at 0.69% PM 65% LTV at 0.64% PM

AWA R D S 2 0 1 8 SPECIALIST PRODUCT OF THE YEAR

WINNER

AWA R D S

Contact us: 0845 318 0001 enquiries@aspenbridging.co.uk

2 0 1 9 SPECIALIST PRODUCT OF THE YEAR

H I G H LY COMMENDED

No Time, No Valuation, No Problem...

Up to 70% LTV - No Val Rates of 0.39% pm 10 Day Completions Speedy Purchases Integrated Legals

AWA R D S 2 0 1 8 SPECIALIST PRODUCT OF THE YEAR

WINNER

AWA R D S

Contact us: 0845 318 0001 enquiries@aspenbridging.co.uk

2 0 1 9 SPECIALIST PRODUCT OF THE YEAR

H I G H LY COMMENDED

“REGULATED BRIDGING CAN EMPOWER APPLICANTS TO TAKE CHARGE OF THEIR OWN RESIDENTIAL DESTINY” Words by

andreea dulgheru

Exclusive

Once a niche area, regulated bridging finance has steered into the spotlight, particularly throughout the stamp duty holiday, quenching the demand left unsated as mainstream lenders pulled back during the pandemic.Yet this is just the tip of the iceberg in the bridging market’s transformation—and who better to learn more about this from than Richard Lawton, head of bridging at Precise Mortgages. On a Monday afternoon, I sit down with Richard to discuss the evolution of regulated bridging, the factors that have influenced its rise in popularity, and what the future might have in store for the whole sector

25 Nov/Dec 2021

Exclusive

owadays, it is almost impossible to discuss how the bridging finance industry has transformed without mentioning Covid-19. Even as I speak to Richard, it’s hard to veer ourselves away from how the virus and lockdowns have impacted our professional (and personal) lives. But the bridging market was going through an evolution long before the pandemic struck. From its first appearance in the 1960s as a specialised form of mortgage finance—albeit used only by house buyers who had exchanged contracts for their former home and were waiting to receive the proceeds—to the financial crisis of 2008—which saw mainstream lenders retreat, creating room for alternative ones to step into the breach—the bridging finance market has continued to steadily grow to what likely far surpasses the £5bn mark reported by the ASTL (which covers only part of the market).

That’s not to say the pandemic hasn’t had a massive impact on the bridging sector, something Bridging & Commercial has been reporting since it all began. However, while some are quick to quote its negative ramifications, Richard sees it as an opportunity that the market took to grow even further, especially when it comes to education on regulated bridging. According to Richard, brokers’ understanding of the regulated market has advanced considerably, driven not only by their increased conversations with lenders, but also their desire to learn more about how it works and how it can be used by clients in order to be able to work in this sector, which he claims more intermediaries are entering.

“One of the good things in our industry that has come out of the pandemic is how we’re talking now over Zoom, Microsoft Teams and others,” he says, highlighting that these platforms have made it easier for brokers and lenders to maximise their time and liaise with each other, which might have taken hours out of their busy schedules previously. “I think the more avenues of communication that open up between lenders and brokers, the better for the bridging market as a whole.” He believes that through these conversations and education, brokers have got over their initial misconceptions that bridging is expensive and complicated, and have learned about the potential it has to help their clients. “The more confident brokers are with regulated bridging, the more they will sell on to their clients, and the sector will further increase.”

According to Richard, regulated bridging finance in particular has experienced a significant rise in popularity, which he explains has been influenced by two main factors. First, the mainstream lenders receding from the market amid the uncertainty caused by coronavirus, which left a huge financial gap. This, combined with the introduction of the stamp duty holiday—which led to a surge in demand for mortgages—created a perfect storm, leaving the stage wide open for regulated bridging 26 Bridging & Commercial

finance to enter the spotlight. “Precise Mortgages saw an increase in people wanting to move house and take up the nice gift from the government of not having to pay the stamp duty,” explains Richard. “We’ve seen the demand for properties to buy increase, and because of the supply and demand, the applicants are wanting speed and security for the purchase—this is where bridging finance came to the fore. We’ve seen a shift in the property dynamic as well, with applicants wanting to move away from large conurbations to commuter towns and the countryside to gain outdoor space.”

But the big question on everyone’s mind is: will we see the demand for regulated bridging finance fall now that the stamp duty break has come to an end? According to Richard, not at all. “People will always want to buy a new residence and move home, whether it’s at auction or on the open market, or even refurbishing a property, and this is when they will need regulated bridging finance to assist them.”

Despite the major shifts in the market, Richard tells me that, overall, the essence of regulated bridging has remained the same. The most popular uses for it are still the traditional chain break and downsizing for borrowers who are asset rich. “Regulated bridging can empower the applicant to take charge of their own residential destiny,” he says. Borrower profiles are also unchanged, with younger folks often using it to break chains and climb the property ladder, and the older generation more inclined to resort to it to move to a smaller house or bungalow.

What has altered, however, is the competition. More lenders and brokers are entering this sector, compelled by the rise in demand for alternative finance, which they see as an opportunity to make money. Surprisingly, Richard doesn’t think this is an issue. On the contrary, he argues that more competition is a good thing, not only for borrowers, who will have a wider range of options to choose from to fit their financial needs, but also for the bridging market in general, as he believes this will lead to an improvement in standards.

As our conversation slowly moves towards regulation— after all, it is the defining factor of this particular type of finance—I’m curious to hear his views on how the boost in interest and activity will impact this sector.

“As a regulated lender which offers both regulated and non-regulated bridging products, we don’t make any distinction between the two—we apply the same ethics and principles to both,” he says. “It’s something I’d like to see implemented across the industry, with other lenders adopting a similar approach.”

So, how can the industry tackle this massive challenge? Communication will be key, Richard states. “I think a collaborative effort, all lenders working together to ultimately ensure the borrowers are protected when brokers are selling them the required bridging finance, is essential.”

And yet, that duty does not simply fall on the lender, but on the broker as well.This is why his advice for intermediaries is to not only educate themselves on all aspects of bridging finance, but also to obtain as much information as possible when dealing with a case, to ensure a smooth process and avoid any pitfalls. “At the end of the day, we have to have our consumers’ best interests at heart.”

I THINK THE MORE AVENUES OF COMMUNICATION THAT OPEN UP BETWEEN LENDERS AND BROKERS, THE BETTER FOR THE BRIDGING MARKET AS A WHOLE

Specialist finance as it should be We offer unregulated bridging loans, including light and heavy refurbishment together with ground up property development finance.

 Excellent communication and skilful deal execution  Deal direct with decision makers who are property lending experts enabling fast decisions  Specialists in shaping solutions for clients who break the mould and have complex needs  Unique partnering approach with top UK brokerages  Loans up to £5m  Rates from 0.7% per month  6-24 month term

GET IN TOUCH

07879 843161 info@chordiscapital.co.uk www.chordiscapital.co.uk

ROB LANKEY MANAGING DIRECTOR

A PART OF THE

Chordis Capital registered office is 39 High Street, Orpington, Kent, BR6 0JE. Registered in England and Wales Company no: 08076429

GROUP OF COMPANIES | WWW.ARMCOPORTFOLIO.CO.UK

FLIES Y L L A E R T A H T BRIDGING We like to make SUPERHEROES out of our BROKERS. So, if you’re looking to get the job done at speed, you can fast-track your bridging requirements with HTB. That’s because, for loans up to £1m, we’ll give you access to a dedicated underwriter, a decision within 4 hours and enable you to instruct the valuation and solicitor whilst we get on with the underwriting.

In our world of ORDINARY MORTALS, we give you the POWER TO GET THE JOB DONE.

  

Submit business through our new PUMA for Intermediaries portal Dedicated underwriter and a decision within 4 hours Dedicated completions officer

Specialist BTL Specialist BTL

    

Rates from 0.55% Pcm NO ERC’s (min 3 months interest) Up to 75% LTV for serviced loans Terms available up to 24 months Dual rep available

Semi-commercial Semi-commercial

BridgingBridging

T: 020 7862 6244 E: specialistmortgages@htb.co.uk

FOR INTERMEDIARY USE ONLY | © 2021 Hampshire Trust Bank Plc is authorised by the Prudential Regulation Authority and regulated by the Prudential Regulation Authority and the Financial Conduct Authority. Our FRN number is 204601. We are a company registered in England and Wales, registration number 01311315. Registered office: 55 Bishopsgate, London EC2N 3AS. Hampshire Trust Bank, HTB and

are registered trademarks of Hampshire Trust Bank Plc.

On course for a better industry W

hile the concept of a short-term finance qualification for the unregulated aspect of the market has been doing the rounds for years, nothing has transpired—despite one having won industry support in 2014. “There is no doubt the failure of progressing a bridging finance qualification is down to the lack of support from all parties,” claims Jonathan Sealey, CEO at Hope Capital.

When looking at whether specialist lending is covered to a satisfactory level by CeMAP, a broker who has taken it claims that out of a 250to 300-page book, there were just two pages dedicated to bridging finance—including terminology which is outdated or simply incorrect (such as rates cited as ‘usually between 1 and 1.5% per month’).

Following the increasing number of conversations Bridging & Commercial has had with the industry about the lack of knowledge and understanding from some advisers in this market, we decided to raise the topic at the Finance Professional Show last month. When the panel and audience were asked if there should be a qualification to help improve service and standards across the board, they were unanimously in favour of one.

During the same week, FIBA and the ASTL announced they had teamed up to launch a proposal for an ongoing programme of education for the commercial property finance industry. They are working with The London Institute of Banking & Finance (LIBF) to create a series of optional e-learning modules that will cover the basics of specialist property finance and the structure of different types of businesses that might require it—with specific information on bridging and development finance, commercial mortgages and specialist BTL. “Over the past 18 months, we have seen more brokers and advisers wanting to get involved in specialist property finance; we

Cover Story

With two-thirds of the industry in favour of a bridging qualification, I look at why this hasn’t happened yet, and what needs to shift to make it something other than a pipe dream

Words by

BETH FISHER

31 Nov/Dec 2021

Cover Story

“When you’re dealing with lending figures of sometimes around £1m– 2m, the broker should know what they’re talking about, and the client should be safe in the knowledge that the broker is qualified”

need to have something in place to ensure that the industry continues to grow in the right way,” states Adam Tyler, executive chairman at FIBA. While the programme is aimed at new lender and broker entrants to the industry, Adam feels that the success of it will be in its adoption by all involved. However, there are currently no plans to insist their members work only with brokers who have gone through it. “We would prefer to create an environment and culture of greater understanding and would encourage any broker engaging with the bridging market to upskill themselves appropriately,” says Vic Jannels, CEO at the ASTL. “We won’t be insisting that our [lender] members only work with brokers who have been through the programme, or that brokers only work with lenders whose employees have completed the course, but we want to encourage engagement across the industry, not just as a one-off participation, but as part of an ongoing [commitment] to continuing learning.”

Adam adds that, once the course has been written and implemented, he hopes to get buy in from everyone. “That is what is going to give you the final outcome that most in the industry would like to see.”

Most of the FP Show audience settled that a bridging finance qualification should be mandatory, with Rob Jupp, CEO at the Brightstar Group, asserting that anything less would be “a complete and utter waste of time” to implement.

Since this discussion, we polled over 80 brokers and lenders within the bridging market to expand on where the industry really stands on the matter. According to the results, 66% believe we should have a qualification—making it worthwhile for me to spend the next 4,500-plus words talking about it—but the argument around making it compulsory (and, in my opinion, successful) is much murkier.

WHY DOES THE BRIDGING INDUSTRY WANT A QUALIFICATION? Regulated bridging loans—which are overseen by the FCA—have similar underwriting guidelines to residential mortgages, protected under MCOB rules. Unregulated bridging finance, on the other hand, is much more flexible, and has no strict policies.

To put this in context, a mortgage broker needs to be qualified, yet any Tom, Dick or Harriett advising on a bridging loan has no requirement to hold a qualification, due to the sector 32

Bridging & Commercial

being largely unregulated. Consequently, an unregulated bridging broker could make circa 2% in proc fees just by (in the worst-case scenario) providing a name and phone number to a lender.

“When you’re dealing with lending figures of sometimes around £1m-2m, the broker should know what they’re talking about, and the client should be safe in the knowledge that the broker is qualified,” argues Dave Pinnington, CEO at Finance 4 Business. This view is shared

by Jordan Fearnley Brown, co-founder and principal of Albatross Capital, who feels a qualification would give borrowers comfort that they are being advised by someone that “hasn’t just paid for google advertising” to generate deal flow.

Islay Robinson, CEO at Enness Global Mortgages, points out that clients are often time-pushed, vulnerable or desperate for a solution, so something that acts as a barrier to entry will help to ensure the correct outcomes and enhance the industry’s reputation. “Commissions and fees are also at an all-time high which can (and does) encourage the wrong behaviour from the person giving the ‘advice’, perhaps acting more in their own interests.” With bridging finance more specialist than regulated mortgage advice, he stresses that the circumstances are often more pressured, and there is a huge amount more that could go wrong, leading to “severely damaging” consequences for the borrower.

“As I watch the new generation of specialist short-term brokers enter the market, it is clear to me that the range, depth and sophistication of their knowledge is both disparate and often not as good as it should be,” details Colin Sanders, CEO at Tuscan Capital. Many of its developer clients who are seeking bridging finance rely heavily on the guidance and expertise of their brokers, but Colin states that too frequently the broker is “out of their depth or comfort zone” when it comes to the intricacies and nuances associated with this type of loan. “Some brokers we’ve encountered struggle with the simplest and most straightforward of short-term funding propositions. This can leave the client in a difficult and frustrating position . . . and cost them money.”

When structuring a bridging loan, it is imperative that the broker not only fully understands the borrower’s reasons for a short-term fix, but also has a viable exit in mind. “Unfortunately, this is often lacking, and the lines

Cover Story

can get blurred between the ‘need for speed’ and structuring the right solution,” says Asim Shirwani, chief commercial officer at Lendhub. “I feel the STL industry is crying out for consistency around the advice given to borrowers, and introducing some regulation, or regulatory training, will help professionalise the sector further.”

