BRIDGING Champion of the Bridging Professional
INTRODUCER www.sfintroducer.com
August 2022
Getting bridging applications right Clarity and accuracy are king
ASTL Bridging in-depth Interviews
EDITORIAL
COMMENT
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 Content Editor Kel Pero Production Manager Monica Lalisan Production Coordinator Loiza Razon Designer Khaye Cortez Head of Marketing Robyn Ashman robyn.ashman@keymedia.com
KM Business Information UK Ltd Signature Tower 42 25 Old Broad Street London EC2N 1HN
Make sure the path is clear
Contents 4 Donna Wells What does specialist finance offer?
I
n this month’s edition of Bridging Introducer, Lorraine Hart of Roma Finance delves into some of the common submission mistakes made on bridging business – covering everything from unrealistic schedules of work to underestimating costs. However, the matter that stood out the most – at least to this humble reader – was the failure to explain the project. As Hart puts it, “Remember that lenders are looking for a clear, concise explanation of the customers’ property project. This boils down to understanding why they need the loan and why they’re using a short-term lender. There’s plenty of good reasons, but we need complete clarity on the project, including any potential problems.” These are all perfectly valid points in the broker-lender relationship – and perhaps they can be applied with as much gusto to the brokercustomer relationship. There is a host of specialist lending options available to customers, and fully understanding their individual circumstances is crucial – as is making them aware of their possibilities, and when it is and isn’t the right time to make a move. Chances are clients will come to you with a sort of mental outline of what bridging is, and a belief that it is the right option for them, but with no real depth of understanding of the difference between open and closed bridging loans, first- and second-charge loans, and whether to opt for a fixed or variable rate. Their knowledge is rarely beyond basic, and, in truth, bridging may not be the best option for them. Creating that full understanding of borrowers’ pictures and financial circumstances, therefore, is not just crucial for the lender’s criteria but vital for the borrowers themselves. There is a heavy responsibility on the broker to find borrowers not only the right deal, but the right one for their unique circumstances – and signposting them to more appropriate deals is another vital part of that role. The name “bridging” is perfect for the product in many ways – because the broker is that bridge between customer and lender. Only if that bridge is based on the strongest foundations can the pathway be forged, and all parties be satisfied.
6 Jason Berry How landlords can win in the BTL market 7 Jane Simpson What sustainable homes mean for brokers 8 Cat Armstrong Guiding landlords toward lower costs 10 Vic Jannels In bridging finance, myths still linger 12 Access FS Discussion of the commercial lending landscape 14 Lorraine Hart Bridging finance demands clarity and accuracy 16 Simon Lee Plans for expansion 18 Jon Cooper Specialist market should be part of brokers’ toolbox
Paul Lucas
www.sfintroducer.com
AUGUST 2022 BRIDGING INTRODUCER
3
REVIEW
MARKET
Benefits of specialist finance Donna Wells director, F4B
I
n last month’s piece, I looked at some of the economic outliers that are affecting the specialist mortgage market and a variety of borrowing demands. These have been further emphasised by a somewhat shambolic political landscape; other words that are largely unprintable in a PG mortgage trade article also apply there. But before I get into too much trouble, let’s shift emphasis to focus on happenings in and around these specialist markets and how brokers and a growing proportion of their client base could potentially benefit. BRIDGING FINANCE
Technology and bridging finance have not always been a marriage made in heaven due to the field’s complex nature and manual underwriting requirements. However, that’s not to say that technology doesn’t have its place, and it was encouraging to see Tuscan Capital add a fast-track process to its residential bridging loans in a bid to streamline its lending. This comes via the employment of an automated valuation model to decide whether a desktop or short-form valuation should be used. In further bridging news, it will be interesting to see the impact of Castle Trust Bank on the sector after the launch of a bridging proposition that includes separate ranges for bridging and BTL. This features specialist products for heavy refurbishment and light refurbishment, and a bridging product that will be overseen by dedicated sales, underwriting, and processing teams. There are positive announcements, as technological enhancements that make the intermediary and client journey simpler and more efficient should be commended. And it’s always good to see competitive options emerge within
4
BRIDGING INTRODUCER AUGUST 2022
the bridging finance sector, especially those from established and wellrespected lenders. ADVERSE
Harking back to the challenging economic environment for many people, it’s clear that a growing number of people need an extra layer of support when it comes to dealing with any financial difficulties experienced over the past couple of years. The scale of this issue was recently highlighted in research from The Mortgage Lender which suggested that 3.2 million UK adults missed some form of major payment over the last two years as the pandemic hit some households’ finances hard. This equates to six per cent of the UK population missing their usual payments, including on major expenses such as their rent, mortgage, or credit cards. Four in a hundred UK adults admitted missing multiple payments, representing a significant proportion of the population who’ve been financially squeezed throughout the pandemic and who may have fallen into adverse credit. Young adults are reported to be the group most likely to have experienced financial difficulty throughout the pandemic. Eleven per cent of 18-to34-year-olds have missed at least one usual payment in the past two years, nearly four times the number of over-55s (three per cent). And six per cent of young adults admitted having missed multiple payments. Prospective homebuyers are more likely to have accrued adverse credit recently, with 10 per cent admitting to having missed one or more payments in the past two years, putting them at risk of having a mortgage application rejected.
