Bridging Introducer August 2020

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August 2020

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Bridging the gap MT Finance talk challenge and recovery

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EDITORIAL

COMMENT

Publishing Director Robyn Hall Robyn@mortgageintroducer.com Publishing Editor Ryan Fowler Ryan@mortgageintroducer.com Editor Jessica Bird Deputy Editor Jessica Nangle Jessica@mortgageintroducer.com Deputy News Editor Jake Carter Jake@mortgageintroducer.com Editorial Director Nia Williams Nia@mortgageintroducer.com Commercial Director Matt Bond Matt@mortgageintroducer.com Advertising Sales Executive Tolu Akinnugba Tolu@mortgageintroducer.com Advertising Sales Executive Jordan Ashford Jordan@mortgageintroducer.com Campaign Manager Joanna Cooney joanna@mortgageintroducer.com Production Editor Felix Blakeston Felix@mortgageintroducer.com Head of Marketing Robyn Ashman RobynA@mortgageintroducer.com Printed by The Magazine Printing Company, using only paper from FSC/PEFC suppliers www.magprint.co.uk

Bridging answers the call

L

ast month, I wrote that the (then recently announced) temporary changes to the stamp duty threshold would likely see buyers scrambling to make the most of the

savings.

Suffice it to say, a month later and the sentiment is certainly there, and water cooler (read ‘Zoom’) talk revolves around what should be done to get a transaction over the line in time.

So far, so much what Rishi Sunak was aiming for.

However, many buyers have discovered that the property market does not work like a Black Friday sale, and most people cannot simply dash in and nab a house while it’s 50% off.

For those still gung-ho for stamp duty savings, however, it may well be the bridging market that is able to ride to the rescue.

Short-term finance – and a specialist market that is able to deal more effectively with complex financial histories and income portfolios, for example – may be the answer to getting people on (or further up) the property ladder before time runs out in March 2020.

Even more recently, and adding to the sense that seismic change comes every few days under the new normal, the UK government has set out to overhaul the country’s “outdated planning system”; among other things, making it easier to convert commercial properties into homes.

Considering the fact that the UK high street may never return to its former glory, and city-centre offices are looking less and less appealing for many businesses, this change may further herald a bright future for specialist finance.

Whether helping homeowners and landlords keep transaction chains moving with short-term lending solutions, or providing funding for the development and rejuvenation of otherwise unused spaces, specialist finance has a fundamental role to play in the move to “build back better”. B I

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Contents

No PGs required for company transactions

5 Jonathan Newman Delays will continue, lenders need a plan 7 Kevin Thomson Now is the time to find the route to recovery 9 Nicky Richmond Marketing in the time of coronavirus 11 Douglas Grant Alternative lenders musntn’t be frozen out 13 Paul McGonigle It’s busy. Is this a pandemic panic?

14 Feature: Summer report card Jessica Bird asks experts from across the specialist finance industry to give their views on how the market has performed in the face of the challenges posed by the year so far 25 Vic Jannels Positive outlook as lenders show resilience 27 Norman Chambers No simple trade-off between our economy and our health 28 Cover: Bridging the gap Joshua Elash, co-founder and director, and Gareth Lewis, commercial director at MT Finance, discuss the trends and challenges unfolding in the bridging market, and the role this market will play in recovery

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Residential, commercial & semi-commercial property

AUGUST 2020 BRIDGING INTRODUCER

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RECOVERY XXXXXXXXX

Delays will continue, lenders need a plan Jonathan Newman senior partner, Brightstone Law

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t this interesting stage of recovery there’s been a definite upturn in new originations, and some lenders are even showing an appetite for higher loan-to-values (LTVs), but this only tells part of the story.

There’s a real divergence in terms of lending appetites, and the landscape can be difficult to read for brokers. In this situation, it can be common for multiple applications on the same case, as borrowers seek to defend against offers being pulled.

Overlapping applications can be difficult to manage, so at Brightstone Law we have systems in place to identify and handle this scenario. In the grand scheme of things, however, these practicalities are less significant compared to the challenges that lenders face regarding the enforcement moratorium and payment deferrals.

PUSHING BACK RECOVERY

Lenders across the market have a model for underwriting and lending on short-term mortgages that assumes a certain level of liquidity and recovery rate over a period of, say, 12 months.

In many cases, these models have been refined and improved over many years, providing a roadmap for future liquidity and lending appetites.

The moratorium, however, has pushed back typical recovery processes by at least six months; this massively changes the picture for lenders, both on loans which are out there and those yet to be underwritten.

It’s a challenge that is also faced in the term mortgage market, of course, but a six-month delay in payment or www.mortgageintroducer.com

collection on a loan term of 25 years is easier managed, and has considerably less impact on a lender’s operating model and funding processes. In the shorter term, the impact is significant to the lender and costly to a consumer when default rates may apply.

This is a message that I have been communicating to HM Treasury as part of my work with the Association of Short Term Lenders (ASTL).

The ASTL has been successful in achieving some traction, but even if the enforcement moratorium is not extended again, there remains a challenge for lenders.

CASE OVERLOAD

In a survey of ASTL members carried out in July, the biggest concern for 70% was the courts’ capacity to mamage the caseload once the moratorium is lifted, and with good cause.

According to HM Courts & Tribunals Service, the pre-COVID-19 baseline for civil receipts (which include High Court claims and all possession case types) was 38,521. This decreased to 4,626 in May, indicating the scale of the backlog.

Combine this with the limited capacity the courts will have as a result of social distancing, and it could potentially add a further three to six months to lenders’ recovery timescales.

Even once it has ended, the impact of the moratorium will continue. This is likely to find a very large number of cases resulting in an interest shortfall, and potentially even a capital shortfall.

TEMPORARY RELIEF

This is not just a problem for lenders.

Borrowers have been granted the gift of time by the government, but many have not been proactive with this time, instead allowing interest balance to continue to grow, with no real plans for redeeming the loan and paying down the balance.

The longer this procrastination continues, the further it will dissipate a borrower’s equity and reduce their potential to retain the property at the end of the process.

These ongoing delays to recovery ultimately benefit nobody. The moratorium may have provided temporary pain relief for borrowers during lockdown struggling to find an exit, but it was not a cure, and these problems will continue to exacerbate the longer they go unaddressed.

So, what are the immediate options for lenders? There remains a mismatch between what the courts will allow regarding recovery action and the recommended policy from the Financial Conduct Authority (FCA).

The courts are expected to open at the end of August, while FCA guidance continues until October.

Some lenders, regulated ones certainly, will have a judgement call to make at the end of August: balance sheet versus FCA recommendation, which maintains that commencing or continuing action during the pandemic is unlikely to be in the borrower’s best interest. That is not to say that there cannot be exceptional cases where enforcement results in a better customer outcome.

Others will choose not to offend the regulator, even in exceptional circumstances when a case for collection can be made, but will still have a commercial imperative to do something. This should include an intelligently crafted customer engagement strategy that is clear about the potential consequences of prolonged procrastination. Executed in the right way, lenders can agree consensual arrangements, and even voluntary sales, without formally commencing recovery activity.

These delays will undoubtedly continue beyond the end of the moratorium, and waiting for this time to come before taking any action is simply not a good choice.

It’s really important that lenders have a plan now, even if formal action is further down the road, one that they can execute based on their own considerations – for the good of their business and their customers. B I AUGUST 2020

BRIDGING INTRODUCER

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Let’s have a real conversation.

We’re committed to helping SMEs and property developers during these uncertain times – it all starts with a real conversation.

If your client has been impacted

by Covid-19 our range of property secured CBILS loans could help.

Rebecca Hall, Relationship Director

Real world lending 0800 470 0430 assetzcapital.co.uk/CBILS The Coronavirus Business Interruption Loan Scheme (CBILS) is managed by the British Business Bank on behalf of, and with the financial backing of the Secretary of State for Business, Energy and industrial Strategy (BEIS). British Business Bank plc is wholly owned by HM Government and is not authorised or regulated by the Prudential Regulation Authority (PRA) or the Financial Conduct Authority (FCA). Full details on CBILS and the list of participating CBILS lenders can be found on the British Business Bank website at: www.british-business-bank.co.uk/CBILS

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MARKET XXXXXXXXX

Now is the time to find the route to recovery Kevin Thomson sales director, Connect for Intermediaries.

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t has been well acknowledged that the pandemic’s longer term and wider impacts largely depend on the scale of permanent job losses, as businesses adapt to new rules and new customer behaviours.

The furlough schemes have done what they were intended to do, in terms of limiting the scale of job losses across the UK; however, as we approach the unwinding of these schemes, naturally there is caution as to what the final unemployment figures may be.

Alongside this is the question of what the impact will be on the economy, and particularly on small businesses, which includes broker firms themselves as well as both potential and existing clients.