Over the past decade, bridging has professionalised and is now seen as offering a core product in the finance market. Accordingly, the appetite for it has grown considerably, prompting an influx of lender and broker newcomers to the space. Paul Elliott, managing director at Propp, expresses that a qualification would help improve the image of the sector and lead to better outcomes for clients, “which is more important than ever as we’re seeing more inexperienced investors turn to bridging”.

While increased competition is often considered a positive, Daniel Austin, CEO and co-founder of ASK Partners, feels that an influx of brokers entering the market, but who don’t specialise in bridging finance, sometimes results in a “knowledge gap”.

Most would maintain that the pivotal USP of brokers is to add value for their clients on a transaction; therefore, anything that augments their skills and knowledge to do so is seen as a plus. Yet, with training programmes in bridging sparse and fragmented in what they cover, one that is adopted industry-wide is more likely to solidify the bar to entry and upskill the existing players in the most efficient way.

For the sector to continue striding forward in building its reputation, Chris Oatway director and founder of LDNfinance, deems certifications a must.

“It is commonly viewed that bridging can be more technical than standard mortgages, and it amazes me that there are still no qualifications for it.” He regards it as an essential move towards ensuring clients receive the best advice and that correct processes are followed.

For brokers, a professional qualification could implement structure and confidence around an already complex product, and help to strengthen the relationship between them, the borrower and lender. “It would provide

the borrower with greater comfort in a crowded and largely unregulated industry, while giving the broker greater credibility and also allowing them to stand out from the crowd,” illuminates Lee Merrifield, underwriting and credit manager at MSP Capital.

Improving the reputation, level of awareness, education and self-regulation of the industry with a recognised and valued qualification is a no-brainer to increase standards (especially for new entrants). It could also consolidate the broker market, making room for professional companies to grow.

Provided that the qualification is robust, relevant and thorough, Sam O’Neill, head of bridging at Clifton Private Finance, thinks the advantages are endless. “I honestly can’t see any negative points around this. If you’re asking a client to put their trust in

adviser should understand all parts of the debt market—regulated and unregulated. “If a broker doesn’t know the whole mortgage market, how can they be sure that a bridging loan is the correct solution, or that there isn’t a better, cheaper way forward which carries less risk or severe consequences if it goes wrong?” posits Islay.

WHY IT’S NEVER HAPPENED With all the positives a qualification could bring, what has stopped the market from implementing one to date?

It is argued that such a requirement could create a two-tier system, with some good brokers being frozen out by lenders that make a bridging qualification a prerequisite. “The downside to demanding a qualification is potentially losing strong, experienced and professional intermediaries who have grown up providing their customers business solutions for decades. They not only mentor and educate, but inspire the next generation,” states Nick Jones, sales director of bridging at West One. I am told that formal teaching may stifle creativity or dissuade people from moving into bridging if they want to avoid further courses and tests.

“Ultimately, someone might be the best driver in the world, but put them in a test situation and they might not show how well they perform day to day,” highlights Jamie Jolly, managing director at SoMo. While a qualification may be seen as a barrier to new talent, I would argue it is simply a bar—as in almost every occupation in a multitude of industries.

While education of the product has increased substantially over the past few years, there is still a relatively small, but growing, percentage of brokers who consider specialist lending as an option.

“Will a further qualification, above and beyond CeMAP, attract more interest from brokers or not? That is the milliondollar question,” ponders Jonathan.

In my opinion, a sector that increases your qualifications and recognised skills, and is seen as professional, should encourage more

“A qualified broker isn’t necessarily going to be a good broker” you to look after finance for their property, then you should be willing to put in the time and effort to get the qualification to do so. You wouldn’t trust a cab driver without a licence!”

In addition, it offers an opportunity for professionals to form cross-industry relationships and, by upping the calibre of applications being submitted, could even improve conversion rates for lenders. “Higher-skilled brokers would be able to complete more opportunities that are ‘feasible’ from the outset and also help in packaging valuations,” outlines Stephen Todd, chief commercial officer at VAS Group. The standardisation of advice and case submission could also help expedite the bridging process, resulting in quicker turnaround times.

Some feel that a qualification could differentiate the most dedicated brokers in a competitive space, and that an 33

Nov/Dec 2021

Cover Story

people to enter it. However, some believe it will create more red tape and take time and resources to implement (and that’s without considering the logistics around who will be responsible for administering it), and result in advisers juggling multiple CPS and testing requirements if they’re already operating in the regulated space. This is on top of an additional cost burden.

“The bridging market is required to move quickly and easily; in effect, regulating and potentially reducing the number of available brokers could lead to increased fees,” claims Paul. He contends that having to go through a lender’s panel of master brokers may also add time and cost.

If, having passed the qualification, the individual has to then undertake a set number of hours of CPD each year, this would also be factored as an annual cost—although CPD points can also be earned via content that is free. Do we agree that brokers make enough to pay what would likely amount to a nominal charge? “Qualifications teach you the principles of a job, but only experience builds expertise,” comments Andrew Lazare, founder and managing director of Mint Property Finance. He emphasises that it needs to be about collaboration and relationships. “That’s not something any educational body can teach.”

Despite this, Andrew is not against the introduction of a qualification, particularly at entry level. “I support any initiative that drives better industry standards. As with any profession however, qualifications only have value when combined with on-thejob expertise. A qualified broker isn’t necessarily going to be a good broker.”

Vic adds that a big benefit of a qualification is that it is a quantifiable demonstration of someone’s knowledge.

“However, it is a demonstration of [this] at a point in time and, as we all know, things move very quickly in this market.”

Bethan Jones, business development manager at TAB, points out that some brokers found the CeMAP intense— and wouldn’t want it repeated in the bridging world. “The argument

here, however, is, if you can’t pass the exam, should you be giving advice?”

WHAT IT WOULD LOOK LIKE A qualification should offer a minimum standard for brokers to adhere to, based on three key pillars: knowledge, education and experience. Most agree that it would need to be set by an industry body, as this would carry more weight than an in-house scheme.

In terms of how it could be shaped, many have suggested that the existing CeMAP could be extended to include a specific bridging/short-term finance segment. This could cover both regulated and unregulated options as separate modules, in addition to the basics of residential and commercial lending principles, the wider implications of entering into borrowing obligations,

dual role (such as a qualified QS and a broker), or have a senior qualification in property, ie a Master’s in Real Estate.

“There should be some basic modules to pass to be able to work in the industry, which I would have as a minimum standard for underwriters and advisers, and then higher-level exams for those that want to excel and stand out,” adds Chris.

Danny Robinson, director of commercial at Grey Matters Specialist Lending, shares this opinion, stating that broker and lender personnel should all ideally be CeMAP qualified to some degree, “whether it be fully qualified to be able to provide advice, or part-qualified to provide processing and administrative duties”.

Building a qualification that covers multiple situations to demonstrate competence would be “challenging”, according to Nick, with much more to consider than just rate and total cost. “There are many differing scenarios which could dictate best solution, including different ownership lengths for clients, ie short- or long-term portfolio ownership, how quickly the funds are required, how long or short the exit plan is, and tax implications, to highlight a few.”

Given the dynamic nature of bridging, the hurdle that any education provider would face is ensuring the qualification remains relevant. “Most lenders have now diversified beyond bridging and so expanding the qualification to encompass all core elements of the specialist finance sector would be more sustainable in the long term,” observes D’mitri Zaprzala, director at Avamore Capital. “Including more in the qualification would also ‘upskill’ and provide additional tools to those that have historically focused on bridging.”

It’s worth considering whether grouping it under a wider specialist finance module would hold more weight and reasons to take it. “There could be some kind of qualification that covers bridging, BTL, and perhaps also commercial, so that brokers are able to demonstrate to clients a higher standard, even if the market is not regulated,” says Liz Syms, CEO at

“Some lenders and brokers would argue that their length of time in the market and experience is ‘as good as’ an industry qualification. That’s all well and good but, if true, passing a short exam should be routine” ethics, financial advice, money laundering, and offering personal guarantees, for example. “What you need is a course that highlights all the positive aspects of bridging, as well as the realistic issues clients can face by [entering into] inadequate terms and being hit with extortionate extension or default fees and interest,” remarks Mark Posniak, managing director at Octane Capital.

While something along the lines of a CeMAP wouldn’t necessarily give the experience and range of skills needed in the complicated world of short-term finance, it would create a standard, especially if it covered the basics, such as how to structure a deal, plan for exit strategies, and agree on the KPIs lenders are chosen by. Steve Smith, national sales manager at Roma Finance, notes it should have exemptions, though—for instance for those who hold a full CeMAP qualification, have a 34

Bridging & Commercial

Cover Story

Connect for Intermediaries. She also considers whether it should cover all unregulated markets. “Should a nonregulated bridge be sold by a bridgingqualified expert who doesn’t understand the BTL market for exit purposes?”

According to John Hardman, managing director at Fluent Bridging, the danger is that we “over-engineer” the qualification and end up with one exam covering both bridging and ground-up development, for example.

This may give a broker the impression it would cover the fundamentals of short-term funding in enough depth that it could give them sufficient knowledge to guide a client through what can be a complicated process.

Others believe it shouldn’t be as extreme as a CeMAP course but should explain the basics of the product—and be updated as the industry evolves, with a certificate subject to a refresh every few years.

TREATING ENQUIRIES FROM UNQUALIFIED BROKERS Currently, some networks restrict the type of business ARs can transact, with commercial and more specialist deals (including bridging) having to be referred to an appointed partner. On the other side, while some lenders already refuse to take enquiries from introducers that don’t hold FCA or NACFB membership, this is definitely not widespread, or enforced. Therefore, the main arguments for making a qualification mandatory are to ensure that everyone buys into it and that a client will be looked after, regardless of which broker they choose.

So, if a qualification was put into practice, how would the industry treat enquiries from brokers who don’t have it? This is described as “the £4bn question” by Mark, who says that lenders desperate for business are less likely to back it. “Unfortunately, with the amount of lenders and liquidity in the market, lenders (especially new entrants) would literally take a loan from anyone.”

Colin also questions whether it is feasible that finance providers would turn their backs on experienced broker partners just because they haven’t joined a programme that perhaps wasn’t designed with them in mind. He refers to “grandfathering rights” in the unregulated bridging market, but is hopeful that a qualification regime would make newer brokerages more professional and attractive to do business with.

Tom Reeve, director and head of the UK team at Fiduciam, believes the industry wouldn’t or shouldn’t reject enquiries from unqualified brokers.

“There is a wealth of experienced brokers who provide excellent services to their clients and lenders alike,” he shares. “Furthermore, some of the best structured deals we see are introduced by parties in adjacent industries, from accountants to quantity surveyors.”

Instead, he sees the purpose of any future qualification to encourage individuals to join the industry.

While Marcus Dussard, sales director of specialist mortgages at Hampshire Trust Bank, believes a qualification would be a positive move, it would “absolutely not” change how HTB, as a lender, deals with its brokers. “What we look for is a broker who understands their clients’ needs, can package a case, and articulate a clear exit strategy . . . that being said, a broker can have all the letters of the alphabet after their name, but if they give us a number of dud cases that put us at risk and waste our time, we will simply stop working with them.”

SoMo also notes that some of its best deals come from unqualified brokers. “I’d hate to think that they would be pushed out of the market if qualifications became mandatory,” Jamie stresses. “Ultimately, there’s no substitute for experience and the magic in the ability to create good client relationships. That’s something you can’t learn from a textbook.”

Adele Turton, co-founder of Blanc Property Finance, adds that anyone who has CeMAP knows only onethird of it relates to the actual job.

“Experience and integrity of the broker you’re dealing with is what counts.

What advice have they given? Is the exit clear? Has it been researched?”

“Some lenders and brokers would argue that their length of time in the market and experience is ‘as good as’ an industry qualification. That’s all well and good but, if true, passing a short exam should be routine,” says John.

Sam Morris, lending associate at TAB, doesn’t believe enquiries from ‘unqualified’ parties should be treated as any less valuable. “Ultimately, lenders are to make their own judgement on what is deemed suitable and in line with their individual lending appetite. This is why we carry out our own DD and don’t rely on info from brokers solely.”

Jordan McBriar, director at Adapt Finance, also feels that, while a

“The main arguments for making a qualification mandatory are to ensure that everyone buys into it and that a client will be looked after, regardless of which broker they choose”

35 Nov/Dec 2021

Cover Story

“They should not remunerate those who cannot show the correct skill or scruples, or perhaps the commission of bridging deals should be capped, standardised or, dare I say it, disclosed—like they are with every other financial product” qualification is a great idea for educational purposes, it could never be something that dictates business flow. “It’s the age-old argument, similar to proc fees for ‘well-presented work’ and ‘hands-on brokers’. Yes, in theory they should be compensated in line with their involvement, but again, will that happen? No.” Daniel agrees that in circumstances where relationships have been built alongside a level of trust, being qualified or not would probably have little impact.

“In terms of working with new parties, it would undoubtedly be a factor in the decision-making process,” he shares.

Jonathan is of the opinion that a professional qualification shouldn’t be mandatory or make a difference in terms of how enquiries are treated from them. “We have worked with many highly skilled and experienced brokers, and their education or qualification has simply not been a consideration when dealing with them and their particular cases.” Based on this, he says he would be “very surprised” if lenders stopped working with brokers who chose not to participate in a qualification.

Paul advises that lenders should ask for certain information and

assess how the request is packaged to ascertain the skills of the broker. “If lenders accept unprepared referrals, the market will not move forward.”

While many see a qualification as more of a standard for brokers to display from a consumer perspective, lenders may recognise later on if it leads to better quality applications. For example, a qualification could offer a good distinction between brokers. “Someone who can put the time and effort into gaining an additional qualification should be viewed differently from those who aren’t,” states Sam O’Neill.

Damon Walford, CCO at CrowdProperty, goes as far as saying that as more qualified bridging brokers emerge, the industry should develop propositions that give them the opportunity to use their experience more widely in the underwriting process.

“This, combined with the creation of omni-channel platform technology, has already had a significant positive impact on other areas of commercial finance.”

While Lee deems it “a little unrealistic” to expect that the entire broker industry will be qualified or that lenders will only accept introductions from qualified advisers, he thinks it makes 36

Bridging & Commercial

a good case to introduce differing fee structures for those that are. “It would allow brokers to stand out and, in turn, allow lenders to more carefully sift their broker channel and focus on those meeting the highest standards.”