a survey from Time Finance revealed that 65 per cent of intermediaries predict a rise in business insolvencies as a result of rising costs. When asked which areas of business were most affected by price hikes, materials and stock from suppliers ranked the highest at 64 per cent, closely followed by energy and utilities at 45 per cent. Employment costs and National Insurance both came in at 36 per cent. In addition, of the businesses surveyed, one in three said they are now scaling back investment, with 27 per cent freezing wage increases, 18 per cent halting recruitment, and one in ten reducing their personnel. Whilst much of this data paints a somewhat damning picture, there remains a host of available, accessible funding solutions to cover a range of business and individual needs, if brokers know where to look. This is where a packaging partner who offers insight, experience, and expertise within the bridging, adverse, commercial, and semi-commercial fields can really demonstrate their value in terms of sourcing and delivering the types of solutions that can make a real impact for a variety of borrowers in the current economic climate. That is value that will only increase in prominence over H2 2022 and beyond.
COMMERCIAL
Challenges also remain for a range of SMEs, and additional support is required when it comes to finding the right funding solutions to overcome short-term obstacles or to maximise any opportunities to facilitate growth. Focusing on the imminent challenges, www.sfintroducer.com
Development by Sancus Single point of contact Loans from £500,000 to £10,000,000 LTV / LTC 75% / 85% | 6 to 24 months Rates from 0.625% with competitive procuration fees
Get developments off the ground with Sancus. Simply email us and one of our team will be directly in touch contact@sancus.com North Mel Fourie, Steven Darbyshire & Barry Dillon South Jaxon Stevens, Bob Rowbotham, Clare Cuff & Tony Grillo
Development by
> Ground up, 1 to 50 units > Major structural renovation > Office to residential conversion > Residential | Semi-commercial | Mixed Use
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
Helping landlords succeed in today’s buy-to-let market Jason Berry group sales & marketing director, Crystal Specialist Finance
A
gainst the backdrop of the cost-of-living crisis and soaring house prices, increasing numbers of first-time buyers, and even first-time landlords, are being frozen out of the market because of the knock-on pressures on affordability. With the property investment landscape undergoing so much change, the market is becoming a tougher place for many; for example, a recent article in The Times suggested that 86 per cent of tenants do not feel they will ever save more than a five per cent deposit. In addition, the end of the stamp duty holiday has meant first-time buyers of a home worth £400,000 are being smacked with bills of £5,000. Consequently, the prospects for many buyers are tougher than ever. However, despite the increased pressures on many potential borrowers, the market is witnessing the development of a new playing field. For those well-poised to capitalise on the available opportunities, portfolio buyto-let investors are increasingly finding themselves towering over their rivals. Recent government figures revealed that buy-to-let investors and second home buyers now pay almost half of the entire Stamp Duty revenue going to HM Revenue & Customs each year. THE BUY-TO-LET BOOM
This trend has been exacerbated by two factors caused by the pandemic. Firstly, there is the phenomenon of bolt holes that were previously considered remote now being snapped up by investors capitalising on the UK staycation craze. And now, as we have seemingly come
6
BRIDGING INTRODUCER AUGUST 2022
out on the other side of COVID-19, a supply-and-demand dynamic is playing out between the lack of rental properties on one side, and the sky-high tenant demand created by buyers’ stalling mobility on the other. This complex power play has not gone unnoticed, with coastal resorts such as Whitby and Brighton introducing caps on second home ownership to prioritise local first-home ownership. The increased popularity of buy-tolet investment has certainly not gone unnoticed within Crystal Specialist Finance either; in fact, we have seen a 28 per cent increase in buy-to-let business when comparing H1 2021 to H1 2022. In addition, buy-to-let deals represent 33 per cent of our completed business for the year so far, and we expect continued growth in that market. WHAT ABOUT FIRST-TIME LANDLORDS?
