Bridging Introducer December 2022

BRIDGING INTRODUCER

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How was your year?

As years go, 2022 certainly hasn’t been a quiet one.

Worry not about the newspaper journalists who are busy collating those end-of-year reviews that spread across news sources in the lull between Christmas and the new year. There’s plenty of retrospective material with which they can fill their columns.

From the invasion of Ukraine in the early part of the year, to the death of the Queen in September, to the economic woes so closely entwined with multiple and hasty changes of administration at 10 Downing Street, there has been no shortage of drama.

Those last happenings, of course, affected the financial services community most directly, though the war in Ukraine has played its part, too, in sending inflation and interest rates soaring.

As things tighten up in the mainstream mortgage market and affordability becomes an issue for some property buyers, the bridging community can reasonably expect to field more enquiries in 2023 from those seeking an alternative source of funding in the form of a short-term loan.

But as industry professionals heard at the recent Mortgage Business Expo in London, down valuations are starting to cause a headache for bridging deals, as valuers nervously reappraise property prices. We have a full account of the discussions there in this month’s BI issue.

Hopefully, as those autumnal financial jitters fade and the market settles down, confidence will build again, providing an optimism to last beyond the holiday season.

Few would deny that a respite from business, however brief, will be especially welcome this month, as we step away from our desks for the festivities and pause to take a breath before … well, before whatever awaits us in the new year.

Wishing you all a peaceful season and a very prosperous 2023.

Contents

4 Donna Wells Advice plays an increasingly crucial role

6 Vic Jannels Influencing how short-term finance is perceived

8 Updates Q3 report and latest on bridging loan deals

10 Cover: Upside down Down valuations grow

14 Jason Shead TAB’s chief risk officer weighs in

16 Colin Sanders

Tuscan Capital’s CEO on nearly forty years in the field

Simon Meadows

Advice is growing in importance

Donna Wells director, Envelop

It’s fair to say that the mortgage market has had to endure a rollercoaster period, with no sector immune to recent political and economic instability. However, homeowners still need to remortgage, landlords still need to restructure their portfolios, solutions still need to be found to support a range of property purchases, people still need to free up money that is tied up in their homes, and businesses still need to maintain strong levels of cash flow to help counter rising inflation.

This highlights the growing importance of the advice process and the additional support required by intermediaries to deliver such a diverse and complex range of solutions.

Let’s take a look at some areas that need this additional support.

BRIDGING

In recent weeks, we’ve heard from a trio of short-term lenders who are experiencing growing demand in different areas of the sector.

Bridging Finance Solutions reported a sharp rise in the number of clients securing bridging loans in order to support their children in the purchase of property. This suggested that young aspiring homeowners, keen to take their first steps onto the property ladder, are facing unaffordable house prices coupled with rising interest rates and reluctant lending – which means they are having to turn to their parents for additional help.

Aspen Bridging has experienced an influx of overseas investment enquiries since the government’s mini budget on 23 September. With the weakened pound and the large reduction in short-term lending and term-based mortgages, Aspen suggested that overseas investors have recently

made up nearly 30 per cent of all new enquiries. Foreign nationals have made up 20 per cent of its client base over the last 12 months.

In addition, luxury asset short-term lender Suros Capital reported rising levels of new business, its loan book up over 200 per cent year-on-year, with significant growth experienced over the last three months.

These represent good examples of the breadth of options available across the short-term finance sector, and its flexibility in meeting a variety of borrowing needs. This is to say nothing of the available opportunities for brokers who are in a position to access these types of solutions.

EQUITY RELEASE

New equity-release borrowing is said to have hit a record high in Q3. The latest figures from the Equity Release Council showed that homeowners aged 55+ took out a record 13,452 new equity-release plans in Q3, a quarterly rise of eight per cent and an annual rise of 34 per cent.

The number of equity release customers has risen by 36 per cent, while total lending is up 40 per cent compared to 2021. With 9,648 returning customers and 2,419 further advances agreed, the market saw 25,519 customers active during Q3, with total lending topping £1.71bn – another record figure.

Product preferences amongst new customers were split almost equally during Q3, with 52 per cent of customers opting for lump-sum lifetime mortgages, while 48 per cent chose drawdown lifetime mortgages with some of their loan set aside for future use.

As outlined within this data, while market turbulence has added to upward pressure on interest rates, product flexibilities and stringent safeguards mean modern equity release remains one of the most secure and adaptable ways for some people to access the money tied up in their homes without giving up ownership or risking repossession through fixed repayment commitments.

And this is an area where the quality of advice also remains key.

COMMERCIAL FINANCE

As alluded to earlier, cash flow is a top priority for many businesses, and the successful management of this has become the primary reason for small business applications for finance.