Even before the further easing of lockdown measures, however, there were some good signs that fewer firms than expected were anticipating reducing their work force. The Office for National Statistics (ONS) data shows an increase in the proportion of firms actively trading.

As is often the case, the service industry is one of the slowest to show signs of recovery, but the good news is that there are green shoots, and now we just need to see these grow.

The recovery is likely to accelerate for those businesses that can adapt to the new norm, so this is the time to maximise opportunities rather than retrench. Retrenching may well lead to your company shrinking, while competitors that are a bit bolder or more ambitious take the lead in the recovered new market and new norm.

The pandemic has increased the focus on technology and forced it to www.mortgageintroducer.com

the forefront of business operations.

This has been necessary even to stay in business, as well as meeting the demands of customers looking more for online solutions, video calls and other ways to trade and stay in touch without being in close physical proximity.

ACCELERATED CHANGES

Of course, even before coronavirus, the increase in customer preference for remote and digital capabilities was accelerating; nevertheless, it is the recent months of lockdown and the effects of the pandemic that have been widely been quoted to have brought forward changes that would normally have taken three years, to just three months – and there is little sign that this will abate in the ‘new normal’.

The danger is now that smaller businesses will focus on a solution to the technology issue rather than focusing on the customer.

Now more than ever, though, it is businesses that have a customer-centric model that will be the ones that really succeed moving forward.

Of course, the small business has always thrived on personal service, but how does that transfer into an age where customers are shifting their preferences in how they engage with

business providers? The businesses that win out will be the ones that really incorporate the best face-to-face and digital touchpoints, but ultimately use them to support the customer, providing them with services in the way that they most want to interact.

This is no different in our sector, with commercial banks developing the same approach with their brokers and likewise with the end customer.

Whatever the business sector, aligning with the evolving needs of the consumer is critical, not only for new sales but also customer retention.

It is clear that digital and remote enablement will be essential for the successful business in the new normal, but it is also clear that this should not be central to the business model – the customer needs to be at the centre.

This enablement is an increasingly important element, which surrounds the customer and encourages them to buy, and equally importantly to stay, but it’s how you use the technology to provide that high level of customer care and responsiveness that is really the issue.

There may well be some black clouds on the horizon, with a potential second wave of the pandemic, the recent onset of localised lockdowns, the upcoming end of the furlough schemes and even the ‘B word’ (Brexit) rasing its head once again.

Whether this combination of factors ends up as a storm or just a mild drizzle will depend on how a business adapts and looks to succeed with new customer engagement. B I

Fewer firms than expected anticipate reducing their work force

AUGUST 2020

BRIDGING INTRODUCER

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Fast finance for property projects With recent announcements of reforms to the English property planning rules and a stamp duty holiday, opportunities are broader than ever for investors and movers. But, how can your clients be one step ahead of the competition? Known for its speed to complete, bridging finance can deliver funds quickly. If you work with West One, not only are we fast but we also approach each and every case purely on its merits, giving your situation the attention it deserves.

Why West One? Delivering bridging finance since 2007, we’re proud to have developed a range of products to meet a variety of situations and a reputation for providing a personalised approach to lending. Our highly experienced Underwriting team work with the speed and flexibility needed to help get your clients’ projects safely over the line. All of our loans are available as first or second charge, and have no Early Repayment Charges.

Tel: 0333 123 4556 Email: sales@westoneloans.co.uk West One Loan Ltd is authorised and regulated by the Financial Conduct Authority. Firm Reference Number: 510024. Certain types of loans are not regulated, for example loans for business purposes or certain buy-to-lets. West One Loan Ltd is registered with the Information Commissioners Office. Registration Number: Z2651210. West One Loan Ltd is registered in England and Wales. Company Number: 05385677. Registered Office Address: 3rd Floor, Premiere House, Elstree Way, Borehamwood, Hertfordshire, WD6 1JH.

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MARKETING XXXXXXXXX

Marketing in the time of coronavirus Nicky Richmond managing partner, Brecher

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ll of us need to market, whether it’s a product, a business or simply ourselves.

We need to do it, not only to retain our existing clients in a difficult market, but also to win new business.

The finance industry is a particularly gregarious one, but social distancing and alcohol don’t make a great mix, and many aren’t willing to try the COVID cocktail. Big networking events are not happening any time soon, then, and real life conferences now seem unthinkable.

But we still need to be in front of our targets and contacts – particularly the ones who are not going to be officebased for the foreseeable.

FACE-TO-FACE

Marketing in a mask is not particularly pleasant. There are outdoor events for those so inclined, though these need a plan B for weather. For those of you who play golf, lucky you; it’s a short-term opportunity, for some of your more ‘let’s just get on with it’ contacts, whilst the weather holds.

Much the same is true of outdoor dining and socially distanced walks, for which there are some lovely locations.

However, generally they aren’t to be found on a pavement in Shoreditch, and again, weather warning.

Indoor dining as a strategy will see you struggling to include all your potential targets, as groups are trickier and many don’t want to put their toe in that particular water just yet. And if they have to get on public transport to get to it, game over. So, face-to-face will have its place, but that place will be less significant than it was.

VIRTUAL

Who had even heard of Zoom before COVID? Now, it’s a regular feature of www.mortgageintroducer.com

our lives. Some have embraced this, but for the others: get over yourselves, zoomophobes, it’s here to stay. And it can be your friend.

But let’s set out some ground rules for video interactions:  The maximum number is eight, otherwise it will be hijacked by two main talkers.  Keep still rather than walking about; it’s not clever and makes everyone else feel nauseous.  Have a zoom leader for each session.  Keep it short and tell everyone how long it’s going to be. More than 30 minutes is often too much.  Learn how to use the mute button.  Invest in some decent lighting and a good camera. We want to see your face and hear you properly.  Don’t do something else, such as text or work, it’s just rude.  Dress appropriately for the meeting.

It helps to see video as an addition to your marketing toolkit. It’s a halfway house between a meeting and a call, and so much better than a call with someone you don’t know well. Of course, there are fewer non-verbal cues on a videocall, but many more than on a phone call or via the dreaded email.

With virtual methods, you can get in front of more people without travelling.

Pre-coronavirus, a meeting with a new contact might take weeks to set up.

Co-ordinating people’s availability, particularly where they needed to travel from multiple locations, was a nightmare. But now, most people are available at short notice.

When you remove the travel time from encounters, you can have many more of them and you can market to a much wider demographic. Not only that, but people tend to actually turn up on time.

Leaving people hanging in a virtual waiting room is also less common than the old world habit of turning up late or cancelling at the last minute – particularly prevalent with property punters. I’ve had no lastminute cancellations during lockdown,

whereas previously at least half my meetings would be reorganised or rearranged. That cancellation was even often a relief, allowing you more hours of uninterrupted time to actually do your job.

It’s interesting that people seem keener to connect and to stick to arrangements, possibly because they have more time to focus and are able to structure their day in a more sensible manner, rather than having to fit into rigid travel timetables. Use that to your advantage while it lasts.

SOCIAL MEDIA AND KNOWLEDGE SHARING

This is the point at which I lose most of you – those who don’t think of social media as part of your networking strategy. But again, you’d be wrong.

I have, for example:  Recruited three people (saving on recruitment fees) via Twitter.  Made a fee of £100,000 as a result of an introduction made via Twitter.  Made a fee of £70,000 as a result of an article about funding in a magazine, from someone previously unknown.

It’s simply another way of connecting. One that is even more important now.

Once you get LinkedIn cracked, you will find that there are not many of your competitors on there doing it well, or even at all.

I predict that it will become more important as people continue to work from home. It is already an alternative, complementary shop window and there is far more scope to raise your own profile there than on your website.

There is no need to get Premium, so all it will cost is your time.

We aren’t going back to the pub in a meaningful manner any time soon – that liquid lunch will have to wait. But think about how many more people you can connect with, by embracing technology and having an open mind to new ways of connecting.

Get yourself out there, whilst you can’t get yourself outside. B I AUGUST 2020 BRIDGING INTRODUCER

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Richard appears wealthy but business is slower than normal.

Cashflow is a challenge, with debt building.

Refinancing loans and paying business debts to improve his financial position is proving tricky.

His current mainstream lender is slow and can’t meet his short term needs quickly enough.

There’s HOPE for Richard. #hopeisthesolution

Does Richard's situation sound familiar?

CALL

VISIT

0345 494 0708

hope-capital.co.uk

Hope Capital is a privately funded specialist provider of bridging loans of up to £5m for a term of up to 24 months. For Intermediary use only. Hope Capital does not offer regulated loans and is not regulated by the FCA. Information accurate at time of publishing.

