BRIDGING Champion of the Bridging Professional
INTRODUCER www.sfintroducer.com
ASTL Round table Interviews
June 2022
Hitting their stride
Justin Trowse and LendInvest move bridging to centre stage
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lendinvest.com/intermediaries LendInvest plc is a public limited company registered in England and Wales (No. 8146929). Registered Ofwfice: 8 Mortimer Street, London, W1T 3JJ.Borrowing through LendInvest involves entering into a mortgage contract secured against property. Your property may be repossessed if you do not keep up repayments on your mortgage.
EDITORIAL
COMMENT
A bridge to the mainstream Managing Editor Paul Lucas paul.lucas@keymedia.com Deputy News Editor Jake Carter jake.carter@keymedia.com News Editor Richard Torne richard.torne@keymedia.com Commercial Director Matt Bond matt.bond@keymedia.com Advertising Sales Executive Jordan Ashford jordan.ashford@keymedia.com Campaign Manager Amie Suttie amie.suttie@keymedia.com Campaign Coordinator Raniella Alonzo raniella.alonzo@keymedia.com Production Editor Kel Pero Designer Marla Morelos Production Coordinator Loiza Razon Head of Marketing Robyn Ashman robyn.ashman@keymedia.com Key Media Signature Tower 42 25 Old Broad Street London EC2N 1HN
Contents
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t was during this month’s Bridging Introducer round table that a question was posed to the panel regarding whether bridging has finally gone mainstream. The consensus suggests there are reasons for optimism. Robert Oliver, sales director at Castle Trust Bank, highlighted that it had become a “more of an acceptable term.” “I think, go back three or four years and bridging was a lender of last resort … it was ‘I can’t do anything else, so I’ll take bridging’. Now it’s changed completely – people see it as an acceptable way to purchase an asset,” he said. That concept of increased acceptance was a recurring theme, echoed by Richard White, UK sales director for Sancus Lending. “I very rarely have conversations now, either with introducers from a very broad spectrum or the borrowers themselves, where they are querying why they would use the products or why they would want to sully themselves, as it were, by taking bridging loans. I think they see it as a very natural thing to do,” he said. “In that regard, I think it is part of the mainstream now.” It seems a breakthrough has been made – and the chance to move away from trying to convince consumers of their product’s validity and toward espousing the virtues of the product will offer welcome relief to brokers. Still, as enquiry levels and loan books grow, the education narrative cannot stop. Now is the time to switch the focus to the virtues of the product, the range of new solutions available, and how these can boost businesses rather than simply carry them through a difficult time. Bridging is a powerful form of finance. At a time when consumers are increasingly focused on personalised solutions across all of their actions, bridging loans can be exactly the transaction they need.
4 Jonathan Newman ‘Full-fat’ approach pays off when it comes to specialist finance 6 Donna Wells A timely overview 8 Brian Rubins Looking at what brokers want 9 Jason Berry Regulated bridging keeps growing 14 Vic Jannels Consumers deserve the best outcomes 18 Cover: Justin Trowse LendInvest steps into the bridging spotlight 22 Roundtable: The status quo and beyond for the bridging market Bridging reaches a new point in its maturity and public perception
Paul Lucas
Your next bridging deal in just a few clicks www.sfintroducer.com
JUNE 2022 BRIDGING INTRODUCER
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REVIEW
LEGAL XXXXXXXXX
Specialist finance requires a ‘full-fat’ approach Jonathan Newman senior partner, Brightstone Law
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he first quarter of 2022 has certainly been a busy one for Brightstone Law. We’ve taken on a record number of new clients, recruited some exciting additions to the teams, and bolstered new areas of expertise to deal with insolvency and landlord-and-tenant issues (as the short-term lending community makes its presence felt in the wider buy-to-let market). There has been plenty of activity both from an originations perspective and on the litigation front. The sector remains strong but competitive – and is showing no signs whatsoever of slowdown. This tells me a number of things about the current market. First, as predicted, we are seeing more borrowers in stressed financial positions. Some are in a fight-or-flight situation, and when they choose to fight, litigation is becoming more challenging. So we’re seeing an increase not just in litigation, but also in the complexity of those cases. Publicity around Wood v Commercial First has triggered increasing disputes around secret commissions. A fair proportion of the claims are misinformed, or do not present the golden ticket some borrowers are led to believe, but they still need to be dealt with. Disputes over execution are also on the rise. Thankfully for them, most lenders did not move to full electronic signatures on deeds, but we are still seeing a growth in disputes over amended or annotated facilities, and documents that have been bastardised in the interests of speed. Other increasing dispute trends include the following: y Undue influence defences, in
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which co-owners or third parties have guaranteed debt for projects that have been unsuccessful or the principal has been unable to make repayment. Although such defences rarely succeed, especially where there has been well-prepped and documented independent legal representation, the net result is more complex multi-party litigation, increased evidential burden, increased costs, and significant delay. y Occupation fraud on buy-to-let properties, where the tenancy information appears to have been manufactured in order to raise finance. Professional negligence claims have seen a huge increase of around 500 per cent. These are mainly against surveyors on valuations made between 2018 and 2020, where disposal prices are far behind expectation. y Third-party claims by debtors against their own professional advisers regarding unsatisfactory advice or language comprehension issues. These are all complex issues and, for inexperienced lenders or lenders with inexperienced legal counsel, they can prove to be a significant and costly stumbling block in business growth. I have spoken before about the dangers of ‘skinny lending,’ where volume becomes the main driver, every part of the process becomes commoditised and transactional, and risk control and expertise are sacrificed, including the way in which a lender works with its partners, such as its legal advisers. With a skinny model, documents are produced and contracts are executed to a relatively basic level, with little else by way of added value. A healthy property market disguises the mistakes of taking a skinny approach, but mistakes become exposed in tougher economic conditions, and
the complexities we see today are exposing some problems arising from a pared-down operating model. And with registrations taking longer, many problems remain masked until a later day. Some lenders have been quicker than others to recognise the issue and have taken the decision to invest in ‘full-fat’ support. Many have not. Every lender wants the best advice, and the most experience, but not all want to pay for it. I think more lenders will come to realise the benefits of a multi-dimensional, full-fat legal approach to lending and a longstanding trusted relationship based on service and key individuals, with thicker margins to allow for sensible process proportionate to the lend, and with security, caution, and diligence. Fullfat may not be particularly fashionable generally, but for lenders it can be more nourishing in delivering a healthier, more robust and future-proof book. From a legal perspective full fat means proper diligence, sensible investigation, and the right level of time commensurate with the value of the transaction – and added value, too. Your lawyer is expected to have, and should be able to demonstrate, a broad range of experience over several disciplines, supporting lenders in better understanding the pitfalls of their business and the issues within it – often, pitfalls the lenders may not have experienced themselves. Lawyers should be identifying solutions and enabling correct decisions to be made at speed. It’s in this partnershipbased approach that the bonus value lies, and a skinny model simply does not allow for this. The complex challenges many lenders are experiencing at the moment are a timely reminder that this is not the mainstream market, where loans are relatively risk-free, easily originated, and unlikely to default – where margins are thin, and costs are unlikely. This is the specialist finance market, and it requires a specialist, full-fat approach. www.sfintroducer.com
Bridge rates from 0.55% Fast, people-led, decision making Loans from £100,000 to £5,000,000 LTV/LTC/Refurbishment costs 75%/85%/100% up to 24 months Rates from 0.55% with competitive procuration fees
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sancus.com Indicative criteria only, each loan application is considered on its merits. Sancus Lending (UK) Ltd is regulated by the FCA, firm reference number 593992. Risk Warning: If you are co-funding you could lose part or all of your capital. Indicated returns, unless otherwise stated are shown before any provision for bad debts and may be subject to tax. Sancus do not provide private mortgages. Sancus Lending (UK) Ltd is incorporated under the laws of England and Wales, company number 7534003. Part of Sancus Group Holdings company no 57766 registered office Block C, Hirzel Court, Hirzel Street, St Peter Port, Guernsey GY1 2NL.