This is according to iwoca’s latest broker research, which showed that cash flow management was the most common loan purpose for over two in five small businesses (42 per cent) in Q3, a 16 percentage-point increase from the same period last year. This is the first time since Q2 2021 that cash flow concerns have overtaken ambitions to grow a business as the primary reason for accessing finance.

One in five brokers (19 per cent) say it will take over 12 months for the lending market to return to the number of loan requests they received pre-pandemic, a significant increase from Q2 2022, when only seven per cent of brokers thought it would take over a year for markets to bounce back.

It’s evident that economic and market conditions are far from simple or certain, yet borrowing demand remains strong, and business is still being written across a host of specialist markets. These are areas that will continue to evolve and, to keep pace, intermediary firms need to adjust their offerings accordingly. Establishing a closer working relationship with a trusted packaging partner can certainly help with this evolution.

It’s evident that economic and market conditions are far from simple or certain, yet borrowing demand remains strong, and business is still being written across a host of specialist markets

Shaping perceptions of short-term finance

Vic Jannels CEO, ASTL

Short-term finance has been in existence, in some form or another, for about 60 years. However, if you spoke to members of the public, they might never have heard the term, and might even have a negative perception of the idea of bridging finance.

This is enough of a problem at the best of times, when bridging is most commonly used – by those outside of the professional property investment sector, at least – in order to shore up chain breaks and keep the market moving.

Now, though, a lack of awareness and understanding of the uses and benefits of short-term lending means more than ever.

Bridging finance initially came into its own during the credit crunch, when mainstream lenders contracted their appetites, and economic pressures made even the simplest of deals much more complex. This should all sound very familiar to anyone paying attention to the current environment.

In times of crisis, specialist lenders are often able to step in and pick up the slack, using different funding routes and a human-focused approach to underwriting in order to continue lending.

It is important, then, that brokers and their clients, who might not yet have come across bridging outside of outdated and sensationalist headlines, understand the realities.

STARTING POINT FOR PROGRESS

The Association of Short Term Lenders (ASTL), the Financial

Intermediary and Broker Association (FIBA), and the London Institute of Banking and Finance (LIBF) are working toward a better consumer and broker understanding of this market, through our Short Term Lending Educational Programme.

In order to understand the task ahead of us, the ASTL recently enlisted YouGov to conduct some much-needed research into the realities of consumer understanding of short-term finance. The report, Consumer perceptions of short-term finance 2022 , aims to stand as a benchmark for progress. The full report is worth a read, but here I am going to take a look at some of the headline figures.

KNOWLEDGE VERSUS UNDERSTANDING

Promisingly, 67 per cent of respondents to the survey had heard of bridging finance. However, this does not appear as positive when you consider that 58 per cent overall said they were either unsure or outright did not understand how these loans might be used in a property deal. In the end, only 10 per cent were confident in their knowledge of the subject.

This lack of understanding plays out elsewhere in the research. When asked about details such as how long it might take to access bridging funds on average, or whether this market is regulated, the majority were either incorrect in their assumptions or unable to make an educated guess at the answer.

NEGATIVE PRECONCEPTIONS

A chain-break scenario is, for most of the population, the most likely situation in which bridging will come into play. This is even more likely at the moment, as people’s finances are made more turbulent,

and mainstream lenders change or pull rates on a daily basis.

However, 61 per cent of people overall said they were unlikely to turn to bridging in the event of a chain break. There is some variation, with younger age groups more likely to accept short-term finance as an option, but evidently more must be done to ensure that those for whom this is the right option are at least aware of it.

Some of this hesitation may stem from historical preconceptions, such as that bridging is prohibitively expensive, cited by almost half (47 per cent) of respondents. While short-term finance is, by its very nature, more expensive than a term loan, recent years have seen rates drop to levels of affordability not seen before, as this market grows in strength and stability. The current economic environment will likely have ramifications for this market, but with different funding lines, specialist lenders are less at the mercy of rising base rates.

Brokers must ensure that their clients also understand that a slightly higher rate, when offset by the speed of service and ability to hold onto a deal that might otherwise fall through, is often worth considering.

MAKING PROGRESS

Gratifyingly, only 12 per cent of those surveyed mentioned “bad reputation” as an issue plaguing this market. This is no doubt in large part due to the hard work being done not only by trade bodies such as the ASTL, but also by the lenders and brokers integral to the daily workings of this market.

The next step is to ensure that HM Treasury, the legislators, and the general public truly understand the value of short-term finance. For that, keep an eye on the ASTL in 2023.

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Bridging loans post record figure in Q3

Gross lending rose for third consecutive quarter

Atotal of £214.7m in bridging loans was transacted by contributors during the third quarter of 2022 – the highest contributor lending amount since the Bridging Trends report was launched in 2015.

This figure represents a 20 per cent increase from the £178.4m recorded in the previous quarter, and the third consecutive quarterly rise in gross contributor lending.