HC_BI_Fullpage_RefinanceRichard_july_AW.indd 1

05/08/2020 08:19

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ALTERNATIVE LENDING XXXXXXXXX

Alternative lenders mustn’t be frozen out Douglas Grant director, Conister Finance & Leasing Limited

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here are around 5.9 million small and medium sized enterprises (SMEs) – businesses with fewer than 250 employees – in the UK according to the Department for Business, Innovation & Skills.

These are seen to be the backbone of any healthy economy; they drive growth, create a group of skilled and semi-skilled workers, generate competition and encourage innovation

in what is now a far more diversified lending sector.

In the last 12 years, banks have also become much better capitalised than during the Global Financial Crisis.

Previously, businesses could service debt from remaining cash flows with little or no capital for investment, which resulted in a zombie status for many UK SME borrowers.

Today, the environment is very different – although this trend has not disappeared. In fact, as a result of COVID-19, it is estimated the trend could develop further, given the potential that businesses may build up £100bn of debt by next March, according to TheCityUK. SPECIALIST SME NEEDS

“There are significant amounts of private capital waiting to be invested in resilient SMEs, and the market share of clearing banks has fallen significantly in a far more diversified lending sector” across a range of industries, as well as supporting future industrial and business expansion in the country.

SMEs keep the business sector energised, generating a healthy flow of new skills and ideas.

Since 2008, alternative lenders have risen in prominence, working alongside larger, more traditional clearing banks, and offering a funnel of vital liquidity through tailored and flexible lending solutions to SMEs. Today, there are significant amounts of private capital (often referred to as dry powder) waiting to be invested in resilient SMEs, and the market share of clearing banks has fallen significantly www.mortgageintroducer.com

08:19

The UK government has been quick to provide post-COVID-19 backing to sectors that are resilient to recessions and market volatility, providing financial security and protection through initiatives such as the Bounce Back Loans Scheme (BBLS).

This is where alternative lenders that understand the very basic needs of specialist SMEs – often in their lending infancy and operating in sectors such as infrastructure, technology and renewables – can provide the additional support and natural lending progression, working alongside the larger clearing banks.

Alternative lenders understand the characteristics of specialist SMEs and can, with the flexibility they offer, empower their staff to make judgement calls on capital requirements.

DOUBLE DIP RECESSION

The economy is facing a double dip recession that could last well into late 2021; it will need these resilient sectors to be protected and to have their existence guaranteed.

Many clearing banks are working tirelessly to process emergency loan

applications, but with pressures piling up – for example from within their mortgage lending divisions – a lot of SMEs will become unsustainable, with some estimates predicting as many as 780,000 insolvencies.

It was concerning, therefore, to see that alternative lenders are potentially unlikely to receive much financing from the Bank of England to deliver emergency government loans.

It is crucial that clearing banks pass on finance from the Bank of England to alternative lenders and find a way to make it work on commercial terms.

SMEs must have a tripartite level of support from government, alternative and traditional lenders working together in these difficult times.

As traditional banks deal with the impact of COVID-19 around their balance sheets, it is likely that they will have to pause financing discussions around succession and growth financing as well as recapitalisations in order to redirect resources to addressing an enormous influx of Coronavirus Business Interruption Loan Scheme (CBILS) applications from capitalstarved SMEs. WORKING TOGETHER

Those resilient SMEs that have weathered the pandemic best in their sectors will be able to benefit from potential acquisition opportunities to increase their market share.

Alternative lenders again have the know-how and flexibility to help process this type of financing quickly and effectively.

Without legacy loan books, and unencumbered by CBILS applications, coupled with high levels of dry powder, alternative lenders working together with clearing banks can help to execute rapid credit decisions on flexible terms.

The UK business sector as a whole needs more financial support for alternative lenders, which are working together with traditional banks.

In addition, it needs more sustainable initiatives from the Bank of England, aimed at supporting SMEs in more resilient sectors as we come to terms with an increasingly capital hungry economy – an issue that now needs urgent attention. B I AUGUST 2020

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0345 241 3079 www.castletrust.co.uk

Our appetite is clear In the current market, we believe that clarity is important in helping you find the right products for your clients. Like many lenders, we have reduced our risk appetite in line with the recent market changes. Where we differ is making our appetite clear, so that you know exactly which cases we're able to help you with.

As the market regains its strength, we'll be constantly reviewing our product range and criteria to offer the most suitable solutions. You can always find the latest information at

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Castle Trust is the trading name of both Castle Trust Capital plc (company number 07454474) and Castle Trust Capital Management Limited (company number 07504954) both registered in England and Wales with registered offices at 10 Norwich Street, London, EC4A 1BD. Castle Trust Capital plc is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority, under reference number 541910. Castle Trust Capital Management Limited is authorised and regulated by the Financial Conduct Authority, under reference number 541893. Buy to Let is not regulated by the Financial Conduct Authority or the Prudential Regulation Authority

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BRIDGING XXXXXXXXX

It’s busy. Is this a pandemic panic?

Paul McGonigle chief executive, Positive Lending

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agreed to write this article earlier today, yet had to postpone the commencement to assist in six overflow enquiries for bridging finance. I have a large team of bridging advisors, and everyone in this department is back in the office, but it doesn’t feel like business as usual to me – it feels busier, much busier.

The figures reflect that. It is now Wednesday, and we have processed 134 new bridging enquiries since Monday morning (a record). I have been seeing these numbers for three weeks now.

AVERAGE LOAN UP

Not only have I seen an increase in the number of enquiries, the average loan has increased, too – and I am not talking about a few quid here – it has increased by nearly £150,000 per case!

One of the many things that I did over lockdown was review with my friends in ‘how is your business doing?’

Zoom calls, taking a guess at how Positive Lending could survive in a pandemic world.

My kneejerk reaction was “I think we may be busier if the property market awakens amid the fear of a second wave.” It was a guess, and if I am honest it was probably a hope.

Now it appears my guess was correct, as this is certainly the case for Positive Lending, and I am delighted to hear that my industry peers have seen the same impact on their businesses, too – the market seems to be in rude health. Lenders continue to offer new initiatives – Catalyst Finance’s 75-7575 initiative, for example – and there is more reliance on short-form valuations

and desktop surveys being seen from the market in general.

But is this influx of additional demand short-term (pardon the pun), or could we expect to see more of this for the foreseeable future?

To understand the changes to this sector, we do not have to look hard at the pandemic and the government response to understand where this surge has arisen from.

The buzzwords at the moment have moved away from ‘self-isolation’ and ‘social distancing’ to the fear of ‘the second wave’. The housing market was held up for nearly eight weeks, and has since exploded into life. The real surprise is just how keen people are to ‘just get on with it’ – such a wonderful British attitude!

The Connells Group published data in June that stated that 75% of clients were confident about proceeding with their purchase, with a further 20% reviewing the situation. Only 5% were considering aborting their purchase.

Estate agency businesses are still taking on new clients at the levels they would have expected pre-lockdown, and pretty much every mortgage broker I speak to says that they are busier than before. Brilliant! But there is an element of panic behind this, which I hope doesn’t mean this is a small bubble of activity that we are relying on. Solicitors that operate in many fields correctly state that litigation is quieter, but their property teams are stretched to capacity.

WHERE IS THE PANIC? WHY NOW?

Let’s discuss three of my friends, and my immediate next-door neighbour.

All four live in the Bournemouth area, within 10 minutes of the beach, and marketed their property for sale post-lockdown. All four achieved market value and sold within a week.

My neighbour had three offers before

it was even marketed. So who were these buyers? In every single scenario they were London-based families that were looking to relocate amid fear of a second lockdown.

One of these families is now our bridging customer because of the loss of their buyer. No one is waiting.

I believe that our average loan size has increased because our client base has shifted towards the London market in the regulated space more than ever before. And we predominantly have always been known for regulated bridging finance.

Some people fear that a home with no garden as their bubble could have a huge detrimental effect on wellbeing if we have to do this a second time.

Besides – it has been proven that you no longer have to work in the City to work in the City, right? You can work from anywhere.

STAMP DUTY STAMPEDE

The government scheme of removing stamp duty for properties up to £500,000 has also assisted with the stampede. Clients want to take advantage of this opportunity in the home mover and first-time buyer space before March 2021.

A potential £15,000 stamp duty saving certainly helps with the cost of setting up a bridging loan if you are driven to move home now.

If you put this initiative together with furlough pay, the Self-Employment Income Support Scheme (SEISS), the Bounce Back Loans Scheme (BBLS) and the Coronavirus Business Interruption Loan Scheme (CBILS), when this crisis is over and once Positive Lending has ridden out the storm, then I for one will queue up to buy Boris and Rishi a nice bottle of red!

But my hope for now is that I will not see a reduction in enquiries, applications and completions in this sector for the next eight months, that my competitors enjoy the same successes as they recover from the impact of servicing many thousands of brokers with their enquiries, and that more lenders continue to innovate to support this vibrant sector.

