Bridging Introducer March 2022

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March 2022

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EDITORIAL

COMMENT

Contents

Competition and consolidation

Publishing Editor Ryan Fowler Ryan@mortgageintroducer.com Editor Jessica Bird Jessicab@sfintroducer.com Deputy News Editor Jake Carter Jake@mortgageintroducer.com Commercial Director Matt Bond Matt@mortgageintroducer.com Advertising Sales Executive Jordan Ashford Jordan@mortgageintroducer.com Campaign Manager Esha Gossain Esha@mortgageintroducer.com Production Editor Felix Blakeston Felix@mortgageintroducer.com Head of Marketing Robyn Ashman RobynA@mortgageintroducer.com CEDAC Media Ltd Signature Tower 42 25 Old Broad Street London EC2N 1HN

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here is little doubt that the bridging market has had a spectacularly successful couple of years.

Whether the increased need to shore up chain breaks during a period of pandemic-induced uncertainty, or the increasingly creative methods investors are using to get the best out of the property market, bridging has had a role to play in many of the biggest trends.

Looking ahead, 2022 is set to add to this. Energy Performance Certificate requirements are looming, and with shortages, delays and rising costs in terms of both materials and labour, landlords may find themselves in need of flexible finance, fast.

A lack of housing supply means that residential borrowers are more likely to turn to bridging to boost their purchasing ability and outstrip the compeition, in addition to fuelling other parts of the market, such as auction purchases, permitted development projects, and HMO conversions, to name a few.

All of this is pulling brokers and lenders alike towards a lucrative and growing market, and competition is tough.

However, bridging is not the high-yield product for lenders it once was. Increased competition and a historically low-rate environment have seen some lenders reconsider the time and effort it takes to get bridging lending right.

So, we are looking ahead to a year in which demand continues to fuel competition, and bridging keeps building its appeal.

However, this will likely be punctuated by a number of noticeable exits from the market.

Hopefully, the balance between competition and consolidation remains healthy. B I

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Jessica Bird Jess_JBird

Bridging Finance

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Unlocking opportunities with award-winning bridging products

5 Luke Egan Expertise can give small developers a boost 7 Donna Wells The phones keep ringing 9 Jason Berry Chain-break to complete in a challenging market 11 Brian Rubins Large and then larger…

12 James Danks Brokers should prioritise the right partnerships 14 Feature: Quality over qualification?

Jake Carter asks the industry to weigh in on the age-old argument of qualifications versus experience, as the market grows to meet new challenges 22 Round-table: Strong under pressure The panel looks at competition in the market and how short-term lending could help address issues looming in 2022 28 Cover: Shot-term lending, long-term relationships Jessica Bird and Gavin Seaholme discuss bridging on the rise, plans for 2022, and why this market thrives on relationships 34 Vic Jannels Building on a record year

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MARCH 2022

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REVIEW REVIEW

DEVELOPMENT XXXXXXXXX

Expertise can give small developers a boost Luke Egan director of bridging and development, Pink Pig Loans

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t’s not exactly a secret that we don’t currently build enough homes in the UK to meet demand. Part of the reason that the past couple of years has seen such significant house price growth has been the imbalance between supply and demand – plenty of people have decided they want to move, yet estate agents are reporting record low stock levels of homes available to sell.

The government has been open about wanting to encourage more sources of new housing, getting a broader range of developers active in the market.

That means no longer relying solely on the massive housebuilding names, and instead seeing greater numbers of new properties provided by small and medium-sized (SME) builders.

There is no shortage of hurdles for smaller builders to clear, however, when it comes to getting a development project off the ground.

For example, a recent report from the

Help developers find the funding they need

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Home Builders Federation found a whopping 94% of small developers saw delays in gaining planning permission for their projects last year, up from 80% the year before, while the number who believe the supply and cost of labour is proving a major barrier has jumped from 19% in 2020 to 59% last year.

The funding side can also prove something of a challenge, particularly if developers are not able to tap into the knowledge of development finance experts.

TOO SMALL FOR ME

Some lenders are pretty prescriptive about the minimum loan sizes they are willing to offer.

Developers may have a raft of options to choose from if they are raising £1m for a more sizeable project, but if they are looking to raise a more modest sum – say £200,000 – then finding a lender can be more difficult.

While this is understandable to an extent, given the profits on offer to lenders on those larger loans, the reality is that the smaller development loan market is significantly underserved, which is only holding back housebuilding across the country.

