Bridging Introducer February 2020

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INTRODUCER www.sfintroducer.com

February 2020

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EDITORIAL

COMMENT

Publishing Director Robyn Hall Robyn@mortgageintroducer.com @RobynHall Publishing Editor Ryan Fowler Ryan@mortgageintroducer.com @RyanFowlerMI Deputy Editor Jessica Nangle Jessica@mortgageintroducer.com @MI_Nangle Deputy News Editor Jake Carter Jake@mortgageintroducer.com @JakeCarter25 Editorial Director Nia Williams Nia@mortgageintroducer.com @mortgagechat Commercial Director Matt Bond Matt@mortgageintroducer.com Advertising Sales Executive Tolu Akinnugba Tolu@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 Mortgage Introducer, CEDAC Media Ltd 23 Austin Friars, London, EC2N 2QP

Information carried in Mortgage Introducer is checked for accuracy but the views or opinions do not necessarily represent those of CEDAC Media Ltd.

Keeping the momentum

W

elcome to the February issue of Bridging Introducer. By all accounts, it seems to have been a positive start to 2020 with confidence returning to the market and deals coming to fruition following a period of uncertainty. Following the cabinet reshuffle this month we have a new Chancellor, Rishi Sunak, who holds the pressure of the Budget on his shoulders.

Reports suggest the initial March 11 date will go ahead.Those awaiting any potential changes to stamp duty may not have too much longer to wait.

It is a case of wait and see.

This issue focuses on the positive start to year and maintaining that momentum. Now that Brexit is underway and political matters appear more stable, the short-term finance market is hoping for a great year. Narinder Khattoare from Kuflink spoke to us about his faith in the turbulent P2P market, and whether this year will see any more casualties following the demise of Lendy and Funding Secure last year. Turn to page 32 to find out more.

Our roundtable on page 24 emphasised the productivity seen at the start of the year, with many delegates commenting on how many cases they are seeing through the door.

You can read industry comment from industry figures such as Paul Atkinson and Kevin Thompson within the issue, who discuss how being specialist is key and the rise in commercial property sold at auction.

Turn to page 12 to read this month’s feature on the role packagers play in the marketplace.

It’s been a busy start to the year, but let’s hope the momentum continues. Whether you have had a busy start or are experiencing the calm before the storm, we hope you enjoy this month’s issue.

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Contents 5 Jo Breeden Why specialist finance is key for all brokers 7 Kevin Thomson 2020 will see more commercial auction sales 9 Paul Atkinson The opportunities in commercial 11 Bret Jackson The need for consideration 12 Feature: The role of the packager Michael Lloyd looks at the packager’s place in the market and how they continue to adapt to a changing marketplace 24 Round-table: Back on track Our experts look at the current state of play in the bridging market 32 Cover: Staying strong Narinder Khattoare speaks to Jessica Nangle about P2P casualties, new offerings and embracing technology 38 Alan Dring We do need some education…

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The right tools for the job Jo Breeden managing director, Crystal Specialist Finance

T

hroughout 2019, and at the outset of 2020, one question gets asked of us daily and has come to represent the changing role of the mainstream mortgage broker: “I don’t know if you can help me, but…”

This is a fantastic evolution of the role, because it symbolises a market that is beginning to understand that the needs of clients are more diverse than ever and that financial solutions need to be considered outside the typical. And this is where specialist finance holds the key.

The mainstream and specialist finance sectors have always been the preserve of firms or brokers who have always written their business.

Historically this has all been very well and good, but as requests continue to diversify and become more-and-more complex we are seeing the traditional barriers break down.

A lot of this has been achieved through education. It is great to see more-and-more businesses, who traditionally didn’t have the staff numbers to pound the streets and knock on every door, embrace technology.

Webinars, podcasts and conference calls now garner as much attention as locally held training seminars, roadshows and industry events.

The options for the broker to learn more about specialist finance are more comprehensive than ever, but as always I urge the industry to do more.

largely. This is because while the terms and products are becoming better known, the nuances and usages for each are still open to interpretation.

Specialist finance must be an essential part of a broker toolkit as it solves problems that occur in everyday business – adverse credit, chain break, multiple incomes, zero-hours contracts, rental, development, etc.

But when these phrases are used by a client the options can seem perplexing.

PROBLEMS AND SOLUTIONS

I don’t expect many of you have had clients ask for a bridging loan or a higher rate commercial mortgage to serve their needs, but ultimately there is an option that will solve the problem and the emphasis is on the broker to find a solution.

It is not imperative for a mainstream mortgage broker to be completely aufait with every single sector, but with the right level of market knowledge there should never be a customer who is told their application cannot be progressed. Distributors like ourselves are working hard to give brokers the

education, support, transparency and service that they are used to in the mainstream market to help them identify opportunities and provide a more rounded product proposition to their customers.

“Specialist finance must be an essential part of a broker toolkit as it solves problems that occur in everyday business – adverse credit, chain break, multiple incomes, zerohours contracts, rental, development, etc” Don’t be scared of specialist finance as the process is the same – fact find, source, present – it suits clients who don’t fit the traditional tick box mindset. We are solution finders, and education can ensure more opportunity, more business and more happy customers. B I

THE RIGHT TOOLS

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Ask a mainstream broker to describe the benefits of bridging, buy-to-let mortgages, commercial mortgages, development finance, second charge loans or specialist residential mortgages to a client and the answers will differ www.sfintroducer.com

The role of specialist finance is set to increase for mainstream brokers

FEBRUARY 2020

BRIDGING INTRODUCER

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Whether it’s regulated or commercial lending your client needs, we’re the bridging loan experts you need.

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COMMERCIAL MARKET

Expect an increase in auction sales Kevin Thomson Xxxxxxxxxx

sales director, xxxxxxxxxxxxxxxx, Connect for Intermediaries xxxxxxxxxxxxxxxx

T

hroughout the latter half of 2019 the commentary was all around stagnation, about investors deferring big decisions until there was some clarity and certainty to give them the confidence to move forward.

Now the election result has provided certainty over the way forward: we know we are leaving the EU and the government has a huge majority to get this through.

Yes the trade deals will not be apparent for some time but now we have some clarity 2020 has become a year of opportunity and I am sure that that will be an opportunity for brokers to service the pent-up demand of property investors.

EXPERIENCE

Experienced investors have increasingly moved towards commercial and semicommercial property as the tax rules are more forgiving than they are in buyto-let.

Particularly savvy investors then look for properties that oer the best opportunity at the best prices.

I believe that buying commercial properties at auction has, and will be, used by investors and developers more in 2020 to obtain commercial properties at apparent bargain prices.

Experienced investors are mindful however, that auctions are used to sell properties because the seller needs to dispose of their property quickly or, for some reason, they cannot or have not been able to sell the property through the normal sale routes. It is therefore not always plain sailing.

The issues that can lie behind a commercial property at auction may well be onerous commitments with leases attached to the property.

These need to be understood www.sfintroducer.com

particularly if the investor will need to raise funding to fulfil the purchase.

Other aspects may include structural problems or a defective title, similar to when a residential property is sold via auction.

Of course, auctions are not restricted to the property investor; it may be that a business is looking to expand and needs alternative or additional premises but the purchase and funding issues will remain the same.

TIMELINES

Auction purchases adhere to strict timelines. If the investor needs funding this is likely to need to come through a short-term bridging lender in order to fulfil the purchase on time, as going through the extensive commercial lending process will not be quick enough.

Any subsequent long-term funding will then need to be available to exit the short-term loan.

The broker’s challenge is which short-term lender their client should use, particularly if facing challenges with the property.

There are many bridging lenders, but fewer that will consider lending upon a commercial property. This is why, if you’re a broker who does not

2020 will see an increase in commercial auctions

deal with commercial clients every day, it is always best to seek advice from a specialist packager in the commercial arena who can guide you through.

Much of your advice will need to depend upon the intentions of your client and what the end game is for the property.

SAVING MONEY

Often you can save your client money if the same lender does the short-term purchase loan and then flips it to a long-term commercial loan.

Alternatively, if the client plans to develop the property, using a lender that could flip the bridge to a development loan will save the costs of changing lender.

This may or may not be possible depending upon the circumstances, however it is imperative that the investor has a clear business plan for the property so that the correct funding can be put in place for both for the short and long-term.

It is therefore essential that the broker really does understand the client, their experience and how this property fits within his or her business plan, in order to get the best possible funding solutions.

Too many times at Connect we get enquiries where the property has been already secured at auction and either the funding has not been put in place or it has fallen through - sometimes because of circumstances which may be no fault of anyone, but other times it is because the loan has been placed with the wrong lender.

If the loan has fallen through it obviously puts more pressure on everyone to obtain funding in time for the completion date and whilst bridging lenders are geared for speedy completions it would be more beneficial for all concerned if the finance is sourced beforehand.