REVIEW
MARKET
A view of the landscape Donna Wells director, F4B
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n a year when much of the industry was geared up for a huge swell of remortgage business, the purchase arena has remained remarkably resilient – and even taken a few people by surprise when it comes to the volume of property transactions taking place. UNLOCKING PROPERTY TRANSACTIONS
Over this period, lending propositions have obviously had to adjust to a variety of economic influences and pressure from rising living costs when evaluating affordability levels, policy, and criteria. This has led to many borrowers seeking alternative ways to structure these purchases, with a greater proportion of brokers turning their attention to the specialist lending sectors. So it was little surprise to see Q1 2022 experience a rise in the amount of gross bridging lending; according to the latest Bridging Trends data, it hit £156.78 million over this period. This was 8.5 per cent higher than in Q1 2021 (£144.51m), and up 7.8 per cent (£145.42m) when compared with Q4 2021. The data also showed that more borrowers turned to bridging finance in Q1 to help unlock property transactions. For the fourth consecutive quarter, the most popular use of a bridging loan was to purchase an investment property, accounting for 26 per cent of all loans in Q1 2022, down from 29 per cent in the previous quarter. The competitive nature of the property market was further highlighted by the second most-popular reason for bridging finance in Q1 – funding a chain break. Trying to get property
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purchases moving accounted for the greatest increase in demand for bridging, jumping to 23 per cent of all lending, from 18 per cent in Q4 2021. REGULATED BRIDGING SPIKES
Borrowing was also cheaper in Q1 as the average monthly interest rate on a bridging loan fell to a historical low of 0.71 per cent in the first quarter of 2022, down from 0.77 per cent in Q4 2021. This drop in pricing was driven mainly by the boost in regulated lending over the past three months as demand for regulated bridging loans increased for the first time since Q1 2021. The number of regulated loans conducted by contributors increased to 43.9 per cent in Q1 2022, compared with 36 per cent in Q4 2021. The spike in regulated bridging activity translated into lower loanto-values (LTVs), with the average LTV in Q1 decreasing to 54.5 per cent from 57.3 per cent. Bridging loans for business purposes saw the greatest decrease in demand, with total transactions falling from 15 per cent to 10 per cent. The report said this could be due to business owners becoming more wary about starting or investing in new businesses in the current economic climate. Many of these trends were also evident in May data from Knowledge Bank indicating that searches in the bridging and commercial lending categories remained consistent with April’s results, with searches for ‘regulated bridging’ and ‘minimum loan amounts’ the top two bridging searches. THE VALUE OF BRIDGING FOR COMMERCIAL FINANCE BROKERS
In the commercial sector, brokers searched for lenders prepared to lend on semi-commercial properties and for those who allowed the highest LTV. As an increasing number of the more traditional lenders tighten their criteria, demand amongst SMEs,
property developers, landlords, and investors for a range of short-term financial solutions continues to soar. This was highlighted in figures released by Together that saw the specialist lender provide more than 260 bridging loans worth £103.6m in April – a 17 per cent increase on its previous record of £88million, set in July 2021. As suggested in these figures, it is clear that bridging finance is playing an invaluable role in commercial finance brokers’ toolkits, allowing them to support clients in achieving their property ambitions. COMMERCIAL CHALLENGES
Looking at the wider commercial market, WorkLife’s latest Small Business Monitor found that high inflation will be the greatest challenge over the next 12 months. It outlined that 36 per cent of smaller firms cited inflation as one of the top three challenges facing their business over the next 12 months. Following this were a range of other operational concerns, including supply chain complexities (22 per cent) and rising business rates (22 per cent). The research also found that SMEs’ investment plans could also be hit hard. Eighteen per cent of respondents said they were putting plans to invest in their businesses on hold due to high inflation, while 13 per cent were scrapping investment plans altogether. The challenging economic climate and rising interest rate environment are placing an even greater spotlight on the value attached to the advice process across financial services. From a packager standpoint, we are experiencing heightened demand from an array of brokers in terms of providing additional support and expertise to deliver a complex set of property-related solutions. And this demand is only likely to grow over the course of Q3 and beyond in such a fast-paced and ever-changing lending environment. www.sfintroducer.com
Our fixed rates are the real deal. Worried about interest rates in the current climate? At Assetz Capital, our bridging rates have always been fixed for the duration of your client’s loan. Plus, once we have issued a DIP, we will hold the rate for 3 months, so make sure you get a deal locked-in with us. Let’s discuss your next case: 0800 470 0430. *Please note Assetz Capital does not offer regulated mortgage contracts
Laleta Buctkuar, Relationship Director: Bridging
0800 470 0430
assetzcapital.co.uk/bridging
Find out more about our bridging product.
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.