Property prices, as they so often do, are still outstripping inflation. Even when coupled with the financial burden of meeting regulatory requirements, bricks-and-mortar are king when one is looking for an excellent income opportunity. This is why we’re seeing such fertile breeding grounds for the professional portfolio landlord at the moment – but it doesn’t mean all landlords are created equal. First-time landlords are just as likely to be adversely affected by the cost-ofliving crisis, not to mention the legal requirements they have to meet. From gas and electrical safety certificates to insulation and smoke alarms that have a carbon monoxide detector, landlords have an ever-increasing number of legal requirements to adhere to. That’s not to mention the passing of the Rental Reform White Paper and predicted changes to EPC regulations.
Needless to say, all these factors have an impact on affordability. REMOVAL OF STRESS TESTS
Borrowing could become easier for many as the Bank of England plans to remove the three per cent mortgage stress test in August and the market has generally welcomed the central bank’s move. However, for buy-to-let investors and landlords, the stress tests are different than for others. Lenders generally stress-test applications against mortgage rates of five per cent or 5.5 per cent, in order to ensure landlords can afford repayments; this is despite the fact that typical rates have been much lower than this for a number of years. As well as these mortgage stress tests, buy-to-let lenders also normally require a buffer of 125 per cent; this means that rental income must come to at least 125 per cent of mortgage payments each month. GETTING HELP FROM A SPECIALIST
Due to these requirements, many prospective landlords are falling through the cracks, leaving brokers and their clients wondering where to turn. This is where partnering with a specialist can give a boost to an individual’s buy-to-let ambitions – even if they have adverse factors affecting the case. A specialist will scan the entire market for you, helping you to navigate obstacles, and can even provide you with access to exclusive or semiexclusive buy-to-let products with the UK’s best specialist lenders. Not only that, specialists can guide brokers, alleviate the administrative burden, and also work as a driving force for a case’s completion. With the current myriad pressures on brokers, an extra pair of hands can be a gamechanger. www.sfintroducer.com
REVIEW
MARKET
The shift toward sustainable homes offers opportunities for brokers Jane Simpson MD, The Business Mortgage Company
D
espite the uncertainty around proposed changes to EPC regulations, the inevitable shift toward greener homes presents opportunities for brokers. Anyone who follows the mortgage press will undoubtably be aware that as part of the government’s drive toward its net-zero 2050 target, changes have been proposed that will require all homes rented under new tenancy agreements to achieve EPC (Energy Performance Certificate) C or above by 2025; all privately rented properties will need to meet the standard by 2028. With the private rented sector (PRS) consisting of millions of households, meeting the proposed regulations will require a huge effort from the sector, something that presents opportunities for brokers. We’ve seen many lenders introduce mortgage products that offer favourable rates for those investing in properties that are rated above EPC C. While I know that some have seen this as a bit of a green gimmick, there is data to suggest that mortgages have played a part in increasing the energy efficiency of PRS homes. As the sector has grown at an increasing rate as buy-to-let mortgage lending has become more commonplace, so has the proportion of homes with EPC ratings of C and above, rising from 13.5 per cent in 2009 to 38.3 per cent in 2019. Add to this the fact that a recent survey of landlords showed that of those who intend to buy property in the next 12 months, more than six in 10 will target properties rated EPC A, www.sfintroducer.com
B, or C, and we can see that there is a market for green mortgage products. We’re also seeing more examples of investors using bridging to purchase properties that can be acquired below market value due to their lower EPC ratings. Once necessary upgrades have been completed, increasing these properties’ value, landlords will be able to take advantage of the lower rates available through green buy-to-let mortgages. With data from the Department for Business, Energy, & Industrial Strategy showing that domestic energy consumption is responsible for around 16 per cent of the UK’s total carbon emissions, it is likely that all homes will need to become more energy efficient at some point – indeed, it’s more a question of when than if. Record-high energy costs mean that there has never been a better time to make properties more energy efficient, as this can reduce monthly outgoings – particularly important for landlords who include utilities in their monthly rental costs. Research undertaken as part of the English Housing Survey found that privately rented homes upgraded to Energy Efficiency Rating (EER) C could offer an average saving of £276 per year on fuel bills. Although published in July 2022, this report
covers 2020–2021, so it’s likely that this saving is now noticeably higher and would be more evident in multi-occupant properties like HMOs. The profile of PRS stock, almost a third of which was built before 1919, means that large numbers of homes will require a raft of energy-saving upgrades to hit EPC C. It is estimated that measures such as switching to greener heating systems and adding insulation will cost in excess of £10,000 per property in many cases. To fund such works in situations in which clients are already locked into a mortgage, second charges can be used, providing the first-charge lender will accept a second. It’s worth considering that the second charge does not necessarily need to be on the property requiring upgrades. We have seen CHL launch a new refurbishment product that, whilst not labelled as a green product, is certainly one that brokers should be looking at. This is just one example, and my expectation is that once we receive clear direction from government, lenders will be in a better position to develop innovative products to support landlords in meeting any new regulations. In the meantime, there are options out there, so brokers should see the issue as a chance to support clients and generate business.