Another factor that can also cause issues with a potential development loan is the relative experience of the developers themselves.

Experience counts for a lot in this market, and rightly so – having a track record of delivering housing projects on time and on budget will always make you more attractive to lenders, in much the same way as residential borrowers with a flawless credit record stand out from the crowd.

However, all too often we see firsttime developers, without a lengthy track record of building new homes, finding it incredibly difficult to find the funding they need. In fact, the lack of a history in the industry results in an immediate no from some of the more

cautious lenders. Again though, this is a missed opportunity.

Even those experienced developers had to start somewhere, and by digging into the details of their plans and establishing how prepared they are for the project, you can tell whether the would-be developer is on the right track.

FINDING ANSWERS

Small loan sizes and a lack of experience can be challenging barriers to overcome, but they are far from insurmountable. If you know where to look, that is.

We had a case recently at Pink Pig which perfectly demonstrates this, with first-time developers who owned a site with planning permission for two units. We were able to arrange a £195,000 facility, with a day advance to kick off proceedings, followed by a drawdown facility so the developers were able to minimise the interest costs of the funding.

It can be difficult enough to find small funding or to help a first-time developer, but those two issues combined? That may be a tall order.

Or at least, it is if you aren’t working with experts in the field.

If you’re only handling a couple of fairly vanilla development deals each year, then cases where there are potential headaches will also prove particularly challenging.

But we were able to help those clients because of the lender relationships we already have, and because of the expertise and experience in this market that we have.

It meant we knew exactly where to go and how to present the case so that it had the best possible chance of a positive outcome.

That’s why it’s so important for advisers to establish their own strategies for handling more challenging specialist cases, whether they be for second charge, development finance or commercial loans.

Having partners that understand those markets intimately means you can rest assured that no matter what sort of query your client comes to you with, you have a way of helping them find the funding they need. B I MARCH 2022

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REVIEW REVIEW

MARKET XXXXXXXXX

The phones keep ringing Donna Wells director, First 4 Bridging

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he first few weeks of 2022 have been laced with opportunity and activity. In times gone by, January and February saw decent levels of business, but tended to be a gentler steppingstone into a hectic spring and early summer period.

However, the phones have hardly stopped ringing since the turn of the year, not that we’d expected anything less on the back of a period where historical trends and the rulebook have been well and truly thrown out of the window – although not from a regulatory standpoint, I hasten to add.

This weight of opportunity and activity in the residential market was summed up in the latest data from NAEA Propertymark, which saw 2021 experience the highest homebuyer demand in 17 years.

The number of properties available to buy started healthily, with January 2021 seeing a flurry of new properties coming to market, at an average of 38 homes per member branch. However, stock levels have declined dramatically despite a small peak in July, ending the year with just 19 homes per branch.

This is a record low, and the inability to meet buyer demand has meant that those homes for sale have attracted bidding wars, pushing prices high.

Supply and demand is a powerful equation. With a lack of housing stock in the market, we are seeing potential buyers being forced to take a variety of approaches to ensure they secure that all-important purchase as the pressure continues to mount.

THE CLASSIC CHAIN-BREAK

The classic chain-break scenario remains one of the most common uses for bridging finance.

Even with properties so scarce, there are still 101 reasons why potential buyers pull out of certain purchases, leaving the seller unable to complete their ongoing purchase without being able to realise the equity from the sale of their existing property.

The continued take-up of this product type was outlined in the recent Bridging Trends report for 2021, which suggested that funding a chain-break was the second most popular reason for taking out a bridging loan – at 18% of all lending, up from 17% in the previous year.

Of course, this is only one scenario when bridging finance can be an appropriate solution, but with increasingly desperate purchasers less likely than ever to risk losing out on their dream property, chain-breaks have become increasingly frequent, a trend which is likely to continue.

ALTERNATIVE LENDING OPTIONS

When evaluating alternative options to complete a residential purchase, a recent poll from Norton Home Loans suggested that 80% of brokers

The phones have hardly stopped ringing since the turn of the year

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think they will write more specialist residential business, including adverse credit and unusual income or property, in 2022 than any time previously.

However, this increase in specialist mortgage business is not necessarily a direct result of the COVID-19 pandemic. When asked if they were seeing more adverse credit cases since the start of the pandemic, only 43% of brokers said yes, compared to 57% who said no.

