Bridging Introducer – May 2021

BRIDGING Champion of the Bridging Professional

INTRODUCER www.sfintroducer.com

May 2021

Investing in relationships Shawbrook’s Emma Cox on conducting good business during a crisis

 Exit routes  Bridging In-depth  Industry Comment

£5

Bridging Finance From refurbishment to refinance, help your clients take advantage of investment opportunities with our award-winning specialist Bridging offering.

Rates from 0.50% pcm Up to 75% LTV* Loans from £50k to £15m Terms up to 24 months No ERCs or minimum interest Heavy refurbishment options *Up to 85% LTV available on light refurbishment to fund cost of works

Get in touch today

0330 123 4521 cm.broker@shawbrook.co.uk property.shawbrook.co.uk

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EDITORIAL

COMMENT

Publishing Director Robyn Hall Robyn@mortgageintroducer.com

Contents

Publishing Editor Ryan Fowler Ryan@mortgageintroducer.com

5 Brian Rubins Product evolution for age-old problems

Editor Jessica Bird Jessicab@sfintroducer.com Deputy News Editor Jake Carter Jake@mortgageintroducer.com Editorial Director Nia Williams Nia@mortgageintroducer.com Commercial Director Matt Bond Matt@mortgageintroducer.com Advertising Sales Executive Tolu Akinnugba Tolu@mortgageintroducer.com Advertising Sales Executive Jordan Ashford Jordan@mortgageintroducer.com Campaign Manager Victoria Hubbard Victoria@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

FOR INTERMEDIARIES ONLY

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7 Donna Wells Bridging evolves and adapts

Flexible thinking

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onversations around the bridging market’s proverbial watercooler this month have tended, to steal an Orwellian phrase, towards ‘doublethink’.

On the one hand, the market is apparently in bullish strength, with increasing numbers of customers – and brokers – turning to specialist lenders for the first time as a viable solution to modern problems in an increasingly complex world, and bright times ahead as the country reopens and developments and transactions get moving.

On the other, the storm has very clearly not yet passed. The end of the stamp duty holiday, a possible spike in unemployment when furlough wraps up, even the potential for another wave of COVID-19 as we recklessly forget to social distance in pub gardens – all of this could come together to create a less than rosy picture for the rest of 2021.

Exit routes, the focus of our feature this month, are at the core here – as they ever are for bridging to work soundly.

How does a market that so heavily relies on being able to map future trends and predict where the market will be in six months’ time cope when all predictions go out the window, and when a promising prospect one minute might fall through the next?

The answer, in simple terms, is flexibility – a trait the specialist market has shown itself to have in spades, especially over the past year.

While we wait to see what the rest of 2021 will bring, let’s hope that the good times continue. B I

From refurb to refinance.

Make it happen.

9 Kris Corns Specialist finance and fintech 11 Adam Tyler Time to take stock 13 Jonathan Newman Benefits of experience and relationships 15 Phil Mabb Life after CBILS 16 Feature: The end in sight Jessica Bird looks at the uncertainty around exit routes during the pandemic, and whether the picture is changing as the country emerges from lockdown 22 Cover: Investing in relationships Emma Cox, sales director at Shawbrook, discusses plans for the future and how to conduct good business in the face of change 30 Vic Jannels A joint approach to tackling hot topics

Get in touch today

0330 123 4521 cm.broker@shawbrook.co.uk property.shawbrook.co.uk

MAY 2021

BRIDGING INTRODUCER

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A Bridge for every journey Throughout every obstacle, our expert bridging teams are delivering record numbers of deals.

From auction, bridge-to-let, acquisition through to land without planning, they are ready to support every type of project.

Property finance made simple.

lendinvest.com LendInvest Limited is registered at 8 Mortimer Street, London, W1T 3JJ (Company 08146929). Your client’s property may be repossessed if they do not keep up repayments on their mortgage.

For intermediaries only.

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PRODUCTS XXXXXXXXX

Product evolution for age-old problems Brian Rubins executive chairman, Alternative Bridging Corporation Limited

A

s we exit lockdown and confidence returns to the market, lenders’ offerings have both evolved and become more aggressive.

With 90% and 95% home loans available as a result of the government’s guarantee scheme, and demand fuelled by the stamp duty holiday, residential sales activity has soared.

Alternative lenders, basking in this sunshine, have increased loan-to-values (LTVs) and reduced interest rates, and appetites are voracious. All good news – a much more competitive playing field, but also an improved range of products which enable brokers to maximise their activity.

In the alternative short-term lending market, there has also been the development of niche solutions for age-old problems. Let us review some of this progress.

The refurbishment bridge, for example, is a valuable tool to minimise capital input by the borrower, particularly in the buy-to-let (BTL) market. This is no longer limited to light refurbishment – such as new kitchens, bathrooms and decorations – but extends to medium and heavy refurbishment, which includes structural changes such as reconfiguration and extension. Lenders that are also active in development finance process these facilities simply and swiftly.

Because refurbishment loans are measured against the enhanced value of the property after improvement, both the loan for the purchase or refinance and the funding of the works can be materially increased. www.sfintroducer.com

It is possible to provide an advance for the purchase or refinance and 100% of the cost of construction, and a further release on completion of the improvements where value has been sufficiently enhanced.

Another innovation is the Alternative Overdraft from Alternative Bridging.

This flexible facility, secured by first or second charge against under-utilised property assets, allows for one or a number of advances up to an agreed limit with the ability to repay all or part whenever funds are not needed, and to draw again and again as required.

It has the flexibility of a bank overdraft and is ideal for the business community as well as the property industry and in particular for auction purchases. With interest only accrued on the balance outstanding, it is costeffective, provides liquidity on demand, and avoids repetitive set up costs each time funds are needed.

Residential development finance is now readily available, providing funding to small to mid-size developers for new-build, conversion and refurbishment. As well as finance for new projects, it is also possible to refinance existing facilities when an alternative or larger loan is required.

Although the cost of borrowing is higher than the high street banks, standard development loans are up to 65% of gross development value (GDV), which typically delivers 80% of cost and compares with 50% or possibly 60% of cost from the mainstream. That extra 20% or 30% of cost is often the difference between successfully meeting a developer’s requirement, or failing to proceed.

Where a standard development loan is not sufficient, stretched senior is available from a limited number of lenders for experienced developers.

These are loans of up to 90% of cost and enable housebuilders to undertake a greater number of developments,

confident that they have adequate funding for each project without relying on cashflow from sales.

A significant benefit of stretched senior is that it only involves one loan, one valuation and one set of legal costs, whereas a separate mezzanine loan would duplicate costs and management time. Until recently, stretch senior loans have only been available for larger, structured facilities but can now be provided for loans from £2m.

Development exit loans are being offered whereby the project is refinanced at practical completion to ensure repayment of the development facility in a timely fashion. It should also enable the borrower to reduce the cost of funds and possibly to extract some of the equity invested.

A further innovation avoids the cost of refinancing, where the existing lender recategorises the development facility as an exit loan and applies both an extension of time and a reduced interest rate.

There has always been a gap in the market where small bridging loan providers finish and the mainstream and larger alternative sources of finance commence. There is a plethora of bridging loan providers up to £2m or perhaps £3m, but significantly fewer who can lend above these limits. Now a small number of established short-term lenders have increased their limits to £5m – or even more – enabling better quality, larger loan to be satisfied in the bridging market.

LTV is always a focus in bridging loan negotiations, and a number of more robust lenders have increased their parameters, mostly by 5% to 10%, so that 70% is available for both residential and commercial bridging loans, and a little more in certain circumstances. These LTVs are genuine and not ‘up to’, but brokers should check and see if they are against market value or restricted 120-day values, which would be giving with one hand and taking back with the other!

The good news is, as always, the alternative short-term lending market is evolving, providing greater opportunities for brokers and lenders alike, and more readily satisfying the needs of their clients. B I MAY 2021 BRIDGING INTRODUCER

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REFURBISHMENT BUY TO LET

Two loans.

One application.

For Refurbishment Buy to Let loans, we offer bridging finance rates and provide an exit onto a long-term Buy to Let Mortgage based on the after works valuation figure – all in one proposition.

One application, which we will key for you

One expert underwriter providing support for the entire case

One valuer for both the Bridging Finance and Buy to Let Mortgage

One conveyancer with discounted legal fees

Two offers issued simultaneously

Two procuration fee payments

Contact your local BDM FOR INTERMEDIARIES ONLY

0800 116 4385

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MARKET XXXXXXXXX

Bridging evolves and adapts Donna Wells director, F4B

S

peed, expertise and experience are critical factors when it comes to sourcing bridging finance. The strength of our longstanding relationships with numerous lenders means that we, as a packager, have a clear insight into how their products and criteria can provide the right outcome within certain timeframes.

This was outlined in a recent case with Together, where we combined to deliver a £400,000 commercial bridging loan in just nine working hours. In this case, a portfolio landlord who owned 10 investment properties wanted to move quickly to purchase an office building in London, so as to expand his portfolio.

The speed at which this case was completed, and the funds released, underlines the benefits attached to the specialist underwriting teams within such lenders, and the quality of the packaged documentation supplied.