And more than anything else, that we remain healthy. B I

www.mortgageintroducer.com AUGUST 2020 BRIDGING INTRODUCER

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REVIEW

COMMERCIAL XXXXXXXXX

Commercial properties: Loveless high street Roxana MohammadianMolina chief strategy officer, Blend Network

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igh streets up and down the UK have been left crippled as a result of COVID-19.

As office workers seem likely to keep working from home and consumers unlikely to go back to the ‘shop till you drop’ culture, high streets are in need of a facelift.

Despite Boris Johnson calling for the nation to return to near-normal from 1 August to help boost Britain’s ailing economy, ravaged by the pandemic, the future of office working and high street shopping as we have known it hangs by a thread.

CHANGING WORKPLACE

Taking London as a barometer for office workers’ moods would send a chill along many commercial landlords’ spines. In May, Deloitte’s Future of the City survey of financial services employees found that more than three-quarters felt they were at least as productive working from home during the lockdown as they were in the office, with the lack of commuting commonly cited as a key reason.

Elsewhere, a recent report based on two other surveys of UK workers found that 45% of respondents predict a permanent change in their employers’ approach to flexible working postCOVID-19, while nearly half the workforce think flexible working will be set to increase.

On the high street, COVID-19 has accelerated both the decline in footfall and the shift to online shopping.

What does that all mean for the future of commercial property?

Will the infatuation with commercial property that began after the Global

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BRIDGING INTRODUCER

AUGUST 2020

Financial Crisis of 2007-09 ebb?

The government has recently started to scratch planning red tape to allow commercial properties to be converted into homes, without the need for full planning permission.

Over time, changes to the planning system will make it easier for business owners and developers to repurpose boarded up shops and abandoned offices and bring them back into use.

The changes, which will come into force in September, are meant to help breathe new life into high streets hit hard by COVID-19, as well as open up a new route for housing provision.

But for property investors and developers looking to take advantage of the new regulations to help ease the UK’s housing shortage, getting funding always seems to be an issue.

Valuation and lack of standardisation are always mentioned as sticking points for commercial property, with the majority of commercial to residential deals being funded by specialist finance providers who truly understand the product. Lending on a commercial to residential deal requires a lender who truly speaks the property developer’s language, and fully grasps the way the lifecycle of this project works.

Specialist finance providers and peer-

High streets are in need of a facelift

to-peer lenders have been and continue to be active in this area. For example, at Blend Network we recently completed funding for the conversion of an old shoe factory in Northamptonshire into 24 apartments in a deal that was funded in an astonishing 29 minutes.

HOLDING THE KEYS

There are three main reasons why specialist finance providers are the ones that hold the key to commercial to residential conversions.

First, commercial deals are rarely one-size-fits-all. Most often, they will be non-standardised deals that require out of the box thinking. At Blend Network, many of our underwriters are former property developers – and current property investors – and therefore are able to speak the property developer’s language.

Traditional lenders are usually happy to lend on off-the-shelf deals that are easy to value based on market comparables, yet when it comes to non-standard deals in nonstandard locations, specialist finance providers are much more likely to get comfortable with it, provided the deal makes sense.

Second, commercial deals can often be small in size, and not many lenders are interested in lending for small deals, certainly sub-£200,000 loan size. At Blend Network, however, we recently completed the funding for the conversion of an ex-Nationwide building in Northampton into three flats – a deal that was funded in less than one minute.

Third and last, alternative lenders are able to offer a more flexible and less automated approach to traditional due diligence processes.

This is because, while the industry is highly regulated by the Financial Conduct Authority (FCA), often small and agile organizations can make or break a deal. These firms are happy to think outside the box as long as the deal makes sense.

In summary, specialist finance providers hold the key to commercial to residential conversions and stand ready to support property developers and investors repurpose the high street and build the homes the country needs. B I www.mortgageintroducer.com

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SUMMER REPORT CARD:

INDUSTRY PERFORMANCE IN 2020 Jessica Bird asks experts from across the specialist finance industry to give their views on how the market has performed in the face of the challenges posed by the year so far

T

he first half of 2020 has, if nothing else, been remarkable. The industry has faced challenges that none could have predicted, even a few short months ago at the end of 2019.

This makes it somewhat difficult to compare the market’s performance to previous years, not least because of the ongoing debate around whether the cliff-edge drop in activity rendered metrics such as house price indices redundant – a debate that caused companies such as Rightmove to suspend them completely.

Nevertheless, there are some comparisons to be made. For example, two-thirds of commercial brokers (63%) and second charge brokers (66%) voiced confidence about the lending environment post-COVID-19 in Shawbrook’s most recent Broker Barometer. Similarly, 69% of brokers in Q1 2019, while facing political upheaval and uncertainty around Brexit, said the same, showing confidence in the resilience of the market, whatever the crisis of the moment.

Confidence in business growth has waned somewhat year-on-year, though, from 56% of brokers feeling positive about their prospects in the face of Brexit, dropping to a more conservative 42% (commercial brokers) and 45% (second charge) feeling confident this year.

This likely marks the different natures of the challenges, and the direct impact already being felt in the housing market in 2020.

FACING DISASTER When lockdown first hit, the fear for many was that there would be a repeat of 2008, and that the property market would face disaster.

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BRIDGING INTRODUCER AUGUST 2020

However, the cautious optimism voiced by many within the sector seems to have been well-founded.

The picture ahead – barring unforeseen disasters or a heavy-hitting second wave – is one of recovery, rather than further downward spiral.

Indeed, Zoopla’s House Price Index for June found that, although lockdown had reduced the flow of new supply and sales by 90%, new sales had rocketed to 28% above pre-lockdown levels. Nationwide, meanwhile, reported that annual house price growth recovered to +1.5% in July.

With measures such as the temporary stamp duty reforms and planning deregulation coming into play, to build further on the government support already in place, H2 2020 seems to have started on a strong footing, following the uncertainty earlier in the year.

STRENGTH TO STRENGTH In fact, the disruption seen across the market, particularly during the peak lockdown period when sales and house moves were not feasible, might yet have a positive knock-on effect on specialist finance.

With property chains disrupted, either by buyers and sellers reassessing their willingness to commit, or simply due to the delays caused by social distancing and quarantine across everything from valuation to moving, more consumers than ever will be looking towards areas such as bridging to help close the gap and relink the chain.

Meanwhile, widespread use of the furlough and payment deferral schemes means that household finances and financial histories are becoming increasingly complex. Many more consumers may now fall outside of the ‘vanilla’ high street sector. www.sfintroducer.com

FEATURE

INDUSTRY ROUND-UP Measures such as payment deferrals may not directly affect people’s credit scores, but they are being taken into account by lenders as evidence of higher risk and potential future repayment issues, particularly as we look towards a future in which a second wave, or even another pandemic entirely, is now a possibility to be factored into lenders’ decisions.

Added to this is the fact that the vast drop in product availability, which at the worst point in April took the number down to 7,425, from a pre-lockdown average of 14,693, has yet to recover. Twenty7Tec’s most recent data showed that a slight drop at the end of July had product numbers at 9,541.

This is an improvement overall, but shows a market that is still far from returning to full capacity; growing complexity on the borrower’s side is being met by narrow product options on the lender’s.

It is perhaps unsurprising, then, if the specialist market, vastly more reliant on human, case-by-case assessment, and in many instances better equipped to deal with adverse financial histories or complex income arrangements, comes into the fore as 2020 goes on.

LIFE AFTER LOCKDOWN The vast lifestyle changes being made, particularly as a result of widespread home working, will also have an impact on specialist finance.

Businesses across the country, and especially those based in Central London, moved en masse out of offices earlier in the year; most have yet to return, certainly not at full capacity, and many are considering whether to re-enter the rat race at all.

A widespread move to save on high-rent office space, cut down on commuting, and embrace remote and virtual working might spell disaster for landlords in the UK’s cities, but this, along with the fact that retail and hospitality have taken some of the biggest COVID hits, means H2 will be a time of change for many commercial and office spaces – potentially providing fertile ground for housing developments.

The specialist lending market has not come through the pandemic so far unscathed; lenders such as Maslow Capital, Foundation Home Loans and Roma Finance had to pause and take stock of their lending models, many employees in this industry were furloughed, and across the board, higher loanto-value (LTV) products were pulled, just as in the mainstream market.

However, as early as May, the news was full of a flurry of activity as lenders made steps to return to those parts of the market in which they had taken a step back – relaunching products, unfurloughing staff, and in many instances moving ahead with project developments and recruiting strategies that signalled ‘business as usual’.

