12 minute read
Q&A with Louis Alexander CEO at SoMo
Complex challenges require flexible solutions
James Briggs
Head of intermediary sales - personal finance, Together
If I were asked to describe the specialist lending market in one word, I’d have to say “diverse.”
We recently conducted a survey, and almost one in three people (29 per cent) said accessing mortgage finance was the biggest barrier to realising their personal property ambitions in 2022. Overall they highlighted a wide range of concerns – covering everything from irregular income to poor credit, age, and insufficient deposit. More people would benefit from specialist finance than they might realise.
The challenges are indeed vast, but the expertise and experience within the sector are more than capable of rising to meet them. The leading issue appears to be a lack of awareness.
Our research found that a similar number of respondents (almost a third) are completely unaware of specialist lenders or the different finance solutions that could suit their circumstances.
As the way we live and work evolves, things like a rise in part-time and flexible contracts, more and more self-employed and complex incomes, and longer working lives are only going to become more common. It is intermediaries who hold the key to giving these borrowers confidence.
At Together, we’re working closely with our network of packager partners to connect clients to the funding they need; we’ve recently implemented a dedicated team of regional account managers and business development managers who specialise in complex personal finance cases, and our experienced underwriters are empowered to make straightforward, common-sense lending decisions for every individual’s circumstances.
The specialist finance sector is home to more than just flexible lending criteria. It provides a wide range of products that are vital to every broker’s toolkit. For example, in such a fast-moving property market, chain breaks are becoming more frequent. At the same time, the increasingly rigid criteria of some mainstream banks could lead to more last-minute mortgage applications being rejected. In such cases, specialist bridging finance can offer an important short-term, flexible finance solution that could be used to repair a broken chain – and help home buyers keep their property dreams moving.
Our survey also revealed that many buyers are keen to purchase a property in need of refurbishment, perhaps as a more affordable step up the housing ladder. A regulated bridging loan could let them buy and complete works whilst living in their current property. Then, once their new home improvements are complete, they could exit onto a long-term mortgage – potentially giving them a better LTV and a more competitive rate.
Whatever your clients’ ambitions, circumstances, or timescales, the specialist lending market is here to help you keep these cases moving. *Poll of 2,000 UK participants conducted by OnePoll in December 2021 on behalf of Together
Bridging perfect for developers
Owen Bentley
Head of sales – bridging, United Trust Bank
According to figures from the ASTL, the bridging sector continues to grow, and increasing awareness of the flexibility of short-term lending for property professionals represents a great opportunity for brokers to expand their businesses. And what’s more, lenders are extremely keen to help.
Although we have been busy across the traditional spectrum of bridging uses – including downsizing, chain-breaking, and refinancing portfolios, for example – it’s the increase in enquiries from property professionals for support in refurbishments and conversions, as well as ongoing cashflow for developers, that is driving much of our growth. In particular, we have seen a strong demand for bridging finance to fund the acquisition of investment properties that may then undergo a planning gain and a period of light or heavy refurbishment works (often the acquisition and improvement works are funded), or for the release of equity from unsold, newly built homes when developers need the cash to invest in their next project.
Following the recent launch of our new heavy refurbishment product, we can now fund substantial improvement projects with up to 75 per cent of the day-one value (net of interest), 100 per cent of works costs up to £1mn, and total facilities up to 75 per cent LTGDV. In addition, recognising there are growing numbers of fledgling property developers keen to get in on the action, we’ll also offer to fund up to 70 per cent of the day-one value (net of interest) and 100 per cent of works costs up to £500,000, up to a maximum of 70 per cent LTGDV on projects from first-time improvers, as long as they have experienced contractors on board to complete the hard work.
A great example of a loan used to acquire and improve a property was a £1.3mn facility enabling an experienced developer to add a unique home to their holiday let portfolio.
We were approached by a broker with a client wishing to purchase a property with the potential to create an outstanding investment, but the client had to move quickly to secure the purchase.
The borrower needed a £650,000 acquisition loan, followed by a works facility once planning had been obtained. On the basis of the proposed works, we provided the borrower with an in-principle agreement for a subsequent additional works facility. Once planning consent was achieved, and a site visit confirmed the £2mn estimated GDV was reasonable, we formally agreed the second stage of the facility to provide 100 per cent of the works costs with the facility extended by a further 12 months to give the borrower ample time to complete the works to a high standard.
Cash is king, and smaller developers can frequently find that the profits they need to invest in their next project are tied up in the bricks and mortar of their last one. A developer exit bridging loan enables them to release a good percentage of that money pending their sales. We recently assisted a developer by releasing £400,000 of equity from three completed homes with a combined value of £535,000. The developer was using the loan to settle the remaining development finance facility with another lender at a higher interest rate and putting the rest toward the purchase of their next site, meaning they could move fast and not miss out on their next opportunity. Our loan will be repaid from the eventual sales of the three homes.
Increasing numbers of property developers, professional and part-time, are choosing bridging finance to fund their projects because of its flexibility, speed of arrangement, and attractive pricing. What they also receive from established and experienced lenders like UTB is confidence that the funding they need will be available when they need it, even if the case is complex or the timescales are tight.
THE SPECIALIST EFFECT MAKING LIGHT WORK OF HEAVY REFURB
Effective solutions for both experienced property developers and inexperienced borrowers
A new ‘Heavy Refurbishment’ product to complement our ‘Light Refurbishment’ options managed by a team of experienced underwriters and case managers, applying a commercial and pragmatic approach catering for both property professionals and inexperienced property developers.