Obtaining as much information as possible at the pre-application stage to ensure everything is disclosed can often save a huge amount of time further down the line.

For brokers who may not be too familiar with the intricacies and complexity of such cases, the right questions are not always being asked early enough in the process, meaning vital data or insight into the borrower, their financial background or the property in question can often be missed, leading to costly delays.

Detail really is everything, and it’s our job to know exactly what types of cases every lender will accept to ensure applications are packaged correctly.

Identifying the right lender for the right case is only part of the process.

Further down the chain, brokers need to recognise the types of transactions

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which may benefit from a variety of short-term solutions, and how these solutions work in practice. However, these are often missed due to a lack of time or understanding.

COMMERCIAL AND SEMI-COMMERCIAL

We’re currently seeing huge amounts of activity within the commercial and semi-commercial property sectors, and we expect to see continued growth in Q2 and beyond.

It’s important for brokers to recognise opportunity, and with this in mind, it never hurts to get back to basics and outline what this kind of opportunity looks like. In short, a commercial bridging loan is a short-term facility secured against commercial property for either a purchase or capital raising – but what is considered suitable security for a commercial bridging loan?

This can be secured against the following types of security: commercial and semi-commercial – mixed with residential – property; industrial property; land, with or without planning permission; and farms.

Bridging is constantly evolving – so must brokers

The flexibility of this type of bridging loan also means the borrower can consist of any of the following: private individual; UK limited company; offshore company; limited liability partnership; and foreign nationals.

There are numerous examples where this type of facility has benefited many borrowing scenarios, and brokers can always pick up the phone to a packager or specialist distributor to find out exactly how if they are in any doubt.

SHORT-TERM LENDING EXPECTATIONS

This is just one area of bridging finance that is on the rise, and increased business levels across the board are resulting in some bullish lending expectations over the next few months.

This was illustrated in the latest sentiment survey from the Association of Short Term Lenders (ASTL) – conducted shortly after the Budget – which found that 73% of bridging lenders are confident about the longterm prospects for the UK economy, compared to 64% when the survey was last run in July 2020.

In terms of the outlook for the bridging sector and their own businesses, 87% of lenders think the turnover of their business will grow in the next six months and 77% expect the turnover of the wider bridging market to increase.

Lenders were said to be divided over whether or not they think competition in the bridging sector will rise in the next six months – 47% think it will remain the same, while 43% think that competition will increase. However, only 10% expect a decrease in competition in the next six months.

As highlighted in the research, we have seen a significant increase in positivity compared to last summer, and this reflects how much bridging lenders have evolved and adapted over this time.

Let’s hope the broker community evolves and adapts with them to tap into the opportunities which will continue to emerge. B I MAY 2021

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0345 241 3079 www.castletrust.co.uk

Give your clients confidence and certainty with up to 80% gross LTV day one on Bridge to Let Bridge to Let provides the stability your client needs to continue investing and growing their property portfolio.

With a 9 to 12 month bridge that can roll into a guaranteed TermTen loan if needed, your client can rest assured that there is a back up plan in place at a time when the future is difficult to predict.

For more information, or to find your local BDM, visit www.castletrust.co.uk

Castle Trust Bank means Castle Trust Capital plc, a company incorporated in England and Wales with company number 07454474 and registered office at 10 Norwich Street, London, EC4A 1BD. Castle Trust Capital plc is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority, under reference number 541910. Buy to Let is not regulated by the Financial Conduct Authority or the Prudential Regulation Authority.

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TECHNOLOGY XXXXXXXXX

Specialist finance and the fintech paradox Kris Corns operations director, Crystal Specialist Finance

T

here seem to be different opinions on the first use of the word ‘fintech’ – financial technology – on the internet.

This was only a quick search borne out of pure interest, but I’ve seen results relating to the introduction of the ATM in the 1950s, and unexplained speculation ranging from 1971 to 1993.

Whatever the year, the explanation of the phrase is simple: new technology that provides automated and improved financial processes. In other words, it makes the process simpler.

Despite best efforts, it therefore remains disappointing to see how the specialist finance sector has fared in its own pursuit to embrace technology.

The obstacles are well known, but it is not fair or accurate for lenders to hide behind the complex nature of applications, circumstances, security type or any other of the myriad of reasons, as an excuse for lagging behind in their own automated decisionmaking delivery.

Nor is it appropriate for technology to be absent which would simply lift and drop fact-find information without the need for multiple rekeying.

Yes, there are important factors and hurdles to overcome, but to think that applications have to be handled from start to finish by a standard form and then by a finance professional, is not making life easier for anyone in the chain, most notably brokers.

FIFTEEN-TO-ONE

Sourcing systems like Twenty7Tec and Mortgage Brain have made decent improvements in recent years, but the fact remains that brokers and advisers still have to rekey the same client www.sfintroducer.com

information multiple times when they want specialist funding solutions.

In the April edition of Bridging Introducer, our group sales and marketing director Jason Berry laid it out in detailed terms. To paraphrase, it is certainly natural for brokers to shop around – indeed it is their duty of care to do so – but this does create an immediate issue.

Let’s say a broker shortlists five lenders from a pot of 15-plus for a bridging loan. The next step is to complete the enquiry forms, which may be online or offline, and pitch the project so an agreement in principle can be made.

That’s five enquiry processes to be completed and a minimum of five further phone calls to clarify certain aspects of the case, until eventually one option is left in the pot.

The result is a hugely time consuming process for the broker, and even at this stage there is no saying that the case will definitely reach completion and the hard-earned commission be paid in full.

However, things will change in the near future.

API OR AI

Using an application programming interface (API) or innovative artificial intelligence (AI), distributors like Crystal will soon be able to connect with advisers’ proprietary customer relationship management (CRM) systems – or with Twenty7Tec or Mortgage Brain – so that client factfind information can be transferred as data to be used for lender placement.

These API integrations or AI alternatives will see the distributor use similar technology to then connect with specialist lenders, so binding decisions via a seamless workflow can be provided.

A high percentage of immediate decisions should be one result, and a lower percentage of referrals generated

which the distributors’ new business teams will then underwrite manually to make fit.

Links to big data will ensure that land title, credit profile, valuation and all other key lending requirements are already in place for many distributors, so there should be no unwanted delays.

And how soon can this be realised?

The answer is very soon indeed.

A NEW DAWN

The recently launched Crystal Hub is the first stage in realising this application pathway.

All the indicated process is doing initially is minimising the rekeying advisers need to undertake, but this is already a massive time-saving benefit in itself.

For the next stage, we are already in advanced discussions with several specialist lenders to facilitate how our system integrates with theirs to automatically assess an application and deliver binding agreements within seconds.

“There are important factors and hurdles to overcome, but to think that applications have to be handled from start to finish by a standard form and then by a finance professional is not making life easier for anyone in the chain, most notably brokers” As time progresses, this will develop into broader workflow benefits and efficiencies as brokers are able to push and pull information to us, speeding up processing times further.

‘Specialist finance and the fintech paradox’ may sound like a rather niche Indiana Jones spin-off, but those willing to challenge and push the boundaries have the opportunity to grab greater market share through the delivery of unrivalled solutions.

At Crystal, we are committed to bringing true fintech advancements to the specialist finance sector, and to making life easier for brokers. B I MAY 2021 BRIDGING INTRODUCER

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Business Funding That’s Effortless. Every Time

Our short-term loan products are designed to meet the diverse needs of business owners.

Whether funds are needed to purchase new premises, acquire stock, facilitate a new venture or raise additional capital to stimulate growth, MT Finance is here to provide a faster solution to your clients’ funding requirements. Partner with us today.

0203 051 2331 www.mt-finance.com

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FIBA XXXXXXXXX

Time to take stock Adam Tyler executive chairman, FIBA

W

hen we launched the Financial Intermediary and Broker Association (FIBA) in January 2018, we wanted to encompass all elements of the specialist property finance sector, and it was vitally important that we set goals that reflected a commitment to maintaining that initial strategy.

Notwithstanding the last 12 months, we have exceeded our expectations. As with all things in life, it is always good to take stock of where you are and what you have achieved so far. This is always a good platform on which to build, and that is certainly the case with FIBA, and also for its plans for the coming year and beyond.

As we move into the second quarter of 2021, we continue to see the positive start to the year we hoped for, and indeed planned. This is the same feedback from the lender and broker community involved in bridging and development finance, and more broadly the specialist property finance industry as a whole.

Nevertheless, support is imperative for all types of broker, and indeed the lender community.

As the saying goes, ‘it is good to talk’, and that is very much part of our ethos and one of the many strands that we use to bring everyone together across the industry.

More recently, this was demonstrated perfectly by using new technology to hold the latest industry forum, addressing current and pertinent issues to everyone involved, in conjunction this time with the Association of Short Term Lenders (ASTL).

These successful events were always hosted in a physical environment, but once again we have proven that a virtual event is also highly conducive to a great conversation and real outcomes. www.sfintroducer.com

These are definitely not closed sessions, but open to all within the restrictions of virtual space, and feature lenders, brokers, solicitors and valuers.