Determining when brokers would be expected to secure the qualification by will be tricky, given the number of brokers entering and exiting the sector, Lee adds. “So there might need to be some exemptions, but this potentially undermines the process. Of course, all of this will be voluntary and, unless a large number of brokers sign up, it will blunt the potential benefits.”

Amadeus Wilson, director at SPF Short Term Finance, asserts that if the industry is going to commit to a qualification, it should really commit. “It should be the same as the mainstream residential mortgage market—if you aren’t qualified, you can’t provide advice.”

One way to enforce this is to compel bridging lenders who belong to reputable associations, such as the NACFB and FIBA, to refuse business from advisers who do not hold the qualification. “Those advisers would have to source lenders who are not registered members—which means they would have limited options

Cover Story

and most likely not be able to provide the best advice,” claims Chris. “Looking at what happened with the IFAs when they changed the qualification requirements, we might find the same reaction in the bridging industry. Some advisers embrace the decision and see the value in taking a step forward, resulting in a benefit of increased business levels. Those who are nearing the end of their careers may not see the value and decide to stop trading.”

Chris suggests an initial grace period of two years to get advisers qualified and believes the onus should be on lenders to insist their broker panel have the qualification. “As the majority of lenders are unregulated, they could make the decision to accept business from anyone due to pressures from their investor lines to get money out the door,” he cautions. “But an insistence from associations like the NACFB and FIBA would certainly have influence on those who are members.”

Islay agrees that finance providers could have processes in place to accept business only from those who are suitably able and qualified to correctly recommend their products. “They should not remunerate those who cannot show the correct skill or scruples, or perhaps the commission of bridging deals should be capped, standardised or, dare I say it, disclosed—like they are with every other financial product.”

Provided a reasonable length of time is given to reflect the amount of preparation required, D’mitri believes that, after a certain period, it is likely the industry will shift as a whole and expects all relevant individuals to have complied. “With any major change, it is natural to expect recalibration in the market with some moving on.

Conversely, it could prove a more attractive prospect for some, particularly those who are younger and perhaps more motivated to ‘earn and learn’.”

This would result in those that aren’t qualified needing to refer leads to a qualified broker/packager, much like how regulated enquiries are currently treated. However, this could mean increased delays, due to brokers having to go down an additional route to get quotes. It could also cost more for the client and lender, in which case Jordan Fearnley Brown advises that brokers’ fees should be capped.

Alternatively, bridging lenders could adopt a similar approach to BTL lenders, where they deal only with

regulated brokers. “The vast majority of BTL lenders insist on FCA-authorised advisers, even though the product itself is not regulated,” Liz explains. “If the same applied to all bridging, not just regulated bridging, this would in effect self-regulate the market to a degree.” The question then is, what’s less off-putting and costly for a broker? Becoming authorised, or doing a qualification? And what will better enable them to diversify their offering and increase business?

SHOULD IT BE LIMITED TO BROKERS? Some believe that the person who is having the interaction and advising the client should be the one who is qualified—and therefore this should only be a requirement for brokers.

In this sense, it is worth defining what a ‘broker’ is in the unregulated bridging market; currently, anyone without certifications or FCA regulation (such as an accountant) can submit an unregulated bridging application to a lender.

However, knowledge is power, and many argue that a bridging qualification should be open to more (including packagers, distributors and solicitors), which in turn should deepen the understanding of this product across the property sector and boost competition.

“There is no benefit in limiting this qualification to just brokers,” says Sundeep Patel, director of sales at Together. “Administrators and packagers and those that offer a direct channel should also be invited to undertake it.”

Paul believes that an exam should address all sides of the lending process, not just broking. “If the qualification includes elements of the underwriting, conveyancing and decision-making process, this would benefit everyone. This could be optional for those not giving advice, but if there was greater education around surveys, documentation and exit strategies, for example, this would improve overall industry knowledge.”

Given the potential for this type of product to carry higher risk, it would be advantageous for bridging lenders— which are mainly unregulated—to align their case handlers, underwriters and sales teams with the industry as a whole. Paul Richardson, director of property at MAF, thinks most brokers are experienced from being bankers or lenders, and feels the onus should be on lenders’ BDMs to be qualified, which would lead to better quality referrals

based on the information they are requesting. “The concern for me is that bridging is presently a key element of lending as the majority of [high-street] lenders have changed their criteria and made lending more difficult,” he says.

“In an unregulated market, making everyone hold qualifications on specific types of lending may lead to brokers moving out of the industry. Lenders are the ones that should be held responsible.”

A qualification taken up by both brokers and lenders would ensure the entire industry is compliant, more people will recognise and adopt it, and it could attract increased business from similarly qualified partners, resulting in better service all round. “It might also help with the recruitment of better trained staff,” adds Daniel. This is a vital point, considering too often I am told about the lack of skills in the bridging market— and worryingly this is a frequent gripe of lenders looking for sales roles.

“It would be good to see BDMs at lenders with this qualification, not only to make sure processes are being followed, but also that the person behind the source of funds has the confidence they are being used legally and correctly,” states Steve.

Tom explains that understanding the challenges and constraints of other parties is often key to completing complex facilities. “The accreditation of the skills and technical knowledge individuals have developed will help improve their career prospects as well as elevate broader industry standards.”

IN THE MEANTIME… While it is difficult not to support the introduction of something that would make our industry more reputable, efficient and standardised, it is a complicated task and will have to strike a balance between setting a real bar for advice and not just being a tick-box exercise—all the while being manageable.

As we hold our breath for a qualification to surface (and be made mandatory) could we see lenders, perhaps in preparation for an industry benchmark of some kind, doing more to tighten their onboarding processes to ensure only those that have the best intentions can transact business with them? While I get the notion of ‘don’t bite the hand that feeds you’, my argument is whether the ‘food’ has been competently prepared and packaged— and therefore valued—in the first place.

37 Nov/Dec 2021

Cover Story

HOW WILL THE LIBF ASSIST IN BRINGING A NEW STANDARD TO LIFE? Given that many professionals in our specialist, unregulated markets do not hold an industry-relevant qualification, we spent an hour with John Somerville, head of financial services at The London Institute of Banking and Finance (LIBF), to break down what you need to know about its work with FIBA and the ASTL to date and how it looks to create this course Formerly known as the Institute of Financial Services, the awarding body is responsible for the creation of CeMAP alongside the Council of Mortgage Lenders and has been in business for over 140 years. It has also worked with the Finance & Leasing Association in devising qualifications in those unregulated sectors, for which the take-up has been “very good”.

The LIBF prides itself on being extremely consultative and practical in its learning methods and having strong links across the financial services market. Its faculty is made up of industry practitioners and academics who are dedicated to understanding what the market needs and evolving with it.

What are the various stages?

Although it has been described as a course or programme so far, there are plenty of steps that need to be taken before its final form is determined.

First and foremost, the ‘problem’ must be identified—which is the stage the LIBF is currently at with FIBA and the ASTL. Its consultation started with a few key members of FIBA, followed by various focus groups of 15-20 lenders and brokers, made up of association members. Out of these, a learning committee has been created to represent them and streamline the next phases. Manageability is vital to achieving consensus, John shares.

Next, the LIBF will analyse what training is needed, ie what is the knowledge or skills gap we’re seeking to close? Essentially, it will look at how a person can be moved from point A to B in their growth.

A range of solutions will be formulated

and tested with the learning committee and their representatives. Once one has been landed on as the best option, further assessment will be done, bit by bit.

This incremental analysis is essential to ensure it moves people along in that journey. After a sufficient level of confidence is built, the whole solution will be developed and rolled out.

What will it look like?

That will depend on the answers to a list of questions, such as: • does it need training?

• does it require an exam or test, or just certification?

• will it be online or app-based?

• how will it be awarded?

• does it need annual accreditation?

• will ongoing CPD need to be completed?

• will it be phased/set out in various levels, such as ‘expert’, ‘advanced’ and ‘specialist’?

How will it be assessed?

The LIBF accredits external training partners which develop courses based on its qualifications. It is selective in which firms it ‘rubber stamps’ to ensure that only the very best guidance is being provided in connection with its learning programmes.

Assessments are based on real life and incorporates learning that is closely related to the workplace. For certain qualifications during the pandemic, the LIBF introduced remote invigilation which integrated new ways of being assessed: a video presentation, forum contribution, and a timed case study. “That’s the kind of learning we like, because people take away from that a far more practical experience of learning,” John comments.

How will it be reviewed?

Once launched, research on how it has been embedded in the workplace and what difference it has made to brokers and lenders will be required.

“Has it raised standards? If you don’t 38

Bridging & Commercial

do the analysis afterwards, it really is a wasted exercise,” John remarks.

FIBA’s learning committee would act as an ongoing point of contact, but feedback from individuals taking the course will be sought prior to them receiving their results. As the LIBF reports to the government’s Office of Qualifications and Examinations Regulation (Ofqual), its pass rates and various other data need to comply with Ofqual’s own set of standards.

When can we expect to see it?

John is hesitant to raise any expectations, given how early in the process the LIBF is with FIBA, but he does anticipate that the Institute should be in a position to demonstrate to the industry what it is looking to put in place “at some point next year”.

Whether the standard is launched in phases will be a significant influencing factor on the timeline.

Do you need to be a LIBF member?

The Institute has its own membership programme, which affords those signed up a range of learning-based benefits to support a career in financial services.

It also requires its members to follow a code of ethics that “marks someone out as a competent professional”.

To register to undertake a qualification offered by the LIBF, such as the new specialist finance course, individuals are automatically enrolled as members during the time that they are studying. However, to retain their designations, it is not mandatory to keep their status as an LIBF member. The subscription or fee model for the FIBA-driven certification is yet to be determined, but it could be the case that ongoing CPD and learning may be available through the LIBF without membership, or via something similar to its ‘Statement of Professional Standing’ that would confirm successful completion of the course and ongoing CPD, available to both members and non-members for a one-off fee.

Refurbishment buy to let

Customer looking to refurbish their buy to let property?

No worries!

Along with two loans combined in one application, our refurbishment buy to let proposition includes: No mortgage payments required during refurbishment

Bridging finance rates with an exit onto a long-term buy to let mortgage

One underwriter, conveyancer and valuer

Two procuration fees

Precise.

Contact your local specialist finance account manager precisemortgages.co.uk

FOR INTERMEDIARIES ONLY

Product and criteria information correct at time of print (22/11/2021)

SHARPENING YOUR NEGOTIATION SKILLS

ALASTAIR HOYNE, PRINCIPAL AT FINANZE

CHRIS WHITNEY, HEAD OF SPECIALIST LENDING AT ENNESS

From my experience, adverse credit is one of the hardest things to deal with in a negotiation. Regardless of the changes clients have made to improve their credit, if there are legacy issues, such as judgements or IVAs, lenders are generally unable to accept. I had a case recently where the client had an IVA on record, which had been fully paid off and satisfied 10 months earlier, but regardless of this, the lender needed three years post-completion before being able to refinance—thus the client ended up selling the property instead. Our approach is to call as many lenders as possible to get the best deal for the client, whether that includes the lowest blended cost of debt, maximum leverage, arrangement fees or others. Lenders want to lend and clients want to borrow, so as a broker, it’s our job to match those clients with the correct lenders and create the perfect fit, not just pick something off the shelf and hope it’s right.

‘CALL AS MANY LENDERS AS POSSIBLE’

‘IF YOU DON’T ASK, YOU DON’T GET’

You can discuss and improve deals for clients on pretty much every case other than where there is a specific product on which the detail is fixed and is simply non-negotiable. Even then, there might be areas that need to be negotiated, such as agreeing non-standard proof of income or other elements of the standard due diligence. If you don’t ask, you don’t get, so don’t be shy and give it a go! However, keep it realistic and be frank about what you want and why. Keep the discussions calm and considered; if you get excited or aggressive, you will find the shutters go up. Most importantly, be a nice person to deal with. We are all human, so are more likely to agree something if the person asking is pleasant to work with.

A key factor in any bridge will be the loan term, as this has to fit and allow enough time for a successful redemption, which is arguably the most important part of the process—I think the manner in which this is handled goes some way to separating the best lenders from the rest.

There’s always going to be a conversation around broker, lender and administration fees or the valuation, and everything has to be worked out to a sensible and fair level. You have to provide substance as to why you’re trying to change the terms of the fee, etc. And there has to be an element of compromise for successful negotiations, as everyone likes to think they’ve come out positively.

You should also be open and honest about your intentions, especially with what you’re trying to achieve and why it makes sense to you and the situation. If that is articulated well, then it should make any and all negotiations a lot easier.

LUKE EGAN, DIRECTOR OF BRIDGING AND DEVELOPMENT AT PINK PIG LOANS

SEAN ADAMS, PRIVATE CLIENT DIRECTOR AT ARC & CO

Rates, loan quantum and LTVs grab the headlines, but there are quite a few other factors that have an effect on the cost and overall attractiveness of any finance offering, such as personal guarantees, for which a broker can negotiate the amount or even its waiver. Similarly, some development finance lenders will request cost overrun guarantees which need to be considered carefully by any borrower. At the very least, the guarantor will want to negotiate to ensure that they are not taking on any exposure beyond construction cost overruns, but the specifics can be further bargained to negate potential impacts to the borrower. Lead-in times to a project, the mobilisation period, and how much ‘sweat equity’ is considered as a contribution can also have a big influence on interest costs and max loan sizes, so these can be negotiated in the client’s favour. Having a clear understanding of the lender’s parameters is key to knowing which terms can be improved and how to enhance them. Equally, a detailed knowledge of the borrower and their requirements will help to ensure that terms can be optimised.

‘PROVIDE SUBSTANCE AS TO WHY YOU’RE TRYING TO CHANGE THE TERMS’

‘HAVE A CLEAR UNDERSTANDING OF THE LENDER’S PARAMETERS’

Often a negotiation is about structuring a bespoke solution for a client that goes beyond the basic parameters of interest rate, LTV and loan size. Timescales are often key to a project’s success— negotiating these to be as robust as possible is one of the harder elements and can have the biggest impact. When assessing a client’s risk and credit profile, existing debt and assets are also hard to overcome if they don’t meet a lender’s basic criteria, often making them deal-breakers.