Bridging Trends is a quarterly publication developed by short-term finance lender MT Finance as a method for monitoring the latest trends in UK bridging finance to offer a general snapshot of the industry. The report covers data gathered from several specialist packagers operating within the UK bridging market.

According to the latest Bridging Trends report, preventing a chain break became the most popular use of a bridging loan in Q3, at 22 per cent of total transactions, up from 21 per cent in Q2. Purchasing an investment property – previously the most popular use of bridging finance for the five previous quarters – dropped by a third, from 24 per cent to 16 per cent. This, the report noted, could be due to investors exercising caution in an unpredictable economic climate.

Meanwhile, bridging loans for business purposes nearly doubled, soaring from six per cent in Q2 to 11 per cent in Q3. Auction finance also saw a jump in demand, rising from five per cent in Q2 to eight per cent in Q3.

The average monthly interest rate increased for the first time this year, to 0.73 per cent, up from the record low of 0.69 per cent reported in the previous quarter, as the cost of borrowing increased across the financial services industry. The average loan-to-value level also increased in Q3 to 59.6 per cent, up from 56.2 per cent in Q2.

Regulated bridging remained in high demand, taking 45.2 per cent of market share, up from 43.3 per cent in Q2. This

is the highest percentage in regulated bridging transactions since Q1 2021.

Pressure on industry professionals continued into Q3 as demand soared –highlighted by the average completion time increasing to 60 days in Q3, from 57 days in the previous quarter.

“The total gross lending figure will be an interesting benchmark for the next quarter, given the current uncertainty of the market,” commented Sam O’Neill, head of bridging, Clifton Private Finance. “With uncertainty comes opportunity, and we are already seeing investors looking to capitalise on under-marketvalue transactions caused by panicselling vendors.

“I anticipate investment purchases to increase in the next few months. I would be interested to see the re-bridging figure in the next quarter’s statistics. Current bridging loans nearing their term’s end are subject to more stringent criteria on mortgages and an uncertain buying/ selling market. Will more lenders who don’t currently consider re-bridging see this as an opportunity? Or a necessity to keep pace with other lenders and the demands of the market?”

Stephen Watts, bridging and development finance specialist at Brightstar, added that it was not surprising

that chain-break bridging is the biggest use of funds for the quarter, following the base rate rises seen throughout this year and mortgage interest rates increasing across the industry.

“Borrowers who have had mortgage products withdrawn on them with little or no notice or have lost their sale due to their buyers no longer fitting mortgage affordability criteria turn to short-term funding solutions to ensure their purchase can still go through as planned. It will be interesting to see how this affects the next quarter’s data,” Watts said.

Gareth Lewis, commercial director at MT Finance, remarked that considering the volumes that were reported in Q3, bridging finance continues to be a useful tool for homeowners and investors alike.

“What has been interesting is the dropoff in bridging being used for investment purchases, which is likely due to buyers taking stock of the current market,” Lewis said. “While it’s too early for us to really feel the impact of September’s mini budget, I expect this will be more visible in Q4.

“As predicted in Q2, interest rates have started to slowly rise to 0.73 per cent, but it is worth noting they are virtually on a par with Q3 in 2021 (0.72 per cent). I would not be surprised if interest rates continue to rise, and investors remain cautious.”

Ingenious completes bridging loan deal for Birmingham development

Historic project is multi-faceted

Ingenious Real Estate Finance has completed a bridging loan deal with Cole Waterhouse in support of its development of the £260m Upper Trinity Street project in Digbeth, Birmingham. The mixed-use scheme promises to deliver 943 homes and a new, one-acre public park for the city.

The bridging loan, over 24 months, enables the acquisition of land from multiple private owners. Auxillium Real Estate acted as the debt broker.

The purchase and bridging loan agreement came after Birmingham city council granted planning permission in July 2021 for the transformation of the 5.11-acre industrial land site into a cultural,

commercial, and residential scheme. It includes the creation of Pump House Park, which will have historic Birmingham features such as a functional Boulton and Watt pump house and engine and the lock-keeper’s cottage alongside the canal.

Cole Waterhouse has since announced the first tenants of Upper Trinity Street, including the world’s first Museum of Youth Culture, the Birmingham Music Archive, and Digbeth’s Pat Benson Boxing Academy, which together will occupy just over 15,000 square feet of space.

In addition, the development will deliver rentable and open-market sale homes with roof gardens, a 133-bedroom hotel, 60,000 square feet of flexible commercial space, car parking, and a network of landscaped yards, squares, and what’s described as hidden nooks. Phase one will see the construction of build-to-rent housing as part of the scheme’s residential space.

Funding 365 completes £6.5m development exit bridge

Conversion and new build bring 33 new units to Maidenhead

Funding 365 has delivered a £6.5m bridging loan at 70 per cent LTV to refinance two apartment blocks in Maidenhead.