AUGUST 2022 BRIDGING INTRODUCER
7
REVIEW
MARKET
How can landlords reduce costs? Cat Armstrong mortgage club director, Dynamo for Intermediaries
T
he issues surrounding the rising cost of living and monthly outgoings are of growing relevance to homeowners, tenants, sharers, and landlords across the UK. In recent years, taxation and regulatory shifts have also lain increasingly heavily on the shoulders of landlords, and it’s hardly surprising to see an increasing number of landlords investigating a range of options for how to reduce both tax burdens and other related costs. It will come as no surprise to anyone that the key focal point for landlords in reducing these tax burdens in recent times has been the increased prominence of limited-company lending. This is a trend that is showing no sign of slowing down any time soon, as highlighted in recent data from Paragon Bank. LIMITED-COMPANY LENDING
The data revealed that the proportion of landlords who plan to purchase their next buy-to-let property through a limited company structure has risen by 12 per cent – from 50 per cent in the first quarter of the year to 62 per cent in Q2 2022 – representing a three-year high. The research also highlighted that the propensity to incorporate tends to increase with portfolio size. For example, 47 per cent of landlords who own between one and five properties expect their next purchase to be through a limited company; this rises to 78 per cent amongst those with portfolios consisting of six or more buy-to-let homes. Of those who intend to expand their portfolios, 66 per cent said that they plan to finance their next property investment through a buy-tolet mortgage, up four percentage points since the previous quarter. There has
8
BRIDGING INTRODUCER AUGUST 2022
also been an increase in the proportion of landlords who plan to fund purchases by releasing equity from existing properties, up from 17 per cent in Q1 2022 to 28 per cent in Q2 2022. This represents a clear indication of the type of business we are seeing, and this is certainly an area on which lenders, especially those operating at the more specialist end of the market, are really focusing their propositions. Despite vast swathes of repricing and criteria tweaks, this continues to be a highly competitive lending arena, and it’s those larger portfolio landlords who are likely to continue driving activity in H2 2022, from both a purchase and a remortgage perspective. FLAT/HOUSE SHARERS AND HMOS
Such landlords have also been active in diversifying their portfolios to maximise yields, where possible, and to negate rising costs. With an increasing number of properties being built or converted into good-quality, cost-effective solutions for tenants of all ages, houses in multiple occupation (HMOs) are certainly proving to be attractive options. The popularity of flat/house-sharing and the lack of available rental stock continue to drive up demand and prices. This was demonstrated in the latest data from SpareRoom, which showed that average room rents in London have passed the £800 barrier for the first time, reaching £815 in Q2 2022, a 15 per cent rise from £708 in Q2 2021. However, it’s not just the capital where rents have skyrocketed; Northern Ireland was up 17 per cent, followed by the North East and Wales (both up 13 per cent YOY). The UK’s 50 largest towns and cities were all reported to have experienced an increase in room rents, with Sunderland (up 21 per cent), Belfast (up 20 per cent) and Cardiff (up 18 per cent) seeing the highest YOY increases. Forty out of the 50 largest towns and cities saw their highest
room rents on record in Q2 2022, including Manchester (£543) and Liverpool (£428). Out of these cities, London saw the highest increase in demand vs supply (up 154 per cent), followed by Slough (up 122 per cent) and Aberdeen (up 116 per cent). This was driven by an increase in demand and a decrease in supply. The only top town to see a decrease in demand vs supply was Blackpool (down four per cent YOY). These record-high rents are suggested to be stoking unaffordability, with almost four in five renters (79 per cent) either having to move to a new area or currently looking at cheaper areas because they feel priced out. The heightened demand across the board is likely to continue stimulating activity across the BTL marketplace in the coming months, and this is likely to come in the form of additional remortgage business and in more specialist areas such as limitedcompany lending, HMOs, and holiday lets. Inevitably, the latter areas come with extra levels of complexity. This places additional value on the advice process – and on working closely with specialists in the sector who can successfully guide even the most multifaceted cases from application to completion. www.sfintroducer.com
ce
Flow thr o
h g u
n i f
n a
At Shawbrook we combine creative tech-led solutions with a personal service to unlock opportunities for your clients, every single day.