So now is the time to communicate with investor clients to get them to sort their finance, in advance, for any prospective property purchase in 2020. B I

FEBRUARY 2020

BRIDGING INTRODUCER

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Specialism is key Paul Atkinson director of mortgages, Finance 4 Business,

A

commercial mortgage can be used for a variety of different purposes and it is important to understand how it can be beneficial. Purchasing property or land that can be used for business entities is important and often a decision that requires assistance to ensure that it is the right course of action.

It is advisable to compare commercial mortgage options from a range of different lenders before deciding which lender to commit to.

Hence why going through the specialist route is beneficial to gain access to specialist deals.

What is often forgotten is that regardless of intentions for buying a property or purchasing land via a commercial mortgage, it has many different purposes.

Whether it be for a residential investment, commercial investment or for owner occupied, the commercial lender a client is looking for may not be available on the high street.

A higher leverage may be necessary, or more favourable debt servicing requirements may be needed. This is why going specialist is key, as everyone has different funding needs.

This information is all the more important as recent data sourced

by Mintel revealed that 76% of businesses are sole trader compared to 0.1% which are corporations of 250 employees or more.

The majority of businesses that are owner-manager only is important to note, as it is these businesses who may require more guidance when it comes to choosing the best option in a clustered marketplace.

COMMERCIAL DECLINE

Brexit uncertainty had an impact on the industry, with a £20.6m decline in the daily amount spent by commercial buyers on real estate transactions across England and Wales since 2017 according to Search Acumen.

However as we move forward from the period of uncertainty into a new year and a fresh start, confidence is returning to the market and it is an exciting time to look into a commercial mortgage.

Appetites for commercial property deals are at their highest levels in recent years, and we are looking towards making our processes faster and more accurate to help clients as quickly as possible.

Despite the challenges that buyto-let has faced in recent years, it has led to an increase in those looking at other opportunities in the marketplace – including commercial mortgages.

It is a resilient part of the market and

Appetites for commercial property deals are at their highest levels in recent years

www.sfintroducer.com

looks healthy in the long-term. It is an interesting area for investors looking for diversification, and average yields are looking promising compared to other asset classes.

A true demonstration of the above was evidenced last month, one of our regular introducing partners referred a client to us who wanted to refinance their investment property.

The client wanted to raise capital for the purchase of a new commercial property to extend their portfolio.

On speaking with the client, it was evident they were a very astute investor and it was the attraction of the yields on offer through commercial property that led to them to look at diversifying their buy-to-let portfolio into a blend of the two.

Although as stated the client was very astute, by their own admission they had a lack of knowledge of the commercial mortgage arena outside of the high street banks.

On discussing their exact requirements, it was evident that maximum leverage was the main driver as a lot of their surplus income was tied up in other transactions.

Despite the transaction being relatively straight forward, the relevance to this piece became apparent when the 75% LTV product we sourced compared against the 65% LTV they had been offered via their high street lender at a very similar rate.

By the client’s own admission, it was at this point they confessed to having more of a knowledge gap than they had envisaged and wished they had been introduced to us earlier.

Although commercial mortgages and challenger banks are nothing new, it was clearly demonstrated here that not all clients are aware of the true options available and the value that speaking to a specialist can add.

Whether it be a property in the retail sector which is showing growth or an industrial commercial property, the opportunities in commercial mortgages are clear and it is important that those who require it understand this. B I

FEBRUARY 2020

BRIDGING INTRODUCER

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Consideration is key for all Bret Jackson marketing manager, BWD

S

o far this year we have had Megxit and Brexit, so what is next? The brakes on Indyref 2 have well and truly been put on by Boris, and rightly so.

We have endured enough turmoil for the time being, lets get on with obtaining a free trade deal with our EU neighbours, and continue doing what we do best... getting on with business.

Talking of which, the Bridging Trends Index was released recently, showing a decrease of 4.5% on 2018.

This is understandable, but it is a couple of the other figures that standout for me.

Overall average interest rate recorded for the year was 0.75%, the lowest recorded since 2016. Average LTV reduced to 52.9%, despite many lenders flexing their criteria and upping their LTV ceiling.

Investment purchase was the number one reason for obtaining a bridging loan, with nearly 1 in 4 (23%) utilising funds for this purpose.

This is very significant, as clearly demonstrates the confidence people still have in bricks and mortar as an asset class for a return on investment.

This will go someway of explaining why unregulated deals, far outweighed their regulated counterparts.

It is also the consistency of use, with all 8 (9 if you include other) all varying within a couple of percentage points throughout the year.

It also highlights the flexibility of bridging, something that the industry has been talking about for years, but never really marketed. Does this go back to the issue often talked about in education? Do Financial Advisers really know the flexibility available?

Do all Mortgage Brokers? Food for thought.

One major disappointment is the

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average completion time. Average completion time for 2019 is 47 days, but just looking at Q1 to Q4 the jump is 11 days.

One of the benefits of bridging has always been the speed of completions.

Daily, we see articles published across all the major websites about a deal completing in days, so why has this jumped so much in the space of a year?

This average must be causing some issues with the relationship between borrower, lender and any third-party broker involved. How many deals have fallen through due to length of time it has taken?

I appreciate some cases are more difficult than others, with complexities in getting a deal over the line inevitable, but surely not all are like this and is clear in the press releases.

I will leave this to the experts, but I think the majority would be happy to see this trend reversed.

Credit to Tomer, Gareth & Millie and all involved at MT Finance, who do an amazing job putting this index together, alongside the contributors.

Since the West One Index has stopped being published, this is the only real insight into the bridging industry.

Please keep up this amazing work.

One of the best articles I have read this year was by Mark Posniak, managing director, Octane Capital.

People still have confidence in bricks and mortar

The removal of unscrupulous practices, particularly around charging on default rates and if a loan exceeds the term by a couple of days.

This is one item that has raised its ugly head numerous times and is certainly an area which has caused the industry reputational issues, especially for the borrowers who have experienced this first-hand.

As stated in the article, TCF (Treating Customers Fairly) is something that should be adopted, regardless if the loan is regulated or not.

Financial advisers have had this instilled into them for many years, with the original ethos being introduced in 2006.

Granted, this was not adopted then, but the six customer outcomes were at the heart of this.

I wrote an article on LinkedIn recently about TCF and how it should be expanded further. I don’t mean across the financial services sector, but in general.

Why just customers, why not employees, brokers, introducers etc. On the matter of employees, obtaining then retaining the right employees is proving very difficult, especially for a growing business.

Introducing flexibility with working from home, flexi hours around children etc, with some perks, goes a long way in staff loyalty.

Clearly an element of trust is required, but why would you hire someone in the first place, if you did not trust them to do the role? Granted, it is not feasible to implement for every role, but perks and benefits are as vital as a salary. From research BWD have conducted, additional benefits over and above pension and life insurance are becoming very prominent.

Private medical and subsidised training are now standard in over 50% of roles within financial services.

This is not restricted to the corporate behemoths, but businesses of all sizes.

Yes, TCF is important, but treating others with consideration is also just as vital. B I FEBRUARY 2020

BRIDGING INTRODUCER

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FEATURE

PACKAGERS

The role of

packa

Michael Lloyd looks at the packager’s place in the market and how they continue to adapt to a changing marketplace

P

ackagers are the link in the chain between referrals from introducers and the lender. They are specialists that help brokers with complex cases, taking on deals for the introducing broker, collating the right information needed, underwriting part of it and placing it with the right lender.

“The role of the packager is to be the link in the chain between a referral from either a non-finance professional, such as an estate agent, or in many occasions, a professional from another area of finance who lacks the contacts or experience in that sector,” says Matthew Dailly, managing director of brokerage Tiger Financial which acts as a packager helping introducers with cases.

Bridging Introducer explores the role of packagers, its benefits, how they have changed and how they will continue to.

Matthew Arena, managing director at Brilliant Solutions, says packagers provide a service that supports lenders through raising awareness of the attributes of their product set as well as filtering enquiries and submitting business with substantially higher conversion rates.

“The benefits for brokers are service and relationship driven, with packagers helping brokers identify suitable solutions and working with brokers to get those applications through to completion,” he adds.

Arena says packagers have a dual role; working for the lender and the broker alike.

“This is core to a packager’s value, only by delivering →

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BRIDGING INTRODUCER FEBRUARY 2020

www.sfintroducer.com

FEATURE

PACKAGERS

kagers → www.sfintroducer.com

FEBRUARY 2020 BRIDGING INTRODUCER

FEATURE

PACKAGERS the right deals in the right way to lenders is a packager effective on that side, but only by ensuring that brokers support their clients with appropriate products and the best service can a packager deliver these,” he says. “Relationships are thus crucial for any packager.”

Dale Jannels, managing director at Impact Specialist Finance, says the purpose of packagers is to work closely with all broker and lender partners, acting as the go between to help brokers place cases and lenders to distribute products.

He goes onto say that packagers deal with the complexities of the enquiry structure, offer solutions, exclusive products and help brokers and clients present the case in the right way to the right lender at the first time of asking.