In order for brokers to be able to work with a widening range of customers, there has been a huge amount of investment in time and resources over a number of years by their firms to gain and maintain access to a wide range of lenders.

However, everyone has to start somewhere, and there are far more opportunities now to enter the market, led in many ways by the existing broker community with the ever-growing benefits from FIBA of increasing knowledge and access through new and growing funders.

“There is such a lot of activity in this sector that introductions and sharing knowledge have become so important. Access to the latest technology allows these communications to happen very quickly” As a great example, the Specialist Property Finance Club, launched last month by FIBA and SimplyBiz Mortgages, aims to enable easier access to specialist property finance products for both sets of members.

It also gives you, as a broker, the opportunity to benefit from unique arrangements, alongside exclusive access to specialist lenders and their products, which previously may have not been readily available to an individual firm.

Every broker or adviser needs support, and a dedicated service that helps in the creation of opportunities for market understanding, professional development and supporting business growth in specialist property finance.

At FIBA, we are committed to bringing you an ever-growing range of

unique and exclusive services, to which our member firms continue to have exclusive access.

NEW OPPORTUNITIES

Once you have taken stock, it is then the time to look at the opportunities that present themselves.

As an example, I have spoken at a number of events this year, including a Bank of England event, about the repurposing of buildings in our town and city centres, and the funding requests that this will create for the use of specialist finance.

As a practitioner in this space, knowledge and support is essential, as well as the confidence in a lender community that will support you as a broker or an adviser working with customers to develop these buildings for the future.

It seems as though there are already those seeking to take advantage of this and looking to diversify. We have seen proof of this with a doubling of our membership in 2020, while membership grew by another 13% in quarter one of 2021. We are committed to providing best of breed support through our panels of lender and professional partners.

But it is not just the intermediaries who are looking to benefit; for example, Barclays joined FIBA recently, and there is a list of around another half a dozen lender launches stretching into May, still yet to come.

In conclusion, there is such a lot of activity going on in this sector that introductions and sharing knowledge have become so important.

Access to the latest technology will allow these communications to happen very quickly.

This includes features within the industry press, supported by our own Advantage Online magazine, as well as the release of Series 4 of FIBA TV, plus the continuation of our webinar series.

These outlets will help ensure that everyone is aware of what’s available in the market.

Customers – and indeed the buildings themselves – will then continue to benefit from what we as the specialist property finance industry have achieved. B I MAY 2021

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LENDING XXXXXXXXX

Benefits of experience and relationships Jonathan Newman senior partner, Brightstone Law

I

t was just under a year ago that I wrote a piece proposing that the pandemic could prove a catalyst for positive change – a chance to reset and reassess how we do business.

I perhaps didn’t take into account just how quickly and aggressively the market would return, and that we’d be registering pre-COVID application levels by the end of 2020.

Set against this backdrop, with the complexities of the pandemic to also consider, it’s been all hands on deck, with little time to consider how. This approach has been compounded in the most recent lockdown, as the fatigue of working remotely has arguably led to people being less communicative and leaning to a more process-driven, transactional approach – just getting things done out of practical necessity.

However, in ‘just getting things done’ there’s a risk that we will miss this opportunity to reassess how we do business. As a lawyer, I will use lawyers as an example.

Working with a law firm that robotically processes actions and transactions has its merits, on the surface. The job gets done and can be moved off of the desk. But ultimately, this process-driven approach misses the real opportunity to do things more efficiently and effectively.

Being a successful lawyer, particularly in this market, is about more than just understanding the law and ‘lawyering’ well. It’s about having an in-depth understanding of the sector within which you operate – the opportunities, the limitations, the commercial pressures, and the operational framework. www.sfintroducer.com

In property lending, lawyers that know the law of the sector are many, so just getting the job done by a suitably qualified solicitor is relatively easy.

Lawyers that take a lead in the market, looking after the interests not just of their firm and their clients, but of the entire industry, on the other hand, are much rarer. They know what impacts the integrity of loans and just as importantly what is likely to in the future – future-proofing to some extent.

Working closely with the Association of Short Term Lenders (ASTL) and with its members provides a real insight into the bridging sector – where it is and where it intends to go.

TANGIBLE BENEFITS

In a purely transactional framework, choosing to work with a lawyer based on experience and personality may seem frivolous, but it has very significant and tangible benefits.

Experience and relationships are important, because when push comes to shove it means the correct decisions can be made more quickly and safely.

The right action can be pursued faster and businesses can save a lot of pain – and money – by taking the counsel of someone who instinctively knows and understands the client’s culture and priorities. That’s one of the core principles of our code of conduct – acting in the client’s best interests.

Similarly, in a purely transactional framework, choosing to partner with a lawyer with significant sector experience and expertise is a benefit not a risk. Confidentiality and confidences are a given, and protected by the keenest of regulators. Any lawyer that has successfully worked in the same industry for a number of years has already demonstrated that they consistently look after the best interests of their clients and protect all confidentiality because, if they didn’t, they would never have survived

this long. A lawyer able enough and expert enough to develop a wide client base establishes a broader range of knowledge and experience for each to tap into. Is there any greater value than gaining advantage from someone else’s paid-for experience? For it is only with depth of knowledge that creative solutions can be identified to deliver favourable results over a more rigid process-driven style.

There are serious benefits, then, to taking a step back from the conveyor belt of business and thinking about doing things differently. A more strategic approach to working practices and building partnerships may seem unnecessary when the main problem is keeping up with business levels, but it can prove the key to delivering safe, sustainable and profitable lending.

This is a topic we recently covered in depth at our digital conference, ‘Lending After Lockdown’, which was produced as a collaboration between Brightstone Law, Westcor International and CG&Co. The pandemic may not have provided the respite required to reset the way we do business, but it has delivered a wealth of lessons. We looked at those lessons, discussed how lenders can integrate them into their business, and considered how the right partnerships will always deliver greater value in the long term.

If you would like to watch the event, a full video playback is available on the Lending After Lockdown website. B I

The right partnerships will pay dividends

MAY 2021 BRIDGING INTRODUCER

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CBILS XXXXXXXXX

Life after CBILS Phil Mabb property finance broker, Bridge Development

E

arlier this year, I wrote a piece called ‘CBILS: The Good, the bad and the ugly’. Here we are two months later, with the door firmly shut as far as Coronavirus Business Interruption Loan Scheme (CBILS) applications are concerned, with the focus on bringing those transactions that can complete by 31 May 2021 to do so.

I previously made comparisons to a bunfighting dogs’ dinner, and anticipated an extension to the period of CBILS, much like that offered under the stamp duty holiday situation. Let’s see what has transpired…

Early on, it became clear that there was insufficient participation in the real estate sector, inadequate lender resources to manage applications – to be fair, no one could have guessed demand – and more importantly, CBILS funding allocation was far too low to meet the enormous demand.

Having spoken to some lenders, it seems the fall-out rate of transactions was only 5%, compared to 30% on traditionally priced offerings – so something had to give.

In order to manage client and broker expectations, some lenders asked for commitment fees to ‘secure’ an allocation – but at least the pressure was off, provided a CBILS loan is drawn – while other lenders were ‘performance-based’: who completes first gets the dough until it runs out.

This led to a number of transactions having to move between lenders, where the lender had miscalculated the fallout rate and was left with egg on their face, having to tell the client and their brokers that they could not perform, despite the client having laid out for associated professional fees.

Other lenders created a holding patten, taking in all funding

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propositions presented – perhaps creating false hope – and then cherrypicked their ‘favourites’, rather than working on a first come, first served basis, leaving other equally warranted applications held in the holding pattern just in case something fell out on route to landing.

Examples of fall-out have been clients not being able to meet practical completion deadlines, planning permissions delays, and clients withdrawing due to positive sales performance – honourable, if perhaps not necessary – and leaving other prospects out in the cold.

Towards the end of the application period, particularly during March 2020, there were a number of mixed messages and contrary statements from my business development manager contacts, with some actively seeking to put off new enquiries, believing that – being oversubscribed – it was not worth pursuing further opportunities.

Others put in hurdles on developer exit bridging, demanding at least 20% of the stock was sold or exchanged for sale prior to drawdown – not an easy proposition if practical completion was only due towards the end of May 2021.

Further, some lenders only got to grips with the fact that 31 May was not the final date for completions until much too late in the day – missing opportunities to transact on schemes previously presented – and leaving some clients in ‘no person’s land’.

Word on the street was that – provided the applications were in legals with documentation finalised – the D-Day completions could be as late as 31 July, which could explain why one lender was happy to join the fray as late as 24 March! Whether we will have another stamp duty holiday blockage is still out for review.

Looking back, I cannot confidently say that any one structure was better than another, but I do fear that the amount of loans actually drawn will fall some way short of the allocations.

Consequentially, this means there will be some perfectly valid and

“Examples of fall-out have been clients not being able to meet practical completion deadlines, planning permissions delays, and clients withdrawing due to positive sales performance and leaving other prospects out in the cold” probably unnecessary losers. Only time will tell, maybe demanding a revisit in Bridging Introducer come August.