• • • • •
Buy-to-Let Bridging Commercial Investment Development Finance Second Charge
Get in touch 0330 123 4521 cm.broker@shawbrook.co.uk property.shawbrook.co.uk
THIS ADVERTISEMENT IS FOR PROFESSIONAL INTERMEDIARIES ONLY AND IS NOT INTENDED FOR PUBLIC OR CUSTOMER USE
REVIEW
ASTL
Busting myths in bridging finance Vic Jannels CEO, ASTL
T
he Association of Short Term Lenders (ASTL), in addition to supporting its members and striving to uphold high standards of customer outcomes throughout the industry, has made an ongoing commitment to driving education and awareness around bridging finance. In order to understand the extent of the issues at hand, we recently conducted research alongside YouGov among more than a thousand property owners in the UK, in order to understand some of the more common preconceptions around short-term loans. This highlighted some interesting trends, some of which were disappointing, confirming a widespread lack of understanding around bridging – but there were also many positive predictions to be made for the future of this vital product. Keep an eye out for the full white paper and its surrounding commentary and analysis, due to be launched at the ASTL conference in October 2022, but in the meantime, I want to use this space to take a look at some of the biggest myths currently around our market, as highlighted by the research. MYTH: PRICE GOUGING
Almost half (47 per cent) of respondents said they would avoid bridging because it was too expensive. However, 54 per cent also admitted they did not know what the average annual rate for a short-term loan might be. If nothing else, this clearly demonstrates a glaring perception gap. The truth is that short-term finance is indeed more expensive than a mainstream loan. However, this is money lent often at a higher risk to the lender, with much faster turnarounds, and underpinned by human underwriting,
10
BRIDGING INTRODUCER AUGUST 2022
all of which create a premium. Rather than writing it off, it is important to weigh up the benefits for each individual case. If it means the difference between a lucrative transaction moving forward or falling through, borrowers might well change their perspective on the extra cost. It is also worth remembering that, while higher rates might make people baulk at first glance, this loan might be taken out for as little as three months, and in many cases twelve at most. Bridging rates have also dropped significantly over the years since this product first came on the scene, and with rates often under 0.50 per cent per month, over short periods this creates a much more positive picture than many might realise.
When it comes to oversight, 51 per cent of our respondents had no idea of the regulatory status of the bridging market, with only 18 per cent correctly identifying that this market consists of both a regulated and unregulated sector that it is in the best interests of the bridging market to deliver a transparent, positive approach to customer outcomes, regardless of regulation. MYTH: A LAST RESORT
MYTH: COWBOY FINANCE
When it comes to oversight, 51 per cent of our respondents had no idea of the regulatory status of the bridging market, with only 18 per cent correctly identifying that this market consists of both a regulated and unregulated sector. Bridging has long been subject to concerns among those less familiar with this market regarding potentially dodgy practices – and there might have been a time in recent years where some of these preconceptions rang true. Having vast sections of the market that do not fall under the Financial Conduct Authority (FCA)’s jurisdiction might sound concerning, but it is worth noting that regulation is only one of the factors that keeps a market honest. The truth is that any situation in which money changes hands runs the risk of being spoiled by a few proverbial bad apples. It is our considered opinion, however, that the overwhelming majority of shortterm lenders perform to incredibly high standards. If in doubt, look for the ASTL’s stamp of approval, as this means a lender ascribes to our stringent code of conduct and believes, like us,
Overall, 61 per cent of respondents said they were unlikely to use bridging finance if they were to face a chain-break scenario, despite this being the exact scenario in which non-professional property owners are most likely to need it. For many, this speaks to a lack of understanding, which, for all the reasons mentioned in this piece, and possibly others, may (wrongly) encourage consumers to avoid the sector. Short-term finance is not a panacea. It may be the right option, depending upon the need. It will not be right for everyone, yet there are many who would wrongly overlook it because it might be seen to be a risk too far. When these decisions are made based on preconceptions rather than fact, and when people fail to consult with an expert as a result of outdated myths that still persist, we all miss out. If we can shake off these myths, not only will the short-term finance market benefit, but, more importantly, ever more borrowers will be able to make the most of the purchase process, fund valuable improvements, get the best results from their money, and even bridge the gap to get their dream home. www.sfintroducer.com
FEATURE
ACCESS FS
Commercial lending: specialist vs high street
Karl Wilkinson discusses the state of play in the commercial lending market with two of his specialist commercial brokers to find out what’s getting easier, what is more challenging, and how commercial lending differs from the residential mortgage market.
