Straightforward with Sancus

“Straightforward property finance” is a tagline used by Sancus, and, really, that sums it up nicely.

This is a business built on the real estate finance know-how of an experienced senior team, prepared to back its judgment rather than rely on formulas.

Much like LDS, Sancus puts great value in building relationships, gaining an understanding and insight into how the people it works with like to operate. It’s a method that has served it well, with £1.2bn successfully lent in recent years, supporting an appetite to accelerate the growth of SME developers of all sizes with loans of between £1m and £15m.

Origin story

Sancus was launched in 2013 as a response to the financial crash—not unlike other alternative finance providers. Primarily, it aimed to serve real estate borrowers in the Channel Islands where two of the main high street banks were dominant.

The backing for the lender came from a mix of its own equity, high net worth individuals and family offices, all of which remain key ingredients in the mix today. The largest shareholder is the Somerston Group. A business was launched in Ireland in 2018, and a UK operation began in 2019.

Richard Whitehouse joined in 2016, becoming Managing Director (UK) in 2022. He says: “In the senior team at Sancus, there’s a wealth of experience among people who’ve been in very senior positions at important institutions, right across banking, construction and development finance.” Whitehouse’s own CV includes roles at RBS and Allied Irish Bank in the UK and Europe.

Jaxon Stevens joined in 2021 to head the sales function, with 25 years served in short term commercial lending. He says: “I like stuff you can get under the skin of, and there’s no better product than development finance for that; there are so many moving parts, and every day is different.”

As to how the business operates, Whitehouse says: “We’re squarely on the side that the team are the product. We’re not about predetermined solutions, like a bank with a credit policy that measures loan quality. Our thinking is more in line with an equity provider.

“Once we commit, we like to back builders delivering homes for people who like living in them, and every action we take is with that in mind.”

The LDS relationship

Whitehouse says: “From the word go, we were impressed by the scale of the ambition LDS have. Like ourselves, they’ve assembled a good team with a breadth of experience. They’ve been generous in sharing networks and making introductions, helping us to solidify relationships, and we’ve been able to support each other in projecting each other’s presence in our sectors.”

The two businesses are literally neighbours in London Bridge, allowing for regular face-to-face dialogue around deals, markets and events.

As Whitehouse says: “It’s handy to have people there to discuss trends and how projects are performing, it all helps to build our own knowledge. At a functional level, both the capital and Sales Guarantees provided by LDS are important to us—really, the value of the relationship comes in both that and the sharing of knowledge.

“Associating closely with another business isn’t anything we, or anyone, should do lightly, as our corporate and personal brands are so important to us, so it shows how comfortable we are working with LDS.”

The borrower, and everyone keen to increase housing supply, can be the winner: “Ultimately, for SME housebuilders, there’s a lot of benefit in working with people who are able to sense-check things and cut through thinking time quickly.”

As Stevens adds: “Outside of the box thinking is integral to everything we do. At any one time, the market has issues, whether that be a lack of equity, exit concerns, any number of things, and it’s good for us to be able to introduce LDS as a potential solution; there’s a very strong synergy there for us.”

Capital ideas

Somerston Group invested £20m in November 2020, with a further equity injection of £2.1m in late 2022. Pollen Street Capital also increased its funding line from £75m to £125m in November last year.

On top of that committed funding, which Sancus uses to underwrite new business and undrawn facilities, it also benefits from a Loan Note programme which is run by an associated company, Amberton Asset Management, and the aforementioned high net worth individuals and investors.

Whitehouse says: “We have always focused on having multiple sources of funding and, importantly, those funding sources have different incentives to deploy capital. We try as much as we can to limit the correlation between different sources of capital, because people act differently at different points of the economic cycle.

“Covid was a great example for us of the benefit of that low correlation. We had funding sources keen to deploy into UK real estate and that allowed us to write a lot of business when we know some of our competitors had to reduce their appetite due to their funding structures. In a market like today’s, we can provide reliability and certainty for developers.”

Sancus is looking to expand both the amount of business it does and the size of its deals. Whitehouse says: “We’re in growth mode; there is a corporate plan to double our loan book over the next 24 months, so we’re looking to differentiate our offering further and strengthen those key relationships, such as with LDS, to make this happen.”

“A recent example of something we’ve worked on is with a developer who, not untypically, is spread a little thin at present, isn’t cash-rich, and needed a ‘day one’ injection. We like the scheme, we can see there’s a good exit route, and we were happy to provide a good chunk of funding,” Stevens explains.

“We’re working with a few developers who are realigning sites, and we see it as a case of looking at the challenges the market is throwing up together to find a solution.”

Moving on up?

Defying expectation, the first part of 2023 has been… OK. As Whitehouse says: “Liz Truss and Kwasi Kwarteng have a lot to answer for, but, actually, enquiries have been at record levels since the start of the year, far ahead of what we’d have predicted in the last quarter of 2022.”

That’s not to say things are easy, though: “Developers have so many complexities to deal with. They’ve gone from Covid lockdowns to a supply chain crisis, labour shortages, cost inflation, the Truss/Kwarteng issues and interest rate changes. It’s no surprise they’re being extra-diligent.

“While developers are displaying caution before pushing the button on schemes, we can definitely say now that things have at least stabilised in some of those areas of concern, such as material availability and cost, so there is a bit more certainty.

“That does still leave the issue of ‘can people afford to buy a home?’ but we’ve not seen a dilution in that area for the type of product we like: good schemes in and around nice locations.”

It comes back to the basics: there are headwinds, but the market fundamentals are still strong, and business is very much continuing for developers ready to look for solutions.

As Whitehouse says: “There are challengers for developers, but we get a lot of confidence from the likes of LDS being in the market with Sales Guarantees getting projects over the line.

“We’re engaged with developers day in and day out and don’t get any sense they’re reluctant to build—they’re just being diligent. The mood music as we read it is that developers want to progress sensibly.”