“It’s to assist with lenders’ cost of acquisition in that effectively paying a packager replaces paying a staff member to do the same role, and a case through a packager will have a higher conversion to completion than a broker going direct to the lender,” Jannels says.

David Copland, director of mortgages at TMA, says packagers get access to non-standard lenders that even networks don’t.

“That hasn’t changed and is still why people use specialists,” he says.

Connect for Intermediaries packages for a wider broker market, meaning it promotes and distributes bridge lenders products and does all the processing on behalf of the broker.

“One reason why the packaging distribution market exists is to assist those brokers not familiar with complex areas like bridging,” Liz Syms, owner at Connect IFA, which trades as Connect for Intermediaries, says.

She adds Connect for Intermediaries handholds the broker through the process and can sometimes negotiate special terms or flexible criteria for that broker that they might not be able to achieve themselves if they were doing cases occasionally.

Master Private Finance is the specialist mortgage desk for advisers within the JLM Mortgage Network.

Its lenders deal in niche areas of the market where a generalist adviser may only encounter a small number of infrequent enquiries.

“From a lender’s point of view, we act as a gatekeeper, we review cases before submitting them to the lender, increasing the quality of the business that the lender sees and therefore reducing their costs of distribution,” Jonathan Burridge, development director at JLM Mortgage Network, adds.

Packagers have many benefits for both brokers and lenders, from the ability to be able to place cases, to being able to place them quicker because of the relationships, knowledge and experience of the specialist market that bridging is.

Michelle Westley, head of marketing at Brightstar Financial, says that specialist distributors give brokers the peace of mind they are providing the correct advice

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BRIDGING INTRODUCER FEBRUARY 2020

to the client, and have access to lenders and criteria not available direct to brokers.

Matthew Dailly says that packagers benefit the lender because they’re receiving business from those who know the markets, products and packaging requirements and can preempt problems before it gets to the lender, thereby reducing the lender’s workflow.

“Packagers precollate information and are experienced so can diagnose problems before underwriting reveals these,” he says.

“They have the ability to see problems ahead of time because of knowing what is needed.”

Lenders agree and recognise the value that packagers offer them.

“We certainly think they add value to clients and their brokers, as they enable clients to easily search →

A real opportunity Vic Jannels chief executive, ASTL

G

iven my involvement in both specialist distribution and the Association of Short Term Lenders, I was perhaps an obvious candidate to comment on the role of packagers in the bridging market – if only to see how I’d approach it!

To begin with, I would suggest that what is good for the growth and development of the bridging market is also good for packagers as shortterm lending is rapidly becoming an important element of the specialist lending sector. Short-term lending has evolved rapidly to become extremely competitive driving both product innovation and keener pricing.

These two elements have combined to make bridging a more user friendly and attractive product to a wider range of customers.

Packagers therefore have a real opportunity to increase market share and to reach a wider audience.

A key component to achieving this will be through extending their distribution through a wider range of brokers.

This will require deeper engagement with brokers who have not traditionally advised on bridging and through

working more closely with networks, and their preferred packager partners.

So, it is important for packagers to drive more conversations and provide training on the benefits of short-term lending.

To support this, it is vitally important that lenders and packagers work together. As a lender association, ASTL has a role to play in laying the foundations that facilitate greater growth in this market sector.

The ASTL Code of Conduct has been a key tenet of the association since its beginnings in 2008, and prescribes expected lender standards for transparency, ethics and professionalism.

In lieu of full market regulation, the ASTL Code of Conduct sets the tone, initially for the lending sector and helps demonstrate to brokers, who may be less frequently involved in bridging, that it is a market in which they should feel comfortable providing advice and with which they will want to be associated.

I w o u l d s u g g e s t t h a t A ST L membership is something that all brokers should look for when choosing a lender and this is a message that we should look to communicate through packagers and networks, as well as direct to brokers.

Ultimately, increased understanding and trust will lead to the growth of the market, and that will benefit everyone.

www.sfintroducer.com

0345 241 3079 www.castletrust.co.uk

Get ready to pounce on the next opportunity

When your client has their sights set on their next opportunity, our Bridging products help you to act fast and seal the deal.

Castle Trust | Belvedere House, Basing View, Basingstoke RG21 4HG | Tel: 0345 241 3079 | www.castletrust.co.uk Castle Trust is the trading name of both Castle Trust Capital plc (company number 07454474) and Castle Trust Capital Management Limited (company number 07504954). Castle Trust is authorised and regulated by the Financial Conduct Authority, under reference numbers 541910 and 541893. Registered oďŹƒce: 10 Norwich Street, London, EC4A 1BD. Registered in England and Wales.

FEATURE

PACKAGERS in one place for potential solutions – ultimately saving them time and allowing them to move forward with their financing requirements with minimal fuss,” says Paresh Raja, chief executive at Market Financial Solutions.

Gavin Seaholme, head of sales at Shawbrook Bank, says packagers offer great solutions in the more complex and specialist cases that a broker may come across.

Steve Swyny, head of sales at First 4 Bridging, adds that distributors need to consistently form relationships with lenders that can offer strong product lines aligned with the highest service standards and robust funding standards

A true partnership Matthew Arena managing director, Brilliant Solutions

P

ackagers only really have one role, and that is to help ensure that the borrower gets the best outcome and the best service on the way.

To achieve that, the packager has to work with both the lender and the broker who is always responsible for the advice and the borrower.

That is a true partnership that relies on a close relationship with the broker and the lender alike.

Breaking down how packagers achieve these outcomes may shed some light on the complexity of packaging and the benefits of it.

Packagers typically work with lenders who are driven on criteria more than rate; lenders that provide solutions for clients that are unavailable elsewhere or have limited choice.

Packagers also work with lenders that are able to interpret specific scenarios and operate with underwriting discretion. Despite the progress made with software in these areas, nothing has yet managed to assess a mortgage enquiry requiring these characteristics as efficiently as a packager.

Lenders thus rely on packagers to raise awareness of their criteria and risk profiles and also to filter those on behalf of the lender which allows it to

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BRIDGING INTRODUCER

focus solely on feasible cases. This extra focus is needed as so many cases are underwritten by ‘old fashioned underwriters’ which is no longer the case for the majority of the ‘prime’ market. When the partnership works, this goes beyond marketing, sales and administrative support but technology, innovation and testing too.

Brokers are time constrained and typically do not see many specialist mortgages in any given month.

In such an environment it makes sense to establish a close working relationship with those who are experts in a particular area as not only can it save brokers a significant amount of time, but it can also identify alternative or better solutions for their clients.

It offers brokers support where their clients need it the most and support on the cases involving clients that have the most atypical needs.

Businesses like Brilliant do this without even charging the client or a broker a fee and ensuring the broker retains their maximum ability to earn.

When this is done well, the relationship between the parties develops and not only do brokers save time and money but they get support on a host of areas including information, training and technology.

The end result is a lender that is able to lend more to their target market; a broker that has more time and more clients.

Most importantly, it ends with clients that have better outcomes.

FEBRUARY 2020

and educate brokers about short-term lending.

“Distributors continue to provide an important role in the intermediary market,” he says.

“Establishing relationships with specialist distributors will help brokers to demonstrate a more rounded service and we all know that satisfied clients can massively increase reputations, result in more business and greater retention levels in the future.”

Jonathan Burridge highlights how packagers aid both brokers and lenders.

“Most brokers are like GPs, experienced, highly knowledgeable and able to deal with most of their customer base as they come through the door,” he describes.

“However, a GP will refer an individual to a specialist if needed, mortgage brokers need to embrace this comparison and not be afraid to follow it.”

He says from a lender’s perspective, a specialist distributor and master broker act as a filter, shielding the lender from many of the day to day enquiries that can impact on their ability to process applications.

Similarly Matthew Arena says that packagers filter enquiries well, meaning case quality and conversion rates are higher when packagers are used, and hence underwriting capacity is extended.

He adds that lenders can also test products, systems and technology changes through packagers.

“Brokers using a packager once in a blue moon will be missing out,” he says. “There are many benefits, we certainly need to be better at getting that message across though!” he adds.

He says without packagers raising awareness and product access, there would be less information within the marketplace and poorer outcomes for borrowers, with lenders finding it much harder to come to market without the expertise that packagers bring.

“The importance of packagers as a mouthpiece for specialist mortgages can also not be overstated,” he adds.

Fees can be one of those controversial topics in specialist finance with bridging no different.

Michelle Westley describes that specialist distributors often earn an enhanced proc fee from the lenders they work with, meaning brokers don’t have to compromise any of the proc fee if they choose to work with a specialist distributor.

And if a broker chooses to refer the business, they will be receiving a proportion of a proc fee that they may not have otherwise earned.

Connect for Intermediaries typically charge the broker £199 and then according to Liz Syms, it depends on the arrangement they have with the actual lender.