The nine-month loan, introduced by West Rock Capital, enabled the developer borrower to exit their development funding and complete the sale of multiple units. The bridging lender took security over 33 apartments across the two blocks, one of which was a ground-up build and the other a conversion from an office building.

The team delivered the loan in less than a month to hit the refinance deadline. The loan is under Funding 365’s residential bridge product, which offers bespoke solu tions of up to £10m on properties across England and Wales, with no admin fees,

exit fees, or early redemption fees.

“We’re seeing an increase in refinance enquiries, for which it is essential to have a solid exit plan and sensible LTV,” Jon Brooks (pictured), senior credit officer at Funding 365, said. “Now, more than ever, transparency and certainty are crucial, which is why we deliver terms that are credit-backed, interest rates that are fixed at the point of completion, and have one underwriter managing each loan from start to finish.”

Westley Richards, director at West Rock Capital, noted that they have worked with the Funding 365 team for several years, adding that they have always been impressed with its “flexible and pragmatic approach to lending.

“The team were well-versed about our client’s requirements from the outset and maintained constant communication throughout, ensuring the refinance completed in an efficient and timely manner,” Richards said. “It was a pleasure working with Jon and the team on this loan facility, and I look forward to working with them again in the near future.”

Jon Brooks

Upside down…

With property prices expected to fall in 2023, down valuations are already causing problems for the bridging market, London’s Mortgage Business Expo has heard.

The extent to which prices will be hit in the coming year is anybody’s guess. Various figures are being bandied about, from five to 10 per cent – and some say they will fall even farther.

Whatever happens, the one-day show for mort gage professionals at the Business Design Centre in Islington was told that a significant number of down valuations were now affecting the lending volumes that were being generated.

“I think, certainly, in the short-term in the bridging space, we’re starting to see far more of that,” confirmed James Bloom, director of Alternative Bridging Corporation, which provides bridging finance, bridging loans, term loans, and develop ment finance. He said of valuation reports, “We’re starting to see the health warnings that we had after COVID, where you’ve got the box at the top, which is basically, ‘Here’s a valuation, please don’t rely on it’ – really helpful. I saw one this week with caveats beyond belief.”

He continued, “I had a case this week where the client gave the valuer some really good comps; he just wasn’t having it. He would not increase his valuation. That valuation is not a science, so I under stand it. I’ve never been a valuer, I’ve always been a lender. And I’m sure it’s quite nerve-wracking in this market to do that, and say, what’s going to add to the values, where the value is now. I get where they’re coming from, but it is starting to come into the market; it’s starting to cause a problem.”

Bloom added that his firm was regularly seeing down valuations now and responding like most sensible lenders. “We’re trying to be a little bit more cautious, as you’d expect us to be,” he said. “Like

everybody, we’re subject to the vagaries of the Bank of England base [rate]. We’re trying to be creative; we’re trying to help. There are innovations that we’re looking at. We’re trying to keep rates as sensible as we can. But in business, there’s a certain margin that we need to be looking at – it’s challenging.”

Rob Barnard, relationship director at Pepper Money UK, a specialist mortgage lender, said the market had changed significantly, and reflected, “Fifteen years ago, a conversation could lead to a change in the valuation. It just doesn’t happen now.”

Recent research suggested buyers and sellers were having to negotiate average shortfalls of around £8,000 as a result of down valuations by lenders. The findings from HBB Solutions, a firm that steps in and buys property to stop chainbreaking, were based on an average UK house price of £286,397.

It found that sales subject to a down valuation were being hit by a 2.8 per cent reduction, which

In an unsettled market, bridging firms are reporting a greater frequency of down valuations – but they’re still keen to recruit fresh talent, as Simon Meadows reports

James Bloom

meant that there was a £7,978 shortfall between the sum a lender was willing to lend and the price expectation of the seller. The seller would have little choice but to lower the asking price or hope the buyer would increase their offer. With the average buyer placing a 25 per cent deposit to the tune of £71,599, a £7,978 increase pushed the required deposit pot up to 27 per cent of the property’s value.

The biggest down valuation adjustments in percentage terms were in the North East, where a 4.8 per cent reduction was causing a price gap of £7,638 between buyer and seller. The largest monetary down valuation adjustments were in the East Midlands, where a 3.3 per cent reduction was causing a price gap of £8,109, according to the research.

Marcus Dussard, a sales director at Hampshire Trust Bank, which is a specialist bank focussed on providing asset finance, specialist mortgages, and development finance solutions, explained it lent up to 75 per cent loan-to-value and had no plans to revise that. As a business, it wanted to lend, but if a valuation came in much lower than envisaged, it couldn’t progress. “From that perspective, we do have to rely on valuers to give us a number they think is relevant to that partic ular property at the time,” Dussard said. “Those

material uncertainty clauses in those valuations are starting to appear. We are seeing some down valuations, particularly across portfolios, which then become even more difficult.”

