in association with
SPECIALIST LENDING
2.0
Buy to Let loans for Foreign Nationals Pay rate from 4.69% LTV up to 75% 100% at pay rate stress testing
First-Time Buyers and Landlords | HMOs Foreign Nationals | MUFBs Semi-Commercial | Low-Yielding Properties
Experience delivers. To find out more about #3rdGen Buy to Let lending call us now on 0345 222 9009 or visit octanecapital.co.uk For use by mortgage intermediaries only. Octane Capital Ltd (Reg No 10481270), Octane Property Finance Ltd (Reg No 10483453), Octane Property Finance 3 Ltd (Reg No 12391575) and Octane Property Finance 4 Ltd (Reg No 12491136) are private limited companies registered in England and Wales having their registered office at Haskell House, 152 West End Lane, London NW6 1SD.
Specialist Lending 2.0
Welcome to the Bridging & Commercial Magazine supplement, in association with Octane Capital
Contents 4 8 11 14
Foreword Case study: The broker’s view Case study: The boots on the ground Market overview: BTL sector grows by £239bn
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Octane Capital
foreword
Specialist Lending 2.0 by Mark Posniak, Managing Director, Octane Capital
Do you remember the good old days of commercial lending when customers had an actual relationship with their bank manager?
In those simpler times it was the relationship that dominated who borrowed what— especially when it came to property. Over a call, coffee or lunch or, dare I say, drinks, a prospective borrower would set out the details of their project proposal and within minutes they’d have an answer on whether the deal would work for the lender. Then, not only was the relationship and the trust that went with that key, but so was flexibility. It was a quid pro quo of sorts in that the lender trusted the client and, in return, extended deal terms and parameters that reflected that trust. It was called ‘individual discretion’. But since the financial crisis, traditional lenders and even so-called specialist funders have pulled up the drawbridge on individual discretion, preferring instead a computer-led approach that comes with a series of hoops to jump through. Crucially, if just one ‘hoop’ is missed, the whole case falls over. Yes, commercial customer property lending is now a one-size-fits-all, tick-box exercise that focuses on risk aversion and ‘backside covering’ as its modus operandi—once again, particularly applying to the property space.
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Octane Capital
Let’s look at those checkboxes for a moment:
• • British citizenship or residency only • No first-time landlords • No offshore companies • No mixed use/semi-commercial • No residential security over commercial units • No HMOs over a certain number of rooms • No portfolios on shared title • No dwellings not fit for occupancy • No low yielding properties LTV–75%
(we don’t stress test!)
As a broker, if your client is one of thousands of entrepreneurs that fall foul of even one of these arbitrary criteria, then the computer will certainly ‘say no’ to your efforts to place that 6
business. Much like if you tick the wrong box on an online mobile phone contract application, you swiftly receive a notification that says, ‘Declined’. Therefore, one wonders how much money is being left on the table—and not least for the broker community. I’d wager that number has a few zeros after it.
BACK TO THE FUTURE AT OCTANE CAPITAL At Octane Capital we don’t use a computer programme or a spreadsheet to ‘score’ a lending application. There are no big, red flashing lights that go off in our office if one of the above parameters is breached. Indeed, we consider projects that cross more than one of the above obstacle boxes. In fact, the word ‘no’ isn’t one that you’ll hear much at Octane Towers.
Specialist Lending 2.0
The word ‘no’ isn’t one that you’ll hear much at Octane Towers
We take one approach to bridging deals, developer exit finance and buy-to-let portfolio funding and that is to look at every deal in the round. There’s no algorithm nor flaming set of hoops to jump through; instead, we look at the bigger picture. Multiple flats above a row of takeaways? Foreign nationals? HMOs over 12 rooms? Separate portfolio units on one title? No problem. These do not trigger a collective sigh or a shake of the head. We invite you to challenge us. We’re not saying that we say ‘yes’ to everything; of course, we have to pass on occasion if the overall feel of the deal doesn’t work for us. But you’ll be surprised at how likely we are to approach a deal with an open mind, whereas traditional funders and some self-proclaimed specialists won’t.