For example if that adviser was able to go to that lender directly, they would receive 1% based on volume and relationship whereas Connect for Intermediaries might receive 1.5% based on the relationship and would still give the broker the 1% but keep the 0.5% themselves. → www.sfintroducer.com

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PACKAGERS “We don’t charge any further fee on top of that £199, something not what every other packager does,” Syms says.

A large part of Tiger Financial is working with other finance and property professionals, including residential brokers, estate agents, solicitors, valuers and auctioneers.

Matthew Dailly is happy to hear from people looking for finance and splits the fee 50:50 with the introducer.

“That’s a win, win situation, which is what we try and create,” Dailly adds. “I think it’s very generous for the industry.

“I think that adds value. And the client is glad to get a recommendation from someone they trust.”

HISTORY Wayne Smethurst, managing director and founder of TFC Homeloans, recalls that in the 1990s packagers were first created because they had access to specialist mortgage products not readily available direct to the domestic mortgage market, and created outsourced admin functions of lenders.

He says after lenders offered products direct to brokers it took them five or six years to become confident enough with the products to sell them themselves.

“The same happened with bridging,” Smethurst adds.

Choose how you work Michelle Westley head of marketing, Brightstar Financial

O

ne of the biggest benefits of working with a specialist distributor, is the support you can receive to identify new opportunities to grow your business and offer different solutions to a wider client base.

Nowadays, specialist distributors also give you the flexibility to work with them in the way that you choose.

You can decide to work in partnership with a specialist distributor on a case, but you also have the ability to refer the business in return for a percentage of the fee.

This option is particularly popular for times when your options are restricted by your network or during busy periods and holidays.

There is always an opportunity cost

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with any client for whom you struggle to find the right solution, as you could be using that time more profitably on your core business, so working with a specialist distributor in this way enables you to maximise your earnings potential and offer more holistic advice.

If you want to keep ownership of the advice your client receives, you can choose to harness the knowledge of a specialist distributor to research suitable solutions and manage the process with the lender.

Alternatively, if you would rather focus on other areas of your business, you could choose to refer a case to a specialist distributor to provide the advice in return for a share of the proc fee.

At Brightstar, for example, all we need is a name and telephone number.

We can keep you up to date with how the case is proceeding and we have a no cross-selling guarantee.

FEBRUARY 2020

Packaging has been around for at least 30 years, it grew in commonality as new lenders came into the market in the 1990s in the form of sub-prime lending.

Jonathan Burridge says many of these packagers offered a quick solution for the origination of business.

Lucy Barrett, managing director at Vantage Finance, recalls that it used to be far less specialist when she entered the mortgage market back in 2003, than what it is today.

“There were many packagers in the market and most doing very well off the back of an extremely frothy and unsustainable market as we were to find out in 2007/2008 and beyond,” she says.

It was this time when the financial crisis hit the market which changed everything.

Matthew Arena describes that pre-crisis packagers were well paid as there was a race for volume but post crunch, this race ended, and packagers were paid a fraction of what they were once paid.

“Packaging was at risk of ending as lenders internalised their operations and compliance was everything,” he says.

The credit crunch caused many lenders to cease trading and the number and popularity of packagers reduced dramatically.

Specialist distributors and master brokers have been gaining traction again over the past eight years, according to Burridge, albeit in a slightly different shape, driven mainly by buy-to-let, second charge and short-term lenders.

Wayne Smethurst labels packagers as innovators at the forefront of innovation in this market.

“They always have been,” Smethurst says.

“Packagers evolved when sub-prime mortgages first came about and evolved as a function of specialist lending.

“They have always been at the forefront of changes in the market.”

He says that when bridging finance came to the fore after the credit crunch, and the launch of Precise Mortgages in 2010.

He recalls at that time it was primarily packager distributed products because most financial advisers had no experience of bridging loans and so brokers used packagers for it.

“Those products were promoted into the market by packagers and the marketplace grew as a result of that distribution,” he says. “Packagers spent the following years educating, innovating and helping to grow the market.”

Matthew Arena describes that although packaging is still a popular route to market for new lenders, margins are still incredibly low for the work that is undertaken, forcing packagers to change their business model.

He says with the exception of Brilliant, the market adopted a fee charging model where the client paid for the access to the products and services offered by packagers, which was not the case for the majority → www.sfintroducer.com

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FEATURE

PACKAGERS of the market until 2008.

“Brilliant developed into a fees free packager model, making money on additional services thanks to a broader relationship,” Arena adds.

He goes onto say that packagers have become less involved in the lender underwriting and administrative side of the role in the past 12 years.

“Prior to that, some packagers were operating under the lender’s own brand and even working up to completion,” Arena says. “The involvement of packagers in this regard has dropped off.

“Packagers have had to adapt to significant change and become key players in educating and supporting the intermediary market as it has been hit by change after change.”

Paresh Raja explains that the role of packagers is constantly changing.

“In recent times, we have some diversifying their offerings whilst others have begun specialising in certain areas, be it buy-to-let, commercial or bridging loans,” he adds.

Dale Jannels says lenders have gone more direct to brokers and brokers have become more thinly spread in terms of expertise and experience.

“They can’t be expected to know everything in the market, hence any good packager is worth sticking with and will support brokers in finding the right solutions for their customers,” he adds.

Meanwhile others have cited how packagers have been adopting technology.

Jonathan Burridge says the industry has moved on significantly over the past decade and a lot of the paper-moving that packagers and lenders engaged in has disappeared.

He cites online applications, credit scoring, electronic ID verification, Open Banking and AVM’s as having reduced the need for third-party processing and manual ‘rubber stamping’.

“Specialist lenders are also able to reach a wide audience efficiently without needing the additional manpower of specialist distributors,” he warns. “So ‘packagers’ as was in the previous two decades are probably an endangered species.”

Gavin Seaholme has witnessed processes and applications become streamlined and far more efficient and says this looks set to improve further in the 2020s.

“Packagers need to make sure they are aware of the latest technologies available to support them, but also to remain constantly switched on to the market changes from lenders,” he adds.

However, Matthew Dailly warns that relationships are much more important in this sector than tick box procedures.

Times change and as ever, those who adapt and who are the strongest survive.

Lucy Barrett says that as the financial crisis hit she was forced to take stock and evaluate Vantage Finance’s offering and find a way to adapt for survival. →

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FEATURE

PACKAGERS “Despite the early part of the crisis being pretty challenging, with it came opportunity to find ways to continue adding value to those who still wanted to borrow money, typically more focussed to the property professional and commercial customer,” Barrett says.

“There was money out there for those still operating in the market and for the right risk/return profile lenders were lending, albeit on far fewer transactions.

“Offering great service to people is what is, and has always, underpinned what we do as the market moves and evolves.”

Dailly emphasises the significance of maintaining market knowledge and says that Tiger Financial has evolved, keeping abreast of the huge number of lenders in this space.

Liz Syms says most recently Connect for Intermediaries has increased the number of bridging lenders available in order to offer a wider choice and utilise quirky criteria some newer lenders bring.

“We still keep our panel controlled,” she adds. “We have 100 that do bridging. It’s all about who can add value to our offering.”

Both Impact and Crystal Specialist Finance have carried out more education to brokers.

“The options for the broker to learn more about specialist finance are more comprehensive than ever, but as always I urge the industry to do more,” says Jo Breeden, managing director, Crystal Specialist Finance.

He adds that Crystal has been streamlining its processes with improvements in technology.

“With our own IT people, we have tried to remain at the forefront of the process and innovate where possible, and this will continue to move apace every day,” he adds.

Wayne Smethurst says a packager has to be up to date with technology in order to survive.

He reckons the majority of the market still use paper files but in 2018 TFC Homeloans went paperless.

“It’s future proofed my business in my view,” he adds. “Any packagers printing paper and working on manual paper files will slow down the process and make it more complicated because lenders’ processes are all paperless online with documents uploaded onto portals.

“I would imaging most packagers with ambition to maintain or grow their market share are well on their way to become a paperless business or have plans to be very soon.”

With the market ever changing, preparing for the future is essential with many highlighting the role technology and specialism play in this.

Dale Jannels believes technology is already playing a huge part and an increasing number of packagers are using the same systems, giving ease of distribution.

Matthew Arena says as technology attempts to turn mortgage advice and mortgage underwriting into a commodity, the complex, specialist or niche

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sectors will continue to be places that lenders and brokers alike will need help with.

“That environment will change but the need for specialists will continue,” he says.

Arena reckons it is not sustainable that packagers will be able to continue to charge fees.

“But one thing is certain, packagers and specialist mortgage distributors like Brilliant will continue to add value to lenders, brokers and their clients alike,” he adds.

“The role of packagers has undergone much change just in the past two decades, with the impact of the financial crisis and the growing bridging market” However, Liz Syms does not see the role of packagers changing very soon simply because in the mortgage market it’s very hard for a mortgage adviser to be a specialist and understand the complexities in every different area of the market.