Mike Cook represented Market Financial Solutions, a specialist lender for bespoke bridging loans and buy-to-let mortgages, where he is chief mortgage officer. ““We’ve tended to only really have fixed,” he explained. “The loan term for bridging is generally shorter, so you can be slightly more sure on the projections of costs of funds in that time.”

Reflecting on the challenges in the buy-to-let space, Cook said, “We tend to find it’s larger portfolio landlords who have that resilience where they will have other assets that are unen cumbered, or they will have other assets in other parts of the country. They’re literally rotating what they refinance, to develop others [assets], to expand, and it is the time of the portfolio landlord in that respect. And, therefore, they’re using bridging, they’re using the ‘I’m going to do this short-term and then exit.’ But of course, at the moment, the pressure is on the broker to find that exit and how that is going to work. And [they’re] looking more and more to the bridgeto-let or an alternative, similar way you can get a commitment on day one.”

Bloom chimed in, “It’s much more about certainty of funds now, which, to be honest, as a long-established lender ... I’m not saying I’m enjoying the current environment. It’s very challenging for lots of people. But certainly you’re having much more sensible conversations about the nature of the client, the nature of the transaction, not just, ‘Well, I’ve got point

Rob Barnard

“Those material uncertainty clauses in those valuations are starting to appear. We are seeing some down valuations, particularly across portfolios”

– MARCUS DUSSARD

Marcus Dussard

five, what can you do?’” He added, “So there’ll be a shakeout. You know, no one wants to see casualties in our market, but inevitably there will be. But what does it leave? It leaves perhaps a slightly more sensible, well-adjusted field of lenders who can operate in not just the easy times, but in challenging circumstances as well. So I’m having far more sensible conversations now than maybe a year ago.”

Between 2020 and 2021 an estimated 390,285 homes were down valued by surveyors working on behalf of mortgage lenders who believed that prices agreed by both buyers and sellers were too high.

According to research from London lettings and estate agents Benham and Reeves, the South East was the region with the most transactions hit by a down valuation. Of the 137,107 homes sold there over that period, an estimated 60,327 were thought to have been down valued

It estimated that the average property across the UK would take a hit of between £5,000 and £10,000 as a result of a down valuation. Properties were being down valued by up to five per cent in some areas of the UK.

At 59 per cent, London saw some of the highest levels of down valued homes of all UK areas, and it also ranked third in terms of the sheer volume of transactions affected. It was estimated that 47,769 of the 80,965 homes sold across the capital would have been subjected to a down valuation.

“Down valuations can be a real thorn in the side of those eager to progress with a property transaction, but unfortunately they are a preva lent occurrence within the UK property market,” Marc von Grundherr, director of Benham and

Reeves, observed in 2021.

Despite the current economic pressures, the Mortgage Business Expo heard that there was a need to nurture the next generation of bridging finance brokers.

A specialist property finance education programme was being launched, said Adam Tyler, executive chairman of the Financial Intermediary & Broker Association (FIBA). It supports professional finance intermediaries in growing their businesses. FIBA had joined forces with The Association of Short Term Lenders (ASTL) and the London Institute of Banking and Finance (LIBF) for the Certified Practitioner in Specialist Property Finance programme.

“ You need to understand the market,” said Tyler. “There are lots and lots of different areas, and it does seem confusing from the outset. But once you start to get an understanding of it, there’s a lot of good business to be written.”

The programme would provide around forty hours of written and video content on a digital platform, covering a wide range of areas including bridging, buy-to-let, commercial, and development finance, with a two-hour exam at completion.

“Whenever there’s a downturn, there’s always opportunity,” Tyler suggested. “There is a solution somewhere within what we do, within specialist property finance. This is a great time to do it. And I shouldn’t be using that word against the backdrop of all the other things that we are seeing happening painfully. But it is a good time; there is an opportunity.”

Mark Hutchings, business development executive at Market Financial Solutions, acknowl edged, “A lot more brokers are coming into the marketplace at the moment because they see an opportunity to earn a living by assisting people with more complex finance.

“I work with a lot of new brokers personally. We like to try to educate them and help them with what is going on in the market. It’s a good space to be in, if you know what you’re doing, and it’s one that you can enter if you do the right research.”

He advised the audience at Mortgage Business Expo, “You actually don’t want to go out there and get 100 lenders on your panel, because you’ll just confuse yourself. If you pick four or five, have four or five good relationships with good business develop ment managers, you can then build your knowl edge. Ask them questions, you know – even if you think they’re [the questions are] stupid, ask them, because you’re learning, and that can only provide a better service for the client you’re trying to help.”

FIBA and ASTL’s education initiative was

Mike Cooke

welcomed by Simon Adcock, regional director at Reward Finance Group, which offers flexible finance solutions and products for business. “It has to be continuous because we’ve seen an awful lot of criteria changes, rate changes, and things over the past few years,” Adcock said. “So any continuous programme that helps either new people or existing people in the market to look at this particular area of the market, it’s got to be a good thing. We’ve all seen that there is a good opportunity, in this partic ular market, to make a good living. It doesn’t matter what your background is.”