The brokers who were surveyed said unusual property types caused regular issues when trying to place cases, with the most difficult being timber or steel framed construction, according to 53% of brokers, followed by freehold flats, which were flagged by 41% of brokers, then flat roofs and flats with balcony access, both of which were cited by 29% of brokers.

As outlined in these results, there is little doubt that specialist mortgages are going to prove a substantial growth area for brokers this year in the residential space, and also beyond those owner-occupiers.

INVESTMENT PURPOSES

Harking back to the Bridging Trends report, the most popular reason for borrowers taking out a bridging loan in 2021 was for funding an investment purchase, which accounted for 25% of all contributor completions.

In a comparable manner to owneroccupied purchases, the use of bridging finance in such a transaction is a highly valid option.

However, there will also be times when a number of specialist mortgage solutions might be more applicable for these clients, whether as a purchase vehicle or as a responsible exit from short-term finance.

In a market which is becoming ever more complex for borrowers and brokers, access to specialist support and access to a range of bridging and alternative lending solutions will be key to writing more business and servicing a wider variety of clients’ ever-shifting needs. B I MARCH 2022

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REVIEW REVIEW

RESIDENTIAL XXXXXXXXX

Chain-break to compete in challenging market Jason Berry group sales and marketing director, Crystal Specialist Finance

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nless you spent the past 18 months on a desert island, you should have been an extremely busy mortgage broker during that time. The high levels of demand in the property market that were enjoyed in late 2020 and 2021 were fuelled by the stamp duty holiday, the race for space and changing buyer priorities.

However, with that surge having now subsided, a recalibration of the supply and demand of property in the UK is anticipated for 2022. These are shifts which will undoubtedly present challenges to both mortgage brokers and prospective purchasers who want to secure their dream properties.

DWINDLING HOUSING STOCK

The recent ‘Property and Homemover End of Year Report’, published by

Chain-breaks provide a great degree of flexibility

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TwentyCi, revealed there were 6% fewer properties put up for sale in 2021.

This was in part due to the stamp duty holiday ending, but also the scarcity of particular property types that matched the changing needs of buyers, which substantially slowed stock coming to market.

The impacts have clearly been felt by mortgage brokers. In Crystal Specialist Finance’s report, ‘Mortgage Broking in the Post Pandemic World’, 31% of brokers said lack of housing stock was their biggest challenge.

This is an issue which looks to be compounded in 2022, as interest rates rise again to tame inflation, and hardpressed buyers continue to be squeezed by the cost of living crisis – all factors which may lead to a sluggish market.

that brokers have been turning to bridging finance to help propel their clients ahead of the stiff competition.

Bridging is a versatile financial solution with many applications in the mortgage market, but over the past couple of years it has maintained its popularity for dealing with chainbreaks, where it provides a great degree of flexibility.

This has ensured countless brokers and buyers have been able to pull deals from the brink, turning a situation which could be a disaster into one where the buyer is at an advantage.

For example, it can facilitate a move before a client has sold their existing home, so there are no red lights impeding their route. It also means buyers can be in a stronger position than their rival buyers, and also be on same level as cash buyers, even making it sometimes possible to get money off the asking price.

This is only possible because of the rapid decision-making processes that bridging lenders employ; applications can be turned around quickly, with funds often released within a week.

STIFF COMPETITION

This year looks to remain a sellers’ market in many parts of the UK, with competition across most property types. With this comes the need for speed and agility when securing the most desirable properties in your client’s sights. It’s no surprise, then,

BRIDGING IS AN IMPORTANT TOOL FOR 2022

I expect bridging finance to continue its popularity throughout 2022, as it offers a handy tool and attractive proposition for buyers looking to rescue their delayed properties from collapse.

Having bridging finance in your toolbox can make all the difference, but it’s also vital to ensure you’re securing the very best rates.

Working with a specialist finance expert means you can access exclusive products with the UK’s best lenders, but also leverage their experience to speed up decisions and ensure an application is processed right first time.

2022 looks to be a different year for the market than 2021. With the ‘Property and Homemover End of Year Report’ warning that, on average, there is now only approximately two months’ property stock available across the UK, it’s imperative that mortgage brokers have additional tools – such as bridging finance – available to ensure they remain competitive in challenging market conditions. B I MARCH 2022 BRIDGING INTRODUCER

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Helping Intermediaries find their perfect partner

REVIEW REVIEW

LARGE LOANS XXXXXXXXX

Large and then larger…

START WITH THE VALUATION

Brian Rubins executive chairman, Alternative Bridging Corporation Limited

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ou need never be bored in the bridging world – it is constantly evolving. From the time when bridging meant relatively small loans for homeowners, change has been a constant. Nowadays, bridging includes commercial properties, development finance, overdrafts, exit loans and loans for refurbishment. In fact, every use of capital which can be secured by property.