She says that residential mortgage brokers understand a lot in the mortgage market and the role of packagers is to be able to support these advisers when it comes to specialism.

EVOLUTION “I don’t see that changing anytime soon because with the number of lenders and criteria it’s practically impossible for one broker to know everything,” Syms adds. “They have to be able to turn to people.”

Alan Dring, director at The MAD Approach, warns that lenders are always looking for ways to reduce cost and often their first review area is packager costs.

“So, to sustain their current role in the lenders’ plans packagers need to ensure their cost model is satisfying the lenders’ needs so as to continue to be a valued and cost-effective partner, thus ensuring both are in growth mode,” he says.

The role of packagers has undergone much change and evolution just in the past two decades, with the impact of the financial crisis and the growing bridging market.

Packagers have been forced to adapt to survive with some joining the bridging sector, marketing and selling the products of new bridging lenders.

Now with technological advancements and many brokers going direct to lenders, the role of packagers is inevitably changing once again.

Jo Breeden highlights the importance of packagers.

He emphasises that no broker should ever tell a client that there isn’t a solution to their financial requirement and compares the importance of a great packager in the market to a top striker in a football team.

“That’s why specialist finance packagers exist, to take whatever is sent our way and put the ball in the back of the net,” he says. B I www.sfintroducer.com

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Back on track Our panel look towards a more certain future and the opportunities that lie ahead Jessica Nangle: Reflecting on the first month of 2020, what has the start of the year been like at your businesses?

John Ahmed: Good. Busy. Plenty of mortgage activity going on. There is obviously the backdrop from Brexit and from the election, which has started to come through. There is confidence in the market, and more properties going onto the market. We are enjoying a reasonable busy time at the moment, long may it continue.

Sam Howard: I would echo that from capitals point of view. There has been an upturn in enquires and conversions - the ‘Boris Banks’. People that were sitting on the side-lines have literally dived straight back in, and a lot of our clients are SME and developers who cannot afford to sit on the side-lines. I am still mindfully of stamp duty clearing up the market, highline costs and rising bill costs, so we will have to see what happens in the March Budget. However, generally it has been a positive start.

Gavin Diamond: I think certainly that in Q4 last year

there was already an uptick in activity, and that has continued both through January and February in terms of new inquires. Additionally, deals that were hanging around for a while are now getting over the line and completing. I think this is across the board in terms of ‘devs’, bridging finance - it seems to be a general trend. A number of the brokers that I have spoken to echoed the same thing from their prospective. I think from a lending prospective; you still need keep your wits about you, it’s not that a month ago the world was a bad place and now it’s a good place. I do, however think sentiment is a lot more positive.

Chris Oatway: And that’s from all angles isn’t it. It’s from the lenders, the developers, or property investors, everyone’s there trying to get their deals over the line now, and there are new deals coming in. I think we are all getting that massive buzz that we’ve probably not felt since pre-credit crunch days.

Mark Standley: I’d be surprised to be honest if you heard a different answer, there was a little bit of a storm in Q4 2019, but activity levels are across the board very high right now. I think you are right we need to be cautious about that, but at the moment it is looking like a great year ahead.

Richard Stock: I echo what Gavin said, not only is it new enquires, but it is people making new decisions.

It is people we have been speaking to for six, nine, 12 months, sometimes longer, it’s those guys that have now said, ‘okay let’s do something’, so that has made the activity this month in particular feel even greater.

The phone has been ringing with enquires, but there are decisions being made as well, it’s a double effect.

Chris Oatway: It’s probably why it started on the second of January this year. Since we have been back it has been absolutely crazy.

MS: I also get the sense that it’s not just borrowers, there has been more liquidity in the lending market.

I think some people have been sitting on their hands, which is probably a positive thing.

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[From L to R] John Ahmed, Movin Legal; Damien Druce, Druce Consultancy; Gavin Diamond, UTB; John Cook, Butterworths Solicitors; Sam Howard, Magnet Capital; Gary Clark, Together; Mark Standley, Assetz; Phil Mabb, Bridgedevelopment.co.uk; Richard Stock, Sirius Property Finance; Chris Oatway, LDNfinance

GD: We were at another roundtable last week, and several lenders said that there were a few deals they wanted to move on that they couldn’t for a while and now that has been resolved.

JN: Transparency around costs and fees are a widely spoken about topic. Do you believe that we are any closer to achieving a more open process? If not, what more can be done?

GD: Well is it a question around actual transparency, which I’m not sure it is, or is it a question around cost?

Because, I know there has been a lot of talk around certain lenders charging various fees, transparency suggests borrowers didn’t know they were going to be charged said fees from the outset. That is why from my prospective, it’s more a question for the brokers, is it a transparency issues that borrowers are being charged unreasonably fees that they didn’t know they would be charged from the outset? Or is it lenders are charging fees at certain points in loans that other lenders aren’t. Therefore, it comes down to a decision from the outset of the loan as to whether the customer wanted to take that loan in the first place or not. So, I know the word is transparency, but is it actually a transparency issue?

JA: I don’t think it is personally, I don’t think that there is a problem with transparency and actually, I www.sfintroducer.com

don’t think that there is a problem with cost ether.

The borrower knows what they are getting into these days, with regulation you can’t move in this society without telling people what you are, what you’ve got and what the cost of it is, so I don’t believe the open process needs to be made any more open, or even can be made any more open.

SH: I actually take a slightly different view, I can only speak from a development finance prospective, but from what we see I often lose business to our competitors because their headline rates are significantly cheaper, but when you take into account the soup of the product, it isn’t much cheaper. I think there is onus on brokers to explain to the clients from the outset that these are the total of the fees that are payable over the life of the loan. I think the tradebodies should be doing more to really be pushing the lenders, so that borrowers can see from day one all of the fees.

JA: I think that is down to advice, down to the actual broker. If you look at the normal market you get a 2-year fix, but after you add on all the fees it ends up being about half a percentage point more than a competitor. I think good advice from the outset is the most important thing.

CO: I think the bigger question really is bridging → FEBRUARY 2020 BRIDGING INTRODUCER

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finance, rather than the residential rate. It is when borrowers get hit with a shock that they didn’t expect and when lenders do not show what will happen if they do not get paid back in time. This is when it is more of an extreme swing from one thing to the next, which is all acceptable if it is laid out from the start. However, every lender produces terms in a different way, and it comes down to advice because the broker should understand what happens in that situation and explain it to the client. Despite this, it is not stopping the market in any way, it shouldn’t have a major impact on it, and I think lenders are being more transparent now.

less examples of it now, which is good. I believe that comes back to brokers doing their job right, being transparent, selling the deal and the lenders offering the transparency.

Gary Clark: I think Chris makes a good point, leading on from Gavin’s point; in terms of just keeping it specific to bridging finance and to a lesser degree, development finance, the longer lenders have been in the market their documents are pretty well templated and people that have dealt with them know what to expect. I think what has been suggested is that some of the new entrants may not have as much robustness, and there is areas that the broker may not be aware of, so ‘buyer beware’. Only time will tell, and people will start to begin to discuss stories on lenders that they have been caught out by with unexpected fees.

Damien Druce: I think you are right, and you hear

RS: In terms of transparency I think the upfront fees, the headline rates, the costs and one-off fees are set out very transparently. I don’t think the exit fees or extension fees are as transparent. Arrangement fees, asset manager fees, they are all laid out in a common way by lender to lender, however, exit fees, extension fees and penalty fees are not laid out as well and you have to search for them.

CO: And they only really come into play when the client hasn’t genuinely committed to what they were going to do in the first place.

GD: It does happen, I think the question that I am asking is, is someone being lumbered with a fee that they didn’t know about or are they just unhappy later on that they have been charged it?

CO: Sometimes you actually have to request to see these fees.

RS: I think when the fees are large, it has to be glaring obvious that they were coming.

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MARKET Phil Mabb: Some of this could be mitigated by the fact that each set of circumstances will dictate where a borrower goes, whether it is directly or with the help of a broker. If you have a 5% extension fee coming up, and you are four months away from that time, you should pick up the phone and ask you broker to move so you can avoid the penalty.

MS: Established lenders will care about dealing with treating customers fairly because they will lose that reputation if they do not. We have in some cases looked at the documents and decided to go with the intent, rather than what the data shows.

PM: I work on the FIBA executive side, on the broker side, and we have been working on this. People who get into FIBA have to disclose these things. You’ve got the NACFB, ASTL and AMI - there is people looking at it as well, you can’t out somebody who isn’t on the in. There is one firm, very large bridger, they aren’t part of any association, so you can moan about them all you like, but they do not care.

JN: Some say that second charge mortgages are an “underused solution”. Do you agree with this?

DD: I suppose people like to keep things separate, there is an emotion attached to someone’s house, if they have a business transaction a lot of people like to keep the two separated. Some people use second charge for business purposes, I think they are commercial transactions, maybe there is a reluctance to use it against their main residential property.

always say it comes down to what the exit strategy is.