He added, “We welcome the opportunity for new people to reach out. We have a constant need, as we’re expanding our business, [with] particularly London and Scotland being the latest regions. Everybody is a new intermediary at Reward. So my team, of which there are now four – a fifth one’s joining shortly – are tasked with spending pretty much most of their day talking to introducers and talking about the opportunities that they have in the marketplace, and what’s happening across the wider economy.”

He added, “For us, the more new brokers we talk to the better, and that continues throughout the process as well – not just on day one, but as an ongoing relationship.”

Leanne Ardron, sales director at LendInvest, an asset-management platform providing bridging loans, development finance, and buy-to-let mort gages for intermediaries, landlords, and developers, said when she joined the business over ten years ago there were just five people on the team.” Now we’re a firm of 260 people,” Ardron said. So, over time we’ve really used marketing and relationships – for example with FIBA, expo events, LinkedIn,

social media, and all that sort of thing. It really helps drive a broker community and getting to know that person on a relationship level, because it’s a trust thing as well.”

She added, “We’ve also built lender days and lender weeks for those new brokers who are coming into the market. The experts on our team spend the day or the week with them, whether it’s bridging development or buy-to-let, and just give a literal step-by-step on how to do it. It’s important to educate new people in the market.”

Jack Coombs, director of Midlands-based Aspen Bridging, which offers bridging, light devel opment, and bridge-to-let loans of up to £10m, said up to 50 per cent of its hires came from university. “We do very, very well out of taking graduates,” he explained.

“It works extremely well for us. And they tend to be very professional people. The industry needs fresh blood; it needs intelligent people. There’s just so much raw talent out there in the UK, across the country, in young people.”

“Experience is great,” Coombs said, “but if you’ve got people who are bright, hungry, and young, and they want to get into the industry, then they need to have help to do that.”

Mark Hutchings

“The industry needs fresh blood; it needs intelligent people. There’s just so much raw talent out there in the UK, across the country, in young people”

– JACK COOMBS

Jack

Coombs

Living on the frontline as a risk officer

lending, it’s certainly more about having an eye on where your development project might end up,” he revealed. “House prices are obviously uncertain, so when you’re looking at an end value of a project in 18 months’ time, it might not actually be that value [that it originally had].”

crisis feels in any way similar.

Jason Shead likes to describe his new role at Hertfordshire-based bridging lender TAB as “a second line of support” for underwriters, to use a military analogy.

As the chief risk officer charged with the development of lending policy and procedures at the firm, his job also involves identifying potential red flags for both brokers and investors. Shead (pictured) describes his role in more stark terms, however, particularly in light of the market’s current volatility.

“The way of the world and its crazi ness at the minute ... a risk person is needed now more than ever,” he told Bridging Introducer.

With ballooning inflation, a cost-of-living crisis as severe as any in recent memory, and soaring interest rates (by the time you read this, the base rate may have climbed another 75 bps, courtesy of the Bank of England’s monetary policy committee), chief risk officers know the months ahead will be hard for the mortgage industry, mostly because uncertainty has crept into the equation.

“When you’re looking at specialist

He went on, “If you’re doing a shortterm bridging [loan], the client might want to obtain a buy-to-let mortgage later on – say, in six or nine months’ time – but by then the market rate for that might be significantly higher than it was, so you question whether they can obtain that mortgage. You really do need to understand your exits in a more granular fashion … like trying to predict the future.”

Shead started his new role at the begin ning of October, shortly after the mayhem unleashed on the housing sector by the Liz Truss government’s ill-conceived mini budget, which caused borrowing costs to jump even higher.

This raises the question of why he de cided to start afresh at this critical juncture. The answer lies partly in the close ties he shares with TAB’s CEO and founder, Dun can Kreeger – for whom he had previously worked – and his ambitions for the firm.

“I understand where Duncan would like to go in the future – he has quite aggressive scaling plans – and I feel I can play a really significant part in that,” Shead replied.

With two decades of experience in the financial services sector, Shead witnessed the last financial crisis from a unique van tage point, as he was working at Lehman Brothers at the time of the 2008 crash. Inevitably, he was asked whether today’s

“It certainly doesn’t feel as severe,” he said. “The uncertainty is more protract ed this time around. [In 2008] it was an immediate shock – things just erupted. Everyone in that sphere was lending at 90 to 95 per cent with no income – it was cavalier at best, but lessons were learned from that, and I think that’s helped with having more stability now.”

But while banking standards have no doubt improved, the road ahead for the mortgage industry is unclear, thanks to an economy that’s plagued with mounting debt and – that word again – uncertainty.