Perhaps the one lender that offered to run a deal on a ‘no promises’ basis, reliant on fall-out but offering to rebate any ‘lost’ professional fees, had the right idea.

Well, there is no CBILS extension, but instead an all-new product called the Recovery Loan Scheme (RLS).

Whilst I won’t be dwelling on the subject matter too much here, it is certainly not as customer-centric as CBILS was, being more a tool for lenders if they want to pay for the pleasure, with take-up at the time of writing probably at no more than 20% vis-à-vis CBILS lenders.

How this might manifest itself as a client benefit remains to be seen, but it could include improved pricing and higher leverage.

What I would suggest is that it is now a more even playing field for those lenders that did not participate, a lot of which bemoaned the advent of CBILS. So, was it a good idea? Absolutely yes, and in fact a victim of its own success, and very hard work for all concerned. It would be fair to say that my business benefited from broking CBILS, making up for lost transactions income from Q1 and Q2 2020.

However, I suspect there will be many happy to see the end to it all.

With a bit more time to go, we aren’t in a position to review, but I do think those who benefited should be extremely grateful. B I MAY 2021

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THE END IN SIGHT Jessica Bird looks at how the market has adapted to uncertainty around exit routes during the pandemic, and whether the picture is changing as the country emerges from lockdown

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ne of the fundamentals of bridging is the importance of a sturdy exit route. There is always an element of uncertainty, though, as human and social factors can impact everything from sales to successfully getting tenants installed, or the completion time of developments.

In 2020, when the property market suddenly had to deal with the pandemic stopping viewings, valuations and home moves, as well as grinding development work to a halt as workers had to down tools, exit certainty became a key concern for the market.

Now, as we start to emerge from lockdown and hopefully see an end to the pandemic, there is cause for optimism. But what is the real picture, and how have attitudes towards exit certainty changed over the past year?

CENTRAL TENETS As bridging becomes more commonplace, and more accessible for many prospective clients, it is important to understand the core tenets that underpin it, one of which is the exit route.

Jason Berry, group sales and marketing director at Crystal Specialist Finance (CSF), says: “As long as somebody has an effective exit route that’s clearly communicated, bridging is a great product.”

Jo Breeden, managing director of CSF, adds: “Asset and exit are the two primary drivers, and understanding

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the customer is the third, and you shouldn’t be in the game if those three things don’t have an equal level of importance.

“You don’t want to put the customer into something they can’t get out of, and you have got to understand their short, medium and long-term ambitions. If the customer gets locked into a high interest rate product, there’s a high chance of default, and there’s just no sense in recommending that product. You’ve really got to understand the exit strategy – though you can’t be held accountable for economic events like COVID-19.”

For specialist lenders such as Shawbrook Bank, bridging is itself the foundation for other avenues of lending, so it is incredibly important to get it right.

Emma Cox, sales director at Shawbrook, explains that bridging was introduced to provide an end-toend experience for customers, leading them into term products, where appropriate, with a lender that fully understands their situation.

Castle Trust Bank is similar in offering a full package, with a view to providing a term product in-house.

Robert Oliver, director of sales at Castle Trust, says: “We write our bridge with a term at the end of it, which is slightly unusual.

“We’re seeing a lot more lenders move into the bridge space, but you can’t come away from the fact that whenever you’re writing a bridge it has to be about the exit. The last thing a broker or a client → MAY 2021 BRIDGING INTRODUCER

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We need to talk about exit strategies “The exit plan has to be realistic. If improvements are being made to the property, the costings need to be accurate and the valuation robust”

Lorraine Hart head of credit operations, Roma Finance

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rokers are embracing bridging finance for their customers for all the right reasons.

However, it’s worrying when we hear of cases where the customer hasn’t had a robust exit strategy in place, meaning they end up moving onto another short-term finance plan, with associated fees.

This can be costly. To avoid it, the exit strategy needs to be clear, realistic and agreed by all parties upfront.

Short-term finance is a fantastic, affordable product for many customers, but it becomes prohibitively expensive when required for longer than expected.

BEST PRACTICE Most lenders, including Roma, insist on a well-defined exit plan. We won’t lend without it, because we have a duty of care to the customer.

Nevertheless, we do see cases where the customer is already on a bridge with another lender, and it’s clear the exit plan was flawed from the outset.

In the unregulated bridging market this comes down to best practice, not rules, but this is about our sector’s reputation.

Ultimately, lenders need to take responsibility.

We assess the cases and offer the loans. We must do that in good faith that the customer will be able to exit the bridging loan in the way that they intend.

Lenders that don’t do this are not just failing the broker and their customer, they’re letting down the whole short-term finance market.

WHAT IS AN EXIT STRATEGY? Bridging loans are short-term, interest-only loans, so an exit strategy is the borrower’s plan to repay the sum borrowed at the end of the term.

This is usually by sale of the property or refinancing onto a longterm product, such as a buy-to-let (BTL) mortgage.

The exit plan has to be realistic.

If improvements are being made to the property, the costings need to be accurate and the valuation robust.

Obviously, unexpected delays and problems occur, and the bridge-tobridge sector accounts for those cases where the borrower needs another bridging loan.

But this is a last resort, rather than a solid strategy.

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wants to see is a bridge coming to the end of its term and having to roll over.”

While the message here is simply that the exit is a fundamentally important part of any bridge, it gets more complex when market trends, unexpected events, and changing customer and buyer needs and attitudes come into play. As with many elements of the property market, timing is everything.

Although this can complicate things, it is also another reason why bridge finance is a flexible and increasingly appealing option. Oliver outlines the example of buying an asset, spending the first two months of a bridge term to refurbish it, and then placing a tenant for the next few months while the bridge continues.

“It allows the landlord to get some money in, and therefore when they move to a term policy their business is in the black,” he explains.

“We’ve seen that a lot with people who’ve bought holiday lets, and they exit the bridge after they’ve had tenants in for a couple of months and they have a backstop of some finances.”

COVID CAUTION With many complex factors already at play just in working out the timing and shape of an exit, the advent of an unprecedented event such as the COVID-19 pandemic could have sent the entire market into a tailspin.

Vic Jannels, CEO of the Association of Short Term Lenders (ASTL), says: “The potential uncertainty around exit routes became apparent almost as soon as the first lockdown arrived in March last year. Neither lenders nor borrowers could have envisaged the issues

“While the message here is simply that the exit is a fundamentally important part of any bridge, it gets more complex when market trends, unexpected events, and changing customer and buyer needs and attitudes come into play. As with many elements of the property market, timing is everything”

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EXIT ROUTES XXXXXXXXX to come, and it was clear that exit strategies and timescales were likely to become affected.”

Other issues that faced the market included restrictions on construction and development – with workers forced to down tools and delay projects – as well as constraints on lenders, law firms and all other parties as the UK had to adapt to working remotely and at a social distance.

Jannels says: “For many bridging lenders these were difficult issues, bearing in mind their need to make a decent and early return on their investment.

This may not have been such a pressing concern for the larger bank lenders, but would have been a consideration for those relying on return of funds to enable new lending.”

Development exits were a particular area of concern, with projects stymied across the board. This, in an area of the market that is faced even in normal times with the potential for underestimated project lengths and unexpected delays.

Breeden says: “In a development exit loan, you can check what the exit’s going to be, but how do you know? [Then during COVID-19], people couldn’t go view properties for a long time, that’s just something you can’t account for, but you’ve still got to try and understand demand for that area. You might have to hold on for six months longer, but does that then correlate with demand for the area?”

One of the ways of working around these uncertainties, Cox suggests, is to take longer bridge terms and plan to exit early if all goes well.

She says: “There needs to be a little bit more thought and caution around the strategy up front, making sure you’ve made it easy for yourself not harder.”

In general, uncertainty during the early days of the pandemic led to lenders being cautious about new lending, focusing on those clients already on their back books, which Breeden confirms was the right approach.

“No one knew when it was going to end, and it’s still not ended now,” he says. “The right thing to do was to look after those customers who were already on the books first and foremost. Once you’ve reassured them that you’re not going to pull the rug – and the property – out from underneath them, then you can refocus on originations. That’s prudent management of the business.”

Breeden and Berry are clear that many lenders have worked hard to provide flexibility, forbearance and

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“With many complex factors already at play just in working out the timing and shape of an exit, the advent of an unprecedented event such as the COVID-19 pandemic could have sent the entire market into a tailspin” understanding wherever possible for those customers facing disruptions that might change their exit route.

However, this can only go so far if lenders are going to remain responsible.

Berry adds: “Even though it’s pleasing that we’ve seen some flexibility around when exit routes can’t necessarily happen because of circumstantial reasons, the exit route in the current environment is still absolutely crucial, and lenders will have to apply a logical approach when it comes to any kind of flexibility that needs to be shown.”

CHANGING FUTURES The roadmap out of lockdown will continue to affect exit routes in a wide variety of ways, from making hospitality back into a viable business proposition, to allowing development projects to progress, and even simply letting lenders, solicitors, and intermediaries get back into a face-to-face environment.