If someone needs something short-term, a bridging loan may be the right solution, however, if someone is looking to keep a mortgage in place or looking to release some equity from their home, then the mortgage is the better option. The average term of a second charge mortgage is only three- to five-years, so the average borrower holders it for longer than a bridging loan, although it is still not seen as a longterm solution.

RS: If I put on the hat of a regulated broker who deals with first charges, second charges and the highstreet, I’m going to state something that is difficult to quantify, the question here is – is it an underused solution? Yes, but it is certainly under considered, so it is not being discussed enough because it is very easy to say let’s keep the transactions separate. So, when it is part of the process from an advice point of view, is it being considered enough when we are talking about development finance and bridging finance.

Within the regulated world, because the FCA have come down on it, even on a remortgage basis with capital raising, the file has to have a second charge on there now, so as a regulated broker it is hard work, as there is a lot of paper work. However, we can’t just say you’ve got £300,000, but you want to go to £350,000, we have to demonstrate the £50,000 →

MS: When we use second charges, it’s a show of real commitment, at the same time we also take great care especially if it’s a highly leveraged transaction - that wouldn’t sit well with us because it’s an uncomfortable situation. It is also quite a complex area of regulation, when is it regulated, when isn’t it, we have a deep understanding of it, but it isn’t immediately obvious.

John Cook: Transaction wise not a lot, when I think about deals I did last year I couldn’t tell you more than five, because most business owners try to separate them.

GD: If you are asking the question of a second charge mortgage or a second charge bridging loan, I would

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MARKET second charge as a solution, and then advise which one is better for the client. So within the regulated world, it is being considered all of the time, because it has to be, within the bridging development it doesn’t have to be considered, so whether it is underused or not it is difficult to quantify, but I would suggest it is probably not being considered enough.

JN: The BBC published an article recently criticising deposit-free schemes after the true costs involved were not made clear to tenants.

What is your take on these schemes, and do you think they are a viable solution?

GC: I actually did read the article, but I thought it was nonsense, I just thought it was something that wasn’t explaining much. I mean people are going to get caught out, the chap in the article just didn’t seem to know what he was doing. I don’t think it is worthy of much media or much discussion, it is so below the radar and it is such a small amount of people that are getting caught up in it.

MS: I think constructively it is a helpful thing, I mean I have helped young people into rented apartments in London and it is a very significant up front cost, and I think that anything which helps with these costs is a good thing. However, what the article was suggesting

was otherwise, but I think is that the normal or is that the exception, and I think as Gary suggested, it is the exception.

JN: What area of specialist finance do you believe offers the best opportunities this year?

JA: All of it. Brokers get better and better at advising different solutions to their clients all the time. Lenders are bringing better and better solutions out, and as more solutions hit the market, obviously there will be more them. Bridging for me, I think there will be an upturn. We are seeing more brokers move into that market.

DD: I think development finance will have a big year.

We haven’t really spoken about politics, but it is closely linked to the economy, and obviously that is going to be big on the back of Brexit being done, or half done, so I think development finance will be the best opportunity for brokers and lenders this year. The government are now looking like they want to get things done, and I think that might tip the balance in favour of the development finance.

PM: I have had half a dozen revised rate cards from some of the lenders that I don’t really use, but whether that is because they have been working on their funding lines as it has become too competitive in areas they wouldn’t compete with, who knows. But, Octopus are back in Prime Central London so that is good and sends a message.

SH: We have seen an uptick in London focussed deals from the start of the year, so there is that and the political bill is behind it. We have seen over the years so many half-baked government ideas, but there is a will behind them now, there is a consultation paper on first homes, will they work – probably not, but I think it helps from the development point of view and to drive positivity behind new homes.

DD: It has all been said before, but there seems to be more momentum behind it this time.

SH: Because of the political certainty, the government can now get things done in the next three, four, five years, and hopefully we will see some serious progress because the housing market needs it.

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GC: I think for us, in terms of bridging, and in terms of looking how to take peoples mortgage earnings through products we have got; a basic example is that we will lend on a piece of land and we will help with the initial acquisition of the land, we bridge that and then look to move onto a development loan straight after as this will bring the cost down. We utilise not just one product, but right through the range, and as time goes on a lot of the products are becoming more sophisticated, Chris just mentioned a couple of development exit products, which is a good way of labelling a bridge.

DD: LendInvest started this labelling of bridging products and I always thought it was a good thing because I thought it helped brokers with less proficiency in that sector understand bridging a little bit better, and therefore signpost deals better. I think it is quite good the whole transaction thing, Gary, well done.

PM: We might get some positive results on valuations moving forward.

with developer exit over the next 18 months or so.

We have seen quite a lot of developer exit requests, perhaps because things haven’t been selling as quickly.

Now with the sentiment improving and potentially people transacting, it may well be there isn’t many requests for developer exits, so I think this will be an interesting area to watch.

DD: The area you might see more developer exit requests or the same amount of, is if it’s a difference between a developer being mobilised onto the next scheme or product - taking money out of a product through equity release.

JN: In terms of the budget, is anyone expecting anything from it?

CO: Major buy-to-let reforms on tax and major changes on stamp duty would be a good start, and a massive commitment to do some planning reforms. That is what we are screaming out for from the development side.

CO: Give it six months, they still haven’t caught up with the market sentiment yet.

DD: China build hospitals in a week and we spend six months going through consultation with neighbours over three houses on an infill basis.

GD: I think it will be interesting to see what happens

PM: You wouldn’t make any money on it from the →

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MARKET lenders prospective if a property was built in a week.

DD: Planning reforms was the bit I was hanging onto, with what Chris said just then.

JA: I think more positive even with the budget; I think they will address small areas, there is a will to push the housing market on and be more active. Hopefully that will continue throughout the year. At the back end of the year I think you might start to see a bit more caution.

DD: Apparently when the Prime Minister was in City Hall he was like the conductor of the orchestra, and that apparently will be the approach he takes in downing street, where he just orchestrates policy and delivery.

JN: Do you actually think these proposals will be included?

DD: It has got to happen, you can’t win an election on ‘get something done’, and then not do anything. If these red wall voters have lent their votes to the Tories, if they don’t do anything, they’ll lose those votes.

JA: I do think there will be changes and I do think they will get stuff done.

SH: I would like to see reforms to stamp duty, the reality is they are walking a tightrope, and they need to focus on the north of the country. I think we will see some changes to the lower end of stamp duty, rather than across the board. Maybe first-time buyers.

JN: Last year, the peer-to-peer market saw a few casualties. Do you see this being the case this year?

JC: It is quite a broad-brush concept the peer-to-peer market, so you have got a lot of entrepreneurial type people who fall into that bracket, so you have a low transaction volume. When you have a low transaction volume you have a higher fall-out rate. So, if you think about people coming into a tricky market over the past few years, less experienced people will make worse decisions.

DD: Peer-to-peer is changing, so you’ll see lenders in this market call themselves something different, if they haven’t started to do this already. You will hear the word marketplace appear more, which means institutions and retail, so it becomes more traditional sounding than just being peer-to-peer. I think also those casualties, it wasn’t the funding mechanism that was their downfall, it was the credit risk practises – they were writing the wrong type of loans.

JN: What is everyone’s focus for the next couple of months?

DD: I am working on a rebrand for a firm that I am currently retained by.

PM: I have just got things on my plate that have been hanging around for in some cases up to 18 months, so I have got plenty to do.

GD: I think you will continue to see lenders innovate, because I think that the costs in the specialist market have come down, but they can only go down so far. I don’t think people can continue to keep reducing rates, and therefore will have to innovate – by increasing margins without cutting rates.

MS: We are recruiting so that we are bringing on more people to support the growth and maintain high service levels. B I

Auction Finance in a Flash Perfect for clients with no time to wait

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BRIDGING INTRODUCER

FEBRUARY 2020

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COVER

INTERVIEW

Staying

strong T

he peer-to-peer (P2P) industry has recently received a lot of media attention, and unfortunately, it hasn’t always been for the right reasons. The collapse of lenders such as Lendy and Funding Secure made the headlines in 2019, leading to tougher regulation and placing those remaining in the marketplace in the spotlight. Kuflink is one such lender, but instead of focussing on the casualties in the P2P space, they are making sure they take every opportunity to show themselves as a trusted and successful player.

Chief executive Narinder Khattoare has faith in P2P, investing his own funds and vetting every deal himself before it goes on their platform. Khattoare speaks to Jessica Nangle about how he rises above the reputation of P2P and his plans to become a marketplace for a suite of products for investing and borrowing.

DEFYING THE ODDS Coming into a marketplace with a challenging reputation is no mean feat. However, Khattoare explains that unlike some others, Kuflink entered the P2P market with clear and fair intentions. “We came into this space because we were a bridging lender and we needed to raise more money to get into the business,” he says.