REVIEW
COMMERCIAL
What every broker wants Brian Rubins director, Alternative Bridging Corporation
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s a lender with over 30 years’ experience, I thought I knew what brokers want. But as times go by, priorities change, so a fresh look is always in order. If we do not give our brokers what they reasonably want, another lender will! Brokers expect high-quality service from the lender – but in practice, what does this mean? Lenders must be able to review new proposals and issue heads of terms in hours, not days. For this to be possible, it is essential that our brokers provide adequate, accurate information. Without it, either delay will occur or guesses will be made, and terms may need to change at a later date – and no one wants that. Lenders’ underwriters must have a smooth process for instructing valuers and solicitors. Although the choice of valuer for private dwellings is often successfully subcontracted to a valuation platform such as Method, this is not always suitable for commercial assets and development finance. Here, the lender needs close working relationships with its professionals and to know which valuer is best suited for the instruction and has capacity for the work. Brokers’ demands are driven by the need to satisfy their clients’ wishes; in doing so, their personal requirements will also be fulfilled. Recent research by Ernst & Young’s financial services subsidiary, EY, confirms that number one is strong relationships – so what is it that lenders must do to create these relationships? The EY report identifies speed of execution as the most important element in choosing a lender. However, of EY’s respondents, 30 per cent reported completion times for bridging loans of 35 to 40 days, and a
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further 32 per cent reported 40 to 45 days. Brokers and lenders alike want and need this timescale to be reduced, so what can lenders do to achieve this? One solution is obvious: to be adequately staffed, to respond immediately, and to be on top of the process. This is not always happening with the new, smaller lenders. Secondly, one-to-one discussion is far more effective than other methods, so we must be willing to engage with our introducers by phone or Zoom rather than by email. Also, working from home is not an excuse for poor service – brokers expect, and deserve, better. The due diligence process cannot be allowed to delay completion. Solicitors and valuers need to complete their tasks, and to enable them to do so in a timely fashion, the broker must be skilled in obtaining and supplying the necessary information and the lender must perform like the polished conductor of an orchestra, ensuring all the members are in harmony. Brokers need bridging loans to complete quickly, which is confirmed by our own experience at Alternative Bridging. Achieving this requires dedication and co-operation, and brokers reward lenders who provide this and avoid those who cannot. Loan to value (LTV) has always been an issue, but more recently, brokers’ requirements and lenders’ aspirations appear to have come together. This may be because borrowers’ requirements have become less demanding – or, more likely, property values have risen sufficiently to satisfy them at a lower LTV. But brokers do need lenders to be supportive when there is a down valuation – for the lender to increase the LTV from, say, 70 per cent to 75 per cent so that the opportunity is not lost. They need, in a word, flexibility. Surprisingly, pricing of loans has become a less significant factor in brokers’ choice of lender. This is partially due to interest rate compression among the larger and more established lenders and the
recognition that a 10-basis-point reduction is of no value if the proposal is not completed. Reducing interest rates and enabling introducers to be competitive is important, but we believe certainty of completion is more significant for our brokers and their clients. Both must be treated fairly, with transparency regarding detailed heads of terms that identify all costs and terms. And woe betide the lender who makes promises that cannot be fulfilled or changes the terms at the last minute – or, worse still, fails to deliver. This behaviour cuts deeply, and the wounds do not heal quickly. They will deter the offended broker from introducing further opportunities. Introducers want reliability. A recent trend is the recognition of the importance of relationship management. This has grown as brokers appreciate more and more the value of repeat business. Having performed well for the borrower with the bridging loan, why would the borrower go elsewhere for the refinance? Creating this relationship depends upon the lender being responsive and constructive, as otherwise it will reflect badly upon the introducer. Similarly, a wide choice of products gives our brokers access to one-stop shops where they can start with a bridge or overdraft, include a refurbishment facility, and transfer to a term loan. And finally, back to strong relationships. A strong relationship between broker and lender is the key to good business. And it is not just what brokers want; it is equally important to us lenders. No one factor will encourage an introducer to favour a particular lender, but the combination of speed of execution, flexibility, and a wide range of products, competitive interest rates, and LTVs – and, most of all, trust and reliability – are the foundations for strong, enduring relationships between brokers and lenders. www.sfintroducer.com
REVIEW
REGULATED BRIDGING
Growth of regulated bridging Jason Berry group sales & marketing director, Crystal Specialist Finance
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f one word could be used to sum up the past few years, unpredictable would be a frontrunner. From COVID-19, the tragic conflict in Ukraine, and election uncertainty to the continued fallout of Brexit, navigating these historical events has been difficult. The knock-on economic effects form a perfect storm. The UK now faces its highest inflation rate in more than 40 years, with predictions that it will rise to 10 per cent by autumn. Fuel and energy prices are being driven up, and the Bank of England’s governor, Andrew Bailey, recently issued an “apocalyptic” warning about global food prices. These economic impacts have been felt keenly in the property space, too. As the cost-of-living squeeze inflicts financial pain on households, it places downward pressure on house prices. This unpredictability has meant that delays or unexpected curve balls are more common than usual in the residential housing market. It is unsurprising that Bridging Trends 2022 reported that regulated bridging accounted for 56 per cent of bridging transactions in Q1 22, up 20 per cent from the previous quarter. Regulated bridging is by design well placed to deal with the volatility and shifts in the residential market, and we’ll cover its merits in this article. WHAT IS A REGULATED BRIDGE?
When it comes to bridging finance, there are two types of loans you can use – regulated and unregulated. Very simply, regulated bridging applies if the borrower is going to reside in the property, whereas unregulated bridging is used when the property is not for the borrower’s personal use. Irrespective of this personal or www.sfintroducer.com
investment purpose, bridging is generally used by those who have found themselves falling short of funds, often due to unexpected delays or, alternatively, when completion deadlines have made it impossible to secure funding by more traditional routes. WHY IS REGULATED BRIDGING SO USEFUL?
Every buyer’s worst nightmare is when a deal gets stuck in the weeds. Whether it’s another buyer slowing down the purchase or being suddenly short of funds, regulated bridging can help to resolve these tricky short-term problems. This is reflected in Bridging Trends, too, with one of the most popular uses of a bridging loan identified as when a purchase chain is breaking, accounting for 23 per cent of all loans in Q1 2022. Competitive rates Increased challenges faced by borrowers throughout the homebuying process have triggered new lender entrants into the bridging sector. Most of these bridging lenders have quickly adapted their models to better serve regulated circumstances. As we saw with specialist lending in the early 2000s, the increased competition fighting to win business has resulted in a market that is super competitive. Bridging pricing and fees are about the fairest and lowest they’ve ever
been. This gives the bridging product a more mainstream feel. Similarly, LTVs are being offered at the highest levels for both heavy and light refurbs. This alone creates solutions where none would have previously existed for buyers. For example, the average monthly interest rate on a bridging loan fell to a historical low of 0.71 per cent in the first quarter of 2022, down from 0.77 per cent in Q4 2021. Fast and flexible Bridging is incredibly useful when buyers need to untie the Gordian knot. When a deal gets into a bit of a bind, regulated bridging can increase agility and speed to get the deal to completion. For example, in Q1 2022 the average bridging deal took just 53 days to complete, far quicker than mainstream mortgage completion times. AN OPPORTUNITY FOR SPECIALIST LENDERS
Currently, high street lenders remain largely uninterested in these offerings, which presents a golden opportunity to secure market share. The more the specialist sector innovates in new and attractive regulated products, the more popular this short-term solution will become. When cases are threatened by unfortunate events, regulated bridging can be the ace in the deck in getting things over the line. JUNE 2022 BRIDGING INTRODUCER
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REVIEW
ASTL
Getting the best consumer outcomes for all Vic Jannels CEO, ASTL