That’s how we’ve lent over £1bn across 2,500 loan facilities since we launched in 2017. It’s truly next generation lending—specialist lending 2.0. PS. Don’t tell anyone, but our North Star is not the securitisation of our lending book, hence our comparative agility. In the following pages we’ll show you some examples of how we work. Visit our website at OctaneCapital.co.uk or call us on 0345 222 9009.
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Octane Capital
CASE STUDY
THE BROKER’S VIEW
So, what do our broker partners think of how we operate? We commissioned an interview to find out… CPC Finance is a Watford-based specialist property finance broker established over many years. The business is run by director Karl Griggs and his team of funding professionals with over 65 years’ combined industry experience.
WHAT SORT OF LENDING ARE YOU PLACING WITH OCTANE CAPITAL? Predominantly it’s guaranteed buy-to-let exits and developer bridging deals that include refurb and the asset purchase/refinancing itself—they fund both parts of that.
HOW LONG HAVE YOU DEALT WITH OCTANE? I’ve known the Octane Capital principals for over 25 years. I’ve built a relationship with Mark and Matt from their previous roles and have followed them as they’ve grown.
WHY SUCH LOYALTY? Because they get it. They get that the lending business between client, broker and lender is 8
based on relationships and, therefore, trust. But they also have an approach that others don’t: they’re a unique outfit and, as the broker, you deal directly with the actual decision makers.
CAN YOU EXPAND ON WHAT YOU MEAN BY ‘UNIQUE’? Octane doesn’t work with a tick-box mentality, preferring instead to look at each deal in the round. They look at all the options in building a case and they spend time on each one. It’s a very old school methodology but one whereby I know that I can present something to them that may not fit traditional lending criteria (as most lenders would see it) and they’ll try to find a way to lend. It’s a way of working that seems geared to say ‘yes’ rather than traditional lenders that look for an opportunity to say ‘no’.
AND YOU DON’T SEE THIS WAY OF DOING BUSINESS ELSEWHERE? No, especially from what I’d call the ‘establishment’ lenders. The decision makers there have long since become distant from the coalface and therefore they feel they have to introduce a layer of automated checks in order to protect their book. In effect, traditional lenders
Specialist Lending 2.0
Karl Griggs
have become ‘sausage factories’ and that’s where deals that could and should get done, simply don’t, because they might be a little complex or unconventional—but they’re nonetheless good deals to fund.
CAN YOU SET OUT AN EXAMPLE OF A DEAL THAT OCTANE LENT ON THAT WAS UNCONVENTIONAL AND WOULD ALMOST CERTAINLY HAVE BEEN TURNED DOWN BY AN OLD-FASHIONED LENDER? We’ve just completed a commercial-to-resi conversion where the upper floors benefitted from permitted development rights and therefore that part was straightforward. However, the ground floor required planning consent which it did not have, yet Octane was able to not only lend on the project, but they geared up the deal based on an assumption that planning will be granted. They’ve set up a provisional credit line and drawdown facility for the ground floor conversion in anticipation, so all the client needs to do is to produce the consent notice and the
credit facility will be live. That gave us such an edge when securing the deal.
HOW MUCH BUSINESS DO YOU DO WITH OCTANE? In the past year, we’ve completed on over 40 deals together and that’s a decent proportion of our total deal flow at around 10% of our total business. Last year we did about £100m in overall funding placement.
ANYTHING ELSE ABOUT OCTANE THAT’S DIFFERENT? They’re 24/7. If there’s an answer needed on a project or a problem to solve, I know that I can get hold of Mark, Matt or Jonathan outside of standard hours. That’s important when dealing with demanding clients and, indeed, in a rather uncertain and unpredictable world right now. Karl can be contacted via his company website at https://www.cpcfinance.co.uk
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CASE STUDY: THE BOOTS ON THE GROUND
Specialist Lending 2.0
We speak to two members of the Octane Capital team, Shrena Patel, Senior Business Development Manager, and Liam Lawlor, Sales Director
Shrena, what does a typical week at Octane Capital look like for you? It’s varied and always busy. But, most of all, it’s about relationships. I look after a number of existing brokers in London and the South East and am always on the lookout for new intermediaries to partner with, too, so I juggle both aspects. I spend a lot of time collaborating to put deals together and invest much of my week in supporting the various components of a case such as liaising with lawyers and valuers—and even the end client directly. I also like to keep in touch proactively and that doesn’t always mean chasing for business but is often about providing information on the market or the industry to ensure that my team is better informed on what’s going on out there.