12
BRIDGING INTRODUCER AUGUST 2022
www.sfintroducer.com
FEATURE
ACCESS FS
Karl Wilkinson CEO, Access FS
A
recent interview with Buket Bayrak and Bhusshan Tawade reveals real disparities in a number of areas of commercial lending between high street and specialist lenders, including attitude to risk, loans-to-value (LTVs), and even down valuations. The commercial lending market is tightening, but nowhere near as much as the residential mortgage market. Where interest rates have risen as much as one per cent, or 100 basis points, on buy-to-let over the past six months, on a commercial mortgage from challenger Interbay, for example, rates have risen, but only from 4.99 per cent to 5.29 per cent – a mere 0.3 per cent. In the residential market, rates have risen even further – by as much as 150 basis points in some cases, according to Moneyfacts. While the demand from borrowers wanting commercial loans has continued to rise, lenders’ appetite has tightened noticeably. High street lenders such as Lloyds, NatWest, and Barclays have the lowest rates by far, often only three per cent plus base rate, but the big banks are clearly cautious about the uncertain market. Their criteria have become so strict that Bayrak said, “It is clear that they are choosing to cherry-pick just the very best cases with the most robust evidence. If a borrower has not got at least a 50 per cent deposit, then they are not going to stand a chance.” “We notice the high street banks looking at investors in more detail,” Tawade explained. “If there are resident tenants in the commercial property, the banks now look closely at the quality of those tenants. A lender will expect to see the terms of a lease. They will want to know what the rent is and what the break clauses are, if any. “They will also want to know how consistent the tenants have been in paying over the past two years, www.sfintroducer.com
including during the pandemic. Fundamentally they worry about what will happen should the property become vacant. Every lender needs to know whether the borrower has enough personal income to service the mortgage, and if they don’t, how the monthly payments will be made.” A big factor over the past year is whether the borrower took bounce-back loans or other government initiatives such as CBILS. These are used as indicators of how robust a borrower’s business is.
As the big banks have become stricter, it has opened the door to the more entrepreneurial challenger banks. In stark contrast, challengers ... see the market conditions as an opportunity and are proactively looking to lend Ideally a lender is looking for borrowers with good portfolios that are not too highly geared. They also want borrowers with experience, who know how to run a commercial property and who have already made a success of it. This caution is leading to down valuations. Bayrak said. “The high streets are now full of empty shops, some of which have been empty for some time, and this is driving commercial property prices downwards,” said Bayrak. As the big banks have become stricter, it has opened the door to the more entrepreneurial challenger banks. In stark contrast, challengers, such as Interbay, Allica Bank, and even Shawbrook, see the market conditions as an opportunity and are proactively looking to lend. Rates are notably higher at more than five per cent or six per cent, but they will lend up to 75 per cent LTV and are competing with one another to get the business. One might wonder why an investor would pay over six per cent for a commercial loan if they can get one for
three per cent. As Tawade explained, “For some investors, particularly those who do not have a large deposit, the interest rate is not the most important element. For some the returns lie in the market value of the property, its potential to increase, and the value of the business. For these investors commercial property is still a huge opportunity. For them the important thing is not the interest rate, but getting a loan to capitalise on the growth potential while putting in the smallest deposit.” The challenger banks still require a solid business case, of course, and brokers helping their clients to provide the right information can be the difference between an investor getting a loan and not. Specialist lenders usually look for evidence of the investors’ experience in handling void periods, and at their financial standing, including assets and liabilities; sometimes additional information such as an SA302 tax form can be key. If lenders still aren’t sure, Tawade will often invite a lender to visit a site in person – for example, to see how close a building is to a town centre. “This can make such a difference,” Tawade said. “And as soon as these boxes are ticked, lenders fall over themselves to provide the mortgage offer.” The challenge for many brokers is really knowing the commercial market – or even being allowed to operate in it. Many networks or larger brokerages still don’t give their advisers the necessary permissions to provide advice on commercial loans. With no product-sourcing systems for commercial mortgages and things changing on an almost daily basis, it can be hard for any broker not dealing with them regularly to know where to go. Even if there were a product-sourcing system for commercial loans, you can’t source a lender’s appetite to lend. When brokers know what they are talking about, the chance of completion increases 100 per cent. With demand from investors continuing to rise and the returns for brokers significantly outweighing those in the residential market, it makes sense that more brokers would want to operate in an environment in which commercial is part of the mix. AUGUST 2022 BRIDGING INTRODUCER
13
COVER
ADVICE
Don’t make these submission mistakes on bridging business Why clarity and accuracy are key
L
ender delays and requests for further information can make or break your bridging customers’ property project if time is of the essence. Even if the case isn’t time-sensitive, delays can reflect poorly on you with your customers. After all, they just want to know you’ve managed to secure competitive funding for them. Luckily, you have the skills, knowledge, and tools to do exactly that. By doing everything in your power pre-submission to smooth your customers’ journey to offer, you can deliver the reassurance they need. And you’ll free up your own time to work on other business. WHAT NOT TO DO Avoiding common mistakes when submitting bridging business means you can help speed up processing, reduce delays, and give your customers the certainty they need to continue planning their property projects. Below are the most common causes of delay that come up time and again at Roma. Sidestep these common mistakes and boost the chances of your cases moving straight to offer. UNDERESTIMATING THE COSTS Most bridging lenders want to see full costings of the project before they make a lending decision, and a common problem is that often these costings aren’t comprehensive or realistic. We need to see the whole project accurately costed, including all materials and labour. In the current climate of rising prices, many lenders will also be asking for a contingency of at least 10 per cent built into the budget. This isn’t a nice-tohave, it’s a need-to-have, so that we know the project will be able to be completed in the context of rapidly rising material and labour costs. UNREALISTIC SCHEDULE OF WORKS If you don’t give lenders a proper schedule of works on submission of a refurbishment or development bridging case, they may not be able to make a lending decision.