However, the future is still uncertain. Government schemes such as the stamp duty holiday and furlough will wrap up later in the year, with wide speculation as to how they will affect property chains. Meanwhile, easing lockdown might bring with it another wave, setting the country’s progress back once again.

Alongside all this is the fact that buyer and consumer preferences have been fundamentally changed by their experiences of lockdown; whether this is long or short-term is yet to be fully understood.

Jannels says that it may not all be positive for the market moving forward, either, as the effects of the pandemic continue to be felt: “Currently, it seems that lenders are finding their way out of the problem and realising repayments at much higher levels than anticipated.

“However, there is likely to be a legacy fall-out amongst some borrowers who have fallen foul of →

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EXIT ROUTES their obligation to exit on time, and often through no fault of their own.”

Breeden adds: “Everyone’s looking at it like we’re at the beginning of the end, but potentially we’re also at the beginning of the beginning – the music has to stop at some point. We’ve got six months of different economic levers being pulled and playing out.”

He feels that certainty around the new normal, exit strategies and the economic outlook, will likely only come by the end of 2021, or the start of 2022.

James Bloom, director at Alternative Bridging Corporation, is somewhat firmer in his optimism: “We’re in a position of greater certainty now than we were for much of 2020. The property market is clearly performing strongly, and March saw the highest number of purchases completed in a month since the HMRC started recording data in 2005.”

However, he adds: “Whether investors are planning to sell or refinance, the outlook for exits looks more positive, but there are still reasons to be cautious.

“It’s still taking property sales longer to complete as the sheer volume of transactions combines with social distancing restrictions to put pressure on the conveyancing system, and there remains uncertainty around the shape of economic recovery, particularly when government schemes are removed.”

Jannels also points to how government support systems, while much needed and valued, might complicate things later down the line for borrowers and lenders alike.

“It proved invaluable for those who genuinely needed the financial support and yet there were many who availed themselves of funding simply because it was there,” he explains.

“Rightly or wrongly, some new term lending underwriting has spotlighted those who had taken advantage of this support and, in a number of cases, prejudiced against them on the assumption that they were financially vulnerable.

“The real evaluation of this will only come once the schemes are removed and a true picture of need emerges.”

Setting aside concerns about whether the market will face more problems in the year to come, there are also other trends to take into account, such as the rising demand for UK holiday lets. Oliver also points to growing change of use projects under the new permitted development (PD) rules, which might coincide with receding high streets to create more

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“In all, while there is still a lot of uncertainty lying ahead, this is still an exciting time for the specialist market, which can bring all of its flexibility and expertise to bear in keeping projects and transactions moving” residential or mixed-use properties in town and city centres, which might be a mixed blessing.

He asks: “Bridging lenders need to be mindful of changing buyers’ habits – will people want to live there at the end of it?”

Similarly, when international travel becomes viable again, will the UK holiday let buzz lessen, leaving this set of borrowers in a less promising position when they go to enter into a term deal down the line?

Cox also warns of the potential increase in unemployment when government schemes are drawn to a close.

She says: “There’s a question mark over where that figure might actually land – but we are not out of the woods. You need to be at the coalface and really be able to spot some of the responses to wider macroeconomic factors, not sitting on your laurels before taking action.

“We’re getting close to coming through the other side of that, but we are not fully out of it just yet.”

While these constantly changing trends – added to the prospect of negative economic circumstances rearing up later in the year – might create a dangerous picture for the bridging market, Oliver notes that lenders have done well to adapt their approaches.

“The way lenders assess exit routes now, they’ve almost future-proofed the 2021 model,” he says.

“When we talk about the forbearance options – heaven forbid – lenders have got to be a lot more flexible. They will have to be more flexible on their offers for terms as an exit for bridges, I can see lenders – certainly in the specialist space – taking a wider view.”

Oliver also points out that when it comes to fluctuating demand, such as for properties on high streets, specialist lenders are well placed to take a view that accounts for sustainability and plausibility. He outlines a recent example where Castle Trust offered

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EXIT ROUTES XXXXXXXXX a part term, part bridge to a developer, giving the flexibility to pay down quickly, with an element of stability, and the chance to either sell more units or retain them for rent.

CHOOSING PARTNERS Coping with these changing trends means, as Cox outlines, being educated and aware of the market, changing buyer preferences and customer needs.

Oliver adds: “Brokers really need to understand what all the options are at the end of the term, and make clients aware of everything.

“Lenders like ourselves are really focusing more on understanding the impact of COVID-19 on the exit, how the market has moved, and whether people’s hunger to invest is in different parts of the market.

We are asking more questions at the front of the process to understand the exit.

“The key message is to get to know your specialist lenders. Bridging is a solution and a really good option when it has a clear exit. We need to make sure we reach out to the right people, and tell brokers to really get to know their specialist lenders.”

Jannels notes that both lenders and intermediaries have risen to the challenges of the pandemic well, and will continue to do so.

Bloom agrees: “There is clearly uncertainty ahead.

However, we have never faced such an uncertain environment as we did in 2020, and the market adapted and thrived in the face of adversity, so we should face the uncertainty ahead of us with caution but also with confidence.

“It’s times like these when experience comes to the fore and working with experienced lenders, with whom they can talk and trust, becomes so important for brokers.”

This, he says, is where strong working relationships and good communication come into play, creating a clear understanding of planned exit routes, and facilitating discussion around potential concerns or challenges at the outset.

“It’s also important to do this as the redemption of the loan approaches, to discuss any alternative arrangements should they be required,” Bloom adds.

“As a general rule, brokers should always discuss alternative exit plans with their clients, as life can be unpredictable, as the last year has shown us.”

Cox adds that having exit products available in-house has helped, as has Shawbrook’s internal

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complex deal forum, which discusses cases and how alternative solutions might be found.

“We constantly review the data points and insights to help us make more informed decisions around certain opportunities,” she explains.

“If we know it’s a deal we would support ourselves on an exit, then that clearly helps. That doesn’t mean to say that always has to be the case, as there is a much broader market outside of Shawbrook and a good appetite at the moment, but it does help if it’s a deal we would consider on our own term lending, we would take comfort in that from our bridging proposition.”

Breeden adds that he has seen many lenders, even those that paused lending and retrenched at the onset of the pandemic, take a positive stance on helping customers who were coming to the end of their term and needed flexibility. Brokers, he adds, should look to work with lenders that are more, not less, hands on.

“The good lenders you want to be putting your customers into are the guys that do work with them from day one,” he explains.

“These guys are going to reach out and talk to your customers, because it’s essential for them to bring that exit strategy to life. We’ve seen some really good examples of that during the last 12 months.

“It’s about choosing partners who value exits as highly as you do.”

This is also an opportunity to highlight the importance, particularly for those brokers who are less confident dealing with bridging, of taking advantage of the presence of clubs and networks, and to use expert packagers. This cross-collaboration is a key source of strength for the specialist market.

In all, while there is still a lot of uncertainty lying ahead, this is still an exciting time for the specialist market, which can bring all of its flexibility and expertise to bear in keeping projects and transactions moving.

Cox concludes: “We can be cautiously optimistic about the future and the role bridging has to play. I do think that we need to be thoughtful around the potential impact of some other factors that are beyond anyone’s control. We need to be quick to respond.

“This is the expertise bit, the specialist bit – making sure we continually check ourselves to make sure we’re relevant to our customer profile. These changes bring about opportunity for some and devastation for others, and it’s about making sure that we adapt to that.” B I

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Investing in relat Jessica Bird sits down with Emma Cox, sales director at Shawbrook, to discuss the impact of the pandemic, plans for the future, and how to conduct good business in the face of change How did Shawbrook Bank fare during the events of 2020?

The approach Shawbrook took was of first protecting its employees, then the customers and the business.

Within days, we were able to have most of our workforce working from home – overnight we had the bank being run from people’s living rooms.

Then, in terms of the customers, we wanted to keep the doors open, albeit slightly ajar. We also made sure our customers and legal and valuation partners were safe. We quickly moved to different processes around valuations and legal requirements – even the post – we didn’t want people going into the office, so we brought in new technology and new third-party helpers to get ourselves organised around those things you take for granted.

In terms of the market, we were fortunate in that we didn’t have to pull up the drawbridge altogether.

We didn’t stop lending, but we did have to make some decisions around being careful, thoughtful and, more importantly, safe and sustainable.

That meant, within the bridging and short-term markets, we needed to adopt different processes. We moved quickly to desktop valuations, for example.

We did come out of some markets, such as restricting our appetite around heavy refurbishment.

That was partly just to ensure that we weren’t overexposing ourselves to markets and customers that – at that moment in time – were most impacted.

Having worked through various COVID-19 scenarios, we started to ease our restrictions around September and re-entered those markets.

Today, we are all still working from home – the IT department have been absolute heroes throughout this time, and I think the productivity of the business has been as efficient as ever.

Towards the back end of last year, we started to see some sense of recovery in activity for investors and brokers.

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2021 has got off to a really strong start, and have seen outstanding performances in terms of new business levels and investors being really active, seeking out more specialist solutions, certainly in the bridging and refurbishment spaces.