Shrena Patel
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Octane Capital I bet it’s great to switch off at 5pm each evening, then? Hardly! I’m a slave to my phone and would much rather deal with queries and enquiries out of hours if that’s when they come in, as opposed to having a backlog of messages and emails each morning. Liam, is there such a thing as a typical week for you? I look after selected brokers and also help support some of our sales team, which means my work day is nicely varied. We have a pretty unconventional approach in that, if I have a great rapport with a broker, I look after them—and that also applies to the bosses. For instance, Mark is still the day-to-day contact with brokers that he has an established relationship with. There’s no one-size-fits-all at Octane; it’s very fluid, client led and is all about expanding upon what works well. Shrena, tell us about Octane Capital’s point of difference Creativity in underwriting is our strength, as is our flexibility around understanding that weaknesses in a deal can be overcome here and there. My brokers know that it’s always worth a call to evaluate a proposition no matter how unconventional or complex it is; so many cases come with some baggage and, within reason, that’s fine by us. Liam, anything to add to that? Where we’re also different is that we don’t adopt a conveyor-belt type approach with our broker friends. What I mean is that Shrena, I, and the team will liaise with our brokers from enquiry to completion personally—no one gets handed off after the agreement has been inked. One individual will see everything through. I like to have intimate knowledge of a case at all stages, and I think the benefit of that is not only good comms but that we can anticipate hurdles and solve them in advance. Shrena, what does that mean for transaction speed? High street lenders seem to be taking longer to get a transaction through these days—an average of 12 weeks, typically. Our lead time is much faster because we are all hands on the pump, 12
pushing for everything to come together faster. I had a deal that recently completed in 10 working days from initial enquiry and, while that isn’t typical even for us, it shows what can be done when everyone is aligned and motivated to get something over the line. Liam, it sounds like there’s pressure at Octane to get stuff done. Does that impact on your relationship with the Credit Team? Not at all. We’re one big team, rather than being in silos, and our office layout reflects that— everyone sits in one space. Of course, there are challenging conversations sometimes, but we all know that we have the same goal and that’s to do volume, quality business and we’re all on the same page with that—even when our BDMs sometimes rather enthusiastically fight the brokers’ corner!
Specialist Lending 2.0
We don’t adopt a conveyor-belt type approach with our broker friends
Liam Lawlor
Shrena, can you describe an interesting case scenario that you’ve recently been involved in? Well, how about the biggest loan we’ve ever done? It was a deal that was being processed by another lender, a high street lender, that had run for nine months and got stuck in legals because of some planning consent irregularities. A £40m buy-to-let portfolio with a £17.35m advance–40 buildings containing 160 units–and from personal ownership to a limited company, plus the owners wanted to take some money off the table. It was somewhat complex, hence the delays. I’d been made aware that the deal was being touted around a few months prior and kept in touch with the broker regularly. He eventually called and introduced me to the client directly because they’d lost patience with the traditional lender. Frankly, I don’t think they’d ever have concluded it.
The transaction was then completed by us in six weeks, thanks also to our decision to do low-level due diligence on some of the assets. That was a nice deal. Liam, any final thoughts from you? Our experience across the property spectrum is as unique as our underwriting methodology and brokers simply won’t find a lender like us anywhere else. Octane looks at the whole deal, warts and all. We love repeat business from regular borrowers and will bend over backwards to make their projects happen. I’d go as far as to say, the more complex the proposition the better. We’ll consider a case where, for instance, it’s a first-time landlord funding properties above commercial premises and where there’s no UK income provability. We love a perfect storm of a deal.
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Octane Capital
MARKET OVERVIEW: BUY-TO-LET SECTOR GROWS BY £239BN Octane’s research reveals that the UK’s buy-to-let sector has grown substantially in value over the last five years, increasing by almost £240bn
We analysed the level of privately rented stock across each region of the UK in relation to current property market values to find the total worth of the buy-to-let sector. We then compared this buy-to-let bricks and mortar value to 2017 to reveal how it had changed over the last five years.