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here are two sides to the short-term finance market: regulated and unregulated. A regulated bridging loan, in simple terms, is a first or second charge secured against a property that is, or will be, or may have been, occupied by the owner or immediate family. Unregulated short-term finance is used to purchase or refinance a secondary property, a commercial asset, or a buyto-let investment. Regulated bridging is typically used by homeowners, rather than professional investors and developers, and is often the solution when potentially costly delays arise. Bridging is by its nature more expensive – though costs have dropped significantly over the years – and as such it has historically been seen as something of a last resort. All the more reason, then, to ensure that anyone reaching for a bridging loan to solve a pressing problem is offered the best solution and is not lured into unnecessary additional costs. To this end, in 2021 the Financial Conduct Authority (FCA) opened consultation on its proposal that regulated bridging loans should transact for no longer than 12 months. This would include refinancing beyond 12 months with the same lender. The aim of the proposed changes is clear, and in itself laudable. The FCA primarily wants to protect customers from being coaxed into taking out short-term loans, with interest rolled up, over a longer term. When it comes to the more traditional uses of regulated bridging – such as in chainbreak scenarios – this makes sense, as
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timescales therein are generally shorter and more predictable. However, as those of us within this industry know, short-term finance is no longer a simple product for a simple problem. This market has evolved at a considerable pace, and now forms part of the fabric of the UK property market. While the more complex elements tend to fall into the unregulated category, regulated bridging is also a more nuanced subject than many realise. Beyond the standard chain break, there are some important uses for shortterm finance that might be stymied if this 12-month rule is implemented without due consideration. For example, a buyer might be looking to undertake a refurbishment project where they intend to live in the
Short-term finance is no longer a simple product for a simple problem. This market has evolved at a considerable pace, and now forms part of the fabric of the UK property market. property; they might have bought a plot of land on which to build a home; they may plan to split a large garden in order to build, then keep one property and sell another; or they may be looking to undertake a conversion. We are also all too aware of the complications that can come along with waiting for planning permission after buying land, for example. In all of these scenarios, and many more, timescales are much like the proverbial piece of string, with the potential to stretch beyond 12 months quite easily. While there is certainly a need to protect customers from
practices that would have them paying short-term rates for long-term finance, we also need to make sure that we get the best outcomes for all consumers. The FCA’s recent consultation paper has “best outcome” at its centre! The fact is that those using regulated bridging for projects that have a risk of being more drawn out are actually likely to be set at a disadvantage if they are unable to refinance with their existing lender, not least when considering the added fees, time, and work that go into switching. All this is on top of the potential headaches caused by the projects themselves. In order to reach the best consumer outcomes, it is important to ensure that they do not end up paying more than is necessary when, such as on a self-build or development project, the exit could take more than 12 months to materialise. We certainly want to make sure that any new rules that come into place do not preclude borrowers from being able to develop a regulated property, particularly if that would mean foregoing their dream home. At the ASTL, it is our job to represent the best interests of both the lenders and consumers who make up the short-term finance market. An integral part of this role includes engaging with the regulator, the market, and the wider media to increase education and understanding around this important – and growing – sector of property finance. To this end, we are involved in ongoing and engaging dialogue with the FCA as we speak, not only to tease out the details of the proposed regulation, but in a wider sense, to ensure that bridging – and its place within the market – is duly understood and to ensure the “best outcome” for the consumer. It is our hope that this open dialogue and ongoing relationship will indeed lead to that best consumer outcome – for the many, not just the few. www.sfintroducer.com
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FEATURE
LENDINVEST
IN AN UNCERTAIN CLIMATE, PROPERTY INVESTORS NEED SIMPLICITY, FLEXIBILITY, AND CHOICE Amid another year of challenges for the property market, lenders’ ability to support investors in continuing to adapt is essential, writes Leanne Smith
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t seems that every year there is a new challenge for property investors. From lockdown to recovery to back into lockdown and now into a rising-rate environment, the sector is getting used to working around challenges and providing solutions. Despite these uncertainties, the opportunities for the right investor remain. Indeed, the government has recently dropped its 300,000-units-a-year housebuilding target, meaning SME developers and property investors are going to have to pick up the slack to deliver the high-quality housing so many need. Delivering on this in the current landscape is tricky, but not impossible – as long as investors have access to the right funds for each stage of their projects and they can access those funds simply. PUTTING BRIDGING FINANCE ONLINE Bridging finance has become increasingly essential in the current market. Whether it’s quick acquisitions, refurbishing properties, improving EPC ratings, exiting developments, planning gain, or completing on options agreements, the flexibility bridging offers you and your clients always proves its worth. With increased demand for these products, the
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onus on lenders to provide breadth of product and certainty of funding grows. Our blend of expertise and technology over the past six months should act as the benchmark for all bridging lending, as our online broker portal has driven record numbers of applications and enquiries from brokers for every type of bridging deal. The uptake on the portal is the reward for investing time in making every deal simpler, and for giving brokers the tools they would expect from any other form of service: enquiring, applying, and managing delivery online. Expanding the list of products to which this applies is very important, and as we’ve assessed the market we’ve seen how both refurbishment and regulated bridging finance will play huge roles in the months to come, which is why we’ve added them to the portal for ease of use. THE IMPORTANCE OF REFURBISHMENT FINANCE There is a constant demand for more high-quality homes, both to buy and rent, and the opportunity provided by a 75 per cent net loan, lowmonitoring refurbishment finance is clear to see. In the rental sector, it will help landlords meet their EPC requirements, improving the overall www.sfintroducer.com
FEATURE
LENDINVEST
The government has recently dropped its 300,000-units-a-year housebuilding target, meaning SME developers and property investors are going to have to pick up the slack to deliver the high-quality housing so many need. Delivering on this in the current landscape is tricky, but not impossible quality of homes and the quality of life for tenants who can be supported through cost-of-living challenges with more efficient properties. In the home-buyers’ market, uplifting or converting properties to make them more suitable and potentially increase the housing stock is a clear opportunity for the right investors with the right track record. Giving them the ability to hit 85 per cent LTV with rolled interest and making this easily accessible to their brokers through the portal has made this a very popular product, proving the demand and ambition for this type of project in the market. MEETING HOMEOWNER NEEDS WITH REGULATED BRIDGING Recently we completed a regulated bridging deal for a broker working on behalf of a young professional couple. A high-street lender reneged on a mortgage offer after a criteria change, leaving the couple with a significant funding gap for the purchase of their dream home. Luckily, we were able to step in and support them in completing the deal with a regulated bridging loan within a few weeks. While we speak broadly about the challenging climate and what it means for property investors, in a nation of homebuyers the ultimate impact is felt by would-be homeowners who get caught in the middle of chains, people pulling out, or lenders letting them down as they adjust their terms and rates. Bridging’s increased affordability compared with term facilities and the ability to access it quickly and simply make it an increasingly valuable tool in supporting brokers in getting their clients their dream properties. Demand for housing will not subside for some time, and while the short-term environment might be uncertain, in the long term, high-quality properties will always offer opportunity for the right investors. They just need the tools to make it work. www.sfintroducer.com
JUNE 2022 BRIDGING INTRODUCER
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INTERVIEW
TAB
TAB founder on his formula for success
Bridge lending specialist brought first company to life at 17
Duncan Kreeger
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uncan Kreeger, CEO and founder of specialist bridge lender TAB, founded his first company at the tender age of 17. Take a moment to reflect on that. He ran his fledgling business from his bedroom, learning the ropes and making all the sorts of mistakes you’d expect of a neophyte. Yet that apparently rebellious and entrepreneurial spirit that saw him leave school because “I’m just not very good at being told what to do” seems to have served him more than adequately in the succeeding years. “I’ve never been scared of hard work. I like getting up in the morning, so I think it’s a kind of mindset,” he told Mortgage Introducer. To understand that confidence, it may help to dwell a little longer in his past. His early interest in property may have been passed on from his father, who was a mortgage broker. “As much as I hated being at school, I was thirsty to learn – and what I wanted to learn more about was property,” he said. Kreeger worked in his father’s office for a time and, after qualifying as a mortgage broker, he ended up doing bridging loans. Eventually, with helpful advice from a mentor and colleague, he started his own bridging loan business. Later, unhappy with the business arrangement, he started talking to investors about branching out.