This evolution has also included changes to loan size. Although many lenders are limited to loans up to £1m, others can accommodate £2m or even £5m, and there is a growing demand for loans of up to £10m and even more – and there is capacity available to satisfy them. But do not be fooled – larger loans are a different beast and need to be treated accordingly.

Firstly, requests for larger loans often involve more exotic properties – dilapidated country houses to become hotels, castles with land to develop golf resorts, agricultural land waiting for planning permission for residential development, industrial sites for waste management and so on. These are non-runners, however, as they are too specialist for the bridging industry.

But large does not need to mean unusual or specialist. Often, large in money terms is quite reasonable in bricks and mortar. For example, a house on the Wentworth Estate or in Belgravia or Chelsea may be less than 10,000 square feet, but can easily value at more than £20m or £30m.

Similarly, a retail parade or tenanted office building is often able to provide excellent security for a large loan.

So, what is so special about large loans? Surely they are the same as small loans but with more noughts? Not so!

The skill set is quite different.

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Gathering together all the relevant data is essential – just an address and a contact number is not the answer.

The valuer needs plans of the property, accurate information as to the current and proposed uses, spot-on information about any tenancies, the repairing covenants, the unexpired period of the lease and any break clauses.

The valuer will check the local authority planning portal and report on the approved use, and if planning is to be changed, or even tweaked, this will be considered against known local authority policies. If there is any asbestos in the building or other contamination, specialist reports will be required.

If it is a large development loan, accurate information on gross development value (GDV), rate of sale, construction cost and the conditions in the planning permission are key.

Here, residual value will be the basis for the site value, and a 5% error on costs or revenue will throw up a widely inaccurate valuation. An undervaluation can as easily destroy the opportunity, as an over-valuation can give a false promise to the lender.

Experienced lenders know the specialities of the major valuer firms – who best understands student housing, retail, industrial, residential development, and so on. Truly, one size does not fit all, and the lender is unlikely to be influenced by the lowest fee or the shortest turnaround time.

Choice of the appropriate firm of solicitors is also important. The lender will know who they wish to instruct, and who will have access to in-house specialists for queries relating to planning, taxation, etcetera, and construction law where building is involved. It would be helpful for the broker to ensure a similarly qualified firm is instructed by the borrower.

GAINING APPROVAL

Credit approval is unlikely to rely solely on the valuation for large loans.

The lender will wish to understand

the borrower’s knowledge and track record for the type of project they are undertaking, and it will help considerably if the borrowing company has a good profit record and a balance sheet demonstrating reasonable net worth or, in the case of a special purpose vehicle (SPV), there is a parent company or shareholders.

Very often, large loans will require an extended repayment period – say 18 or 24 months – and not every lender can offer this. Brokers do their clients no favours in committing to repayment – or refinance – in a shorter term than is necessary.

Similarly, encouraging a lender to make a loan which is disproportionate in size to their loan portfolio will be counter-productive, as it will extend the due diligence period, and will forever be in the spotlight in the lender’s reporting.

We understand these dynamics, because at Alternative Bridging, we have included larger loans in our portfolio for the past 30 years.

Historically, bridging loans did not involve close relationships between lender and borrower, with most of the negotiation managed by the broker.

With large loans, however, the broker has a vital role to play, but the lender will also wish to establish a close working relationship with the borrower.

The lender’s asset management department will in all probability come into play during the due diligence period and remain in close contact until repayment of the loan.

Up to now, I have focused on the hurdles – how to avoid or overcome them, and how to satisfy lenders’ requirements – but surely there are positives? Of course there are!

Importantly, borrowers who can justify taking a large loan will usually be more reliable and better organised and there will be less likelihood of the proposal aborting.

Although brokers’ rates of commission may be reduced for larger loans, in pound terms the fee will be much more! What’s not to like? B I MARCH 2022 BRIDGING INTRODUCER

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REVIEW

MARKET XXXXXXXXX

Brokers should prioritise the right partnerships James Danks head of bridging and development, Finance 4 Business

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he end of COVID-19 restrictions and the economy being on track to hit prepandemic levels is great news for the industry, and there is positive upward movement.