Mint Bridging, for example, introduced new products in May aimed specifically at the building development market, Castle Trust powered ahead with achieving

its banking license, and businesses throughout the market used this as an opportunity to move forward their digital propositions, from customer portals through to AI. Throughout the last few months, lending has continued in the specialist finance space. To name only a few examples, Octane Capital and Pluto Finance both completed substantial developer exit deals in April, Paragon provided an £11.8m funding package to EquaGroup in May, at the same time as MFS reported having completed £18m in bridging loans during lockdown alone, and Reim Capital completed a £2.6m bridging loan for a West London hotel in June.

So, 2020 so far has certainly not been the disaster that some might have predicted back in March, but how has the specialist finance market performed, according to the experts, and will cautious optimism still be appropriate as the year progresses? →

FEATURE

INDUSTRY ROUND-UP

Bridging has benefited from being cautious that choice now, as we face up to the widely discussed ‘new normal’.

Bridging is all about flexibility, so the coming months and years could be Nicola Firth a good time for the sector. People are CEO, Knowledge Bank slowly drifting back into offices, but many have made a permanent shift to he bridging industry has working from home more of the time. been particularly hard hit They may want to make adaptations

by COVID-19. With the that will make a house not just a home, mainstream market also in but also an office. At the same time, the lockdown, existing loans have struggled government has announced significant to realise exit strategies based on resale changes to planning guidance – or refinance. Product availability has for example, allowing additional been severely curtailed, and many development to existing residential lenders simply had to withdraw from buildings, and permitting conversion the market as their funding lines from commercial to residential relied on physical valuations. without change-of-use consent.

SCORE Broker frustrations have been This will give rise to new reflected in the criteria searches opportunities for investors and they have been conducting on will undoubtedly fuel demand the Knowledge Bank system for specialist finance. in recent months. It has been a Bridging lenders will be doing common factor across the mainstream their best to meet this demand, and we and bridging markets that one search can expect to see plenty of changes in above all has dominated: ‘COVID-19: products and features as they adapt to Temporary Maximum LTV the new circumstances. At Knowledge Restrictions’. Lenders need to protect Bank, we will be keeping pace with all themselves and their own funding lines, these changes as the market develops, so it has been very difficult for them to ensuring that brokers have access to the contemplate lending at the higher end most comprehensive and up-to-date of the loan-to-value (LTV) scale. information available. B I While some might be inclined to criticise this, my view is that specialist lenders have on the whole acted responsibly, while doing their best to meet brokers’ and borrowers’ needs. Most have also continued to engage with the market through relationship management and wider communications.

Most of the lenders that ‘mothballed’ in April and May are now open for business again, and higher LTVs are being reintroduced. This is, in part, precisely because of the cautious approach they adopted during lockdown. There may have been a lack of product availability then, but at The bridging market is a resilient sector least lenders are still around to provide

T

8/10

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BRIDGING INTRODUCER AUGUST 2020

Bridging data Knowledge Bank research found that between April and July 2020, the top five bridging searches changed order slightly, but largely remained the same. In June these were: regulated bridging, maximum LTV, minimum loan, COVID-19: temporary maximum LTV restrictions, minimum property value.

By July, COVID-19 had slipped slightly down the list of priorities, but continued to be a key concern for brokers.

According to Twenty7Tec data, the number of bridging loan products available in July remained the same as June, at 97, despite the overall number of products across the market dropping from 9,900 in June to 9,541 in July.

Research by the Association of Short Term Lenders (ASTL) found that more than 64% of bridging lenders are confident about the long-term prospects for the economy, compared to just 50% in June 2019.

However, lenders were split on the immediate prospects for their own businesses, with 41% saying they expect turnover to grow in the next six months, matching the 41% who think it will shrink.

M T F i n a n ce’s B r i d g i n g Tre n d s report for Q2 2020 found that total gross lending in the bridging sector d e c re a s e d f ro m Q 4 2 01 9 t o Q 1 2020 by £58.08m, landing at £122.86m. It reduced yet again to £79.4m in Q2 2020.

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Short-term finance has ridden the wave Dale Jannels managing director, Impact Specialist Finance

F

irst and foremost, the bridging sector has enjoyed something of a renaissance this year due, in part, to market need – some of which has been driven by COVID-19. It’s true that every part of the mortgage sector was affected by the pandemic, but government initiatives in deferring house moves and promoting the moratorium certainly placed an even greater emphasis on the need and demand for short-term finance to fill any gaps.

Add to this a subsequent lack of valuers, lenders reducing loan-to-values (LTVs) or pulling out of the market altogether – alongside a raft of other obstacles which impeded potential purchases – and it’s little wonder that ever more borrowers have turned to alternative forms of finance to get deals over the line.

This momentum shows no sign of slowing down any time soon, and the demand for all types of short-term finance is currently as high as I, or our advisers, can remember. In fact, one of the major banks has reported that their decision in principle (DIP) request submissions have exceeded any known previous levels in recent weeks, and this has been consistent over a number of days, not just one.

So, let’s look at some of the trends which are resulting in such high demand for short-term finance.

THE TRENDS

1) One of the most prominent needs for short-term finance over the past few months has been for chain break finance – where the previous property sale has fallen through for a variety

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BRIDGING INTRODUCER

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withdrew already issued offers and some revoked renewal options with existing clients.

3) The payment moratorium will have unintended consequences for a large swathe of short-term lenders in that, by the very nature of this lending style, borrowers are not actually of reasons. This has been evident for making payments – yet they qualified clients moving up the ladder and also for the three-month non-payment for those downsizing. option. This was potentially a bad 2) Land purchases with outline thing for the borrower, as the addition planning may have lost builders due to of three months interest on a 12-month changes in the economic climate and mortgage increased the debt and working conditions. reduced equity. It was bad for some 3) Development finance in general lenders in the sense that they had has seen a big uplift, although ‘ground responsibility to their funders who were up’ developments have been viewed expecting repayment at the end of the negatively in recent times by initially agreed term. many lenders.

4) The government was SCORE 4) There will be an increase faced with extremely difficult in the conversion of offices, circumstances and this issue pubs and other commercial would not have raised its head properties to residential. if not for their laudable and 5) Some building societies swift action. Nevertheless, it have made the move to offer bridging highlights the old adage ‘one size does loans in a bid to attract short-term cash not fit all’. flow opportunities to supplement lost LENDER PERFORMANCE income over this period.

In fairness, most lenders have really This is a great move for borrowers, stepped up to the plate. A large number as when there is the need for a followwere still prepared to lend throughout on term mortgage – which is often the lockdown, although often at reduced case – this can be agreed at outset, LTVs or only on certain property types. which equates to a solid exit strategy.

Inevitably, the issues of staff working 6) A vast number of opportunities from home, a lack of valuers, and have opened up for borrowers who are general market uncertainty impacted to looking to add to their portfolios and the speed of lender responses. generate additional securities to fund At the time of writing, several larger purchases. lenders have suffered severe cash-flow problems. Some have withdrawn and THE CHALLENGES others may be suffering from a lack of These are all positive trends, but it’s investor support. also prudent to point out the many But let’s finish back on a more challenges that this tumultuous period positive note. These issues still has created: don’t compare with other areas of 1) Some lenders have tried using automated valuation models (AVMs), the mortgage market and, with the but the reality is that most cases increased desire of many vendors to sell involving short-term finance require quickly, this sector can feel satisfied full security valuations. that it has ridden the COVID-19 wave.

However, AVMs can be a great and that there is lots more business still advantage in terms of speed, and make to come. sense where the overall loan to value is The short-term finance market 50% LTV or below. has provided valuable, viable and 2) As in the mainstream mortgage responsible solutions for a range of market, a number of lenders had to borrowers in some less-than-ideal push the pause button when it came circumstances, and I expect more of to their lending capabilities. Some the same for the rest of the year. B I

8/10

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Development finance has been tested builders and developers create new homes. Similarly, I found there to be a high level of frustration amongst Ashley Ilsen brokers unable to place deals with chief executive officer, lenders which had suddenly dropped Magnet Capital out the market. The deal flow was still there, but some of the lenders were not. think it’s fair to say at the turn of However, the majority of us stood the year no one expected that we’d firm, with tweaks made to loan-tobe stuck in our homes for several values (LTVs) and some lending months and that the immediate criteria understandably tightened. future of our economy would be It was great to be able to report that looking far from rosy. In fact, going Magnet Capital had one of its strongest into January and early February, Brexit months for new business in May, was still the buzzword on everyone’s and we weren’t the only ones setting lips in the industry. personal bests during lockdown.

I think the way we responded as One of the criticisms I’ve had of the an industry was admirable. Had development finance space over recent something of this nature happened years is that we’ve lacked innovation. say seven or eight years ago I The most successful lenders over don’t think we would have SCORE the coming years will be the been as well placed to take it ones that can innovate and on the chin. I believe we’ve provide new and exciting ways matured as an industry in of doing things. recent years. As a result, we Development finance are more robust in our lending lenders have been on a slow practices and ways doing things. curve to absorb and start using new technologies, so it was interesting to CONSTANCY watch the COVID-19 crisis accelerate As I’ve often grumbled about before, this movement. Lenders suddenly had for me one of the key things the to be equipped to have their whole development finance sector needs to force work from home. deliver is constancy. Without this, we don’t have housebuilding and new homes being created.