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“We were never afraid to throw our hands in the air if we didn’t understand something. And that is the type of mentality that I’ve tried to maintain and pass down to those who helped me.” Unfazed by problems (“There are always challenges – my full-time job is problem solving”), he said he enjoys it “when things get thrown up in the air,” adding that he does not get stressed. “I’m extraordinarily lucky in that I see the world through rosetinted glasses,” he said. That derring-do attitude has become part of Kreeger’s business DNA. According to the company’s blurb, Hertfordshire-based TAB, which he founded in 2018, homed in on lessorthodox property projects that “didn’t fit well within the constraints of traditional lenders’ more rigid” criteria from the start. To date, the company has reputedly made £179 million of loans. Mirroring its founder’s act-swiftly, outside-the-box thinking, TAB’s business ethic is more than just about offering a simple lender-borrower transaction. “We are keen not to say ‘No’ to things because of preconceived ideas about what’s good and what’s not. We want to add value. We don’t always come into our own where somebody has got a very cheap offer and they’re looking to better it just purely based on numbers, but I’m a very strong believer that this type of finance can assist with much more than just ‘I need to borrow X and you’re able to lend it to me,’” he said. TAB reported record business in April after closing 11 loans totalling £23.69 million – one of which was the firm’s largest-ever single loan (£13 million). This came hot on the heels of an equally record-busting February and March, when it posted its best-ever figures for that month. Much of TAB’s armoury is heavily reliant on tech, designed fully in-house to keep costs under control and to allow
a more agile response to changes in the market. “The IT guys don’t just keep the show on the road – they’re developing stuff for you. We don’t outsource any development at all, and we’re very proud of that.” But while technology underpins much of the company’s strategy and many of its future plans, Kreeger stressed that it should not be at the expense of a more human touch. “I’ve been extraordinarily focused on building technology that I think will add value to us as a business and to all of our stakeholders, but not [at the cost of] having a personal service and people with a brain to talk to – we felt strongly that we want to do both,” he said. Kreeger readily admitted that finding a niche in a crowded and highly competitive market was not easy, but for him the key was to “do the basics well.” He added, “We’re not too focused on having funky USPs [unique selling points] … and trying to create complicated products. At the very start of TAB, we talked about lending in black-and-white. We want people to understand what they’re entering into and make it as simple and easy [as possible],” he explained. Kreeger said he was confident the company would be in a good position to ride out the recession most economists are now expecting will hit later this year, and he passed on a piece of advice that has so far kept him in good stead, along with a mixture of disarming honesty and a common-sense approach to business, that he learned from a close business colleague. “Surround yourself with good people and treat them the way that you would want to be treated,” he said. “People will still pick up the phone to [call] me after all these years because they know they’ll get an honest answer. If I say, ‘That is something we can do,’ then I will try my best to make it happen.” www.sfintroducer.com
INTERVIEW
SPRING FINANCE
“It is an interesting time for the market” Director gives his verdict on a particularly eventful period
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he housing market is currently undergoing a particularly eventful period, with the Bank of England upping interest rates, the energy bills crisis, and the RussiaUkraine conflict all taking their toll. “We are in very interesting times with a number of factors coming in to play that will affect the housing market and particularly the rental sector,” according to Jim Baker (pictured), sales director of bridging at Spring Finance. Increasing interest rates and inflationary pressure on household income have meant funding a firsttime property purchase has become increasingly difficult, particularly with house price values seeing a significant increase in the last 12 months. The average price paid for a home in England and Wales in April was £372,436, up £3,600 on the average price paid in March, according to the e.surv Acadata House Price Index. For the sixth time in the last seven months, the figures hit a new record level for England and Wales. Baker stated that this demonstrates that high demand for rental property is likely to continue for the foreseeable future. “Increased costs for landlords will also be reflected in a likely increase in rents over the coming year,” he added. Baker believes that landlords will continue to seek ways to increase their portfolio or indeed look to maximise income on their units with the continuing trend for HMO conversions. “With the increase in property values, landlords will be looking at ways to tap into this equity to fund deposits to increase their portfolio, fund HMO conversion works or meet the cost of complying with the EPC requirements,” he said.
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He explained that this opens up a significant opportunity for lenders to provide secured loans on existing buyto-lets. “There is no doubt this will be one of the big growth markets over the next 12 months,” Baker said. According to Baker, the bridging market too will face a continued balance of opportunity and challenge over the next 12 months. Housing stock continues to remain in high demand and the speed at which this is moving creates both a demand for traditional chain break bridging loans, but also a risk of quick sales negating the need for a bridge. Baker said it will be an interesting watch to
“With the increase in property values, landlords will be looking at ways to tap into this equity to fund deposits to increase their portfolio, fund HMO conversion works or meet the cost of complying with the EPC requirements”
Jim Baker see how this space plays out with the current race to the bottom challenging the commercial sense of these deals. “The inflationary cost-of-living pressures in addition to the ongoing of impact of COVID will undoubtedly see credit profiles impacted and showcase the greater need in this space for specialist bridging,” he said. In addition, Baker believes that in the homeowner market, with such limited new property, there will be an uplift in demand for funding for extensions, conversions and enhancements such as garden rooms. Second charge regulated bridging, particularly for heavy refurbishment projects, according to Baker, will enable homeowners to carry out these significant works. He also believes greater innovation is needed in the market, with the likes of base rate tracker deals which he said have never really been seen in residential bridging. He concluded, “We are entering uncertain times, but it will be a market that is full of opportunity and growth, particularly for specialist bridging.” www.sfintroducer.com
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Thinking on your feet: the leading lender making huge strides in bridging Born out of the 2008 crisis, LendInvest fittingly developed a nimble approach to bridge lending, swiftly adapting to unpredictable market changes and leveraging technology to stay ahead of the game.
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ince its inception, London-based LendInvest has reportedly lent more than £4 billion in mortgages, spurred on by their mission “to make property finance simple,” having built an asset management platform that’s been designed to simplify and speed up mortgage lending. The result has been a better customer experience for its borrowers as well as intermediaries and investors. Profitable since 2015, the company also became the first UK fintech to securitise a portfolio of buy-to-let mortgages in 2019. The opportunities for bridging seem boundless. According to the latest Ernst & Young UK bridging market study, bridging products have now been thrust into the mainstream lending market in response to a growing focus on the residential property sector, sparked by the recent stamp duty waiver and a need to secure preferred properties quickly. But like everyone else in the financial sector, bridging lenders also face important challenges for the remainder of the year, as highlighted by the survey, in the shape of increased competition, skilled labour shortages, and the ongoing race to
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adopt the latest technology – all this in addition to the Bank of England’s recent decision to increase the base rate to the highest level in 13 years. But although the BoE’s rate rise was flagged “as a potential threat to the profitability of bridging lenders,” the study pointed out that there was still an “appetite for larger loans,” with 28 per cent of respondents looking to offer larger facilities over the next 12 months. Mortgage Introducer caught up with Justin Trowse, director of bridging finance, to discuss LendInvest’s portfolio, its business ethos, the company’s growth during the COVID pandemic, and what the future holds in a rising-rate environment. How is the commercial property landscape beginning to look for you post-pandemic? Have you bounced back to pre-pandemic levels of business? In terms of COVID-19, I think we’ve been quite lucky. As a sector we’ve had quite a lot of government aid in terms of stimulus and also initiatives like CBILS and similar schemes. We all thought it was going → www.sfintroducer.com
Justin Trowse
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INTERVIEW to be another financial crash and undoubtedly had our concerns, but we did very well during the crisis. A lot of our competitors stopped lending to protect their business, but we carried on lending, and as a consequence we picked up a lot of business in terms of volume that we wouldn’t normally. Given how COVID affected the industry, how big a role does tech play in your company? Implementing new technology during COVID was key to adapting to the situation, but due to our existing platform infrastructure, in terms of actually processing loans, we were in a good spot because we already had an online portal to deal with volume, and the systems and processes within the portal were already there and set up for doing things remotely, including e-signatures and producing documents through that production workflow.