14
BRIDGING INTRODUCER AUGUST 2022
If a borrower wants to take a bridging loan for 12 months, for example, we need to see that the project can realistically be completed within that timeframe. That includes having enough time post-work to redeem the loan. Depending on their exit strategy, this might mean building in time to sell the property. In the current climate, we’re seeing delays in construction and development projects, so those timings need to be realistic, with leeway built in to accommodate delays. MISSING DOCUMENTATION Missing documentation or information gaps in application forms are the most common causes of delays in bridging. As lenders, we spend time streamlining our forms and requests for documentation to speed up the whole process and make it easier for you and your customers. So, if we’ve asked for it, you can guarantee we really need it to make a decision. Incomplete applications will be delayed while we come back to you for the missing information. Your lender should give you a full list of what they need upfront so you can prime your customer to be gathering their documentation from the start. If you can submit everything needed on submission, you’re halfway toward getting the case over the line. FAILURE TO EXPLAIN THE PROJECT In addition to all the information we request, remember that lenders are looking for a clear, concise explanation of customers’ property projects. This boils down to understanding why they need the loan and why they’re using a short-term lender. There are plenty of good reasons, but we need complete clarity on projects, including any potential problems. When a broker fails to give us an overall picture of the case, including the project and the customer’s experience, we often need to come back with more questions, causing delay. Avoid that by being upfront and candid from the start. www.sfintroducer.com
Lorraine Hart
INTERVIEW
GROWTH PLANS
Lender outlines expansion plans Bank set for next phase following recent surge
L
everaging tech will be central to Glenhawk’s drive for growth, according to the lender’s recently appointed head of mortgages, Simon Lee. The London-based challenger bank last month announced four new hires to support its growth ambitions, adding that demand for alternative lending had increased since the COVID pandemic. Aside from Lee, the new appointments include commercial director Michael Clifford, head of marketing Sarah Wade, and Jude Miranda as bridging credit manager. The new hires follow what the bank said were “three consecutive months of record lending” between March and May, and the rollout of a regulated bridging product range. Lee, who has more than 30 years’ experience in financial services, said technology would facilitate the company’s growth ambitions in terms of scalability and by helping to speed up underwriting decisions. “You need scalability when you’re looking to grow a business and operating in the specialist lending space. You can gather much information in terms of that application – the customer, the property, and in terms of any background information – that makes the underwriting decisions speedier,” he told Bridging Introducer. The next stage of the process will be to develop the company’s tech platforms in-house, which he said was “crucial” if the company is to thrive in specialist markets. “Depending on what niches and opportunities we see, the system needs to have as many plugins as it can in order to gather as much data as possible, and also to have configurable rule sets where we don’t spend six months with developers
16
building a platform that can, for example, do commercial real estate. “We need to be able to configure that inhouse and do it in such a way that we can switch a product on or off quite quickly,” added Lee, who has also been working alongside a newly appointed permanent head of technology since he began heading mortgage operations at Glenhawk six months ago. The bank, which was founded in 2018 by long-term developer Guy Harrington, has until now specialised in providing competitive short-term finance for the residential and commercial sectors. However, Lee was hired to help the bank achieve its strategic objective of moving into the specialist long-term secured space. He revealed that he spent the first couple of months with his team mostly dedicated to identifying operational efficiencies. He said, “It’s given me a good insight into the bridging operation. We had a ‘beauty parade’ already in terms of looking at which origination systems we’d like to use, but also looking at all the other sort of bolt-ons that we’ll need to build a system that really gives the underwriters the insight and the data they need to present it in a readily usable format.” Lee, however, stressed that although technology would generate a greater volume of business, the human component was still needed because “it’s very difficult to make an automated decision” on niche products. Asked if he believed Glenhawk could sustain current levels of growth, given the economic headwinds, he pointed to the fact that house prices were still growing. According to the latest Nationwide House Price Index, house prices grew by 10.7 per cent in June; that was down by 0.5 per cent compared to May, but the
BRIDGING INTRODUCER AUGUST 2022
Simon Lee
figures show that average prices have increased by more than £26,000 in the past year. Lee recognised that the market could slow, but added that there was still room for growth. He said, “Clearly, ... there’s a lot of speculation on whether or not house prices are going to grow [next year]. “But when you consider the house price growth we’ve had over the last couple of years through COVID, even a drop of five to 10 per cent leaves a substantial amount of equity in a lot of properties, so I still think there’s plenty of room to move into new areas for Glenhawk and provide products that people will appreciate.” He expressed more concern about rising mortgage rates, however, which he said could have “an impact on affordability for customers,” adding that inflationary pressures, increasing fuel and food costs, and the war in Ukraine would require “ingenuity and planning” by the bank in developing future products. www.sfintroducer.com
Second Charge loans for ANY business purpose. Challenge us.