We have certainly seen a notable increase in enquiries, and we believe there are a number of factors that will contribute to the escalation of this. Auction house activity is seeing an uplift, driven by developer appetite to capitalise on refurbishment opportunities. Meanwhile, as businesses start to get back to normal, this should present a real opportunity for investors, as according to research conducted by Savills, there is a real undersupply of Grade A offices across UK regions. The logistics arena also offers some scope for value-add for investors.

Combine all this with a huge and ongoing housing shortage that is unlikely to be solved any time soon, and there’s no question that developers will have a plethora of opportunities to capitalise on over the next decade.

As a result, we are certainly seeing competitive rates at the moment in the bridging market. The challenger banks are all offering similar rates, at lower loan-to-values (LTVs). Some of these are as low as 0.39%, and so for brokers choosing a lender where there may be a choice of around five or six lenders offering similar rates – this should not really be the priority.

The foundation for many bridging loan deals will be underpinned by three key pillars: speed, leverage and rates.

In a market where speed is often a key priority, choosing the right partner lender to help deliver this and structure the right deal is crucial.

With the majority of straightforward or ‘vanilla’ deals, the rates don’t differ, so it’s about identifying the best fit.

In the quest for speed, the growing use of desktop valuations, or automated valuation models (AVMs), is making

Alongside technology, strong relationships can only aid the transactions process.

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BRIDGING INTRODUCER MARCH 2022

a significant difference to the speed in which a valuation survey process is executed, bringing an almost immediate solution where the traditional process could take up to a fortnight, including report drafting.

Intermediaries should identify those lending partners that can offer this technology and flexibility. We are seeing more lenders happy to offer AVMs on loans with higher LTVs – up to 75% LTV. Where clients wish to use their own legal operatives, in the bridging market, this doesn’t always offer the necessary speed. Brokers and intermediaries should steer clients away from this option, and seek to work with lending partners that offer joint legals, where law professionals are experienced in requirements for bridging finance transactions. With more lenders now offering legal representation alongside the AVM technology, the usual holdups that can slow down a lending deal are negated.

There are also some lenders that offer online portals to provide a platform for brokers to communicate, and execute applications and administrative tasks in a highly automated way. With the capability to pre-populate application forms from information that only needs to be inputted once, further efficiencies can be created that enhance speed.

Alongside technology, strong broker relationships can only aid the transaction process.

Operators that can combine speed with proficiency will win out in what can sometimes be an arena fraught with complexities.

In the current landscape, the whole package of speed, leverage and rates isn’t out of reach. But where time and cost can be saved with joint legals and AVMs, the headline rate should certainly not be the grab.

Some of the challenger banks may still have an underwriting process as lengthy as that of a regular mortgage, which won’t help a developer or investor needing a fast solution.

It’s up to the broker industry to ensure they partner with the right lenders to meet the requirements, priorities and timescales of the borrowing client. B I www.sfintroducer.com

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FEATURE

QUALIFICATIONS

QUALITY OVER QUALIFICATION?

FEATURE REVIEW

QUALIFICATIONS XXXXXXXXX

Jake Carter asks the bridging industry to weigh in on the age-old argument of qualifications versus experience, as the market grows to meet new challenges

“I

nformation is not knowledge. The only source of knowledge is experience.”

So said Albert Einstein, and the words are particularly true when considering specialist and short-term finance, where simply knowing the facts does not mean understanding the nuances and complexities inherent in every deal.

However, if the market is solely to rely on experience and time served, will it be able to keep up with demand?

Alternatively, if it is to encourage young blood, what qualifications might be needed to ensure that high standards are maintained?

A MARKET ON THE RISE The short-term finance market is on the up, being used as a valued tool by an ever growing and increasingly diverse group of borrowers. This brings with it the need for fresh talent, and creates opportunities for brokers looking to expand their offering.

Emily Hollands, head of specialist finance and new build at OSB Group, explains that for brokers who → MARCH 2022 BRIDGING INTRODUCER

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FEATURE

QUALIFICATIONS have not come across bridging before, it might be viewed as complex, expensive and unnecessary, and therefore completely disregarded as a possible lending solution for clients.

However, she says that if bridging was included as part of the CeMap, for example, this might at least encourage a basic level of knowledge and understanding around when it could be useful, and that a robust and industry approved bridging qualification could lead to increased professionalism within the market.

