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Cover: Upside down
Upside down…
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
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 mortgage 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 development 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 understand 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 James Bloom
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
Marcus Dussard
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 particular 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 unencumbered, 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
Mike Cooke
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 prevalent 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, acknowledged, “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 development managers, you can then build your knowledge. 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
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 particular 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 mortgages 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, Jack Coombs
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 development, 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.”