Initially it was disappointing to see that some self-styled development finance lenders were unable to decide whether they were in or out. This is not bridging, and the risks are much higher. I strongly believe that if you can’t be in the market offering development finance during the bad times, then don’t operate in the market when it’s performing well.

The biggest loser from this level of unpredictability is the consumer and, after all, the main goal of the development finance sector is to assist The industry is robust in its lending practices small to medium enterprise (SME)

I

7/10

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At Magnet Capital it was no different. We make a strong point of meeting every single person we lend to face-to-face and for the first time in my career this was no longer possible to do with every borrower. Whilst Zoom has been an excellent tool for staying in touch with each other, I don’t believe that there is a replacement for face-to-face meetings and contact. I’m delighted to report that our site visits and in-person meetings have started again, where appropriate.

Looking forward, I think development finance lenders need to avoid the mistakes of the past. There is no point of coming to market at LTVs you can’t sustain.

We are almost undoubtedly staring down the barrel of an unprecedented drop in property prices.

Development finance lenders with genuine expertise would have already factored this into their offering long before we reached this crisis.

However, I will add that it’s not LTVs that cause the biggest threat to development finance lenders, but instead it is internal practices and attitudes to lending.

I have seen via some of our introducer partners examples of the corner cutting that still exists in the development finance industry. These are the lenders that are going to be tested the most.

UNERTAINTY

Brexit is also still a looming cause of uncertainty in the medium-term outlook. I’ve already seen many cases of building suppliers from the continent looking to raise prices for our builders over the coming year and this could seriously hamper many new build and heavy construction projects. Again, a development finance lender that understands the market will have already factored this into their offering.

Unfortunately I don’t have all the answers, but going forward we need to continue sensible lending practices at sustainable LTVs. We will need to continue to adapt.

This is how we’re going to provide consistency to our brokers and consumers, and this is how we’re going to continue to thrive as an industry. B I www.sfintroducer.com

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Positive outlook as lenders show resilience Vic Jannels CEO, ASTL

T

he Association of Short Term Lenders’ (ASTL) Sentiment Survey is always an insightful and interesting barometer of the market and its expectations for the future. So, I was fascinated to see what results we would receive from the survey following the country’s first ever lockdown in response to the COVID-19 pandemic.

The research was conducted among members of the ASTL in the first half of July, two months into the reopening of the property market, but still in the middle of the enforcement moratorium, which has had such a disproportionate impact on short-term lenders (more on this later).

LONG-TERM CONFIDENCE

The most surprising, yet reassuring, statistic was that 64% of bridging lenders are confident about the longterm prospects for the UK economy.

This is compared with just 50% who said the same when the survey was run this time last year, before the world had been introduced to COVID-19.

Last summer it was of course Brexit that was proving the main cause of concern – it’s perhaps easy to forget the heightened level of political instability that we were working through. If you had told anyone working in the industry that, within a few months, they would be dealing with an environment of not just Brexit but also a global pandemic on an unprecedented scale, I’m fairly confident they would have claimed that we simply would not be able to cope.

But we have, and the market is in pretty good shape all things considered, www.mortgageintroducer.com

which demonstrates just how resilient and adaptive to change the bridging sector is.

This is not to say that lenders have a gung-ho attitude to the future.

Lenders’ opinions are split on the immediate prospects for their own businesses, with the 41% saying they expect turnover to grow in the next six months matching the 41% who think it will shrink. When it comes to the turnover of the bridging finance sector overall in the next six months, 41% expect it to grow, while 36% think it will shrink.

So, the outlook among bridging lenders is measured and realistic, but ultimately resilient. This is particularly encouraging, given the disproportionate impact that government policy has had on shortterm lenders compared to the rest of the mortgage industry.

In March, as the pandemic was approaching its peak and prior to lockdown, the government announced policies of payment holidays and an enforcement moratorium, designed to keep people in their homes.

These were sensible measures at a time of significant public health concern, but they were also applied as a broad approach across the entire

The bridging market is a resilient sector

mortgage sector, and thus offered a disproportionate level of challenge to short-term lenders, whose average term might be between 12 and 24 months, and term lenders whose average might be approaching 25 years or even longer.

This was something we recognised at the ASTL, and we were quick to take a proactive approach in engaging with HM Treasury to investigate options for a more collaborative solution moving forward.

One that would continue to protect customers, but also enable lenders to have greater capacity to lend to new customers and help support the economic recovery.

COMMUNICATION HEADWAY

I’m pleased to say that we have made some headway in our communications; last month we held the first ‘virtual’ discussion between the ASTL and HM Treasury to debate the matter. This has given us an excellent platform to contribute to the ideas and actions of policymakers, not just on this issue but also on further matters impacting our sector in the future.

For now, one of the biggest concerns among bridging lenders is not the moratorium itself, but the practical fallout resulting from it.

Seven in 10 respondents to our research (68%) said they are concerned about the capacity of the courts to deal with the caseload when the enforcement moratorium is lifted.

We should be clear that this is not because bridging lenders are hungry to commence enforcement action; however, the ability to begin a process of recovery is an important aspect to the sector, as it helps lenders to maintain their funding liquidity but also prevents customers from running up unmanageable debts and eating into their equity by procrastinating on the redemption of their loans.

This fallout from the moratorium is likely to present a challenge to lenders in the coming months. Nevertheless, as we have discovered many times before, the bridging market is a resilient sector and it will find a way to survive and thrive by continuing to adapt in response to the changing needs and behaviours of customers. B I AUGUST 2020 BRIDGING INTRODUCER

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No trade-off between economy and health Norman Chambers managing director, NACFB

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eriods of great upheaval are always times of radical change.

Some will have you believe the pandemic is a once-in-ageneration chance to remake society and build a better future. Others fear it may make things worse. Either way, we are now presented with the rarest of opportunities: the chance to steer our industry in a new direction.

Whilst the Coronavirus Business Interruption Loan Scheme (CBILS) and Bounce Back Loan Scheme (BBLS) initiatives will help in part to ventilate an economy in hibernation, we have elected to instead examine the practical measures that must be in place before the freeze of lockdown can begin to thaw. In short, it is too early to focus on an as yet unfixed destination; we are at the start of a long and uncharted journey – one which must carefully balance the needs of the economy with safeguarding human lives.

a second wave. At this point, most of us are itching to return to work, keen to pick up where we left off and move forward, but doing so too quickly is likely to undo months of patient societal and economic protectionism.

At the time of writing, the best estimate for the proportion of the UK population infected, and potentially those with immunity, stands at just 4%. Or to put it another way, more than 63 million people are still vulnerable to infection.

If we were to entirely lift the lockdown, then another explosive outbreak would be inevitable.

With a vaccine or cure likely still many months away, the R number steers every decision the government makes. Before the lockdown was brought in to reduce the spread of COVID-19, its R number was between two and three, which is why the disease spread so quickly. The aim now is to bring the R number down to less than one, and to keep it there.

Although even when R is less than one, we cannot simply revert to how

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MUDDYING THE WATERS

There still lingers the very real possibility that the UK will face a still higher death toll or indeed a second lockdown. The simple fact is that, for the easing of restrictions to work, two things needed to have been sufficiently established during the lockdown: collective trust and individual discipline. Neither was. The lockdown was always seen by large portions of the population – even among those who grudgingly complied – as an imposition.

As a result, we never got critical mass buy-in of people thinking the government imposed the right measures at the right time. Some thought it went too far, while others believed it did not go far enough. The former will see any relaxation as license to party. The latter, as being pushed into mortal danger. Such is the binary nature and ‘footballification’ of modern political discourse – an unhelpful Brexit hangover.

SCORCHED EARTH

TAKING STOCK

“Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.”

How often we turn to well-trodden Churchillian rhetoric in times of crisis, and now is no different.

August has seen the country lurch into its fifth month of social distancing.

Whilst some restrictions have eased, and the country’s flagship NHS Nightingale hospitals have long since discharged their last patients, the reality of what lies ahead is beginning to dawn on us. Talk of curve flattening has subsided, in its place a collective presiding over a prolonged exit strategy that seeks to minimise any chance of

things used to be. Each lifted restriction directly impacts the R number, some more than others, and it remains unclear by how much. This butterfly effect means the slightest of tweaks to measures now, could steer us onto an entirely new path altogether.