The key to a successful negotiation is identifying a solution that benefits all parties. It is not about beating your counter-party, but arriving at a solution that is mutually beneficial. And don’t forget the power of relationships. I would recommend investing time in building key connections with a multitude of credible professional parties, as you never know when you, or a client, may need them.

KIMBERLEY GATES, HEAD OF CORPORATE PARTNERSHIPS AT SIRIUS PROPERTY FINANCE

‘DON’T FORGET THE POWER OF RELATIONSHIPS’

Negotiating a deal depends very much on the lender; some have less scope to offer flexibility when it comes to a transaction due to their structure, ownership and funding, whereas others can be more nimble, especially founder-led businesses.

We have restructured proposed facilities on a number of occasions around such things as acts of default, notice period to rectify defaults, cross-collateralisation where clients have multiple loans, personal guarantee levels and much more.

Knowing what you can and can’t achieve to help steer the customer is part of the value of an experienced broker. If a request is reasonable, well-considered and does not open challenges to a lender, then you’re starting from a good place; trying to negotiate something that you know a lender has never compromised on or completely changes their potential return or risk profile would be a fruitless exercise. The bottom line is, don’t over-negotiate—understand what you are pushing for and what risk that might pose to the lender to ensure you maintain credibility.

LUCY BARRETT, MANAGING DIRECTOR AT VANTAGE FINANCE

‘DON’T OVER-NEGOTIATE’

We all know that specialist finance deals are often bespoke affairs—but how far can brokers push the boundaries when it comes to bargaining beyond interest rates? We ask intermediaries for their top tips to help improve customer outcomes— and which lending criteria leaves room for negotiation

We have negotiated on legal fees and managed to get retypes of valuations or even a free valuation at times, but the most important thing we’ve successfully negotiated, in my opinion, is reduced penalties when redemptions overrun. During the pandemic, we got agreements from some lenders to commit to no default interest or extension fees, which really gave some of our developer borrowers peace of mind in case another lockdown or supply chain crisis occurred. My advice? Don’t be lazy! Package the deal properly, provide overkill on the information and make sure you share all relevant client experience. Try to make the deal a no-brainer for a lender by providing a thorough fact-find and plenty of accompanying documents; that way you’ll engage the lenders quickly, make their job easier, and ultimately they’re going to be more receptive to a few more favourable terms, especially if they know you will be bring them repeat, well-packaged business, time and again.

SIMON DAS, MANAGING DIRECTOR AT 978 FINANCE

‘DON’T BE LAZY!’

In a negotiation, nothing is off the table: fees, locations of lending (within reason), concerns over certain criteria or legal details. The difficulty comes when you are seeking something that is a deal-breaker. Part of me says the less you need to negotiate the better, as if you broker a deal correctly, it should fit within the parameters from the get-go. That said, this is specialist finance and things can be out of your control—plus, I think all brokers secretly enjoy getting something outside the criteria. Honesty and transparency is my starting base.

Negotiation is not about pulling the wool over someone’s eyes, but about presenting something that allows the other party to see what you’re introducing from another point of view. Put yourself in a lender’s shoes and think why they should do the deal; if it’s not something you believe in, then you shouldn’t be negotiating for it.

My final tip is to use your tokens wisely: don’t try to negotiate on every deal—save it for when it really makes a difference.

SAM O’NEILL, HEAD OF BRIDGING AT CLIFTON PRIVATE FINANCE

‘ALL BROKERS SECRETLY ENJOY GETTING SOMETHING OUTSIDE THE CRITERIA’

Are stepped rates Zeitgeist

ouT with the market?

42

Bridging & Commercial

of step

Zeitgeist

Dangling the opportunity of a cheaper deal before borrowers, with a precarious property market often beset by delays, raises questions about this product’s role in the current environment Words by

HANNAH GODFREY

tepped bridging rates—also known as discounted rates—offer bridging customers the option of a lower interest rate for an initial period, usually three to six months, after which it climbs to a higher one for the remainder of the term.

While it provides flexibility and potential savings, these products are complex and may not be suitable for most borrowers.

The precise terms differ from provider to provider, with variation in both the interest rates and the repayment period. The interest depends on a host of factors, including the LTV on the asset used as security, the credit risk profile of the borrower, the purpose of the loan, and the length of time the borrower would like to take it out for.

On a six-month loan from Hope Capital, for example, an initial discounted rate starts at 0.39% per month for the first three months up to 70% LTV. This then rises to 1.19% for the rest of the term. Longer loan periods and higher leverage equate to higher interest rates.

Funding 365’s stepped bridging loan at up to 75% LTV begins at 0.59% per month for the first six months; from month seven, the charge is 1.2% per month.

Meanwhile, Aspen Bridging’s stepped rate is from 0.39% per month, up to 75% LTV, for the first six months, rising to 1.24% for the remaining six months. Its exit fee is one month’s interest.

This type of product, however, is not widely available, with just a handful of specialists offering it. But, why? Some brokers and lenders are cautious; while they believe it is right for a minority of people, there is a danger that inexperienced borrowers will underestimate the time they need a loan for, and end up paying more than what a standard bridging facility costs. “Because of the massive rate increases and additional costs, it could work out to be very expensive for those who don’t have a solid exit plan,” warns Harry Dugg, business development manager at TAB. The offering is most useful for those who feel confident they can pay the loan back quickly. Jack Coombs, director at Aspen Bridging, cites a recent example of a client who was able to finish a small refurbishment on a Warwickshire flat in six months, and therefore redeemed his loan in full before the higher rate kicked in. Ultimately, he paid the equivalent of 0.64% per month on the loan, including exit fees. “That’s a very good rate. If you [sought] a refurb loan [with] a flat rate of 0.64% at 75% LTV, I can’t think who would do that.”

However, a positive experience isn’t guaranteed. Christina Kelly, a partner at 44

Bridging & Commercial

Zeitgeist

law firm Kingsley Napley’s corporate and commercial team, says that to take advantage of the product, the borrower needs to be in the right place at the right time—with the right asset. “The aim of having the stepped rate is to get your exit before it increases, because the higher rate is steeper than what you could have got for your deal otherwise.

So, the only real attraction to having it is if you can see yourself getting out before the rate steps up,” she states. “I don’t think it’s particularly innovative . . . it’s quite good for marketing.” The worry here is that brokers and borrowers may be attracted by the initial rates and let that incentive dictate the deal.

According to Kris Corns, operations director at Crystal Specialist Finance, many clients already underestimate how long they’ll need the bridging loan for. “It’s very important a client goes into a bridging [deal] with their eyes open,” he asserts. “We’re doing a number of residential transactions involving a local council at the moment, and they’re quoting five months to issue documentation.This puts a huge delay on the mortgage process. So, if you’re reliant on a third party involved, that could really drag out the amount of time.”

He also warns of further setbacks with getting works done. “There are loads of builders out there, but most are booked up three to four months ahead. If you think you can buy a property, do a refurb, then sell it in time to take advantage of the lower rate, you could be waiting four months for the builder!”

Innovative or baffling?

Opinions on the popularity of stepped bridging rates vary depending on who you speak to. Jack shares that around half of Aspen’s customers choose this route. “Most of them are undertaking a purchase and just have straightforward refinance exits, so they think they’re going to get out pretty quick. They want the opportunity of being rewarded by the lender for being a lower risk proposition.”

He adds that most of his clients who take the stepped rate pay less than if they opted for the flat option. While they may end up tipping over into the higher premium period, it is usually only for a short period, and therefore pay less overall, he explains.

By contrast, Kris finds that borrowers prefer to steer clear of stepped rates due to them being difficult to grasp. A simpler product, such as a standard rate bridge, can be more palatable, because the borrower will know from the outset how long the loan will last and what the rate will be upon maturity, he says.

Amadeus Wilson, director at SPF Short Term Finance, observes a similar reluctance.

“Stepped rates are not at all popular,” he claims. “The revisionary rate is normally so

high that it puts off potential clients as the overall cost of the loan if held to maturity is always more than the fixed-rate equivalent.”

Some commentators suggest there are transparency issues around the product as well. In part, these stem from the challenge of comparing stepped rates with one another and with standard bridging loans.

Kris points to the lack of regulation in the bridging sector as a problem, as it means standardised terms and documentation are impossible. “With things like APRC, for example, some lenders quote it and some don’t, so it’s difficult to compare products, especially when it’s a stepped bridge,” he shares.

Jamie Jolly, managing director at SoMo, stresses the need for lenders to be clear about costs. “If I were to move into stepped bridging, I’d be very open and provide two quotes—the costs of a more traditional 12-month facility, compared with a stepped loan, and what that might look like.” While he feels most lenders offering this are transparent when it comes to evidencing the rate difference, he doesn’t think everyone maps out the actual costs.

However, lenders who provide the product insist they are upfront. Gary Bailey, managing director at Hope Capital, affirms: “We pride ourselves on being wholly transparent about fees and charges. We make sure we communicate everything clearly and honestly from the get-go; this ensures the borrower can make an educated decision.”

Laura Kendall, marketing director at Funding 365, says its stepped rate product is transparent, with no hidden or unusual fees, but concedes that others are not as clear. “In all our advertising and product information sheets, we disclose all material information— including the higher interest rate and the fees,” Laura notes. “In discussing stepped rate products with our broker partners, some have expressed frustration at other products in the market that only advertise the initial interest rate but fail to mention the increased rate, the date on which the rate steps up, or the exit fees that are charged.” As for how easily stepped rates can be compared with other types of bridging methods: “That depends on how simple and transparent the lender makes their product,” she contends.

The impact of Covid and long delays Another factor that could affect the appropriateness of stepped bridging in the current market is the impact of Covid-19.

This has caused delays in the property sector for myriad reasons, including staff shortages and exacerbated backlogs.

Nick Russell, sales director at TAB, thinks the pandemic has likely lengthened bridging terms. “We’re having a lot of requests for

extensions, planning is taking longer, building costs are going up—so people are reworking deals . . . the logistics are taking longer for everything.”

In light of the protracted processes involved in buying and selling property, Nick believes the number of deals that could complete in a timeframe that would be workable for a stepped rate is fairly slim. “Very quickly, you’re going to go into that higher rate of interest, which is going to cost you a lot more than you would have paid if you just got a flat rate of interest from a competitive lender in the first place.”

Jack imparts that Aspen has extended its minimum total term to 10 months (five months on each rate) for stepped bridging products—a decision it made before Covid-19 hit. “Our standard practice is that we always offer people terms that are realistic for them. We’re quite cautious with that. We used to do six- or eight-month loans, but the shortest terms we’re willing to [provide] are 10 months now,” he says, adding: “It’s just too high risk for us and the customer, and its unnecessary pressure. My view is if it doesn’t work with 10 months retained, you shouldn’t be taking the loan.”

According to Bridging Trends, the average bridging loan term currently stands at 11 months. As this is notably longer than the three- to six-month discounted rate timeframe typically offered by stepped bridging loans, it further begs the question as to whether a stepped loan is beneficial to the average borrower?

Jack insists there is a place for this offering, for the right person. “It doesn’t make sense for heavy work and conversion cases. When we’re quoting longer terms, we don’t even present it. There are lots of people in the market who have unrealistic timeframes; we don’t pander to that. We are rigid on our minimum term lengths, and we’re very much interested in giving the borrower the time and space they need.”

Amadeus agrees that stepped interest rates are right for a minority, but argues that recent delays to property transactions have made hopes of taking advantage of the cheaper rate practically obsolete. He also believes that stepped rates add pressure for borrowers to sell quickly. “The whole point of a bridging loan is to buy yourself time,” he adds.

For a seasoned developer who is watertight on completion dates, a stepped bridging rate “could work out cheaper”, Amadeus continues. However, having seen the various delays Covid has thrown up, he divulges that he doesn’t have any loans on his books that would have been cheaper overall if they were on a stepped rate.

45 Nov/Dec 2021

Completely transforming development viability Over £1.7 billion of Sales Guarantees issued How will LDS benefit me?

BROKERS Maximise conversion and boost fee income • • • •

Increased leverage and reduced equity = improved conversion Expedite lender credit and processing LDS fees paid to brokers on top of lender fees Simpler alternative to mezz finance as LDS take no security

LENDERS Minimise risk and maximise business written • • • •

Guaranteed exit removes all pricing and demand risk Simplify security structures, remove mezz elements Write more business - reduce risk and convert marginal deals Create a bespoke product

DEVELOPERS Reduce cash input, increase returns and output • • • • •

10% cash deposit released on exchange 77% reduction in upfront developer cash contribution Develop 3-4x more stock from same capital base 170% increase in returns on cash invested No arrangement fee, interest or security required

Instant proposals at LDSyoursite.com Contact Mark.Roberts@LDSyoursite.com or 07590 434 266 to find out more

&

Alan

Words by

BETH FISHER

&

D’mitri in conversation

R

ecently, B&C online exclusively revealed that Alan Margolis and D’mitri Zaprzala had joined Avamore Capital as directors to colead the company’s management team. Alan, who qualified as a solicitor with a leading City firm in 1991, was invited to join bridging lender Cheval Property Finance in its first few months of trading.

During his time there, Alan played an important part in guiding the business to become one of the most respected brands in the bridging sector. By 2010, he was snapped up by United Trust Bank to set up its bridging department from scratch. His division quickly grew into a multi award-winning key player and the foundations he set have helped ensure that the bank continues to be a bridging leader. Alan then moved to Masthaven Bank as director of short-term lending. During his time there, he identified opportunities to improve operational efficiency and business output. More recently, Alan has been working closely with his eldest son, Ryan, who has revealed a natural talent for motorcar racing with genuine potential to be a Formula 1 driver. In his spare time, he now accompanies Ryan to test days, simulator sessions and fundraising pitches to help him achieve his goal.

D’mitri (or D-Zap, as many call him), started his career with a highstreet lender, where he spent 10 years as a branch manager and BDM before moving to specialist finance provider, Dragonfly (now Octopus Real Estate), which was then in its infancy. He played a core role in the company’s rebrand and was fundamental in building the foundations for success as it scaled. D’mitri secured several promotions during his years there, including becoming its head of residential. He helped build a sales team from four to 18 members over a period of two years and opened an office in Manchester, taking total lending beyond £5bn.