It has been a really encouraging start to this year, and if it continues with the same momentum, these markets are set for a very strong performance this year.

Looking back, would you have done anything differently knowing what you know now?

My honest view is that we took the right steps at the right time. Clearly it sounds a bit counter-intuitive to want to tone down new business activity, but it put us in a position of strength as we were able to quickly understand where the real risks were – specifically to Shawbrook – and then act accordingly.

As we eased out of COVID-19 we were probably one of the first to come back into our core markets. We wouldn’t have been able to do that if we’d withdrawn completely, as we wouldn’t have had that insight, and had we continued to lend at the broader risk end of our appetite we could have been left exposed to risks that now we would need to redress. We got the balance just about right.

Shawbrook recently formed a partnership with Saracens Rugby Club – what is the bank’s approach to diversity and inclusion?

Shawbrook is a really great place to work, and it’s really switched on to diversity and inclusion. We have a packed agenda, and the key sponsor for that is our chief risk officer, so it starts at the very top.

Even just this year alone, our agenda includes things like age, disability, cognitive diversity, gender, LGBTQ+, culture, ethnicity, and nationality. We are bringing all that to life with a whole programme of events and conversations, including our CEO talking about www.sfintroducer.com

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race and ethnicity in the workplace. The programme includes various people within Shawbrook Bank sharing their views.

We’ve built a culture that recognises the key values of building around a diversity and inclusion agenda.

From my own personal experience working within an environment where that’s recognised, and where there’s a positive slant to what people can bring and contribute when they come from a variety of backgrounds, it builds a deeper and broader business that relates better to the market it seeks to serve.

On the one hand, it creates a great environment to work in, and I think many people at Shawbrook get that sense of community and belonging. No subject is taboo, no person should ever feel excluded. The wider benefit is that we can offer a better reflection of the market and customer base.

The partnership with Saracens Rugby Club is great, we’re excited about supporting the charitable work that

“Shawbrook is a really great place to work, and it’s really switched on to diversity and inclusion. We have a packed agenda, and the key sponsor for that is our chief risk officer, so it starts at the very top” they do, and it really is propelling our own ambition to make a difference any way that we can.

It’s an external representation of the values Shawbrook has around trying to make a difference as best you can.

They also have very clear statements around being advocates for women’s equality in sports, so there’s a good natural marriage between our values, which will hopefully help us express that through the sponsorship programme.

What kind of events or programmes does Shawbrook run?

Emma Cox

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We’ve had people come in to do various talks around their experiences, and by keeping the topics varied it represents better the dialogue that’s needed.

The events we have are very much about getting the conversation going. As soon as we’ve had an event, the Slack channels are buzzing, conversations continue afterwards, people contribute and find related articles. It really does engage our teams, and creates an environment where people feel they have something to offer and are willing participants in a conversation, rather than feeling their experiences don’t matter.

We’re working very hard to create an environment where it’s encouraged to bring your own personal experience. Theres a lot to gain from that. → MAY 2021 BRIDGING INTRODUCER

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INTERVIEW Chances are, there are customers that have gone through similar experiences and challenges, which makes it all the more relevant.

Shawbrook has done a lot recently around modern methods of construction, is sustainability a big commitment for the bank?

This is such a big question and developing subject – it’s going to be an agenda item for the bank that will continue to grow in importance and priority. We’re probably at the start of our journey as to how we’re going to be a positive force within finance around the commitment to reducing carbon.

We’re doing a full review around where we can support our borrowers and where there are opportunities for people to benefit from an investment in reducing their own carbon footprint.

A typical example, which gave us some insight into our role as a bank, is of a recent customer that provides housing to the social rental sector. They had an extensive portfolio of properties which they were taking through a fairly extensive refurb.

They have, as a business, committed to a low carbon footprint property product, and that gave use great insights in terms of the intricacies they have to go through to really significantly reduce their carbon footprint, and how we as a lender should be supporting that.

It’s about recognising, as with conversations around energy performance certificates (EPCs), whether there’s a way to reward improvements. If they’ve committed to using materials that aren’t necessarily recognised as standard construction materials, but contribute to lower emissions, we should also be recognising that.

From a product and offering perspective, we’re going through that process as we speak – really trying to find a meaningful, sustainable product for those property investors that are wholly committed to reducing their carbon footprint, understanding what that strategy looks like for them, and how we can recognise the positive steps they’ve taken and the impact that they’ve had through a financial product.

We’ve seen some really key opportunities from our investors, who equally want to do better and need the support of their lenders.

As a community of lenders, we need to have a consolidated view around acceptable construction.

Those conversations are still happening as we speak.

Some lenders have already made steps towards that commitment, as we have, but at some point we all need to make a fairly bold step in the right direction.

This is a very high priority for Shawbrook.

At each step of a project, you have to consider what the impact is, and whether there is another way to either encourage a different outcome through different materials, or just reduce the environmental impact

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overall. It’s really challenging, but we will probably see a lot of creativity as a result.

This is the type of area you might see lenders become quite inventive.

Is that need for creativity where specialist lenders come in?

I would say so. The specialist market is really good at getting under the skin, identifying problems and working out the solutions. That ability to be creative is also a mark of the specialist. Combine those two things and I think the specialist markets are well placed to lead the way. It’s not to say others aren’t also well suited, it’s just that in terms of the ability to think in a more agile way, it’s better to be a smaller, specialist lender than a bigger lending entity.

Within the specialists, there’s always that ongoing conversation around identifying need and opportunity, finding an appropriate solution, and weighing up the risk factors around it. There’s always that tension between appropriate risk while providing a suitable solution to customers, and specialist lenders handle that very well.

A good example is houses in multiple occupation (HMOs), which many years ago were relatively unknown. It took the specialist market to really grab that asset type and make it a staple now.

Shawbrook bought TML earlier in the year, how has the relationship fared since then?

It’s been really good, there’s a great fit with TML. We’ve been working with them for some time, so it was the next natural step for both parties. We complement each other’s businesses.

TML had a very targeted market and distribution of networks and clubs, and Shawbrook takes more risks around larger HMOs and different asset types, and has a distribution that’s more narrow but deeper, working with directly authorised (DA) brokers versus appointed representatives (ARs) and networks.

Those two things complement each other very well, and we see the future of the TML Shawbrook relationship as retaining our separate identities. I don’t think people should expect to see a dilution of either brand or proposition, otherwise it defeats the object.

It’s about ensuring that TML continues to be fantastic at what it does, and so does Shawbrook.

That’s helpful for the market and brokers, you need diversity within the marketplace and lenders offering different areas of expertise.

Does Shawbrook have any further acquisitions or growth plans for the near future?

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“We’re currently in a pilot phase looking at the use of automation, digitising the journey as much as we can, using data insights to help with some of the credit decisioning.

Ultimately, the goal is to create an effortless application process for customers and brokers” going from property initially then into business finance and then consumer finance.

For the future, Shawbrook has the desire to continue to grow if the opportunities present themselves.

Never say never, but for the time being the acquisition of TML has ticked that box in terms of markets that we want to be in.

As for other growth plans, we’ll continue to go deeper into some of the markets we’re in. Making sure that we are serving our investor profile as best we can, we’ll develop and grow as our investor and borrower profile evolves.

For bridging, that’s about making sure that we are moving with the times with the borrower profile.

For term investments, it’s about making sure we are exploring all the opportunities available, such as holiday lets, development exits on a term basis, and in the commercial investment space, and making sure those landlords we see expanding into commercial assets have got the right funding partner as they diversify.

Within the commercial asset type, an area that is under review for us is owner-occupied. It’s a market that we’ve supported, but we think that we probably need to do a bit more in that space.

What is the role of technology for Shawbrook?

Shawbrook has a very strong, passionate commitment to using technology in a way that actually improves the customer and broker experience, and we’re investing very heavily in that as we speak.

We’re currently in a pilot phase looking at the use of automation, digitising the journey as much as we can, using data insights to help with some of the credit decisioning.

Ultimately, the goal is to create an effortless application process for customers and brokers.

It’s going incredibly well. We’ve been able to turn around full mortgage offers in 48 hours, 24 in some cases, through the use of this new platform we’re looking to roll out. The key features are the use of automated valuation models (AVMs), and some of the insights that help with credit decisioning and help the underwriter. www.sfintroducer.com

We’ve found that while the underwriter’s role is to do lots of thinking around the decision-making process, there are obviously some aspects of the role that aren’t about necessarily about credit risk.

We want to take some of the non-cognitive elements out, to allow for the underwriters to get back to that thinking part.

So far, so good. We’ll be looking at improving customers’ journeys as well – that’s not just the application process, but also where the customer interacts with us.

It’s a big commitment, with more to come, and we’re definitely very excited about it.

Does there come a point where automation goes too far?

We haven’t hit that point yet, but that’s not to say it won’t come.

At the heart of the vision around our use of technology is how we can make brokers’ lives a lot easier when dealing with Shawbrook. It’s about making us easier to do business with, where the final platform is built for brokers.