“Within our products, probably the most popular is the refurbishment product because customers want high leverage to make it capital-efficient” What was behind the decision to continue lending when a lot of your competitors decided to pull out? There’s a couple of reasons. At LendInvest we have a hugely diversified funding base, whereas some of the lenders are reliant on one or two. If that small pool of investment dries up, you don’t really have a choice but to shut up shop. The second reason, quite frankly, is that our business was born during the financial crash of 2008. Despite forming from a crisis, we had admittedly not been tested through another significant recession, and we believed strongly enough in our business model to finally weather this one. We of course also would not want to let our existing customers down, so decided to innovate instead of panic. Businesses have had to deal not only with COVID but with the impact of Brexit. Did Brexit make bridge lending more, or less, competitive? Brexit was obviously a big part of the macro calendar. Again, we were lending through that and picked up some business from other lenders that weren’t willing to assess their criteria to adapt for the risk. But what gave us the confidence to do that was having an experienced capital markets team, so we put various hedges in place just in case it went a way we weren’t expecting it to go.
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We’ve spoken about what happened in the past. Now we’re facing soaring inflation, a rising rate environment, and a cost-of-living crisis fuelled by rising energy costs. How challenging are the market conditions for bridging this year? And to what extent is the bridging sector a barometer of the wider economy? That’s quite an interesting one, because I don’t think anyone really knows yet. But what we’re starting to see is a bit of yield compression. In the emerging market as a whole there’s a hell of a lot of new entrants – it’s very competitive. I think this last week we saw the first bridging lender in the market increase their rate relative to the interest rate benchmark, which has not been seen for quite some time. We don’t currently have that approach on our standard lending, although we are looking at this on our development finance lending, especially for longer-term periods, because inevitably rates are going to rise, so we need to build that in to our model. But at the moment we are pricing bridging on a fixed-rate basis, which is not linked to any interest benchmarking. Are regulated bridging loans becoming more popular? I’d say so. It’s becoming affordable. The market has fewer loan-sharking connotations and a greater degree of professionalism these days. So I bring it back to the example that our rates start from 0.48 per cent, so on an annualised basis, that’s 5.76 per cent. And if you were to price that over the base rate, which today is currently about one per cent, that’s equivalent to a loan at 4.76 per cent per annum. That’s not too far off term rates for people who aspire to secure their dream property and get some quick access to cash, which is basically a regulated bridging loan. What percentage of your business is focused on unregulated bridging loans? At the moment I’d probably say 90 per cent of our business is unregulated. That’s our main core market, and then regulated makes up the remainder. The Ernst & Young bridging trends report said that 47 per cent consider a bridging loan the most important for refurbishment purposes. The next most common is business purposes. That’s very fitting within the business that we’re focused on. Within our products, probably the most popular is the refurbishment product because customers want high leverage to make it capital-efficient. They want the flexibility of the additional capital, without monitoring. Our leverage is at 75 per cent net, whereas most of our competitors only have the ability or appetite to get www.sfintroducer.com
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to 75 per cent gross. Our mantra is, if you know what you’re doing, here’s the cash and get on with it, because at the lower loan quantums, typically you’ve got monitoring and other large soft costs that eat into your profit margin quite considerably. Critics say bridging loans are risky. Borrowers need an exit strategy, and they have high-interest loans to contend with that also involve higher borrowing costs. How do you counter those arguments? I’d say the market has moved on. It’s got a lot more professional, and the way you assess deals has changed as well. We wouldn’t ever go into a deal and put borrowers in a situation where they couldn’t exit the loan. It’s not only about morals, it’s also the fact we want our capital back and paid up. So, for instance, on a pre-planning bridge, we have a look to see whether it would fit into a development loan model for an exit. And in terms of rates being expensive, obviously the connotation was there maybe five or ten years ago, but, as we know, the low-rate environment has given lenders cheap access to capital, and they’ve been able to pass that benefit on. I’d like to ask you about the wider economy. Given that some observers have been predicting a 1.25 per cent base rate before the end of the year, do you think interest rates could rise much farther? My personal view is that they will. The official figure is nine per cent inflation, but some critics say the real rate of inflation is much higher than that. The BOE is currently implementing rate rises of 25 basis points at a time, which I don’t think is going to be enough to combat the current situation. We obviously www.sfintroducer.com
“We wouldn’t ever go into a deal and put borrowers in a situation where they couldn’t exit the loan. It’s not only about morals, it’s also the fact we want our capital back and paid up” have to do that in increments to avoid a shock to the market, but essentially, I do think rates are going to have to rise. I think we’ve had it good for quite some years, and we’re due the next cycle. In this scenario, do you think mortgage demand will fall? I don’t think mortgage demand will fall hugely, as we still have a supply/demand issue when it comes to housing. I think prices will cool, but I don’t think we’ll have any crash if we’re talking purely rates rises and no other catalysts. I think we’ll be good, certainly at least for the next few months. In such a challenging environment – and without giving away too many trade secrets – what advice would you give brokers entering the space? I’d choose a set of lenders that you can depend on and that have the means to execute efficiently. There are a lot of intermediaries that spread themselves quite thinly in terms of using multiple lenders. My advice is to work on building a relationship with someone who can perform and also with whom you can keep a client, because in the end, it becomes more beneficial for the introducer and borrower. JUNE 2022 BRIDGING INTRODUCER
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THE STATUS QUO AND BEYOND FOR THE BRIDGING MARKET When it comes to bridging, nothing’s standing still
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he pandemic is now gradually receding from everyday life, but it has left behind a sizeable imprint on the UK mortgage market. In association with Lendinvest, Mortgage Introducer brought together experts from Mint Property Finance, Sancus Lending, Movin Legal, Castle Trust Bank, Together, and LendInvest itself to share their verdicts on the current situation and what directions they foresee the bridging market heading in. COVID-19 AFTERMATH There was seemingly no sector of the economy that didn’t have to recalibrate due to the pandemic and subsequent lockdowns. Robert Oliver, sales director at Castle Trust Bank, is clear that this has tipped the balance toward bridging, as investors are facing new challenges and are looking for different solutions post-COVID. “Six or seven months ago we had a lot of landlords coming to us looking for out-of-town developments, looking for semi-rural properties to convert either into holiday lets or into HMOs, because they saw the migration of people out of the cities. What we’re seeing now is the holiday let market is very much segmenting, so we’re seeing the high-end holiday market, the £3,000-£5,000-plus a week market, is absolutely flying,” he said. Oliver also explained how that has coincided with a noticeable shift toward bridging. “Property is always going to be a safe investment, but we are seeing a swing to the bridge now, as bridging is not only more affordable than it’s ever been, but also it’s more flexible, it’s more of an accepted way to finance an actual development, and it gives you the flexibility to either exit some or exit others. It’s all about the exit, we know that, but now it allows the broker to offer clients more flexibility in what they do. We’re seeing it across the board – that the market is increasing, particularly in those areas.” That sentiment chimes with Richard White, UK sales
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director for Sancus Lending, who is dealing with a vast number of properties that landlords or investors want to alter, a situation forced on them by the pandemic. He said, “I think it has had a big impact on people’s needs and requirements from bridging products. Nearly 90 per cent of the enquiries we get now on what we consider to be bridging loans involve some sort of change to the property from the state [in which] it has been acquired to the state at the end of the loan term.” It’s a similar story from specialist account manager at Together Michelle Walsh. Her attention was