While at Octopus (and raising three children with his wife), D’mitri achieved a distinction for his MBA at Manchester University. When he has moments to himself, he focuses on his passion for Arsenal, holding the title of one of the most optimistic fans you’re likely to meet.

I sit down with the duo to discuss their mission to realise an ambition to lend in excess of £500m annually and shape Avamore’s long-term strategy, using their depth of experience to help guide and scale the business in becoming a top-tier lender

Interview

D’mitri Zaprzala: I’ve been in mortgage lending for 21 years, which is a terrifyingly high number. Eight of those have been in the specialist space.

Interestingly, specialist finance didn’t really exist 20 years ago, yet a lot of people who were in mortgages back then have found their way into it in recent times. One of my first impressions of the sector was that it felt like mainstream lending did 10 years previously, ie there was flexibility. There was specialism. There was dynamism. There was the ability to do things quicker, in a more customer-centric way. It also struck me that there wasn’t a lot of competition; there was literally a handful of alternative lenders, as we called ourselves in those days. It’s subsequently grown—the market is huge now.

Alan Margolis: I entered the market at the end of 1996—I’m not going to calculate how many years ago that was— when I was invited to join a fledgling company called Cheval. I had a legal background and I didn’t really know anything about the sector. It was in its infancy, anyway. Honestly, it was like the Wild West. There’s no comparison between what we see today—in terms of the size and sophistication of the market and the capabilities of the lenders—and the early days of Cheval.

Beth Fisher: There are many people who started at Cheval who are still in the industry, which I find interesting. They often reference that journey. But more about you. I want to know how you first met.

DZ: I can’t remember the exact time.

My earliest recollection is at the ASTL conferences. There was always a little group—the original ‘Cheval group’, as it transpired—and Alan was one of them; I was introduced to him at one of those. Genuinely, as soon as I met him, despite being very senior while I was just starting out, he was really welcoming. There wasn’t an element of ego or arrogance about him. Just a really friendly, super knowledgeable chap, who clearly knew what he was doing. Ever since, he has been one of those people I found myself drawn to at industry events.

AM: My first impression of D’mitri, which has always stuck with me, is that he’s the most unsales-y salesman I’ve ever met. He’s quiet, understated and modest.

I feel we’ve got a natural affinity—

and we had it then, though we didn’t know how the future would pan out.

BF: That should be in your email signature. [laughter]

BF: How is that working for you, D’mitri?

You’re obviously doing something right.

DZ: Yes. I was tempted to do that, but I was told it wasn’t on brand.

DZ: God. I don’t know. I’ve been in sales in one way, shape or form for 21 years. I learnt very early in my career the importance of humility and not blagging, and always being open to learning. Maybe that’s a different characteristic than you get from some salespeople who see it as a sign of weakness to say they don’t know something. Don’t get me wrong; if you’d met me when I was 21–25, I was not a particularly likeable salesman. I was certainly closer to the other end of the sales-y spectrum. But I think I grew up quickly. I was in senior roles at a very young age, and I soon learnt that the last thing you want to do is blag it and be unlikeable. In fact, I’d describe that as one of my weaknesses—being liked is quite important to me. So maybe that’s where it comes from. I still consider myself one of the best salespeople, though—but maybe I’m humble with it.

BF: Rude. I will need that picture as proof though, if you still have it.

BF: I think that’s really good advice to younger people who are finding their feet in the industry and wanting to make their mark—they don’t have to have that cut-throat mentality. How would you both describe your management style in three words, and what might surprise the industry about you?

AM: For me, I don’t have a different work personality to how I am outside of work. I’d say friendly, open and honest, because that’s pretty much how I’d like people to be with me. And the biggest surprise? Not long ago, we were shocked to discover that my oldest son Ryan has the talent to drive a single-seater Formula Race car. So I’ve very quickly become a bit of a petrolhead—something I never thought I’d say about myself.

DZ: I would say I’m straightforward, competitive and empathetic. I’m naturally drawn to empathetic people—I believe that trait gets you a long way in life. In terms of something interesting... When I was nine months old, I was in The Sun newspaper in the Cutest Baby in Britain Awards. I didn’t score very highly—my mum told me I came in ninth. But in the early 80s, I was one of the 10 cutest babies in Britain. I’ve maybe lost some of that ‘edge’ as the years have gone on.

DZ: It’s in the loft somewhere at home. I’m sure that Mum still looks at it with great pride.

BF: I’m surprised it’s not on the wall… [looking at my watch, I steer the conversation on] What would you say have been the biggest successes of your careers so far?

DZ: I’m not just saying this because I’m talking to Bridging & Commercial, but winning BDM of the Year [Ed: In 2015] at the B&C Awards was a genuine career highlight. Then, previously at Octopus Real Estate, my single biggest success was when I was made head of sales, stepping into some very big shoes.

I was at Octopus for a long time and one of the main things I look back on with pride was moving us from being a London-centric lender to a UK-wide business, including opening the office in Manchester. And it was an honour to be asked to come in at this level at Avamore.

That is the ultimate endorsement of my career so far. To be given the opportunity to join and run things with Alan is just fantastic, and I’m super proud of that.

AM: For me, it’s what we did at Cheval.

We built up a fantastic business, and a lot of the precedents and the people are still scattered throughout the short-term bridging market. I’m also really proud of having started the bridging department at United Trust Bank, which is still one of the best businesses and lenders in the sector. And, at Masthaven, I helped grow the team and change the practices and its approach to lending. I certainly think I left it a better business than when I started. In terms of highlights, it was receiving B&C’s Outstanding Contribution Award in 2019 at an incredibly tender age. It was unexpected and I was far too young to have won it. [laughter] Lastly, being entrusted by co-founders Michael [Dean] and Zuhair [Mirza] to come in with D’mitri and Phil [Gould, head of underwriting and fellow director] and take over the reins of their baby, their business. I don’t think you can get a

51 Nov/Dec 2021

Interview

bigger compliment than that, when people put that kind of trust in you.

BF: What are the biggest lessons you’ve learnt over the years?

DZ: That it’s completely okay to make mistakes and to learn from them, and it’s really important to admit when you’ve made them. In my early career, I would’ve made mistakes and tried to cover them up—and it doesn’t actually make you look good. Always admit when you don’t know something, even if you think you’ll sound a bit stupid—there’s a good chance that someone else in the room doesn’t know the answer either.

In addition, building and empowering a team is massive. I used to think I had to know and be the best at everything; I had to be the best salesperson or have the best credit understanding. But I’ve learnt the value of empowering the right people and giving them the time to grow and develop.

AM: I’d say the first lesson, without being too corny, is that you never stop learning. There’s always something new happening. You learn about people; you learn about life—because every loan is different. There’s always an ability to improve yourself and your business.

BF: What would you like to see change or evolve in the future? And is there anything that’s happened over the years that you never would have expected?

AM: What I’d like to see is less of a race to the bottom, quite honestly. I speak as a lender. I believe some of the economics are questionable on the lending front. It’s all very well offering ultra low interest rates but, for the long-term good of the sector, what you really need is healthy lenders. You need competition, but uneconomical lending only puts lenders and, ultimately, the sector under stress.

The rates and earnings have to reflect both the work that goes in and the associated risk, so it’s always a concern when you see some of the products offered and the possibility that some lenders may not be as profitable as they ought to be. I want a healthy, competitive sector, but it’s got to work for the brokers and lenders, because that’s how the borrowers get the best deal.

BF: Would you agree there’s been a focus on volume, rather than profits, from lenders in recent years?

AM: Yes—and I understand it. I’m sympathetic but, after a lot of reflection, my view is that no lender can be everything to everyone; you have to pick what you’re good at and make a go of it. You have to learn to work smart. In terms of unexpected changes: the sheer size of the market, the number and diversity of competitors, the interest rates, and the costs. I know we’re in a different base rate environment, so we’re not comparing apples with apples, but the typical interest rate was something like 2.5% a month in the late 90s. In fact, the quality of borrowers and the professionalism of the sector now… it’s absolutely unrecognisable from when we started Cheval.

BF: Would you say that the quality of brokers has also changed?

AM: Yes. The regulation of the market resulted in a massive injection of professionalism into part of the sector.

I know a lot of short-term lending isn’t regulated but, nonetheless, it brought bridging into the sphere of regulation, and that has rubbed off. For instance, I don’t treat a non-regulated loan any different to a regulated one. It’s a matter of principle.

It’s been a remarkable change, and that’s been reflected in the broker community as well. Bridging had a bad reputation when we started; some lawyers, valuers and borrowers would turn up their noses, such was the stench from some of the outliers of the sector at the time. You don’t see that any more. There’s a host of incredibly professional businesses, whether it’s lenders, brokers, the supporting services, the lawyers, the valuers, the panel managers, also the (title) insurance companies… There’s a whole galaxy of reputable players in the short-term sector.

It just wasn’t the case 20-plus years ago.

DZ: 25, Alan. 25.

AM: Shush! I was deliberately not going there.

DZ: What you just said about the professionalisation… The big one for me is on the borrower profile. As a result of more mainstream lenders not adapting to changing needs, what we’re seeing in the sector is an ever-increasing calibre of borrower. Historically, you may not have seen these top-tier customers because they were able to get high-street finance. In 2005, a mainstream BTL

52 Bridging & Commercial

L-R: Zuhair Mirza, Michael Dean, Alan Margolis, Philip Gould, D’mitri Zaprzala

D’mitri Zaprzala Bridging & Commercial

54

Interview

mortgage would have been a foreign national buyer purchasing something above a commercial. That would’ve fit most, or a lot of, mainstream lenders. So what we’re seeing is that the specialist market is dealing with what people would have described as mainstream 15 years ago. I’d give a note of caution…

Lenders may be spreading themselves too thin and forgetting what their area of specialty is and thinking, ‘We’ve done this type of lending, therefore we’re going to do that,’ without necessarily having the people, processes and expertise to do it successfully.

BF: There have been quite a few lenders enter the BTL space and other tertiary sectors, and I wonder how many finance providers will be left solely specialising in bridging. It’ll be interesting to watch… What other threats and opportunities do you expect the bridging market to face in the near future?

DZ: This is both a threat and an opportunity, but I think that increasing regulation and the required professionalisation of the sector creates opportunity for those who are prepared for it, and a threat to those who aren’t.

On top of that, I consider a focus on ‘deploying at all costs’ a big risk, ie lenders ignoring good quality lending and risk management in order to complete loans that they are not well versed in doing so. In terms of opportunities, the continued lack of mainstream and highstreet finance to adapt to borrowers’ needs has been the single biggest driver of the growing size of the market. Over the years, we’ve said it can’t get any bigger, but there has been increased demand for it—it’s basic market economics.

And there’s nothing to say it won’t continue. From a housing sector point, a lot of the specialist market, ourselves very much included, are involved in the development of properties—whether that be big or small schemes—and there is arguably a never-ending housing supply issue in this country. That’s a huge opportunity. [pauses for a few seconds and then shouts] Covid! That’s the first time we’ve mentioned it, and we’re 37 minutes in… That’s pretty good going.

The bounce-back from the pandemic will see changes, ie where people want to live and how. Will people revert to wanting to live in flats? Will the demand for outside space continue? I guess the

threat would be lenders not adapting quickly to how that market changes.

BF: What potential did you both see in Avamore?

AM: Goodness me. Massive potential!

Honestly, it’s difficult to articulate to someone who hasn’t worked with the business or spent time with it. The foundation that Zuhair and Michael have built is quite remarkable. We’ve got a group of young, extremely talented, driven people who are willing to learn and make changes. And on this incredible canvas of opportunity, we now have D’mitri, Phil and me to realise our ambitions. We can take all our experience, all the great things we’ve seen and want to replicate, and the ability to avoid things that should be avoided, to be dynamic. What’s unusual is that much of what we’re going to do will be driven by our team, because that’s the level of quality we’ve got.

DZ: I think the first challenge of any business is to get the cornerstone— the people—right. That’s there. And we’re already very well-funded. As we scale and get bigger, that should only get better, too. The opportunity is absolutely huge. Both Alan and I have been around for a long time, and I’d say it’s very much a kitemark of Avamore that we were both able to join, because we wouldn’t have just gone anywhere.

We wanted to join a company that we could really propel to the next stage.

BF: What new things can brokers expect from Avamore next year?

AM: It’s early days for us, but one thing we’ll be considering is widening our geographical reach. We’ll certainly be looking to increase our loan size and appetite; I think people will be surprised about the size of loans that we’ll be able to do. We’re also going to be improving our processes to provide a better experience. I’m absolutely committed to the implementation of technology across all aspects of the business because, by doing that, we’ll grow exponentially, but without dramatically expanding the headcount.

BF: How will you be looking to help further educate the broker community on specialist finance?

DZ: Firstly, we’ll be going back to basics.

Our relationship managers are back out on the road which, for 18 months, they weren’t able to do. I’m a firm believer, Covid-safety permitting, that people get a lot from socialising and seeing people face to face—so that’s going to be a key part of our business. Both Alan and I are already speaking to our brokers and teaching them about what we do. One aspect that really appealed and has proven correct is the flexibility that Avamore has. In a market where there’s a lot of ‘me too’ lending, a lot of rate competition, I look at our products and believe they are genuinely set apart—whether it be from doing the types of refurbishment that others won’t do; the finish-and-exit product; the bigger developments that we’re looking to do; the planning flexibility…

Brokers are bombarded with information.

When I speak to them, sometimes their phone doesn’t stop ringing from both new and existing lenders. The key thing for us is to educate brokers on what we can actually do for their borrowers.

BF: What are your main goals going forward and how do you personally define a successful business?

DZ: Our ambition is to make Avamore the most successful specialist lending business in the UK. I think that’s a realistic aim.

What that looks like, we don’t know yet but, at the heart of it, I want us to make a real difference to the market we’re in.

We’ve both worked with businesses that have gone through similar trajectories.

I’ve worked for a similar-sized company that became a much bigger lending business and, hopefully, the skill set and experience I’ve gained along the way can add to what these guys are doing already.

AM: Different people have different measures of success. For me, it is when a broker or borrower comes across a requirement for a loan and they’ll automatically think of us as their go-to place, for many reasons: the product, service, ease of the process, approachability, openness and honestiness… Honestiness? That’s not even a word. [laughter] If I was a broker or borrower, what experience would I want?