After trialling the options of institutional funding and taking a challenger bank approach, the lack of control was something that proved too challenging for the lender. “We were trying to run a business, but we were having to constantly report back to funders,” Khattoare says. “We wanted to take back control as we had all of the processes and systems in place.”

The intention is key, according to Khattoare, with the success of a P2P business very much dependant on what the initial vision is. “If you are in it to make money and to make a speedy exit, then that is wrong,” he says. “For us, we wanted to get funds in, co-invest

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BRIDGING INTRODUCER FEBRUARY 2020

Narinder Khattoare, chief executive of Kuflink, speaks to Jessica Nangle about the casualties of P2P, new offerings in the pipeline and embracing technology

Narinder Khattoare

www.sfintroducer.com

COVER

INTERVIEW

(From L to R) Naseer Ahmed, head of business development and intermediairies; Narinder Khattoare, chief executive; Jeff Bungar, sales manager; Lewis Tinker, business development manager

with our investors and build a brand which people could build trust in to challenge some of the banks who are paying very low rates to savers.”

It is natural in any new industry for people to come and go. Khattoare reminisces about the many businesses that have come into the space being loud with their greedy loan book ambitions and then disappearing 12 months later. “It raises question marks about what kind of lending they were doing,” he says.

“There is a lot of bad lending going on out there, and it tarnishes everybody with the same brush which doesn’t help people like us.”

Seeking double-digit returns is difficult in the P2P space and can lead to potential distress on the borrower. This attitude, Khattoare believes, allows for lack of due diligence and leaves investor money at risk.

“I don’t think investors are going to change,” he says.

“There are a few that have changed their mentality, and they’re spreading their risk, but a lot are simply going for a higher rate of returns.”

Khattoare believes this is not the way forward, and it would take a savvy investor to understand the risks that are and are not involved when dealing with products offering single-digit returns and what interest they should be earning.

Kuflink was originally a bridging lender before entering the P2P space so were clued up on the fundamentals of underwriting, exits and lending on property before they entered the P2P marketplace three years ago. “That is key,” Khattoare explains. www.sfintroducer.com

“We have the expertise in-house, so we know how to scrutinise a valuation because the founders of the business are ex-property developers themselves.”

These founders have done grassroots jobs, physically laying bricks on-site and dealing with enough cases to understand the risks involved.

This is an industry with no guarantees, so it is important to Khattoare that the business is secure and trusted by its customers. Evolving from a bridging to a P2P lender has meant that due diligence is a top priority, and having the expertise in-house is key to success according to Kuflink’s chief executive.

THE FUTURE OF P2P Khattoare predicts further casualties will be seen in the P2P space this year, which although will present new challenges for those in the sector, he believes it is here to stay.

“Because of the regulation, at the back end of last year we had to have appropriateness tests in place so that if you are a retail investor, only 10% of your net income can be deployed into a P2P platform,” Khattoare says.

“The FCA wants to regulate it heavily so that there are minimal losses, and they want to keep this space as one where you have High Net Worth Individuals and sophisticated investors.”

This intervention from the FCA may have an impact on the retail investors who have a comprehensive understanding and proceed with caution. However, → FEBRUARY 2020 BRIDGING INTRODUCER

33

COVER

INTERVIEW Khattoare explains that “unfortunately it is what it is”.

In the P2P space, it is widely believed that there are operators doing the right things and those doing the wrong things, but the future of P2P relies on the investors according to Khattoare. “It is all about the investors,” he says. “You have got to do as much research into the company as you can before you put your money with them.”

Kuflink is currently working on a couple of products that they hope to launch in 2020, particularly looking at the SME part of the market.

This will be a secured product, according to Khattoare, which is so the chief executive can rest easy. “I am an investor; I am a shareholder in the business and have been here since day one,” he says.

“Because we co-invest on every deal, we want to sleep at night! We want to know that money that has gone out the door is secured and we can recover.”

Despite the trials and tribulations, Kuflink has an exemplary record in the space, and Khattoare is confident that this will continue. “Nobody has lost any money on our platform. No investor has lost a penny.”

NEW OFFERINGS A step towards expanding their offering has seen Kuflink delving into auction finance. Following a discussion with Kuflink’s head of business development, Khattoare decided to try a different approach by having a presence at some auction houses.

“We have done a few adverts in some of the auction magazines and have managed to generate some enquiries which is exciting,” Khattoare says.

Looking towards the summer months, Kuflink is working on offerings which go beyond the realms of what they have been previously focussed on. One offering is away from lending on property which Khattoare believes has a lot of potential, but it is a case of watch this space as he is hesitant to reveal more.

EMBRACING TECH Kuflink is a business of two sides. The borrowing side remains reliant on paperwork and spreadsheets, while the investment side is described as “pure fintech”. On this fintech side of the business, Kuflink introduced a mobile phone app for investments. “It is a fantastic application, the look and feel is great,” Khattoare says. This app is an area of focus in 2020, according to Khattoare, as he is keen to get it out to a wider audience.

The business has taken inspiration from the challenger banks in regards to their on-boarding processes, using facial recognition technology and fully automating the service.

“Turning this into a fully automated process was challenging,” Khattoare says.

“We lost a lot of investors as there are a lot of people in this space who do not want to embrace

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BRIDGING INTRODUCER FEBRUARY 2020

the technology. But on the whole, it has worked wonders for us.”

Businesses embrace technology in different ways and often outsource technological functions for their needs. Kuflink, however, has a team of technology experts in-house, with a large proportion of the 44-strong team being made up of these staff.

Khattoare is keen to grow this number in 2020, however, has reservations.

“The challenge is, when you want to grow, it’s about finding the right calibre of talent,” he says. “We are based in Gravesend, so even though we are only a stone’s throw away from London, many people do not find it appealing to come this way for work.”

Despite this, an appealing factor for those who move to Kuflink from a variety of different companies is the speed in which decisions can be made. “A lot of people who have joined us from the high street www.sfintroducer.com

FEATURE COVER

INTERVIEW

“We will keep growing our loan book organically and growing confidence in our investor database that invest with us. It is about growing the brand even further and adding confidence”

he says. “It makes no sense paying the arrangement fee away to them. Unless it is a complex case and the broker has worked the hours to help with the whole transaction.“ Despite the criticism, the challenges brokers face is something Khattoare is aware of. “A broker is trying to find the best deal for the customer while looking for the best places where they can get commission for themselves,” he says. “They don’t want to do a great deal of work as they are probably trying to pitch the same deal to three or four lenders.”

From Kuflink’s perspective, as long as the deal is understood with a clear exit, they are open to whatever comes through the door but as Khattoare clarifies; “every lender is different”.

banks say that their processes are much longer than ours,” he says. “That’s the beauty of a business like this. We can move very quickly in the marketplace.”

BROKER FEES Khattoare is critical of the fees that brokers charge, and often costs are the first question asked during the on-boarding process. “We state the fees we charge, and they respond with how much they are being paid by others, which is often 2 or 2.5%,” he says. “At that point, I ask what the point is of us doing business with them if they are purely after money, but you have to have the best interests of the borrower at heart.”

This can be problematic for a lender like Kuflink, as from their perspective, there is no margin unless there is high volume. “For a lender of our size, we go to a certain broker, and you may get three or four enquiries or completions out of them in a month,” www.sfintroducer.com

2020 VISION Along with a mobile app and product launches on the horizon, Khattoare is keen to keep stability and strength in the year ahead. “We will keep growing our loan book organically and growing confidence in our investor database that invest with us,” he says. “It is about growing the brand even further and adding confidence.”

Khattoare predicts further casualties in the P2P space but believes that this is inevitable as those with bad lending practices are weeded out to let those remaining in the industry shine. But education on the sector is not something on Khattoare’s radar for the year ahead. “We haven’t got the time to educate the masses on what P2P lending is,” he says. “It is an industry which is probably ahead of itself and will need years of education.”

The main focus for Kuflink is to become a marketplace for its investors, offering both short and medium-term products. Khattoare is keen that others share the same confidence that he has in the market, by showing critics that with good lending practices and a solid foundation, this is an industry that has potential. Being a marketplace for investing and borrowing is at the heart of Kuflink’s ambitions, and through pushing their boundaries, this year is set to be their most exciting yet. B I FEBRUARY 2020 BRIDGING INTRODUCER

35

ADVERTISEMENT FEATURE

IN OUR OPINION

All that glitters...

W

hile there is a new generation of advisers for whom the credit crunch is just a historical footnote, for most of us it was the short term borrowing sector which proved to be a hugely valuable resource for intermediaries and their clients at the time. When funding was withdrawn, the private bridging market became the facility which helped to fill the short-term funding gap.

Bridging did not singlehandedly provide all the answers to the lack of credit. However, the very simple concept of short term secured funding to help clients purchase, refinance or develop to sell, has, since that time, provided the intermediary market with a valuable tool to help clients confidently pursue their projects. It has remained a mainstay in many brokers’ armouries and its growth in the past 10 years demonstrates its continuing importance.