“We’re seeing [that] the highend holiday market, the £3,000£5,000-plus a week market, is absolutely flying” ROBERT OLIVER
sharpened thanks to the stamp duty holiday, which the government introduced to help buyers as the pandemic raged on. She said, “On regulated bridging, during the pandemic we had this stamp duty tax release so there was a certain period when property transactions needed to complete at speed. The high street lenders at the time either weren’t wholly back to fully lending or they were suffering from severe delays, so regulated bridging was certainly needed.” Walsh also saw close-up an increase in bridging as people frantically moved to accommodate the new acceptance of working from home. “We saw that a lot in the regulated bridging space, too – customers looking to either downsize or potentially upsize to a property that has more space to be able to work from home and have that outdoor space as well,” she said. “The beauty of the bridging market is we can www.sfintroducer.com
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MARKET act quickly – the intention of bridging is to move at speed, and that has been very much fundamental throughout the years, but certainly [especially] during a period when people were looking to get that home of their dreams and change their lifestyle to suit the new way of working now.” Credit risk manager Peter Howarth explained how his colleagues at Mint Property Finance had a new way of working thrust on them by the pandemic. “We’ve gone down the route of automated valuations and sometimes internal valuations; we wouldn’t engage a professional – we would go out and use our own internal expertise to value the property. But automated valuation has certainly now been introduced and seems to be the norm.” That concept of doing some operations differently is something Emma Hall, key relationships director at Movin Legal, can relate to. She personally has had to diversify her knowledge base to meet the demands of the new normal, as properties are turned into multiuse. “The offices are no longer there – they are being turned into residential, as everybody has gone home. They don’t need to be there anymore, so they have chosen to get rid of it. More brokers have clients where it’s mixed commercial and residential. Even I am having to go to my lawyers and say, ‘Can I have a little bit more training on the commercial aspect where it’s a mixture of a shop, offices, and residential at the same time?’” All of the panel were positive about the impact of COVID on bridging, and that was summed up by Justin Trowse, LendInvest’s director of bridging, who added, “I think the sector has been very lucky, with a lot of stimulus pumped into the market at an unexpected time. There was a lot of product innovation in the term markets, which drove the bridging markets, quite considerably actually, to secure something very quickly.” BASE RATE RISES The BoE has already taken action multiple times this year with interest rate rises – and most expect it to assess these again in the near future. But for Hall the bridging market should be in a good relative position to capitalise. She said, “Interest rate rises may put people off, but a pandemic sure as hell didn’t. I still think bricks and mortar is a long-term safe investment with the right advice and the right product. I do believe the bridging sector is in a better place to deal with interest rate rises much more quickly than perhaps some of its counterparts.”
“We have had it good for a number of years now. The base rate went down, down, and down, and people ... have reaped the benefits, so perhaps normality is resuming a little bit” RICHARD WHITE There are varying considerations for banks – something White addressed. “From a lender’s perspective, the last thing you want to do is have to continually roll bridges and issue associated fees, as they can be quite considerable.” For him and his colleagues, it’s about paying close attention to different scenarios before lending, and being comfortable about following different routes depending on the conditions. He added, “It’s making sure when you take somebody into the bridge, the plausibility is explored of Plan A and Plan B. We want to make sure the exit is there, knowing potentially the ICR coverage might not be there based on the fact that rates on terms could continue to rise. It’s about keeping one eye on that.” White also raised the point that prior to the financial crisis of 2008, interest rates were far higher than today (the summer previous to the crisis, the rate was 5.75 per cent), and today’s rises should be seen in that context. He said, “I am not suggesting we go back to those levels, but we have had it good for a number of years now. The base rate went down, down, and down, and people have been on trackers now for several years and have reaped the benefits, so perhaps normality is resuming a little bit.” The failure to appreciate the lie of the land pre-2008 is something Walsh is having to contend with regularly. “Obviously consumers aren’t used to the rate increases, so that’s an interesting conversation we’re having with some of our younger brokers on rate changes and how to manage those with the consumer,” she explained. “There is still going to be a continued demand for bridging finance, and I think this is where it’s key for us to continue offering those solutions at competitive pricing, in particular from the regulated perspective. We have had customers who are suffering from the cost-of-living crisis and the base rate increases affecting the rates they are on with their term lender.”
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MARKET The general optimism for bridging was echoed by Trowse. In fact, he feels that some people would be quite surprised to find how bridging is actually far cheaper than they assume. He said, “The connotation of bridging being expensive – that argument is almost subsiding. If you’re looking at something like 50 basis points, over 100 basis points, you’re really looking at the mid-fours, which is comparable to some term finance for buy-to-let at the moment.” More rate increases are coming, explained Howarth. The problem he foresees is that there will come an inevitable tipping point, where rate rises spell unavoidable pain for the ordinary person. “I’d like to think the recent increases are manageable for a lender without passing on the costs at this time, [but] I think there will be a point at which, depending on your funding lines, which is a really important point, it will have to be passed on to the customer,” he said. He also has a feeling that rate increases may even drain investment out of the property market as the savings rate is increased; he added, “It might become a bit more attractive to put your money in the oldfashioned savings product compared to, say, investing in the property sector.” DEADLINE LOOMING FOR EPC RATINGS At the time of going to print, the government was sticking with its requirement that all rental properties would have an EPC rating of at least C by 2025. There has been talk of potential delays to the cutoff, but nothing has been confirmed, and all the messaging points to the originally planned mandate going ahead. Walsh has concerns about the need to meet these ratings, which she feels are akin to an iceberg on the horizon. “These three years can go very, very quickly, and what we have seen is that a good, significant volume
“The beauty of the bridging market is we can act quickly – the intention of bridging is to move at speed and that has been very much fundamental” MICHELLE WALSH
of private rental properties are lower than a level C,” she said. The problem, she feels, is made worse by the fact that improvements are so costly, and there is also the issue of shortages in terms of carrying out the upgrading work. She added, “There is still a challenge with material shortages, and labour availability is also still quite limited, so if you’ve got a large portfolio that needs work to get up to the necessary category C or above, it can take some time. Even from existing portfolio landlords and existing customers with their own properties, we’re starting to see these transactions happening now and, even on purchase transactions, they are being factored in.” It does, though, appear that this legislation could turn out to be another positive opportunity for the bridging market to thrive. Trowse is confident the benefits will boost bridging, and is also of the opinion that the overall concept behind the legislation should be encouraged. “Obviously regulation is pushing this – I think, also, investors on the ESG side of things will see some push toward this, and I think we should all have some CSR to push these properties toward being green. Any business that is offering the bridge-to-let product – i.e., something short-term to term – is going to do very well out of this,” he said. Chiming in with a similar view was Oliver, who is witnessing increased enquiries for bridge-to-let, but feels it’s key to see the schedule of works factoring into the EPC rating. He explained, “From the underwriter’s perspective it’s imperative they understand what that schedule looks like with a view to pushing people toward that C rating in 2025. You are seeing typical landlords will raise capital to leverage the most they can to purchase other assets, but that conversation of capital raising now and exiting bridges or refinancing unencumbered assets, that conversation now does turn to the EPC rating being an effective part of that asset capital raise.” Oliver does have a concern about the UK’s treasured collection of historic and much-loved buildings. Can these old cultural icons sync with modern EPC regulations? “We are seeing some quite wonderful assets, maybe some listed buildings or some conversions that have been done in older property, and I’m not sure whether they will ever get to C or above, and you don’t want a huge number of those left on your books.” He also referred to a loan he was involved in recently for an iconic property that is the