Frankly, if I can deliver that to our brokers and future borrowers, then I think we will be a fantastically successful business.

55 Nov/Dec 2021

Interview

We speak to Avamore’s principals Micheal Dean and Zuhair Mirza on why they decided to hand over the baton to Alan, D’mitri and Phil to lead the business through its next phase of growth

HOW WILL YOUR ROLES AND RESPONSIBILITIES CHANGE AS A RESULT OF HAVING ALAN, D’MITRI AND PHIL LEAD THE BUSINESS GOING FORWARD? Michael Dean: We have been gradually stepping back from the dayto-day operations since Alan joined in September. We’ve been increasingly delegating authority for decision-making to our wider management team for the past 18 months, and Alan’s arrival has allowed us to accelerate that. When D’mitri came on board, we were also able to hand over the overarching sales management and so, from a credit and operational perspective, we’ve become less involved and instead have been showing Alan and D’mitri the ropes.

That’s meant supporting Alan and Phil in running new process changes and integrating D’mitri into sales, marketing and funding partnerships.

Zuhair Mirza: In general, we felt it was essential to remain on hand for the team that has been used to dealing with us, as well as supporting the new senior leadership. It’s important that we take the opportunity to embed Alan and D’mitri into the processes that are unique to Avamore and have grown during the past six years of us running the company. We want to ensure the transition of handing over the baton is as smooth as possible. As D’mitri, Phil and Alan become more comfortable leading the company without leaning on our experience, our involvement will be increasingly strategic; we’ll operate more as non-executive directors and advisers. However, we’ll likely still be involved in the odd deal here and there.

WHY DID YOU DECIDE TO TAKE THIS STEP? MD: In truth, we had often discussed finding the right people to come in and lead the business through its next phase of growth. We’ve done really well in getting Avamore to where it is today, but we acknowledge that there are better suited individuals to take it forward. We’ve always been transparent and aligned about our ambitions for the company.

We are both entrepreneurial and enjoy the idea of setting up a business, making 56 Bridging & Commercial

it a success, then leaving it to grow.

We want to see Avamore flourish and, right now, it has all the ingredients to make the most of the path it’s been set on. We have good funding, positive momentum, a talented team, and a strong track record and brand. With this, it can undoubtedly move to the next level.

ZM: We set up Avamore as a company that can stand on its own two feet. As far back as two years ago, we were having discussions about the type of person/ people we’d want to hand the reins over to—D’mitri and Alan were high on that list. Then Covid hit and, like everyone, 2020 gave us a lot of work we didn’t expect to deal with. We couldn’t pick up on our talks and ideas until spring 2021, which coincided with some other internal changes… That felt like a good time to approach D’mitri and Alan to see if they would be open to guiding the business in the medium to long term. In general, we’ve always advocated empowerment and, for many years, have given our team the autonomy to execute their daily operations. As such, the change doesn’t really come from stepping out of the business detail, but rather it’s a lateral shift in what we’re going to be doing so we can make room for new leadership.

There’s a huge benefit in having people with greater operational experience lead the business when it reaches this stage.

As founders, we never thought that we would have to manage the business forever, but we knew we would only hand the keys to the people with the right experience and cultural fit, and we’ve found that with the new co-managing directors and executive director.

WHAT WILL YOU BE DOING WITH YOUR ADDITIONAL TIME? MD: The success of Avamore remains our priority, so we will be engaged in the business in a different capacity—it’s unlikely that the amount of time we dedicate to it will change materially in the near future. Presently, the core focus is to support it while Alan and D’mitri get settled in. In the medium term, we’re entrepreneurs at heart. Our attention will be on complementary initiatives and ventures inside and outside the firm—and Avamore will unquestionably be stronger for that.

57

Zuhair Mirza and Micheal Dean Nov/Dec 2021

Lending is about more than just the numbers.

It’s about relationships.

With Allica Bank, every broker has an expert relationship manager to help find the best solution for their customers.

Paired with our bespoke Introducer Portal, you can expect clarity, consistency and collaboration every step of the way.

Find out more at allica.bank/introducers or give us a call on 0330 094 5555

99%

OF BROKERS RATE THEIR ALLICA BANK RELATIONSHIP MANAGER AS GOOD, VERY GOOD OR EXCELLENT. Source: Allica Bank’s Q1 2021 Broker Survey of 131 brokers

Allica Bank Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority (FRN: 821851). Registered office: First Floor, Eldon House, 2-3 Eldon Street, London EC2M 7LS. Registered in England and Wales with company number 7706156.

Authentic bridging with real results.

There’s lots of bridging lenders who claim to be experts, but how many can prove it?

We don’t change fees or loan structure, and we deliver what we say we will. We make quick, honest decisions by having real conversations.

We’re serious about bridging.

Colin Mottram, Relationship Director: Bridging

Real world lending 0800 470 0430 bridging@assetzcapital.co.uk 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.

RWB_B&C_advert (Nov).indd 1

07/12/2021 13:46

IS INTERNATIONAL BRIDGING THE NEXT EXPORT INDUSTRY FOR THE UK? Ever wondered how offshore bridging works? We have.While this country remains a property haven, it is feasible that borrowers here may also have shortterm loan requirements for assets in other jurisdictions. Indeed, UK specialist property lending is becoming more sought after by non-domiciled borrowers due to its sophistication relative to other parts of the world.We speak to brokers and lenders that support this type of funding to decipher how complex it really is—and what to pay attention to if this is a part of the market you’re considering expanding into

Words by

caron schreuder

Explained

I

t is important to distinguish which aspect of a deal determines its classification. In line with bridging being an asset-first type of funding, it stands to reason that the security’s location, not the borrower’s, is what deems it an on or offshore transaction.

I am told that overseas borrowers looking to finance a UK-based asset are relatively well served—largely by specialist lenders, which tend to show a greater deal of flexibility in this regard—and do not fall into this category of international bridging.

“When the security is offshore, this limits us considerably and requires a completely different approach,” states Chris Oatway, director and founder of brokerage LDNfinance.

WHO IS LENDING AND WHERE? There are only a handful of ‘branded’ lenders offering international bridging, according to my research. Fiduciam is a big player, with 50% of its lending being international business.

“We started venturing outside the UK in 2015, first offering loans in the Netherlands, then Ireland, followed by Spain and Germany,” says Fiduciam’s CEO, Johan Groothaert.

The finance provider will also consider loans in other European countries on an opportunistic basis.

Johan informs me that, in many of these cases, there is a link to the UK. “In Spain, about half of our borrowers are companies owned by British individuals or UK parent companies,” he explains.

“London-based intermediaries (who tend to handle the majority of international business) also play an important role in the international markets; requests for German loans, for instance, often come in through a UK credit specialist.”

This is because, in many markets, an uncompetitive lender landscape has led to an environment that is not conducive to credit broking. In the UK, the greater number of providers means that intermediaries can add value.

“With the world becoming increasingly international, foreign borrowers easily find their way to well-established London credit intermediaries.”

61 Nov/Dec 2021

Explained

Sancus Lending, which launched in Jersey in 2013 and then opened offices in Guernsey and Gibraltar, has elected to operate in territories where there is a strong connection, such as between Jersey and Guernsey. “Although each offshore jurisdiction has its own laws, the way businesses operate is often similar with regard to connectivity and business development, and they are all established finance centres in their own right.

Sancus already had relationships in these jurisdictions, making opening offices and establishing the brand much easier.”

The lender launched in Ireland three years ago and is now in its second full year of operations in the residential property bridging and development space in the UK. The fact that bridging loans are more established in the UK compared with other parts of the world, combined with the retrenchment of local banks and a notable decrease in their willingness to fund complex transactions in some of these areas, means that alternative UK lenders are increasingly stepping in.

“As a firm, we have become more aware of this space over the last five years or so,” comments Jamie Pigott, associate at Knight Frank. “It remains an extremely underpopulated area for lenders, where timeframes on deals are elongated compared to the UK equivalent. Naturally therefore, if UK security is available, clients tend to prefer using that as collateral to borrow against instead of properties abroad.”

When considering which parts of the world a lender might consider branching into, it’s important that the legal system provides comfort that it can enforce— something that precludes many countries.

WHAT ARE THE LOANS BEING USED FOR? Johan tells me that international deals can be split into three groups: large overseas real estate companies which head to London for its thriving investment and asset management scene; domestic real estate companies that branch out internationally; and expats looking to finance projects where they are now, and for whom UK-based lending is a lifeline in a country where they might not have sufficient track record to embark on a scheme or acquire an investment.

London remains a firm favourite for domestic and foreign investors, but wealthy individuals have also snapped

up property in other prime locations, comments Matt Watson, CEO at Tenn Capital, which started trading earlier this year to cater specifically to international bridging borrowers. The lender is witnessing a rising demand for offshore bridging as part of property strategies that require funding for cashflow concerns or to support the growth of a business venture, for example. Bridging facilitates this without the necessity of selling the asset in question, but rather leveraging it to achieve these objectives.

Tenn estimates that one-third of these borrowers are using the funds to buy real estate, one-third to solve a ‘problem’, while the rest are putting it towards an opportunity that they need to act quickly on.

According to Sancus, a ‘bridge with purpose’ facility is more popular offshore, such as those to bridge pending planning applications or to refinance onto a mainstream option—primarily driven by competitive housing markets and less of a need for traditional bridging that plugs the gap between sale and purchase.

One broker I spoke to reported that most of the offshore cases he sees are for development finance, but that bridging for larger investment acquisitions is also fairly common.

CRITERIA Fewer funding options in this space mean that pricing is typically higher, LTVs are restricted, and terms can be longer—depending on the degree of speed and complexity that accompanies the respective planning systems in each country. The more efficient the system, the keener the pricing, too.

“The international bridging space is highly focused on location,” says Jamie.

“In the UK market, by contrast, there is less emphasis on geography and a much wider lender choice is available.”

Typically, in overseas transactions, you’d be looking for the security to be worth at least £2m to achieve a minimum loan size of £1m, he adds. “It follows, therefore, that prime locations are solely considered for these deals, with France and Spain being the two more prominent markets. Location of the borrower is not important, but lenders in this space want ‘unregulated deals’ which, from our experience, broadly aligns with the UK definition.”

Being a self-styled international lending specialist, as opposed to a UK lender that 62

Bridging & Commercial

happens to also lend overseas, Tenn has “a broad appetite” and is willing to lend to a variety of nationalities and structures, such as corporate entities. It will extend to 70% LTV for loans upwards of £1m against property values from £2m–20m. “We are primarily interested in lending against prime residential real estate, no matter where it is located.”

Sancus goes up to 65% LTV on loans between £250,000 and £5m, with larger facilities considered on a case-by-case basis.

Johan confirms that Fiduciam’s criteria are broadly the same as those it uses in the UK, although “the implementation is entirely different”. All documentation has to be in accordance with local law and, regardless of where the borrower is based, a local product offering, competitive by those standards, is needed. A team with the requisite knowledge and understanding of each market is also essential to scale and compete in these areas. “Our loans have to comply with local financial and tax regulations. It also exposes the entire organisation, front to back, to different legal systems, languages, tax jurisdictions, and of course the foreign exchange aspect.”

On this last point, Johan advises that it is important to manage foreign exchange risk because, although most of it can be hedged, a lender will almost always be left in a residual position.

Essentially, one’s assets and liabilities need to ‘match’ in terms of currency.

For a lender like Fiduciam, whose infrastructure in relation to offshore cases is well established, pricing does not differ from its UK offering on an aggregate loan book basis.

When it comes to red flags in applications, these are largely similar to those that might crop up in a UK-based deal: unsatisfactory source of wealth; lacking a credible exit strategy; vagueness in relation to the purpose of the loan; an overvalued property; outstanding charges; and KYC/AML concerns.

“We look for a fantastic asset or a borrower with a great profile, reputation, and track record. At least one of these elements needs to be in place for Tenn to be able to lend,” Matt shares. “We only consider lending to borrowers in a solid financial position, and we will want to verify the applicant’s situation before making a decision. A borrower with bad debts or who is heavily leveraged will also raise red flags—we lend to individuals

Explained

who are using debt strategically and to their advantage, rather than borrowers with distressed finances.”

CHALLENGES AND LEGAL CONSIDERATIONS I ask Chris what is unique about these cases and presents the most complexity for him as a broker. “Each country has its own way of operating,” he responds. “We only consider working with clients in European countries whose processes we are familiar with to ensure our chances of success are as high as possible. The deals tend to be complex so, unless the client is experienced in what they do and have the financial strength to move forward, then we would not proceed.”

Jamie considers the dearth of lender choice to be a significant challenge.

“We counteract that by ensuring we continually build our contact base in this market and stay close to the smaller entities who have occasional appetite to transact. ‘Downvaluations’, particularly in prime Spanish locations, can also be problematic. LTVs on these transactions are very low in the first place, typically around 50%, so when you get very conservative valuers as well it can make for a complicated marketplace.”

Jamie adds that, with two sets of lawyers frequently required, this can cause “friction” and increase time and costs—not altogether dissimilar to the case with domestic deals, then. “Often the security asset is held in a company in a jurisdiction such as the UK or Channel Islands, which are places that the lending banks better understand.

I guess this company aspect helps the lenders ultimately, but obviously creates extra complexity when performing due diligence on the deal in the first place.”

Some of the more obvious difficulties in lending against assets abroad include language and local market barriers. Both can be overcome by having regional teams in place who can communicate in various languages (and currencies). Fiduciam’s team, for example, speaks more than 20.

Each market has its own set of regulations, treatment of tax and security instruments, including enforcement.

The key is for a lender to have very close relationships with relevant legal and advisory firms that can help develop its understanding of the jurisdictional variations. It may also be necessary to create a bespoke loan application

process for each country that connects to local databases, as the information available on applicants varies widely.

Although the UK has left the EU, it is still subject to the same if not very similar directives with regard to GDPR and KYC/AML, making working in these countries simpler on these fronts.

Interestingly, Johan notes that “valuations cannot always be relied on as much as in the UK,” resulting in the need to initially produce multiple reports in order to adequately test and benchmark the firms in question.

Understanding the various geographical and asset-related specialisms represented by valuers, and establishing a narrow, rigorous panel, is vital.

Johan also shares that reports on title are “lesser known”, which can be mitigated by devising a common conveyancing standard between law firms. “We export British standards when that is the superior option; report on title, for example, is a very good concept.”