From a sparkling new advertising campaign to an IT upgrade, stocks and shares investment to a fleet of new vehicles, our Second Charge loans have helped fund a range of business needs. We challenge you to find another lender that offers all this: • Lending on the Open Market Value, as either a 1st or 2nd charge, not against the 180 or 90 day value • Loans against a Director’s main resi, even if it’s in the Director’s personal name • Equitable charge loans - we can look to lend even when consent has been refused • Up to 70% LTV against the OMV and rates from 0.6% Second Charge loans for all the business purposes you'd expect, and those you wouldn't. That's SoMo. Call our team on: 0161 312 5656 or visit somo.co.uk
INTERVIEW
SPECIALIST MARKET
Why brokers need to know about the specialist market It is going to get harder before it gets easier
W
ith people’s finances becoming more and more complex given the current state of the financial market, many are having to look to specialist products in order to complete their purchases. The cost-of-living crisis has added extra hurdles for many, and with this expected to worsen before it improves, the importance of educating brokers on the specialist market has never been clearer. Existing specialist brokers are already aware of the challenges faced by, for example, self-employed borrowers; mainstream customers are now also struggling, however, and the industry has thus suggested educational guides on the specialist sector. “Four in five brokers recently stated that they expect to write more specialist residential business in 2022, so clearly the market for specialist mortgages is booming,” said Jon Cooper, head of mortgage distribution at Aldermore. Cooper explained that this is where the experience and expertise provided by brokers comes into their own. Research by Brightstar Financial and West One found that more than eight in 10 brokers have offered bridging finance to customers without sufficient knowledge of the sector. As such, there is a clear gap in the understanding of the specialist space, which Cooper explained is now more important than ever to fill in, considering the rise in the number of customers with circumstances previously considered specialist.
18
Jon Cooper “At Aldermore we work personally with our broker partners to better understand their educational gaps and the support they require, using commissioned research alongside our partnership arrangement to provide tailored support as a result,” Cooper added. He believes that lenders too, have a vitally important role to play and must provide comprehensive support so that their brokers understand their specific requirements. He stated that lenders should start to incorporate easy-tounderstand broker guides, intuitive digital systems, regular updates on changes to products and processes, and access to lines of clear and honest communication, whether that is via email, over the phone, or in person. “If the broker benefits, the customer will ultimately benefit, too, and that is what we all want to see,” he said.
BRIDGING INTRODUCER AUGUST 2022
SELF-EMPLOYED DILEMMA Gary Das, founder of Active Mortgage, explained that his firm arranges hundreds of self-employed applications each year, so it is well versed in the challenges specialist customers face and how to overcome them. Many of these same challenges are now likely to be encountered by mainstream borrowers. Looking to the extra hurdles self-employed borrowers face which may now affect mainstream borrowers, Das pointed toward income and credit issues. He said lenders will now likely want to see additional months’ worth of bank statements, as well as an increased look at credit blips and affordability. Regarding the self-employed, Das said he likes to break clients down into three main considerations: their income, their credit report, and their goal or what they are trying to achieve. “Our method at Active Financial is to speak to clients 12 to 24 months in advance and to help them set goals that they can achieve,” he said. Alongside the complications caused by the pandemic, the cost-of-living crisis has further worsened the situation for borrowers, and as a result, the need for a more bespoke approach to clients is needed. Das explained that education is the key, and if the education on the specialist market is made more widely available to brokers, then he believes customer outcomes will improve. “The key, as per my book The Self-Employed Mortgage Guide, is in the preparation,” he concluded. www.sfintroducer.com
Time to relax Let’s not spend summer worrying about your bridging deals. Our team of experts can support every type of deal from start to finish, you can also manage your deal online and get Heads of Terms on your new enquiries in minutes.
Property finance made simple.
lendinvest.com/intermediaries LendInvest plc is a public limited company registered in England and Wales (No. 8146929). Registered Office: 8 Mortimer Street, London, W1T 3JJ. Your client’s property may be repossessed if they do not keep up repayments on their mortgage. For intermediaries only.
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.