Economic strategy is bound to the R number

Just as behind each number in the daily death toll there is a grieving family, behind each crippled enterprise there is a dashed hope and livelihood. Any economic exit strategy will be bound tightly to our old friend, the R number.

The government is under no illusions; economic survival is firmly tethered to our own.

Our now altered path to a new destination, hopefully one of renewed prosperity, is fraught with tremendous uncertainty. Unfortunately, it will only be in hindsight that the contours of the new world we are entering become clear. Informed and dynamic commercial finance brokers – championed by a strong and independent trade body that is with them every step – will have a vital role to play in ensuring we keep moving Britain forward. B I AUGUST 2020

BRIDGING INTRODUCER

27

COVER

INTERVIEW

Bridging the gap Joshua Elash, co-founder and director, and Gareth Lewis, commercial director at MT Finance, discuss the trends and challenges unfolding in the bridging market, and the role this market will play in the UK’s recovery

What are some of the main challenges facing the bridging market at the moment?

GL: Uncertainty. Whether this is from values softening through impact on transactional flow and the confidence level of borrowers, or the potential for increased unemployment that we will likely see as a result of COVID-19.

JE: Lenders will need to carefully work with borrowers on their pre-COVID-19 loanbooks in the months ahead.

Delays in redemptions could pose internal liquidity issues, and in some instances more aggressive lenders will experience losses.

How has MT Finance adapted to these challenges?

GL: We have continued to utilise our years of experience to look at each transaction on its own merits, mitigating risk where needed without being bullish where the market is unsupportive.

With an uncertain outlook over the coming months – and possibly years – when it comes to values, now is not the time to be overly aggressive.

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JE: We have also always been very sensible in our approach to lending and have resisted going up the risk curve as a means of capturing market share.

We were pleasantly surprised with how well our existing loanbook and our clients continued to perform, both during and after lockdown.

In June, MT Finance’s Broker Sentiment Survey found 40% of brokers predicting a six to nine-month recovery, with 27% offering a more pessimistic 12-plus month view. What is your prediction for the length, and shape, of the UK’s recovery more than a month later?

JE: Without wanting to be the bad guy here, I do feel as though it is going to take considerably longer for the broader economy to recover to anything near the pre-COVID-19 levels. We are

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INTERVIEW presently living through unprecedented levels of state interference in the private economy. Never has the government in this country injected such levels of liquidity into the private sector.

I am afraid, however, that some of this – for example the continued existence of the furlough scheme – is creating lethargy and a disincentive in some instances for businesses to rise up and try and get back to life as usual.

When the scheme finally ends in October, we will have to assess the true damage of the COVID-19 lockdown. We expect for there to be a long and hard slog towards getting businesses back to fully functioning levels, and I expect to see significant unemployment figures, which will cast a gloom over the economy for far longer than the six to nine-month timeline indicated by some of my more optimistic colleagues.

What is the role of the bridging market in helping shape this recovery?

GL: Providing speed and certainty of decision along with liquidity, so that the disrupted and potentially slower market can give clients confidence that they will be able to transact within the appropriate timescale to complete purchases and stop a chain from falling over.

Does government policy need to take this role into account in a more substantial way, and if so, what would you like to see come into force in the coming months?

JE: No. Again, I don’t think it is the appropriate role or function of government to be interfering in the specialist lending sector.

Indeed, we have seen the Coronavirus Business Interruption Loan Scheme (CBILS) being rolled out, pursuant to which some lenders are offering government-backed bridging finance loans at 75% net loan-tovalues (LTVs) at a time when every other established and sensible bridging finance lender in the market has reigned in their LTVs. It’s a perfect example of the extent to which government should be careful not to overreach into sectors they aren’t equipped to understand.

I don’t appreciate my tax contributions being used in this fashion.

What effect will the temporary changes to the stamp duty threshold have on the bridging market?

GL: It will stimulate the market more in the regions

where property values are lower, given the cap. This won’t have a huge impact on the London market.

However, more transactions activity will go some way towards building confidence and should see others more encouraged to purchase more properties.

We know the previous changes to stamp duty had a negative impact on people purchasing first-time investments. Hopefully, this will allow those who were uncertain to take the plunge and use this opportunity.

The government changes to Permitted Development Rights (PDR) have created a number of opportunities for developers. What do you make of the changes?

GL: They are hugely positive. The commercial property sector has the potential to be the most heavily affected by the COVID-19 lockdown and the impact it has had on businesses. This could quite easily result in a number of properties becoming vacant. Having an immediate alternative use via PDR would allow other investors take the opportunity convert and utilise quickly. It is a great idea.

What more would you like to see the government do to move the market forward?

JE: No more hand-outs please! We need to get back to a traditional incentivisation approach, pursuant to which companies have tax advantages for behaving in ways which are conducive to economic development and growth. Get the country off the furlough scheme as quickly as possible, with no extensions.

I want to see an initiative which encourages and rewards companies for hiring new staff, and which rewards companies for getting their employees safely and intelligently back in their offices, with their bums on seats, working together.

Having convinced everyone to stay at home, it’s now time to encourage people to get back into work.

We’ve seen a number of lenders withdraw from the market during the first half of 2020. What are your predictions for how the market might change going forward into 2020 and beyond?

JE: The established players that withdrew from the market took the right steps for their organisations and we fully expect to see them return in force. As during any disruption, new lenders will emerge.

We fully expect that the use of technology will cease to become a novel or competitive advantage, but will instead become an expectation.

JULY 2020 BRIDGING INTRODUCER

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INTERVIEW Is the importance or prominence of the specialist market going to grow moving forward?

GL: We are witnessing the cracks that the strain of the last five months is causing within the mainstream mortgage market.

There is a backlog with processing applications, products are frequently pulled, risk appetite is constantly moving and criteria changes daily.

This obviously leads to a challenging environment for clients and brokers alike.

The specialist market was established to help ease these challenges. Its flexible products, criteria, and underwriting policies allow a high degree of adaptation to support clients’ transactional needs. Using the ageold tool of common sense is a key fundamental to the specialist market. Unfortunately, this isn’t easily used in the mainstream sector.

Without a doubt, the impact of the last five months has shown how critical the specialist sector is and how important its growth is.

Will the role of specialist lenders willing to take on cases with adverse credit or arrears grow now that more people are facing financial disruption?

GL: The specialist and mainstream mortgage market continues to be disrupted, with timescales increasing every day. I do not think it is the role or function of the specialist market to provide liquidity to the adverse credit sector, although this is a common misconception.

The specialist space and the broader mainstream market run in tandem as most often the exit strategy for a loan is refinance on completion of say refurbishment works.

So, if a lender in the specialist market begins to take on a high volume of adverse credit loans they will be stuck with these loans.

Prior to the pandemic, what big trends were on the cards in bridging, and have these changed, or been put on hold?

GL: As a whole the market demand remains the same as pre-COVID; people are still looking at the opportunity to add value and gain rental yield.

The bridging market has traditionally been a slow adopter of new technology. How has the coronavirus crisis changed that, and do you think the changes are here to stay?

JE: I don’t think that we can point at this early stage to any cultural shift within the sector, but certainly at MT Finance the extent to which technology is a critical component of our business has been re-emphasised by the practical consequences of the lockdown. The

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use of electronic signatures (recently adopted by the Land Registry) is a good example of the type of lasting change we do expect to flow from the experience.

Has the increased use of automated valuation models (AVMs) and desktop valuations been a practical response to the issues caused by lockdown and social distancing, and should these overtake traditional methods in the future?

GL: Again, embracing technology has allowed lenders to adapt to challenges we have seen as a result of lockdown, isolations and demand.

Where a lender has seen the need to, and where they have been able to mitigate risk to accommodate AVMs and desktops, these have been welcomed with open arms.

As ever, it does come with a greater degree of risk.

Sometimes there is nothing better than having eyes on a property to get a better feel for the transaction and the potential pitfall associated with the property.

Let’s not forget bridging transactions are not always vanilla in nature, and can have a number of issues to overcome. Having a strong valuation on the security can go a long way to accommodating these risks.

Years of experience both from a reporting and underwriting perspective can really help with your scratch and sniff test.

How might the mass move out of offices, which is causing many companies to reconsider their need for city bases, affect the market moving forwards?

GL: Without a doubt, businesses will be taking stock of the last five months, assessing the impact of the successes and failures alike.

Nimble businesses that had already embraced technology – like ourselves – were able to adapt successfully to working remotely.

However, not all business had an easy ride, potentially finding it difficult to manage their business effectively given how disjointed it can be.

Will these considerations all become reality? Possibly not. Will businesses still want a home in a good location to pull resources from differing geographical locations with ease? Yes, undoubtedly.

As the furlough scheme comes to an end, we could see a slowing in the mainstream residential market.

If brokers aren’t operating in specialist fields, is now the time for them to upskill?