“In international bridging deals, perfecting security is a unique challenge for lenders, and you really need to know how to do it and who to work with to handle this aspect,” says Matt.

In a single case, one could be operating cross-border, cross-asset and crossstructure, adding layers of complexity and influencing the overall loan.

Expanding on the legal complications in offshore bridging deals, Johan explains that many of the terms and covenants commonly used in the UK may not be available in other markets. One of the UK’s strengths is its very balanced, professional judicial system, that typically facilitates rapid resolutions in commercial disputes. “We take that for granted,” he muses. Attempting to install similar structures to those we enjoy here in another jurisdiction in order to protect the lender’s position is not easy and takes time—and it has to be done within local law and regulatory frameworks.

I ask whether it is necessary for a lender to be registered in the countries it lends in. “This varies based on local regulations,” Johan comments. “In some countries, no local registration is required; in others, it is. One also has to consider tax, particularly when employees are based in those countries; in these instances, it’s best to open a local branch. Fiduciam, although all its underwriting and lending is from the UK, has a Dutch

branch and a German subsidiary.”

Sancus details that international loans carry a higher propensity for more elaborate ownership frameworks, such as trusts and corporate structures, that can pose a greater risk to the average UK lender. Its view, however, is that “the legal process is, in many ways, simpler”.

For example, smaller populations (Jersey has around 108,000, Guernsey 63,000, and Gibraltar 34,000) tend to be better connected and can lead to making decisions on the track record or “integrity” of a potential borrower that bit easier. Granted, there are some differences in the application of the law, owing to tradition.

“In Jersey, the law has been influenced

by Norman customary law, English common law and French civil law. All property transactions on the island take place only on a Friday in Court, when both the sale and purchase transact on the same day, with no legally binding agreement beforehand. This can be nailbiting for all parties and sales have been known to fall through at the last minute with no recourse. Another quirk in Jersey is that there is no title register, and many lawyers are seen walking the property’s boundaries prior to completion.”

AN OPPORTUNITY FOR BROKERS? “Given that the number of property owners with offshore property is on the rise, we think we are stepping into a really interesting market,” Matt concludes. “The feedback we have from brokers is that there is a lack of solutions. We work with the very best advisers to support the completion of the deal, which also provides peace of mind and certainty as to the calibre of the transaction.”

Coming back to the disparity of broker involvement outside the UK, Johan identifies that offshore deals can amount to a “major revenue source” for many intermediaries.

The loans tend to be bigger, netting brokers a decent return on their efforts in this more complex space.

“International bridging and development lending is becoming an export industry for the UK, in particular London,” Johan declares. “This is because, when setting up an international operation, it is easier to do this in London than in other European cities because of the availability of a very international workforce and capital there.”

63 Nov/Dec 2021

Feature

FROM RISK TO RECOVERY: How an asset manager can save you time and money

64 Bridging & Commercial

Feature

We are coming out of a prolonged period fraught with systemic risk, for which many have said the sector was not fully prepared. This has resulted in lenders paying more attention to, adjusting, or affirming their propensity for risk, to ensure their operations are as sustainable as possible. Ben Hubbard, founder and director of BridgeShield, talks to me about the role of an asset manager in specialist finance—and why working with one facilitates a more robust approach (with client savings to boot) Words by

caron schreuder

65 Nov/Dec 2021

Feature

“What tends to happen is lenders come to market, they lend and, when their first batch of loans are nearing the end of their term, that’s when they might find problems. Then they come to us and say, ‘Can you help us get them back?’”

B

ridgeShield is in the business of protecting lenders’ money.

It achieves this through frontend risk management services, as well as during the recovery process.

In addition, the company, which works exclusively with specialist property finance providers, acts in an advisory capacity, such as for lenders that are in the pre-launch phase and need help establishing underwriting processes. It also undertakes due diligence on loan books that may be up for purchase.

“In an ideal world, lenders would use us for both aspects of what we do,” Ben shares, referring to the pre-loan risk assessment and recovery work.

“What tends to happen is lenders come to market, they lend and, when their first batch of loans are nearing the end of their term, that’s when they might find problems. Then they come to us and say, ‘Can you help us get them back?’” That adage about how easy it is to lend money…

It strikes me that if it were mandatory for new lenders to engage with an asset manager on risk strategies prior to launch, or indeed on a case-by-case basis pre-valuation, this would lead to a better standard overall. Ben agrees.

“We appreciate that every lender has its own appetite for risk, and we see a vast tolerance across the market. But I really respect anyone that uses us or an external body to sense check.”

He is keen to point out that the firm’s experience at one end of the lending journey is the bedrock of its expertise in the other. Having millions of pounds

worth of property in a recovery situation on the open market at any given point, and which BridgeShield is in the process of selling, gives a true insight into demand and supply.

Ben started his career in financial services as an underwriter for Cheltenham and Gloucester before becoming a broker, and then an asset manager for a large outfit during the recession.

When it started out, a large volume of its work came from distressed loan portfolios around the time of the credit crunch. Ben and his team dealt with possessions for a range of lenders, looking after hundreds of defaulting loans.

Interestingly, many of the loans that went bad because of the economic downturn were not recoverable due to errors in origination—access issues, properties being landlocked, tenancies that hadn’t been considered, incorrect valuation methodologies, or poor decisions when it came to where the asset was located.

“I’d have to sit in board meetings, explaining to banks why they hadn’t got their millions back,” Ben recalls. The proposition evolved when they realised there was a lot of value in helping lenders.

From educating them on the mistakes not to make grew an actual product that they returned to Ben for on a case-bycase basis—before loans were issued.

More than a decade’s experience doing the job has led to Ben being virtually free of the factors that come into play for lenders when making decisions. “Psychologically, there’s a lot of pressure on underwriters from BDMs,” he suggests. “Hitting sales 66

Bridging & Commercial

Feature

targets; do they like that broker; are they under pressure to get something done quickly?” His job is to strip all of that back and focus on, well, the asset.

Employing a firm like BridgeShield should not add any significant time to the transaction, as its report reaches the underwriter with all the other salient information needed to make the ultimate decision to proceed. By having this second opinion at the outset, brokers and borrowers could be saving time and

with external risk factors that have impacted lending attitudes. We’ve had Brexit and Covid, followed by a “boiling” market—now we have inflation and a possible interest rate rise. It is especially at times like these that lenders may wish to lean on a firm with exceptional experience and data, and the wherewithal to combine the two. “Lenders can get nervous… We spend a lot of time studying assets and comparables in a general, holistic sense, then trying to educate

“Psychologically, there’s a lot of pressure on underwriters from BDMs. Hitting sales targets; do they like that broker; are they under pressure to get something done quickly?” money, respectively, related to valuations.

One area that Ben would like to see given more consideration is valuation methodologies. For example, when there is a tenant in situ, he explains, vacating said property can come with a host of complexities. “You need to look at what you would do in a recovery situation, and the length of time it would take you to vacate that tenant or, indeed, how applicable it is to vacate them,” he details. “If you can’t get them out that easily, or you’re not willing to wait the time that it takes to do so, then you need to understand what yield the property brings, and how that delivers value, and not look at the price-per-square-foot data.”

He adds that, while price per square foot is very important in, say, London, it becomes less relevant the farther from the city centre you go. Understanding market versus passing rent, and gross versus net rent, is also vital.

Lenders that are seeking corporate funding lines may do well to explore the services of a company like BridgeShield; according to Ben, two questions routinely get asked upfront: do you use an external asset manager, and what’s your recovery process?

The past few years have been laden

our clients as to where they should be lent value-wise. That sort of thing really sparks good debate with them.”

Given the environment, I am eager to explore Ben’s views on bridging exits, and whether he is witnessing a sufficiently careful approach to these. He reports that, currently, at 75% LTV, if the exit is refinance, “you’re basically betting on a tailwind”. “I would want to underwrite for that exit at the time of origination, so you can see that they will get out,” he advises.

Ben predicts that the market is headed for a let-up, partially due to the stimulus provided by the stamp duty relief. “That buoyancy has created demand and pushed prices up and, we believe, interest rate rise or not, that will start to soften, and there will be a lot of properties coming our way on the recovery side of things, where the exits just aren’t there.”

He cites ‘open’ bridging as an example of when plenty of focus is being apportioned to the borrower and the property at the start, but none to how the loan is going to be repaid. “There are so many things that we would love to encourage our lenders to do perfectly every time. They don’t always do it.”

He does, however, empathise with finance providers that, amid this, must lend money and remain competitive.

67 Nov/Dec 2021

Feature

“Competition drives changes and influences risk decisions massively”

They’ve got employees to pay, funders to satisfy, and a machine to keep running. “I think competition drives changes and influences risk decisions massively,” he shares.

“We want to facilitate lending, not prevent it,” Ben continues. “When I first started out, it was a motivation to prevent lending, because I felt like I’d done a good job that way.”

Ben also now better understands the broker’s point of view and the amount of time and effort that can go into their cases. “Quite often, the lender will phone us and say, ‘Look, we’re going to decline the deal because of the reasons highlighted in your report.

Would you mind having a chat with the broker about it?’” he comments. “When presented with the facts, most brokers will accept the rationale,” he adds.

Naturally, an asset manager’s role at the front end intersects with the lender’s valuation process. I am interested in how Ben’s factual style gels with the well-known concept that valuations are ‘an art and not a science’.

While proper methodology will get you within the correct valuation remit, one also needs to understand the emotional interpretation of a property. “People don’t buy property using price-per-squarefoot calculations. They buy it using their eyes and their heart.” He often sees no weight being added or deducted for the nuances that impact how desirable an asset is. Given the subjective aspect of some features—“I could argue that I want a house with a 300-foot garden, whereas someone else might think, ‘I wouldn’t cut that grass’”—what he believes you can do is be better at picking comparables and looking at what buyers want. “That’s

where art and science have to meet.”

Ben’s job is to take the lender’s report, understand it in relation to his own figures, then work out where the property in question sits in that ‘range’—and whether it is fit to be used as security in accordance with the lender’s tolerance for risk. “You need a very analytical mind to do that,” he asserts.

From a risk perspective, Ben feels BridgeShield best serves a lender with development projects, whose nature dictates that its value will decrease before it realises its full GDV. “This curve is something that I’ve spent my whole life talking to underwriters about,” he enthuses. “Loan development risk is another whole set of parameters. Gross development values are predicted on a future market.”

As development valuations tend to be on the pricier side, getting Ben to review a possible deal upfront is something that can benefit all parties. “We charge a variable fee for a residual desktop analysis,” he explains. “It’s not a lot of money for someone to get a really good feel for the case, both from the borrower’s and the lender’s perspectives.”

Whereas risk analysis centres on the asset, recovery typically concerns the borrower. Ben’s years in the industry at both ends of the transaction mean that he has encountered just about every eventuality. “We see a lot of people burying their heads in the sand,” he confides. “What I would say to a lender is, you will have problems. You will need to make sure you can recover debt, and you’ll need to do it well.”

When BridgeShield is handed a recovery case, it gets under the skin of the issues and moves to resolve them by assisting 68

Bridging & Commercial

Feature

the borrower to exit the loan—it does not automatically recommend or initiate receivership proceedings. This approach tends to be quicker and significantly cheaper. Receivers typically charge 2% of the asset value, plus insurance and disbursements, such as agents’ fees, that can increase over time. A pre-receivership solution will come at a fixed 0.75% of the loan amount.

Ben will look at how and with whom the asset is being marketed, and at what price, and determine whether this is the best course of action. “If the borrower trips up at any point—for instance, they stop responding—we can go to receivership.

But we to try to avoid that. It’s very disruptive.” He says that almost half of the company’s instructions get out of their loans on asset management terms. In fact, he goes as far to claim that this route gives back to the borrower, in that they learn a lot from the process: which agents to use, how to market successfully, and which lenders to go to for refinancing.

If receivership is unavoidable, BridgeShield partners with FRP Advisory, which handles it from that point. “They’re the receiver. We’re the property experts.

We bolt together under one fixed fee

Up

Cred it - b term acked s in

75% LTV

at 2%, which we split between us,” Ben expands. “But we don’t give them cases unless we’ve done everything we can to get that loan out, and a lot of lenders really like that approach.”

When a case goes to FRP, Ben and his team maintain the point of contact for all parties, resulting in a “seamless transition” from the lender’s and borrower’s perspective. Ultimately, the goal is the most expedient route of recovery— and this may be via receivership.

The asset manager is currently recruiting and, as one might imagine, joining the team requires a very specific skill set.

According to Ben, being too sales-y won’t work. In addition to hiring an individual with a background and experience in recovery, I wonder whether a former underwriter could fit in well?

“Absolutely. It comes down to your understanding of risk, and how you absorb that,” he responds. “We find that some people are quite methodical, and they can grasp the numbers but they struggle to think outside of them. On the other hand, some really understand why we’re dipping into the detail. Everything comes down to tolerance of opinion.”

to

R

from ates

0.59

%

mon per

0%

1 HO

r in o a d mt f e e s i x e

UR

th

Speak directly to one of our award-winning underwriters for super, tailored property finance wrapped up in time for Christmas.

Unregulated first charge loans only. 2% arrangement fee plus legal and valuation fees apply. Visit www.funding-365.com for full product guides.

Funding 365 Limited is registered in England & Wales. Company Registration Number: 08488034. Company Registered Address: 20 - 22 Wenlock Road, London N1 7GU.

69 Nov/Dec 2021

If you've got clients looking to enter the holiday let market, we could help.

• We look at multiple sources of income when assessing affordability, and have no minimum income requirements.

• We accept a wide range of securities and property types across England, Scotland and Wales.

• We don't require a certain amount of landlord experience, or restrict the size or value of your client's portfolio.

Find out more togethermoney.com/holiday-let

*Subject to an affordability/creditworthiness assessment.

For professional intermediary use only

Holiday Let mortgages from 4.99%*

Property finance by property people With over £360,000,000 of property development projects funded with speed, ease and certainty, CrowdProperty provides game-changing property finance to help developers grow their businesses faster.