That’s now spilling into the lending market, as funding costs are rising and will ultimately have to be passed on to clients. But despite the turmoil, there are still products that are proving their worth with lenders, namely in development/ heavy refurbishment and with high-networth transactions.

“We’re able to deploy large amounts of capital – it might be a £50m asset, and they need a few million for other reasons. There’s a lot of that around at the moment where we’ve got asset-rich, cash-poor customers.”

As for brokers, what advice could he give them?

“It’s about finding lenders who have multiple funding lines, rather than relying on a single one or two. Find a funding partner who can be open and honest –there are many out there who are suffering from liquidity issues or who have funding lines that are not profitable anymore. At TAB, we do have that luxury of being able to fund without too much of a concern.”

Assessing a financial opportunity becomes harder when the market is plagued with uncertainty, Richard Torne hears

Jason Shead

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Wise words

Having been in business for nearly forty years, Colin Sanders, CEO of Tuscan Capital, has a plethora of experience in financial services, and, as an articulate man, he has plenty to say about the market. But when an industry colleague asked him what, from his perspective now, he would tell his 21-yearold self, he was stumped.

“I think it’s a clever question, and it’s an interesting one,” said Sanders. “But when he asked me that question, it took me aback, and I said to him, ‘It’s such a big question. I’m going to go back and do some notes.’ And what I’ve ended up doing, I’ve actually written my memoir.”

The resulting book from Sanders, who is the majority shareholder of the specialist short-term property finance provider, is due to be published in Q1 2023. Entitled How the hell did I get here?, it is based around 12 “nuggets of wisdom” he has learned over his career. So, what might they be?

“I’m hesitant to give you one of my twelve nuggets of wisdom,” Sanders laughed. When pressed, he relented. “I’ve enjoyed being in this industry for a long time,” he shared. “I have crossed paths with lots of people, but things change, people change positions. And in an indus try like ours, what’s important is to treat everyone with respect and try to treat everyone the same, no matter where they are in the pecking order.”

While today he heads up Tuscan Capital, Sanders’ earlier career included being a founding director of igroup, CEO of GE Money Home Lending and Money Partners, and, more recently, the founder of Omni Capital and Fortwell Capital.

Headquartered in Victoria in London,

with regional offices in Birmingham and Manchester, Tuscan Capital offers a range of services, from bridging loans and commercial bridging, to HMO, auction and refurbishment funding, and property development. But of all the complexities involved in launching a business, settling on a name for the firm’s launch in 2018 proved among the trickiest.

“When you set up a new business these days, everything’s gone, everything’s been taken,” Sanders admitted. “And so, when you look for a domain name that matches the Companies House availabilities, it’s virtually impossible. Tuscany is an area my wife and I love, and Tuscan was available. So Tuscan Capital it was.” He added, with a smile, “It’s quite funny, because every one wants to hear a more poignant story, but that’s the truth.”

Tuscan Capital’s experienced team of fourteen handles anywhere between 100 and 150 inquiries a month, Sanders explained. “We can give a lot of TLC to our deals,” he remarked. “We’re a business that has grown year on year, over the last five years, even through the pandemic.”

How would he define the culture and its approach?

“We aren’t a challenger bank, and we aren’t a high-street bank,” Sanders said. “So we have to win in the niches, and we have to win by offering better service to our brokers. The vast majority of our deals are introduced to us through brokers and independent financial advisers. So for us to compete and have a place on a broker’s panel, we need to operate effectively and be proactive. And we’re able to look at ways of coming up with solutions on deals and finding ways of structuring deals that don’t fit the template.”

He elaborated, “We have a lot of high-net-worth individuals who have good property portfolios. The products that we tend to offer to those types of customers tend to be for capital-raising purposes. They’re effectively looking to raise capital against their existing port folio to do something else, whether it’s acquiring or refurbishing a property.

“So buy-to-let landlords may have some funding that they used to maybe do a big conversion of a house into multiple units, and when their development finance comes to an end, they need to restructure. Finance offerings are quite often very expensive if you run over the term. So, in order to spare those expenses, Tuscan often provides a development exit loan to repay the development finance, and it gives them [landlords] time to either sell the units or get the revenues up so that they can then prove their income from the asset and get a refinance deal. It’s a firebreak, if you like, and it’s been very popular in the last 12 months, and we see that continuing in the next year.”

Tuscan Capital has actively tried to speed up the process of arranging finance.

“2021 was a really buoyant market, as we had a bit of a bounce-back after

Tuscan Capital’s Colin Sanders is preparing to share some gems of wisdom from his long career for a new book, as he tells Simon Meadows

“My advice would be, don’t hurry to lock everyone into a long-term solution, because that might be costly. Don’t be frightened to find short-term fixes”

Colin Sanders

the lockdowns,” Sanders said. “We were incredibly busy and grew our loan book quite substantially. We came into 2022 hoping that it would continue, and I would say that early 2022 became slightly sticky. We found that a lot of transactions were taking a long time to go through. Valuers were incredibly busy, and we couldn’t get them out in time to get in spections done. We also found that in the legal process. Land Registry had slowed down and title registration was massively behind, and the lawyers were getting choked up by their workload.