I know there’s nervousness around some of the automated decisioning and digitisation taking away from the broker. But we’ve built this platform around how a broker ideally would like or choose to interact with a lending partner – it has them very much front and centre.

There is still so much more to come, and so much more that the digital or tech journey can do for the experience of working with Shawbrook, which then has a positive impact on the borrowers and clients.

At the minute, we haven’t necessarily met the limits to that, but the sense check for us is that every step that we’re taking has the broker and customer front and centre.

What is the bank’s appetite for bridging at the moment?

Bridging for us is an absolutely key proposition. It’s one of those products that’s the glue for everything else that we do, so our appetite is as strong as it’s ever been, and we’re committed to making sure we remain a viable option for our brokers and customers when they’re thinking about an opportunity.

When looking at our product mix overall, bridging is the product we’ve got to get right first, because it underpins everything we do. Bridging for us is the start of the journey.

When it launched 10 years ago, Shawbrook didn’t have a bridging proposition, and the reason it came into being is that we saw the opportunity of the buyto-let (BTL) product we have being used as the exit, and that we were missing out on the bridging part of the journey. → MAY 2021 BRIDGING INTRODUCER

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“It’s about being alive to the market, committed to understanding what your customer needs are, as they are also moving through these changing times, and just being quick to act on smoke signals and not when the house is on fire” So bridging was introduced to help us provide an end-to-end offering to the customer. That’s why it has remained such a fundamental part of what we do.

In terms of investment in that market, we’ve got a core focus around product innovation – there are developments underway, we are just taking it through the appropriate governance channels, and it will continue to broaden and deepen our relationship with customers that have discovered bridging as an essential part of their funding strategy.

Bridging is also an exciting marketplace to be in. It’s where you see diversity in terms of investor strategies, and it’s the thing that tests the market first. The activity we see at the bridging end will tend to naturally follow through to the BTL term end, so it’s a great barometer in terms of what’s actually happening at the coalface with our investors. It’s a thriving marketplace with a lot of competition and choice – a great market to be in.

Are there any particularly interesting trends you’re seeing at the moment?

There’s broader themes, such as the mix of regulated versus non-regulated bridging, which has shifted and we are starting to see more regulated bridging.

Things are in a bit of flux at the moment, with a slight increase in regulated bridging demand, which is probably now at about 60%.

In the non-regulated bridge space, Shawbrook is very much weighted towards refurbishment and development exits, but there’s also a lot of rebridging going on.

It will be interesting to see what happens as we go through next stamp duty holiday cut off. There’s positive news around property values, and hopefully transactions will open up again, because at the moment there’s still a lack of supply which is stalling some investors.

It’s too early to call, but it’s going to be quite a dynamic marketplace in the next few months.

Will bridging see a spike at the end of the stamp duty holiday, as with the original deadline?

The initial deadline did drive an increase in activity, but it stabilised actually. We had the increase and

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then it plateaued and it hasn’t really tapered off. It’s been a constant level of activity, so it’s hard to tell at this stage whether we’ll see more of an increase, or whether we’ll see a continued stable demand for bridging driven by stamp duty holiday.

Are there any challenges the market should prepare for as 2021 goes on?

Obviously with the impact of COVID-19, and as we come out of the furlough and support schemes, it’s well documented that those in society who have been impacted the most – who perhaps weren’t in full-time employment or who worked in the leisure sector, for example – were also those that were more likely to be in rented accommodation.

From an investor perspective, it’s about making sure they have a strategy around voids or support for tenants.

That clearly matters in particular if the investor is looking to leverage on their investments and seeking finance – that’s something lenders will probably need to be thoughtful around.

Thankfully with the Prudential Regulation Authority (PRA) standards that came in around stress tests, sensible investors that were able to meet the stress tests of the lenders probably aren’t having too many sleepless nights, because they’ve got a robust portfolio that can still support their mortgage payments.

But it’s something I would be mindful of, the impact of unemployment within the demographic that is more likely to be renting.

However, I also see that as being relatively shortlived. As we start to open up, we are already seeing that the leisure sector will probably return with a sense of gusto and euphoria, so it won’t be too long until people find themselves back in employment.

Have our town and city centres fundamentally changed due to COVID-19, or will they bounce back as we move out of lockdown?

It’s well documented that the high street is a changing place. COVID-19, along with online retail, has probably cemented its fate.

Having said that, we’re still human at the end of the day, and some of us crave that human interaction. I don’t think the high street will disappear, but we’ll see more of the social side – cafes, entertainment spaces and places for people to socially engage or interact.

In terms of office space, home working has undoubtedly changed the way people will continue to work, but again there will always be a time or place where it’s more appropriate to be in an environment with your coworkers. Office space will definitely change, but I don’t see it disappearing altogether.

The other thing is, once people start getting back into the routine of travelling to work, all the www.sfintroducer.com

COVER

INTERVIEW trappings around being in the office will start to grow momentum again.

While I don’t think we’ll see an immediate rush to some of the big city centres per se, it will eventually get back to, not quite pre-COVID, but fairly normal day-to-day activity.

In terms of the office space that’s then no longer required, that does create other opportunities.

Permitted development (PD), for example.

We’re likely to see more office space become vacant, creating a prime opportunity for investors to snap up and exercise the PD rights on it.

Again, it’s quite an interesting, dynamic space to keep an eye on.

How does a lender stay nimble in the face of these changing opportunities?

It’s a constant position you need to be in. A lender like Shawbrook needs to ensure that its current appetite and lending practices are such that it can react quickly.

To give an example, people that may have financially struggled through COVID-19, and being furloughed, may as a result have impaired credit.

As a lender, do we need to start considering how we serve those customers better? It’s still an underserved and developing market that requires some financial support.

It’s about being able to act as and when those data points become available, and when we start to see those trends in the marketplace.

The way a lender is able to thrive in that environment is to ensure it always looks through the lens of finding a solution. That way you almost welcome a challenge, because it gives you an opportunity to be creative and innovative and work out a solution for an emerging trend – or on the flip side, an emerging risk that we maybe need to take precautionary steps on.

It’s just about being really alive to the market, committed to understanding what your customer needs are – as they are also moving through these changing times – and just being quick to act on smoke signals, not waiting until the house is on fire.

“Brokers are part of our DNA, first and foremost. Shawbrook was built specifically around supporting brokers in serving their customers, and we continue to invest in that, whether it’s investing in technology, processes or products. We recognise that our success is based on theirs”

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If you can juggle all those things, it does make for an interesting, creative environment that helps lenders grow and expand.

What developments should we be looking out for from Shawbrook over the next year?

One of the key developments for us is the investment in technology and the digitisation of the BTL journey, and on into other markets. That certainly is the key investment this year.

Ultimately, it’s about using that technology to help us further serve our customers in the markets we’re in.

There will be more to come around that.

The sponsorship with Saracens will also help open up conversations in the wider market around our commitment to diversity and inclusion.

Other than that, we will continue to go deeper into the markets that we’re in, making sure we move with the times as our customers’ needs evolve, and as we come out of the pandemic and into what the market may look like.

What message would you like to get across to brokers about what it’s like to work with Shawbrook Bank?

Brokers are part of our DNA, first and foremost.

Shawbrook was built specifically around supporting brokers in serving their customers, and we continue to invest in that, whether it’s investing in technology, processes or products. We recognise that our success is based on theirs.

That’s what sets Shawbrook apart from other lenders that perhaps work in a more transactional way.

We have a panel of brokers that we work with closely, get to know, understand their business model, and who we then seek to support in the best way we can.

The pilot is a good example – that has been built around the broker feedback and has been tried and tested by them. If they come back and say something doesn’t work for them, we’ve gone away and invested time and effort in something that does.

As for our business development managers (BDMs), we don’t see them necessarily as just BDMs, we see them as consultants to the brokers’ businesses.

A lot of people pay lip service to the idea of ‘adding value’, but we’re constantly finding ways to make sure a broker feels they’re better off going to one of our BDMs, that they’ve added something that they didn’t have before.

This might be in terms of knowledge around products and our offering, or about markets that they might not be in that they could move into.

It’s very much a hand-in-glove genuine partnership, and long may that continue. B I MAY 2021 BRIDGING INTRODUCER

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IN OUR OPINION

The future is b Emma Cox, sales director at Shawbrook Bank, considers the impact of the pandemic, and the trends to look out for as the UK emerges into recovery

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or those of us in the market, it’s clear that bridging finance has come a long way over the years. Where once this form of finance was used as a last resort, considered by those needing a quick injection of cash, bridging now has a broader reach with a diverse borrower profile.

Over the past few years, bridging volumes have continued to grow, with investors particularly interested in the opportunity bridging provides when maximising their return on investment.

More recently, the pandemic – along with the first national lockdown – naturally ground the UK property market to a halt, but as the market opened up and adjusted to new ways for working, we saw a significant recovery in the number of transactions supported by bridging finance.

Recent data from the Association of Short Term Lenders (ASTL) reported bridging completions were down to £2.88bn in 2020, compared to £3.99bn in 2019. Conversely, bridging applications actually grew by more than 11%. The positive shift in applications started in Q3, up by 25.7%, and continued to grow at pace into Q4, with an increase of 39.1% on the same period in 2019.