Apply in just 5 minutes at: www.crowdproperty.com/apply or call 020 3012 0166

Feature

Funding partner, not parent

Adam Daniels For the past four years, Paragon’s structured lending arm has been injecting wholesale capital into non-bank lenders in the bridging and commercial space. With half of its book rooted in the property sector and its largest facility agreed with a bridging finance provider, the banking group is actively looking to expand its activities in this market— without bogging down the decision-making process Words by

BETH FISHER

T

he structured lending division’s managing director and co-founder, Adam Daniels, has been leading the business since 2017. Prior to joining Paragon, he was global head of specialist finance and intermediaries at Lloyds Banking Group and has held roles focused on M&A at EY and GE Capital. Bridging & Commercial sits down with Adam to find out how the bridging market has evolved as a consequence of increasing institutional funding, and how this is impacting credit autonomy and flexibility.

have gradually relaxed them—probably back to pre-pandemic levels. In fact, one thing I’ve noticed is there’s a lot more debt capacity from non-traditional lenders. The banks are busy, but there’s also a number of debt funds. The bridging market’s pretty hot at the minute, and there’s quite a lot of wholesale debt available out there. If I look at my current pipeline, probably more than 50% of the opportunities on our desk are bridging or bridging-related and moving into development finance.

So it’s a liquid market right now.

Has appetite from institutional funders changed since the pandemic began?

How much involvement does Paragon have in the decision-making process of these bridging lenders’ originations? Do they have to go through the credit process twice?

Yes. There’s no doubt that when the pandemic started, there was understandable nervousness among all bank and institutional wholesale funders, big or small. But, as time has gone on, people have begun to understand a lot more about what the impacts of Covid are.

While most wholesale funders contracted their lending terms to start with, they

Absolutely not. We do not re-underwrite and that’s one of the key points for putting a revolving credit facility (RCF) in place.

RCFs take quite a bit of work upfront.

The average lead time is probably three or four months. We work with the lender to identify what we call ‘the eligibility 72

Bridging & Commercial

Feature

criteria’, ie what is eligible and what is not. Once the deal is signed, if our client is originating deals that are eligible, then we are legally obliged to fund them. The client may originate ineligible deals too; we just won’t fund them. Consequently, we have zero oversight of what they underwrite on a day-to-day basis. We do have audits in place, normally every quarter, when a third party checks whether the agreed processes have been abided by. We’ll usually start with fairly tight eligibility criteria. After a year or so, the client will often come to us and say, “Can we adjust this and that to better reflect the current market?” Of course, if our facility doesn’t reflect the reality of their business, then it’s not working. We then have to think from a credit perspective, does it work for us? But if it’s an operational matter, we’ll try to put it right. However, once you’ve embedded with the client and everyone’s comfortable, if they come to us with an off-the-fairway deal that sits slightly outside our eligibility criteria, and say, “We think it’s a really strong deal.

Would you fund it?” we will look at that individually. And often we do fund them.

up on it. However, it may create some negative behaviours, especially around the urgency to lend the facility and the impact that may have on underwriting standards. And that’s where bad things start happening systemically.

Why would a bridging lender go to Paragon for a funding line?

We’re a very experienced property lending bank with though-the-cycle experience.

We also have a very talented team with a broad range of experience covering lending, M&A, and securitisations etc, so we add value at a number of points in a client’s evolution. Collectively, we’ve seen a lot of good and some bad things occur; we make a note of them and try to avoid them in the future.

What I think bridging lenders see in us is a strong relationship bank that will partner with them as their business has some highs and lows—as we did through the pandemic. We are also candid in our dealings with clients and they are with us. This creates an excellent working relationship.

One of the key things in this market is the recycling of cash. Every bridging lender emphasises the need for speed. While that’s great, it can’t come at the price of poor underwriting. They must be able to underwrite quickly but, if we can recycle the cash through our system faster to get it back into theirs so they can re-lend it, that’s important for them. We try to come up with innovative ways to assist with that.

A simple way of doing this is to agree to, say, a £20m facility, but only commit to £10m initially. We then gradually increase it as the portfolio grows, helping to manage non-utilisation charges. We always try and ensure that our facility mirrors the business model and needs of our client at the outset, and we adjust it as those needs change.

What’s the average funding line size that you normally deploy?

For a new-to-bank client, it’s around the £25m mark. We’ve got some larger facilities than that, but that’s more relationship-driven—we’re very strong on relationships. We’re not a huge bank, so that limits what we can do per client, ultimately. Equally, we’re very happy to give evolving businesses smaller facilities as low as £10m to get them going. However, we like to see a runway to get the facility to a bigger size, as a lot of work goes into these RCFs to get them on board.

If we can get them [to start] at £10m, then grow them to £25m, we’re pleased to do that as well. We’re not terribly prescriptive. It’s got to make economic and commercial sense for us and the client.

What do you normally look for in a bridging lender?

There are some institutional lenders providing £100m funding lines, but is there enough business going around for that?

The hygiene factors include a strong management team and one that really walks the talk on regulation and compliance.

Let’s face it, the regulatory environment is only getting harder. I appreciate most bridges are not regulated, but it’s clear that, over time, regulation will become a larger feature of the market.

Consequently, we may as well start thinking and acting like that now.

Client size is not that significant to me at the outset; clearly, if it’s a very mature

That worries me, frankly. There are some organisations, debt funds for instance, that are lending very large sums—and they often have little experience of the product or market. They’re perfectly entitled to do that and, if I was a bridging lender, I might be tempted to take them 74 Bridging & Commercial

Feature

business, I’d expect them to have fully scaled infrastructure and an experienced team. If it’s a smaller business, then they can have an experienced leadership team and ‘right-sized’ infrastructure with a plan to build out the business as sales volumes increase. Then, it’s really about quality of underwriting and their approach to the marketplace. We want to see a relationship approach. If things go wrong, we can sort it out together. That’s crucial to us.

A key challenge we see with the smaller businesses that come to us is they tend to not have sufficient equity to support a RCF. We will try to help by pointing them in the right direction as to where they can raise mezzanine, for instance. It’s a relatively swift process to get them to where they need to be. I see it as a win for all parties if we can assist a small, successful business become a larger one over time.

heavy development and actual development finance—but they’re very different products. If people want to start doing development finance, that’s fine, but you’re in a different risk environment. You’ve got to change your infrastructure and get project managers, quantity surveyors etc on board. If a client wishes to do that, then we’re often happy to allocate a small ‘tester pot’, as we call it, so you can try out your theory a little bit at a very modest advanced rate, assuming the infrastructure is in place.

We’re willing to help clients, but they have to understand the risks are not the same.

What differences can brokers expect from bridging lenders that are utilising institutional funding, rather than being principally funded?

Hopefully none. We try to make the eligibility criteria fit what the business is already doing along with some ‘future proofing’. And, if we can’t make it work, then there’s probably not a deal to be done. If we can make the eligibility criteria match the business that the client is already executing on, frankly the only thing the broker should notice is that they do more deals.

Would you agree that funding terms are usually better for the larger bridging lenders?

Well, it’s risk and return at the end of the day. If you’ve got a very large established business, then you probably will attract better terms. We’ll often give a smaller business a slightly tighter deal. They usually come to us and expect the world, but we ask them to be patient and say, “Start with us on these terms, which are perhaps less attractive than you’d like, then we’ll evolve as you evolve.” This could include adjusting our advance rates or even margins as clients develop. We can also show some flexibility around the concentration limits, geographic thresholds, or even the average and maximum deal size. If the client shows us that it’s a strong relationship and they know what they’re doing, as they grow, we will be happy to adjust our terms.

Do you expect to see more M&A activity among bridging lenders next year?

I don’t think so. A number of businesses have scaled up very quickly, so they’re already quite big. What’s the point of paying a large goodwill cheque to acquire another business with its associated risks when all you really have to do is access their brokers? You can take the business without paying the goodwill and still get the scale, albeit over a longer time period and with no operational, integrational or culture risk. It’s simpler. A business could consider an acquisition to add complementary products to their existing set. And, of course, blending two businesses to materially save costs by eliminating a whole team has been used as a justification many times, but is actually difficult to execute and risky. What I think you might see are some banks or other evolving businesses, such as fintechs, looking to add product lines. Small- to mid-sized banks have strong deposit bases post pandemic and are looking to lend. Equally, you could see big pension funds that are keen on growing assets for yield acquiring a bridger as the pension fund needs direct access to the market.

What trends are you seeing from bridging lenders with regard to growth and product expansion?

The market is incredibly busy at the moment. Previously, the standard monthly rate was 1%; this is now 0.65% or less.

Sometimes you’re seeing businesses going down to 0.45%, which I think is a little punchy. It’s a very competitive marketplace in vanilla bridging, making speed more essential; if you can make your systems move as fast as possible with the broker, then that’s really important to them.

I think the natural thing for a bridger to do is to ‘stray’ into heavy development.

And then there’s a ‘wet paper bag’ between 75

Nov/Dec 2021

Highlights from the FP Show 2021 On 10th November, the specialist finance industry flocked to London Olympia and, afterwards, The Hand & Flower, to catch up with lenders and brokers alike. Our editor, Beth Fisher, spent most of the day chairing the panel debates in the conference theatre—and here she shares the best bits

One Day

THE BIG DEBATE This year, event kicked off with a debate regarding the need for a qualification in the specialist finance market that brokers can take in order to evidence understanding, aptitude and experience in dealing with more complex product types. This subject has been doing the rounds for the best part of a decade, therefore we felt it was the time to bring it to the mainstage so that more people can get it on their radar and help shape it.

Featuring: Rob Jupp, CEO at The Brightstar Group Emily Machin, head of specialist finance at OSB Group Alice Williams, director at Pilot Fish Piragash Sivanesan, managing director at Totum Finance Juliet Baboolal, partner at Seddons Stephen Todd, co-founder and CCO of VAS Group D’mitri Zaprzala, director at Avamore Capital

“When I look at a loan transaction, I see everyone as a link in that chain; we’re all part of everyone’s branding. So, if I’m connected to a broker or a lender, I want that brand to represent me, and I want my firm, as a brand, to represent them—it’s really important to get that right. There is a need for long-term accountability.

For far too long, people get their commission then they’re out of the equation. We, as solicitors, are on the hook for six years after you’ve completed—we’ve got PI. I think the other parties need to have that level of accountability, and then you’ll have less misselling or misrepresentation. That’s something we need to look at from a qualification and regulatory perspective.”

—Juliet Baboolal “When I was in the mortgage industry in the early 2000s, there was a similar journey when people had to become qualified by a certain date and, unless they did, they couldn’t do business. I remember the initial uproar of, ‘Ive done this for 50 years, I know what I’m doing, why do I need a qualification? It shouldn’t apply to me.’ It was forced upon them, and most people cracked on and did it. If you’re not willing to do that qualification, should this be an industry you’re in? However, I wouldn’t think it fair if there’s a qualification expected of a broker that the lender they’re speaking to doesn’t have. I don’t think it’s a standard just for brokers, but across the whole market. It 100% should be mandatory.”

—D’mitri Zaprzala 78

Bridging & Commercial

One Day

MAXIMISING OPPORTUNITIES IN BTL The world of BTL is ever changing for landlords and investors.

Revisions in tenant requirements and rights, taxation, and the need to bring properties up to standard have hit this sector hard.

However, there has also never been a better time to diversify and hone one’s investment strategy. This panel discussed how the world of options for a landlord has opened up into various subclasses, such as holiday lets and HMOs, and where the key challenges and opportunities lie.

Featuring: Shrena Patel, senior BDM at Octane Capital Marcus Dussard, sales director at Hampshire Trust Bank Adrian Moloney, group sales director at OSB Group Alison Houghton-Corfield, national relationship director at Master Private Finance Marc Goldberg, commercial finance CEO at Together Michael Coates, managing director at Commercial Expert

“I think we need to be mindful of the actual investor. I’m a landlord, I’ve got several properties, and the mortgage interest rate relief has disappeared. People are paying a lot more tax— certainly if you’re a sole trader or partner. To migrate that over to limited companies, yes, that’s a good thing, but there are huge implications on the cost and time to do so. We’ve been through a pandemic where many landlords have taken a major hit on rental income, and we’ve got inflation possibly kicking in really high… and we’ve got EPC rules to come. Is it one size that fits all? There are properties with two-foot-thick stone walls that are EPC rated as low as they can get—spend £20,000, and it will lift them one category. That landlord’s got to borrow £20,000; they will need to pay that back and include it in their overheads. I think we need to be very careful that we don’t just continue to bash the landlord.”

—Michael Coates “Lenders have to be a bit more cautious when they’re doing their assessments on holiday lets, because if there isn’t that income, and it has to be on a regular AST, will it still work? What you don’t want to do is leverage yourself highly on a holiday let which, if that income doesn’t come in, will put you in trouble.”

—Shrena Patel

79 Nov/Dec 2021

A huge thank you to all of our Partners.

And here’s to a prosperous 2022 for one and all!

2021

WI N N E R

2020

WI N N E R

2019

WI N N E R

mintpropertyfinance.co.uk

One Day

BUILDING BETTER AND GREENER Climate action is finally entering the sector’s consciousness in a meaningful way. We gathered some of the industry’s most innovative minds to address the property market’s contribution to carbon emissions and why the time to act is now.

Featuring: Aleksandra Njagulj, global head of ESG for real estate at DWS Edward Clark, managing director at Uplift Finance David Travers, CEO at Impact Lending Chris Gardner, founder and joint managing director of Atelier “If you’re not decarbonising your existing assets, you have a huge risk of stranding a large portion of your portfolio, and of course you have regulations coming in for new developments which are going to require certain criteria be satisfied. Because these are physical assets—you actually need to go into these buildings and fix them—we can’t just build ourselves out of it. Of course, any new buildings need to be net zero carbon and efficient, but the biggest challenge is fixing the huge amount of building stock we already have. There is also the embodied carbon that has ‘sunk’ in those buildings, and we need to make sure it’s preserved in them.

If you do act, fix your assets, and make them resilient and energy efficient, then that’s an opportunity. Green buildings rent better, they have higher occupancy rates, and they are more liquid and sell for a higher value—so there’s a clear business case right now to do all of these things, which wasn’t the case maybe even three years ago, before this trend for ESG and reward for doing green things was there.”

—Aleksandra Njagulj

81 Nov/Dec 2021

Call: +44 1925 852 278 Visit Salboybuildpartner.com