For experienced property developers
Chordis Capital fund London property portfolio
Rob Lankey
Managing director, Chordis Capital
CHORDIS CAPITAL CASE STUDY
Chordis was introduced to this client via one of our well-known referrers. The client has an established portfolio of property in London, which has been built up over a number of years. As well as retaining some to let, he also refurbishes and sells property on. In the past, he has purchased his property via a mix of normal bridging finance, second charge investor funds, and his own cash.
On this occasion, Chordis was asked to refinance five apartments to allow further time for them to be sold post-refurbishment. Our loan was required to refinance four existing first charge loans and a single larger second charge loan, which was at expiry. Renewal was going to see the monthly rate double.
Our senior underwriter John Pointer was on hand to help, and a loan was agreed within just one hour at 70 per cent LTV, £3.33 mn v security of £4.76 mn, subject to valuation and the usual searches.
Whilst the client is a UK citizen, he resides in Monaco, and travels back to the UK a few times each month to oversee his properties. His location hasn’t been an issue, and video calls have often been undertaken between Chordis and the client. This has meant that Chordis was able to fully understand the client’s requirements and what steps were needed to ensure a swift completion. The client has been able to speak with a member of the team at all times, meaning everyone was always kept well-informed of progress.
Carter Jonas was instructed to undertake the valuations on this case, and Field Fisher undertook the legal work on behalf of Chordis. Both parties acted very professionally and swiftly to assist and get the deal done in a very short time.
The biggest issue with this deal was ensuring that we had redemptions for all elements of debt being refinanced across the five properties. During this process, and at the last minute, the second-charge holder increased the redemption by £60k, which nearly saw the loan fall through – but after a quick conversation and our ability to be flexible, we were able to agree a small increase to the facility to ensure that the refinance could continue.
Overall, an 18-month term was agreed, as two apartments are to be held until January 2023 before being sold, but the facility is flexible so that elements can be repaid as the other three apartments are sold.
This was a great outcome for the client, and a great deal for Chordis.
Following this deal, the team at Chordis is now looking at refinancing two further London apartments for the client, totalling £1.4 mn. However, the client’s debt here is close to 80 per cent LTV. To achieve the client’s requirements, Chordis has been able to work closely with a known investor who is bridging the gap between our new facility and the redemption with a new second charge facility. This case is a great example of the strength of the team we have at Chordis. We take pride in our approach of getting completely involved in our transactions in order to give the best possible service, always aiming to surpass the expectations of clients and introducers alike. We offer excellent turnaround times and a dedicated underwriter who will deal with a case from start to finish, enabling and ensuring seamless and efficient service. We can offer finance up to £5 mn, loan terms of up to 24 months, rates from 0.6 per cent per month, and up to 80 per cent LTV.
Bridging loan to upsize an entrepreneur with modest income
Paul Kearns
Head of banking & credit, Kleinwort Hambros
SCENARIO
At Kleinwort Hambros, a banker was introduced to an entrepreneur who had set up a tech company that, with the help of early-level investment from the private equity sector, had started to make steady progress in terms of both turnover and market awareness.
As the company was very much in the initial stage of growth, the individual was taking a modest income from the business. However, this wasn’t the client’s first start-up, and with a previous success behind them, the client thought that they could afford an upsize in property (£3mn to £7mn) and had already found the dream family home.
The property was in high demand, so the client needed to move quickly, and it became apparent that they would need to transact before they sold their existing property. An open bridge was thus required.
With most entrepreneurs and business owners, income from ventures is not always uniform or contractual, so obtaining mortgage finance can be difficult through the regular high street channels, as they do not tend to meet multiple underwriting criteria for prescribed income.
This entrepreneur had no relationship with Kleinwort Hambros, but the introducer felt that we would be best placed to provide for their personal circumstances and requirements.
SOLUTION
Time was short, so we needed to direct resource with speed and precision. The banker and a member of our credit advisory team met with the client’s CFO, accountant, and solicitor within 24 hours in order to achieve an appropriate level of understanding of their credible income and repayment options.
By working as a team with the client’s advisers, and by analysing both personal and business assets and income, we were able to ascertain suitable and appropriate levels of income, and repayment strategies to cover both a short-term open bridge and longer-term mortgage finance.
The open bridge was provided over an 18-month term, which provided enough time for the client’s existing property to be sold. The interest rate was variable, and the reference rate was over the KH base rate. No early repayment fees applied.
The longer-term mortgage was provided over seven years, which accommodated the sale of the client’s company. The amount was split into variable and fixed parts, which provided the client with an appropriate level of protection from rising rates whilst having the flexibility to repay the variable rate portion without any early repayment charge.
The speedy execution of the transaction was such that the client was able to move in within six weeks of receiving our offer letter.
KLEINWORT HAMBROS
Kleinwort Hambros is a leading full-service private bank, providing financial solutions to HNW and UHNW individuals, families, and their businesses, as well as to charities. We manage the wealth of individuals and their private structures across the spectrum of their financial needs. Our purpose is to simplify life’s financial challenges. From expert wealth planning advice, fiduciary expertise, and award-winning investment strategies to personalised lending products, we offer bespoke solutions to our clients and adapt to their everchanging needs.