CURRENT BUY-TO-LET MARKET VALUE Our team’s analysis shows that there are an estimated 5.5 million private rental properties within the UK rental sector and based on current market values we estimate the total value of the nation’s buy-to-let stock to be £1.7 trillion. With just over one million private rental homes, the London market accounts for 19% of the UK’s total buy-to-let properties. With the capital also home to the highest property values, it sits top 14
where the total worth of the buy-to-let sector is considered to be over £500bn in value. The South East is home to the next most valuable buy-to-let market at £247bn, with buy-to-let values also exceeding £100bn in the East of England (£168bn), South West (£156bn), the North West (£110bn) and the West Midlands (£104bn).
LARGEST UPLIFT IN BUY-TO-LET MARKET VALUE While the level of privately rented homes has remained largely flat across the UK over the last five years, the total value of the buy-to-let sector has seen a significant boost due to strong house price growth. The UK’s buy-to-let market has climbed by £239bn since 2017, a 16.8% increase.
Specialist Lending 2.0
Table shows the total value of the buy-to-let sector and change since 2017 based on the number of private rental properties and current market values - Sorted by highest current estimated value
Location
London
Total private rental sector estimated stock (latest)
Current average house price
Current estimated value of BTL sector
Change in current estimated value of BTL sector (£)
Change in current estimated value of BTL sector (%)
1,042,130
£519,934
£541,839,558,519
£56,914,371,748
11.7%
South East
670,121
£369,093
£247,336,845,531
£15,833,094,340
6.8%
East of England
497,156
£336,937
£167,510,132,782
£27,446,223,067
19.6%
South West
506,248
£308,497
£156,175,827,233
£34,015,293,422
27.8%
North West
556,005
£197,797
£109,976,097,716
£17,207,632,758
18.5%
West Midlands
450,746
£230,888
£104,071,725,925
£23,520,442,269
29.2%
Yorkshire and the Humber
482,360
£191,036
£92,148,092,701
£18,766,926,342
25.6%
East Midlands
390,747
£229,277
£89,589,386,301
£18,490,170,321
26.0%
Scotland
370,845
£182,755
£67,773,737,256
£10,281,520,850
17.9%
Wales
204,995
£199,877
£40,973,714,338
£9,549,916,076
30.4%
North East
203,163
£149,249
£30,321,963,529
£3,538,958,900
13.2%
Northern Ireland
113,989
£159,109
£18,136,718,151
£3,796,852,989
26.5%
United Kingdom
5,488,506
£270,708
£1,665,853,799,982
£239,361,403,080
16.8%
While London house price growth has lagged behind the rest of the UK of late, the capital has still enjoyed the largest uplift in buy-to-let market value with a £57bn jump in cash terms, followed by the South West (£34bn) and the East of England (£27bn). The government has tried its hardest to dampen investment into the private rental sector in recent years, with a string of legislative changes around tax relief, stamp duty and tenant fees reducing the profitability of buy-to-let investments. The pandemic has also proved problematic for some landlords who have suffered lengthy void periods due to factors such as the tenant eviction ban and a reduction in rental demand across our major cities, in particular.
Despite all of this, the sector has stood tall and continues to provide the vital rental market backbone that so many are reliant on. At the same time, the nation’s landlords have benefited from a considerable level of capital appreciation on their buy-to-let investment and the value of the sector as a whole has increased substantially. Let’s just hope that whisperings of a higher rate of capital gains tax remain just that, as any further increase could spur a reduction in available stock, causing the total value of the market to decline in the process.
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Buy to Let loans for First-Time Landlords Pay rate from 4.69% LTV up to 75% No stress testing required No employment income required
First-Time Buyers and Landlords | HMOs Foreign Nationals | MUFBs Semi-Commercial | Low-Yielding Properties
Experience delivers. To find out more about #3rdGen Buy to Let lending call us now on 0345 222 9009 or visit octanecapital.co.uk For use by mortgage intermediaries only. Octane Capital Ltd (Reg No 10481270), Octane Property Finance Ltd (Reg No 10483453), Octane Property Finance 3 Ltd (Reg No 12391575) and Octane Property Finance 4 Ltd (Reg No 12491136) are private limited companies registered in England and Wales having their registered office at Haskell House, 152 West End Lane, London NW6 1SD.