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MARKET proud bearer of a blue plaque. “Would you go there on holiday? Yes, you would. Was it a very successful holiday let business? Yes, it was. Will it be up to the C rating because it’s an old, listed building? That would be a really tough ask for the landlord to do that – so it’s about applying some common sense to some of those assets you are actually taking on board.” Trepidation is also something White feels regarding the impending EPC deadline. “Three years is no time at all – factoring in labour shortages, timing your renovations to come online when you get to the end of fixed terms or fixed rates that you are on with existing debt on properties means you’ve really got to be planning to do this stuff now. The stats are horrifying – 70 per cent-plus of private rental properties are EPC D or below, and in the rental space you are talking about £15,000 and more to renovate properties,” he cautioned. “I think what will probably be a bit more interesting in terms of the fallout is how many of those investors and landlords want to see the course. They might just find it’s not economically viable to do the upgrades and decide to dispose of the properties or do something else with them by cashing in.” According to figures that Howarth has seen, there are around three million privately rented properties that need to be brought up to a C rating. He emphasised how challenging a task that will be across the board, and said, “That’s a hell of a number. People are still going to have to live somewhere, so again, without being too cynical, will the government just take a backward step at some point, or delay the date for that happening? Who knows. Bridging has a part to play, there is an opportunity for funds to be made available, the sector is flexible and can find ways of helping the customer. It’s a great opportunity for the bridging sector to help out.” Even with a measured overview, Howarth doesn’t see the problem disappearing, and is cautious about a works blockage as landlords and investors realise the task they are facing, then scramble to meet the deadline. “They are going to have to bite the bullet at some point – maybe you look to future-proof your properties now rather than wait till 2024 when there might be a rush on for materials and all of a sudden you can’t quite get your boiler or your windows through lack of materials.” Hall is in agreement that there may be delays, but she points out that nevertheless, the legislation will be introduced formally at some point. She does have concerns, like the others, about last-minute panicking,
“I’d like to think the recent increases are manageable for a lender without passing on the costs ... [but] there will be a point at which ... it will have to be passed on to the customer” PETER HOWARTH but her thoughts are also on the bigger picture. “Many people won’t know this is happening and they’ll trundle along in 2024 thinking they can refinance their property, to be told, ‘By the way you need EPC C.’ My interest in this is, who is going to be the one who actually regulates it to make sure they are up to an EPC C? I can see what is going to happen, I can see it’s going to be conditioned in offers – the lawyer is probably going to be the one to tick to say they’ve got it from the landlord that the EPC is at a C and if any landlords have left it to the last minute, like people did with the stamp duty, then we are going to end up with potentially a backlog in the legal sector again,” she warned. MAINSTREAM ACCEPTANCE AND THE REST OF 2022 In some quarters, bridging is a term that conjures up negative connotations. That stereotype appears to be waning, though, as a greater understanding pervades. Oliver said, “It’s more of an acceptable term of finance – I think, go back three or four years and bridging was a lender of last resort, a finance option of last resort, it was ‘I can’t do anything else, so I’ll take bridging.’ Now it’s changed completely – people see it as an acceptable way to purchase an asset.” He feels that → level of comfort and acceptance will only increase as the year progresses. He added, “We are seeing people coming to us with general enquiries that they are not allowed to write for their network, and that’s because they perhaps don’t understand the complexity. So aggregators and packagers have a massive part to play in this, through education, as lenders do.” Trowse is particularly buoyant about the next six months, as the economy moves farther away from the tribulations it has endured over the past few years. “In terms of bridging finance, the uncertainty of the pandemic has pretty much subsided now. I think this →
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“I am having to go to my lawyers and say, ‘Can I have a little bit more training on the commercial aspect where it’s a mixture of a shop, offices, and residential at the same time?’” EMMA HALL year is going to be a good year – we’re actually seeing larger developers now commit to larger transactions; for instance, pre-construction, pre-planning deals, we are seeing a lot of big tickets in commitment now, whereas maybe a quarter or two quarters ago, people were deliberating.” He still feels there is work to be done on promoting the acceptance of bridging, feeling the market it occupies is split into two cohorts between developers/ investors and homeowners. “If you ask me, for the homeowner I would say it wasn’t mainstream. I think it still is a last resort, but it’s more palatable now with the lower rates, it’s more acceptable and [has] more reputable businesses,” he said. “In terms of the other side of the picture, the investors and developers, I think it is becoming more mainstream. We’ve certainly seen a lot more clients from, say, the Lloyds and Barclays – big clearing banks – come into the bridging sector, and also those who typically borrowed or had equity investors come in to the bridging space now ... again, as the rate is more palatable and the products are a lot wider [in scope].” Walsh is experiencing something of a boom, and she doesn’t expect a slowdown any time soon. “We’re expecting to be at the same level of demand as what we’ve already experienced,” she said. “Last month was our record-breaking month for bridging, and we’re expecting that to keep going.” One particular area for this growth is customers buying properties that need work before they can term out with another lender. She added, “We’re planning for continued growth. It’s going to be busy, we’re continuing to recruit to support with the demand in the bridging space. And Walsh even vowed to continue “to beat the drum” for bridging, as she does feel mainstream acceptance is becoming more and more of a reality,
even if it’s not fully there yet. “From the perspective of three years ago, there were still a lot of attitudes out there in the market that bridging was not the right product for consumers or investors, that it was an extremely expensive product, that it would be the last choice. But we’ve seen, actually, [that] bridging lenders and the solution of a bridge has certainly proved their benefits over the past couple of years – the reputation has improved and it’s becoming a more accepted product.” Offering a slightly different take on the perception of bridging, Hall doesn’t feel there is a need to worry too much if the ordinary person on the street still views it with some suspicion. She said, “I suppose, in essence, we’re looking at is as a mortgage broker rather than a consumer – my friends just look at me a bit blankly and don’t really understand it. Do I talk to brokers more about it than I did in the last two to three years? Yes, I do. More brokers looking at the circumstances for their clients are looking at different options than they did before.” There is one concentrated hotspot, too, that Hall has noticed this year and anticipates will continue: “The multi-use of the building, they are no longer always just looking at it as a residential buy-to-let, they are
“I think the sector has been very lucky, with a lot of stimulus pumped into the market at an unexpected time” JUSTIN TROWSE
looking at the commercial element as well.” The need to no longer spend time espousing the value of bridging is a welcome sign for all. White is particularly open about the changes he has noticed; he said, “I very rarely have conversations now, either with introducers from a very broad spectrum or the borrowers themselves, where they are querying why they would use the products or why they would want to sully themselves, as it were, by taking bridging loans. I think they see it as a very natural thing to do. In that regard, I think it is part of the mainstream now.”
Broad products, reliably funded 26
BRIDGING INTRODUCER JUNE 2022
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