These numbers are a clear indication of the recovery of the property market, as investors have responded positively to the progress of the vaccine roll-out and lifting of restrictions as we embark on the roadmap out of lockdown.

Our experiences at Shawbrook mirror the activity of the wider market, and while we naturally saw completion levels fall away during the first national lockdown, they recovered significantly from September.

Since then, demand for bridging continues to grow, with a high level of new enquiries exceeding prepandemic levels.

Based on these current trends we expect bridging to go from strength to strength and, given the current trajectory, it is estimated that the market could reach a size of £14bn to 15bn by 2025.

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REFURBISHMENT Bridging finance gained a broader appeal with an emerging investor profile seeking better returns on their investment by improving the standards of their properties to drive a higher value or increase rental income. By 2018, the proliferation of lenders providing products designed to support investors looking to carry out refurbishment works was palpable.

As property investor strategies evolve, this trend is set to continue, as demand for bridging is not only increasing but also diverging into heavy refurbishment for works with planning and development exits.

Demand for refurbishments is underpinned by the needs of tenants, with indications that their preferences are changing in response to the pandemic, with a greater emphasis on more space and less on distance from commuter links. Proactive landlords have recognised the opportunity to adapt their rental strategies to capitalise on tenant demand.

Our own research at Shawbrook shows increased demand from investors looking to fund refurbishment projects to create higher yielding assets, such as houses in multiple occupation (HMOs) and multiunit blocks (MUBs).

In addition, heavy refurbishment bridges are also being used in conversion work by developers converting commercial space into residential under permitted development (PD).

According to our latest Broker Barometer, 53% of our brokers said they’d seen an increase in demand in bridging for conversion works during 2020, which continued into Q1 of 2021.

COMMERCIAL TO RESI A trend that has largely been exacerbated by the pandemic is the increasing redevelopment of commercial buildings into residential properties.

With offices remaining closed for the last year, and flexible working likely to be a long-term trend, many commercial buildings – particularly within cities – are staying empty. www.sfintroducer.com

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s bridging In response, many developers and investors are proactively seeking opportunities to convert these commercial buildings to residential dwellings. Bridging finance can have an instrumental role in supporting investors at every stage of their development or refurbishment cycle.

In this context, we see bridging being used to secure the initial purchase of the property before development finance can be obtained, then once works are complete the development loan is refinanced to a less expensive bridging facility to allow more time to market the property for sale.

AUCTION MARKET Auction activity is a good indicator for the wider property market, and is a key driver in the demand for bridging. Due to inherently tight timescales, the use of bridging is a viable option for investors reliant on finance to purchase the property outright and preserve their own capital reserves.

The need to access funds quickly and in time to meet the legal completion deadlines is critical for any investor to succeed with an auction purchase.

Recent data from the National Auction Analysis showed that auction activity has recovered at an impressive rate since the start of lockdown early in 2020. In September, the total amount raised was over 38.8% up from the same month in 2019. This was largely driven by two significant commercial sales, but residential lots were also up 22.3% in the year to September.

FLEXIBILITY IN TIMES OF UNCERTAINTY One of the benefits that appeals to investors considering bridging is the flexibility to support changing strategies, which is especially useful in uncertain times.

With some properties staying on the market for longer, a bridging loan can step in to provide the capital injection vital for investors seeking out further opportunities to expand their portfolio, or those that need more time to achieve the maximum value when selling in a more certain marketplace.

In the midst of the pandemic, flexibility is key to many investors, allowing them to react quickly to opportunities in the market.

Indeed, bridging should now be considered as a strategic way to leverage investments for any www.sfintroducer.com

“We work with our brokers and clients to understand their future plans and ensure that we develop a product offering that supports the client’s needs. Bridging is intrinsic to our overall product proposition, and is the glue that underpins our commitment to the specialist markets” landlord looking to grow their portfolio or property business. Property values are looking positive, and tenant demand is going up. Given the strain on the supply of rental properties currently on the market, now is the time for investors to use bridging to take advantage and capitalise on the opportunities as and when they arise.

The ability to react quickly is key. With competition amongst lenders at an all-time high, putting a downward pressure on interest rates, bridging has become more accessible and affordable, and is now considered as standard practice for sophisticated investors looking to maximise returns.

At Shawbrook, we work in partnership with our trusted broker partners and support a marketplace that is constantly evolving, and where the investor profile is increasingly more sophisticated.

Over the last 12 months, we have seen a significant uptick in the number of bridging loan applications, and we believe it is our role to ensure brokers and their clients are supported from the very start of their investment journey, by providing flexible bridging terms for refurbishments, as well as providing buy-to-let exit solutions for longerterm investments.

We work with our brokers and clients to understand their future plans and ensure that we develop a product offering that supports the client’s needs.

Bridging is intrinsic to our overall product proposition, and is the glue that underpins our commitment to the specialist markets, serving brokers with customers seeking a lending partner that understands how finance can bolster their property business. B I MAY 2021 BRIDGING INTRODUCER

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REVIEW

ASTL XXXXXXXXX

A joint approach to tackling hot topics Vic Jannels CEO, ASTL

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t the ASTL we always look for opportunities to work collaboratively with our fellow associations in the specialist finance and intermediary lending markets, where it is appropriate to do so for the benefit of our members.

This has driven a number of initiatives, such as a joint submission with the Financial Intermediary and Broker Association (FIBA) regarding the stamp duty holiday, and Robert Sinclair from the Association of Mortgage Intermediaries (AMI) presenting at our annual conference.

One initiative that has been highly successful is the launch of a series of joint events with FIBA, in which we discuss some of the most pressing issues affecting our industry. I thought it would be useful to comment on some of the hot topics that were discussed during our most recent virtual event.

FEE DISCLOSURE

We discussed the Financial Conduct Authority’s (FCA) expectations for the disclosure of introductory fees, and whether full disclosure should be a prerequisite for all types of mortgage loans. The general sentiment was that full disclosure of fees is best practice and is both the responsibility of the lender and the broker.

There was a comment that, regardless of whether it is regulated by the FCA or not, a lender should always look to disclose all fees paid to a broker within an offer letter, and that failure to do this could leave the lender exposed from a legal perspective. One case where the broker fee was not disclosed resulted in the loan being rescinded – both costly and embarrassing.

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It was acknowledged that it is the duty of the broker to disclose any fees on a regulated loan, and that by including full disclosure within the offer letter, lenders can ensure they are not left exposed and support this aspect for their broker introducers.

GOVERNMENT-BACKED LOANS

The impact of the Coronavirus Business Interruption Loan Scheme (CBILS), the Bounce Back Loan Scheme (BBLS) and the Recovery Loan Scheme were also discussed.

The latter is expected to have limited appeal, and be accessed only by businesses that struggle to secure finance elsewhere.

It was thought that there might be refinance opportunities as a result of the other schemes, particularly given that some businesses, having made use of a government scheme – even if only as a precaution – are being viewed negatively by some lenders.

With this in mind, there may be a cohort of borrowers who are driven to the specialist finance sector because they chose to access a government scheme, just because they thought it was the right thing to do. This could spell opportunity for lenders and intermediaries in this market.

INDUCEMENTS AND ENTERTAINING

Under the Mortgage Conduct of Business rules (MCOB), firms are allowed to receive indirect benefits such as gifts, hospitality and competition prizes, provided that it is not likely to give rise to a conflict with the duties the recipient owes the customer.

However, this can become an issue where the offer is directly related to the completion of a loan, as it then becomes a specific incentive. The discussion raised that there has been a resurgence of such offers, for example of an iPhone for a completion, and it

was deemed that this stretches what is permissible under MCOB. It was also noted that offers like this raise issues as to whether they should be declared for tax purposes.

Overall, the conclusion was that promotions linked directly to a specific loan placement or completion are problematic and should be discouraged.

PROCESSING TIMES AND LEGAL PANELS

There was discussion about the lengthening in processing time for loans and the merits – and potential challenges – of lenders working only with approved legal panels.

It was accepted that, due to the imposition caused by the pandemic, plus the deadline for the stamp duty holiday benefit, almost all areas of the mortgage market had slowed causing substantial delays.

It was deemed unfair to place this problem in any single area, as everyone was affected and it generally should become less problematic as we come out of lockdown.

FCA QUARTERLY FINANCIAL REVIEWS

During the past year, the regulator has requested that firms submit quarterly financial status returns with a view to establishing the continuing stability of firms during the pandemic period.

Concern was voiced as to whether this might be an ongoing requirement.

The general consensus was that brokers arranging loans have a different set of responsibilities and obligations to investment advisers handling client money, and that there should perhaps be a threshold regarding the size of the broker firm, determining how frequently it is required to submit.

The time and cost taken in preparing and submitting these four reports – in addition to the twice-yearly RegData requirement – was considered an unnecessary imposition that should be dropped as soon as possible.

Overall, it was an interesting and valuable event. I trust that for all delegates, the breadth of topics and depth of discussions proved helpful.

Sharing ideas is the best way for us to drive our industry forward. B I www.sfintroducer.com

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