JE: Not necessarily. The specialist market continues to be a one in which there is a sadly a broad array of different lenders that can take hugely different approaches to matters, such as treating customers fairly (TCF). The benefit in most instances of focusing on what you are best at – and for example using the www.sfintroducer.com

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INTERVIEW the relaxation of change of use rules allow this more so in the coming months?

“Our clients are typically property investors or small developers who have spotted an opportunity to convert a property into a larger property or into a house of multiple occupancy”

How important are master brokers and packagers in helping novice brokers become more involved in the sector?

services of a packager – can be huge. The packagers know the market incredibly intimately and can help the broker by helping the broker’s client whilst also providing revenue source.

GL: Experience is critical in the specialist marketplace, which is easily misunderstood. Mistakes can quite often be made, and utilising those with experience could potentially save money and time – for the clients and inexperienced brokers alike – and should be embraced.

The ASTL found that 41% of bridging lenders are worried about court backlogs when the enforcement moratorium ends. Is this something you are concerned about?

What is the profile of the average MT Finance client, and how might that change as time goes on?

JE: We started this business at the height of the last economic downturn. The profile of our clients has always been the same. People come to MT Finance because they have identified a way to use bridging finance to either make or save them money.

Our clients are typically property investors or small developers who have spotted an opportunity to convert a property into a larger property, or into a house of multiple occupancy (HMO). With the relaxing of the various planning regulations, we expect that there will be even more of this type of activity in the years ahead, and we are pleased to be able to continue to support the property investor community.

GL: We continue to work with borrowers to keep defaults and this court applications to a minimum.

It’s critical at times such as these that lenders work through their non-performing loans carefully and systematically to the mutual benefit of the lender and the consumer.

In what ways might the experiences of the last recession have influenced the market response to coronavirus so far?

GL: There are only a handful of lenders that were either around or built out of the last recession.

So, it would be hard to blanket their responses as a whole.

However, the pandemic has actually offered different challenges that lenders will have to learn from. Overreliance, for instance – where lenders are over-reliant on too few partners (funding lines, surveyors, solicitors, to name a few).

When these partners decided to take a step back, were lenders able to absorb the impact or did this stop them in their tracks?

The market was very bullish before the pandemic and potentially is showing signs of heading back that way, yet do we know its full impact yet?

Now is a time for a sensible approach to lending, there will be plenty of opportunities to help clients with transactions.

Property investors will remain entrepreneurial, looking to take opportunities when presented. Will

What plans or developments are on the horizon for MT Finance?

GL: Watch this space

What key message would you like to get across to brokers wanting to use MT Finance?

GL: Support, service, and flexibility. Fundamentals we have built the business upon and continued to deliver throughout.

JE: Now more than ever it is time for a flight to quality.

We built this business in 2008. We stayed open and continued to lend throughout the lockdown of 2020.

We are committed as always in the days and years ahead to working with you and your clients in a sustainable, transparent, and positive way. B I

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The times they a Gareth Lewis, commercial director of MT Finance, gives Bridging Introducer an exclusive look at the findings of the latest Bridging Trends research, and consider what this means for the market

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TOTAL GROSS LENDING Bridging Trends reported a 46% fall in gross loan volumes in the first half of the year, as activity was dented by the lockdown. In the six months to the end of June 2020, volumes declined by a huge £170.87m to £202.27m, from £373.14m in the first half of 2019.

The volume of contributor bridging loans was £122.86m in the first quarter, falling from £180.94m in the final quarter of 2019.

Activity further declined in the second quarter to £79.4m, which was not wholly unexpected, given the

ob Dylan said it best back in 1964, but the song continues to capture the times and a need for positive change over 50 years later.

There is no doubt we are living through unprecedented times. COVID-19 has transformed the world, but how has it impacted the bridging finance sector, and what might that effect ultimately be?

According to the latest Bridging Trends data, bridging lending activity is now lower than it was pre-COVID-19.

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y are a-changing restrictions on conducting physical valuations until May, and significant uncertainty around any possible economic downturn.

of 50 days in Q2 2020, 49 days in Q1 2020 and 51 days in both Q4 and Q3 of 2019.

However, this is still relatively long compared to the average reported previously (44 days for whole of 2018) and something the industry still needs to address.

FIRST CHARGE VERSUS SECOND CHARGE Second legal charge lending hit its highest level since Bridging Trends launched in 2015.

Second charge bridging loans accounted for an average of 26.1% of total market volume in Q2 2020 – up from 24.4% in Q1 2020 and 23% in Q4 2019.

This is possibly explained by the drop in purchases due to valuation access.

BRIDGING LOAN PURPOSE For the sixth consecutive quarter, the most popular use of a bridging loan was to purchase investment property.

A quarter (25%) of all lending transacted by the →

REGULATED VERSUS UNREGULATED Regulated bridging lending hit a record high in Q2 2020, increasing its market share to an average of 55.6% of all lending, compared to 37.5% in the same quarter of 2019.

AVERAGE MONTHLY INTEREST RATE Average weighted monthly interest rate increased to 0.85% in Q2 2020 – up from 0.8% in Q1. This is the highest average monthly interest rate seen in Bridging Trends data since Q3 2016.

AVERAGE LTV Average loan-to-value (LTV) levels in the first half of this year were lower than last year – 48.8% in Q2, down from 51% in Q1 2020 and 54.1% in Q4 2019.

This could be attributed to the number of bridging lenders removing high LTV products from their ranges during the lockdown period.

AVERAGE TERM For the seventh consecutive quarter, the average term of a bridging loan remained at 12 months.

AVERAGE COMPLETION TIME The average completion time on a bridging loan application has remained consistent over the last four quarters – reporting an average completion time

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report’s contributors in Q2 2020 was for investment purchase purposes, up from 20% during Q1 2020 and 22% in Q4 2019.

The data highlights how property investors continue to opt for bridging loans to help them purchase property while prices are low, against a backdrop of ongoing uncertainty.

Refinancing a bridging loan was the second most popular use for bridging finance, contributing to 13% of all lending in Q2 2020, up from 8% in Q1 2020 and 11% in Q4 2019.

whether that is via a refinance or sale of the security property. Now more than ever as an industry, we need to ensure we manage borrower expectations.

The broker community will be expected to act responsibly, with a flight to quality expected. More focus must be placed on the quality and sustainability of the lender being chosen.

Matters such as free valuations, higher loan-tovalue ratios, or headline rates will be less critical than certainties around customer care and principles of treating customers fairly (TCF).

By choosing an established lender, a broker is safely placing their client with someone that not only has a proven track record of delivering results, but in whom they can take comfort knowing their client will be rerated correctly.

THE PRESENT NOW WILL LATER BE PAST… The bridging industry has always successfully adapted to different dynamics affecting the financial markets, be they macroeconomic, political or regulatory – but the COVID-19 global pandemic may be the most powerful accelerant of change the industry has seen in a very long time.

The impact initially was huge. Lenders which were previously felt to be solidly funded and reliable exited the market, with some only now returning months later. Others changed their acceptance criteria dramatically, with only a hardcore set of lenders holding steady and lending broadly in line with how they were before the crisis.

Given the turbulence experienced by all parts of the industry, it is not unreasonable to expect some significant changes in the post-lockdown world.

The biggest immediate challenge for lenders today will be successfully managing their backbook of loans, namely all the loans they completed before the COVID-19 outbreak.

Some of the properties over which these loans are registered may experience a depreciation in value in the weeks and months ahead as, the economic fallout from lockdown begins to bite, resulting in a reduction in expected levels of security for the loans themselves.

Lenders also need to carefully consider the prospects for the market once government support eases, with the government’s furlough scheme winding down and mortgage payment holidays coming to an end in October.

This is likely to have an impact on property activity, unemployment, and economic growth. This also will impact upon a borrower’s ability to exit existing loans,

FOR THE WHEEL’S STILL IN SPIN… MT Finance is dedicated to continuing to support the broker community through this challenging time. We entered March in a strong position due to our business continuity plan and are thankful that we were able to make changes quickly.

We continue to evaluate the risk profile of every product line and are lending at sensible loan-to-value levels to enable each transaction to work where possible, whilst also safeguarding against further potential market changes.

Flexible thinking is important, and we remain focused on working creatively to find solutions to the challenges we all presently face in conducting business.

We are in a much stronger position behind the scenes because of some of the restructuring we have done, and continue to be able to offer both efficiency and excellent levels of service, in tandem with competitive pricing.

You don’t have to be an economist or leading housing market commentator to realise that the global economy is indeed passing through an unprecedented phase; we do not know how bad the impact of the pandemic will ultimately be, or what the world after the pandemic will be like.

What we do know is that 2020 will be challenging for us and for everyone else out there in the market.

But if COVID-19 has taught us anything, it is that if the times are changing, then we need to move with them. And fast. B I

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