With so many bridging companies trying to attract business from brokers, choosing the right company to work with can be a bit of a lottery, and it is increasingly important to shop around to ensure the best for the client.

There are, for example, plenty of ‘best rates’ offered, which in real life when applied for, don’t exist. They tend to be the bait to draw in the business, and when it is confirmed that the case does not ‘fit’ the criteria ,but can be done on a different interest rate, brokers are in many cases not in a position to turn down the new offer and go elsewhere.

This kind of sleight of hand might be part of a legitimate marketing ploy. However, the adage that if something looks too good to be true, it probably is, should help brokers break away from using the rate as the only criteria to gauge the right product.

Not long ago, it seemed that every advert and article for bridging extolled the virtue of the speed of transaction and apart from the odd headline about 48-hour mega deals, the actual truth is that bridging lending times are not, in the main, all they are cracked

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BRIDGING INTRODUCER

FEBRUARY 2020

Narinder Khattoare from Kuflink Bridging, explains how vital it is to choose the best solution for your client

STABILITY & STRENGTH

Kuflink look to 2020 and beyond

kuflink.com www.sfintroducer.com

ADVERTISEMENT FEATURE

IN OUR OPINION up to be. What we are finding is that clients and their brokers, having gone for a conventional bridging solution, have then found that the process is not as fast as they were led to believe.

SPEED, RATE OR BOTH? I think that brokers need to look again at what is important to their clients – speed or rate. Of course, both are equally important in a perfect world, but what we have to remember is that this is short-term finance. The money ‘saved’ on the rate is wasted if the client misses the deal they were after because the process took too long.

Brokers will always need an ‘emergency’ service when the deal absolutely must be done, and it is time to become less fixated with the rate as the most important factor. It is therefore important that the choice of lender and the reasons for choosing a particular deal are noted and accepted by the customer.

In these days of rate fixation, it is easy to forget to set down why the ‘cheapest’ was not the chosen product.

While some have seen the bridging market as a fertile sector for ‘last chance’ clients looking for finance, the bridging market has seen plenty more evidence of the need for short-term finance for development as well as the traditional ‘bridge’ uses, which have fuelled sector growth in the past two years. In this competitive market, we see an increased drive to secure this business through headline-grabbing rates or higher LTVs. Generally speaking, no two bridging loans are identical and as we have already mentioned, often do not necessarily fit into the advertised rate band as headline rates are often just used as bait. In many cases, speed is as important, if not more so, than rate.

After all, does having an attractive rate result in the deal being facilitated faster? No. In many cases, if deals are time-sensitive and not completed quickly, could this result in clients having to pay out more no matter how competitive the initial rate may initially look? Yes. A bridging loan, by its very nature, relies on speed to complete the transaction as quickly as possible and this can often be overshadowed by the attraction of the big, shiny headline rate and some lenders are not as fast as their marketing blurb promises.

When the case needs to be done, brokers naturally want the best for their clients. There may well be an element of both speed and rate but sometimes just concentrating on rate can result in more expense as the money ‘saved’ in the application is wasted if the client misses the deal they were after because the process took too long. More and more clients and their brokers, who have gone for a conventional bridging solution, are finding that the process is not as fast as they were led to believe, meaning that they are coming to us.

Underwriting a case for short-term funding is based www.sfintroducer.com

“Here at Kuflink, we can facilitate even the most complex deals quickly and efficiently where other providers cannot” on the quality of the asset (property), the case for borrowing (ability and intent to repay) and the exit (refinancing or selling the asset). Provided we can assess those quickly and effectively; we will write the business.

As a broker, you will inevitably have customers who need to move quickly to secure a deal, so there will always be a need for a facility when the deal absolutely must be done. Here at Kuflink, we can facilitate even the most complex deals quickly and efficiently where other providers cannot. It’s this speed and efficiency that means growing numbers of clients are getting the deal done because of Kuflink Bridging.

To illustrate the need for speed, here are a couple of case studies that demonstrate why speed is important:

CASE STUDY

Funds in five days With a broker’s customer requiring £230,000 to repay an outstanding debt within a week, speed became the key consideration.

Having liaised with the introducer and customer, we were able to look at their property portfolio and were able to secure a loan for the full amount on a first charge basis against eight two bed flats with a combined value of £405,000.

From application to completion it took just five days.

CASE STUDY

Auction purchase of commercial premises required fast action A successful online business entrepreneur had paid a deposit on commercial premises and needed to complete the purchase ahead of the auction deadline. With a purchase price of £400,000, he needed to borrow £268,000 at an LTV of 67%.

Kuflink took a first-charge against the property.

Completing the transaction in just 12 days, we were able to beat the auction deadline and help the customer to open his store for business on time.

In both of these cases, the customers were able to secure immediate funding for what they needed in a timeframe that suited them and their circumstances. In the first case, our involvement provided the time needed to find the funds to repay our bridging loan and to arrange suitable long-term financing in the second example.

Loans, interest rates and completion times are subject to underwriting criteria. Failure to meet the repayment criteria of a loan could result in the security being repossessed. → FEBRUARY 2020 BRIDGING INTRODUCER

37

REVIEW

EDUCATION XXXXXXXXX

Fail to plan, plan to fail can also add to a well-structured plan just by bringing a broader experience to the process.

Alan Dring director, MAD Approach

I

QUESTIONS

have spent a considerable amount of my career developing award winning business plans for blue chip companies in very competitive markets and have been a firm believer in the old adage that if you fail to plan you plan to fail.

So, it amazes me that so many socalled professionals continue to bury their heads in the sand when they know the truth is that what they should have done is invest in a plan.

So why are we reluctant to invest in growth plans? Well I suppose the answer is easy...we have nothing to invest or what we have we are keeping for any rainy days ahead.

Understandable, but is that rational thinking? Every profession in the housing market knows how competitive the 2020 market will be but how many take seriously the need to invest in future survival (growth) when things appear to be going ok?

So why are so many reluctant to invest in the support services of an independent, experienced individual who has a track record of adding value to businesses, honest enough to seek additional support in establishing a proposition that will give competitive advantage and build the confidence needed to deliver the plans objectives?

Brokers and the growing number of small specialist lenders should ask themselves “If I am expecting my clients to invest in me should I not be investing in myself to ensure their trust is well placed.”

For a modest amount a business can achieve a great deal if they secure the services of an experienced management consultant who has the skills and experience in those areas of business management that are lacking in their current resource.

Of course, an external perspective

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BRIDGING INTRODUCER

 What does your business plan look like?  Do you need help with it? (be honest)  How do you target business objectives in a competitive environment?  Do you need help in this aspect of your business?  Do you recruit the right staff?  Do they have a natural flair for innovation and change?  Would help with recruiting save you money and increase your profits?  Do you need help in your business planning?

A business plan will focus your mind and embrace:  Establishing business objectives  Marketing business objectives  Identifying target markets  Developing stakeholder relationships  Developing a partnership business model  Building a culture within the  business and establishing a personal development training programme

heads on. The first rule of planning is to ask the question... do I need help and support in getting me through the next business period? Does my plan cover all the elements it needs to, to at least leave you saying, “Well what more could I have done?’’

I have met so many honest hard working brokers in my 48 years in the business but those who have applied a structured business planning approach to their business have been in the minority and I have to say the majority despite the good times have got by on a wing and a prayer.

Some of us do believe in the power of the almighty but I would ask that everybody takes out some other insurance and seek whatever help you need, and only you, if you are honest, know what that help looks like.

For a very modest investment, certainly less than £8,000 brokers can at least look forward with more optimism to the future, whatever that future is.

Sometimes a plan can reveal hard truths that will lead to other opportunities and you will be stimulated with that same enthusiasm that got you going. B I

BUDGETS

The above detail can look daunting when seen in this format but a plan need not be more than two pages of A4.

Small businesses need short and specific objectives based on an understanding of the market and the products you are selling into it.

Regular reference to the plan and amendments reflect a professional approach to business but just as important it will ensure you are keeping up with market developments and will put you in an advantageous position as many of the competition will fail to follow a similar route.

Now as never before brokers should be ensuring they have their planning

FEBRUARY 2020

Making the right plan is key to your business

www.sfintroducer.com

Fast, Flexible Finance

Making the most complex projects simple Auction Finance Bridging Finance Development Finance Refurbishment Finance Residential Projects Commercial Projects

Contact us today!

kuflink.com/borrow sales@kuflink.com 01474 33 44 88

Loans, interest rates and completion times are subject to underwriting criteria. Failure to meet the repayment criteria of a loan could result in the security being repossessed. This advert is intended for intermediary use only. Kuflink Bridging Ltd is authorised and regulated by the Financial Conduct Authority. (Ref No. 723495).

Registered office: 21 West Street, Gravesend, Kent DA11 OBF. Company Registration No. 07889226