In fact, Hollands suggests that growing education and awareness in the mainstream is a principal reason for the increased use of bridging that has already been seen over the past decade.

She says: “I think it is fair to say that it used to be seen as a product of last resort, but it is becoming increasingly recognised as a way of helping people achieve their goals, whether that is refurbishing a property before letting it out or using it to escape a chain and buy their dream house.”

Chris Oatway, owner and director of LDNfinance, agrees, adding that the past two years in particular have seen an upsurge in the popularity of bridging as a result of various factors stemming from the pandemic, and the flexible nature of this type of finance.

Bridging Trends data shows that the most popular use of a bridging loan was to fund a chain-break, contributing to 20% of all loans in Q1 2021, down from 23% during Q4 2020.

Oatway says: “The market has seen an increase in demand for bridging, and this is an ideal example of where a specialist qualification would be an advantage.

“It was recently suggested that higher proc fees may tempt and encourage inexperienced brokers to try and source a facility that they do not fully understand the mechanics of.

“Naturally, the earning potential of a higher proc fee is attractive to many individuals, but in overstretching themselves, inexperienced advisers are less likely to think outside the box and come up with flexible solutions to help get clients out of unforeseen issues.”

For a market such as this, which has only relatively recently shaken off a somewhat negative reputation, and which still faces some misconceptions, it is important that an influx of new talent works to build on this progress, rather than break it down.

Oatway says: “If the specialist finance industry is to continue in its stride forward to build its reputation, then qualifications are a must.”

By setting a certain standard of education around specialist and complex property finance, the risk of improper advice is mitigated by creating a higher standard of knowledge and service.

“Don’t get me wrong, ‘on-the-job’ experience cannot be knocked,” Oatway continues. “That’s how most of us have learnt so far, but with the recent increase in unregulated advice, the introduction of a qualification

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seems essential in ensuring clients receive the best service with the correct processes followed.”

THE CASE FOR QUALIFICATIONS The Association of Short Term Lenders (ASTL) and the Financial Intermediary & Broker Association (FIBA) are currently collaborating on the subject of qualifications.

This aims to launch an ongoing programme of education for the commercial property finance industry, which includes bridging, short-term finance, development finance and specialist buy-to-let (BTL).

Vic Jannels, chief executive of the ASTL, says: “Increased learning and education is always a positive thing, as we all work towards making the whole

“By setting a certain standard of education surrounding specialist and complex property finance, the risk of improper advice is mitigated by creating a higher standard of knowledge and service” borrowing experience more comfortable, and less mysterious, for our consumers.

“The best outcome will always be through advisers who know their subject and lenders who have a more holistic understanding of the whole process.”

Currently, the ASTL is working with The London Institute of Banking & Finance (LIBF) on the creation of a series of optional e-learning modules, which will be recognised through the award of a LIBF digital badge and accredited for continued professional development (CPD) purposes.

Jannels says that, as an industry, “we believe there will be a much greater emphasis on ongoing education as we proceed through the year.”

He adds: “The important thing here, in our opinion, is that education should be ongoing – not just as a one-off participation, but as part of an ongoing environment of continuing learning.”

Adam Tyler, executive chairman of FIBA, says that Einstein’s point certainly favours experience as the dominant requirement, as does Immanuel Kant’s statement that “theory without experience is mere intellectual play,” or John Keats’ “nothing becomes real ‘till it is experienced.”

However, he adds that reading deeper into these quotes suggests that, to be truly successful, experience must be supported by knowledge, education and qualification, as well. Indeed, this fits with Kant’s preface that “experience without theory is blind.”

Tyler continues: “As someone who has been involved in education within the commercial finance sector for many years, the changes in regulation and outward perception seem to be moving us in only one direction.” www.sfintroducer.com

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FEATURE

QUALIFICATIONS Damin Druce, executive director at Black & White Bridging, says: “The argument for qualifications centres round ensuring that brokers are fully equipped to advise with confidence, and that customer outcomes are satisfactory, in line with how they operate within the regulated framework.”

The addition of qualifications might, then, help implement structure and confidence, especially in such a crowded market.

Oatway says: “If a professional qualification were to be introduced, brokers who obtain it would have greater credibility with clients, and it will help them to stand out from their peers.

“Specialist finance, especially bridging, is far more technical than standard mortgages, so I am very surprised that there are still no qualifications for it.”