“Our customers were getting incredibly frustrated. So that was why, in the middle of the year, we launched our Fast Track product. It involves using what we call an AVM, which is an automated valuation model, so rather than relying on a full ARICS surveyor’s valuation, we would use digital valuer Hometrack’s property listings data to assess the valuation of a property, and lend based on that.”

Sanders continued, “We are one of the very few bridging providers that has relied on an AVM, but it has improved our turnaround time significantly. It takes potentially six weeks out of the process, if that’s how long a valuer takes to get there. The other part of Fast Track that we introduced was title insurance and title indemnity, which meant that we didn’t have to do quite such a deep dive with our due diligence on the legal aspects of a transaction. And we also delayered and decluttered a lot of the credit requests that we were requiring from customers.

“It has helped massively. There are some deals where we cannot do the Fast Track, and that’s where they’re either too complex or the borrowing leverage is very high – but where it’s 70 per cent loanto-value or below, we can. In fact, we’ve done some case studies since introducing this, with turnaround times of inside two weeks, which is testament to the changes that we’ve made. And it’s a welcome change for many of our introducers.”

Sanders acknowledged that, despite the benefits that Tuscan Capital was offering, the market faced challenges.

“Interest rates and the cost of living have been going up, and the cost of de velopment,” he noted. “So if you’re a de veloper or a property investor, and you’re

looking to convert or enhance a property, the cost plans and your cost of borrowing are significantly on the increase.

“My prediction is that property prices are going to come under pressure. Now, I don’t suggest or predict that that’s going to be dramatic. I think it will be supply-and-demand-driven. In areas where there’s very little supply, I think properties will still hold on to their value, and certain pockets of the country will still have a pretty healthy property market. But in areas where there isn’t a great deal of demand and there’s an oversupply, I think we could see some significant reduction in value.”

– the chances are you’ll still be able to make margins and you’ll still be profit able; it’s those guys who have the oppor tunities. So it’s polarised. This is how I see the 2023 buy-to-let market.”

Sanders further advised, “If you’re not wanting to lock yourself into a five-year deal, a solution could be to just take a bridging finance facility to basically see where the market is over the next 12 months before you make a long-term decision. With a bridge, you do not have any early repayment charges [ERCs], and you’re free to come and go as you want without a penalty, whereas if you’re locking yourself into a five-year fixed, you can have some fairly barbed exit fees, especially over the first one to three years.

“Inevitably there are going to be some property bargains to be picked up by auction or quick sales, and that’s likely to be where bridging comes into its own. If I were a buy-to-let investor taking shortterm money, I’d want it to be on a variable rate rather than paying a higher-cost fixed that has baked-in what’s likely to happen in 2023–24. So we have introduced a vari able, Bank of England base-rate tracker. It’s been very popular.”

Sanders said, “The one thing that we’re already seeing is that there are two types of buy-to-let landlord at the moment. There’s the buy-to-let landlord who is very highly leveraged – in other words, has got large mortgages against their portfolio. Those landlords will find it incredibly difficult to make any real money out of their buy-to-let portfolios. If they’re highly leveraged, the cost of borrowing is likely to have already gone up. If they’re on fixed-rate buy-to-let mortgages, they might not be feeling the pinch yet – but as they come off their fixed rates, they absolutely will; there’ll be significant payment shock. And with the fact that, over the years, the government has been getting rid of any of the tax breaks or the ability to offset interest costs, effectively it means that your buy-to-let portfolios will be really struggling to make any net margin at all, and you are going to have to sell to get rid of some of that debt.

“If you’re a buy-to-let investor or a property professional with large portfo lios but with very low borrowings – and, thankfully, lots of our customers are

How would Sanders advise brokers to navigate the current economic storm?

“My advice would be, don’t hurry to lock everyone into a long-term solution, because that might be costly. Don’t be frightened to find short-term fixes. The market is very volatile, and things could change over the next 18 months or so quite radically. Don’t place a deal and then sit back and wash your hands of it –we see a lot of brokers who do that. Stay in touch with customers to see what’s changed within their bigger picture.”

Clearly, the CEO of Tuscan Capital relishes his current role – and could potentially add quite a few chapters yet to the story of his career.

“I’ve been around the block in corporate roles, running big businesses,” said Sanders thoughtfully. “At my time of life I’m now enjoying transactional stuff much more – looking at deals and actually being in touch with customers and their needs and trying to adapt our products to them. I enjoy the day-to-day buzz of it, and I wouldn’t be without it. I enjoy what I do.”

“Don’t place a deal and then sit back and wash your hands of it – we see a lot of brokers who do that. Stay in touch with customers to see what’s changed within their bigger picture”