John Ahmed, chief executive of Movin’ Legal, concludes: “Without a doubt, having a qualification brings a level of trust and confidence. It gets you noticed. Would you book an Uber knowing that the driver had not passed their driving test?”

Looking back on 2014, when Financial Conduct Authority (FCA) regulation moved into the sector through consumer credit, Tyler says there was resistance, but that this is now part of everyday life.

In time, the need for qualifications within the specialist markets will likely follow this trend.

The introduction of the CeMap qualification in 1997 saw mortgage advice standardised across the industry to ensure all client advice was consistent and fair.

Oatway says: “Consisting of more than 1,000 pages, the core text covers mortgage advice, protection insurance and legislation. Only one sentence covers bridging finance.”

Hollands believes brokers do need to keep up to date with the latest developments, to avoid falling behind the competition.

She says: “It is vital that brokers put aside a certain amount of time each week to keep themselves informed about what is happening in the market and also what is coming up.

“The proposed [Energy Performance Certificate (EPC)] ratings are a prime example.”

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EMPHASIS ON EXPERIENCE Ahmed believes that both qualifications and experience go hand in hand, and the right balance is what is needed for the industry to progress.

He explains: “Look at it this way, you have just been diagnosed with a life-threatening illness and you are sent to the hospital for a potentially life-saving operation. There are two choices on the table. You have the option of seeing a newly qualified best in class, top of their field surgeon with zero experience, or someone with 12 previous operations under their belt, but who is not as qualified under a new regime.

Who would you go for?”

So, the fact is that experience is, on the face of it, always going to be more appealing to clients. This creates a Catch 22, however, in that fresh young brokers with a qualification in bridging finance are, arguably, never going to appeal to borrowers enough to build the experience they lack.

The reality, as Ahmed puts it, is that “both go handin-hand, but we all need to start somewhere.”

Jamie Jolly, managing director at SoMo, believes that there is no substitute for experience, and would rather work with an adviser who has had plenty of exposure to the bridging market over one who is able to tout a new qualification.

Nevertheless, Jolly adds that the industry would benefit from improved standards and processes around matters such as how to structure a deal, plan for exit strategies and agree upon the key performance indicators (KPIs) chosen by lenders.

He goes on to add that further regulation could also help build trust and reassurance in the bridging market for borrowers, but notes that it is difficult to see how such qualifications could be implemented on a practical level. www.sfintroducer.com

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QUALIFICATIONS XXXXXXXXX As well as this, Jolly explains that the formal teaching of skills might stifle creativity or dissuade individuals from moving into bridging finance, if they are faced with further education and tests in order to do so.

Indeed, he adds that these tests thenselves might not reflect reality, saying: “Ultimately, someone might be the best driver in the world, but put them in a driving test situation and they might not show how well they perform day to day.”

Druce believes that this could also be alienating at the other end, as those who are experienced and have worked in this market for years could question why they have to prove their competence.

Hollands agrees: “Life experience is a skill that cannot be learnt, but it is that special element that makes brokers great at their jobs.

“If we were to introduce a bridging qualification, it would need to be entirely voluntary and not applied retrospectively, as there are lots of brokers out there that could probably lead the class and have been passing on their knowledge to colleagues and peers for many years.”

However, while there is no substitute for being fully immersed in a sector, unlike first charge, many brokers simply lack the daily exposure to short-term lending.

“While bridging can mean the difference between the life or death of a deal, it is not the same as getting behind the wheel of a car or going under the knife.

Allowing a less seasoned broker to gain experience is not a lifethreatening risk. On the other side of the equation, relying solely on experience has its limitations.

Without fresh ideas, a market can fail to move with the times. For one with such growth potential, this is a dangerous possibility” While Hollands does believe that qualifications should be encouraged, particularly for the next generation coming into the financial world, she says that experience is underrated.

When looking at the individuals and firms that Jolly works with daily, he says some of the best deals come from less qualified brokers, adding that he would be loath to see that contingent pushed out of the market.

He concludes: “Ultimately, there is no substitute for experience and the magic that there is in the ability www.sfintroducer.com

to create good client relationships. That is something that you cannot learn from a textbook.”

REFLECTING CHANGE The emphasis and importance placed on experience is understandable. Whether the metaphor of the Uber driver or the surgeon, there are plenty of examples where anyone, when pressed, would opt for an experienced hand over a freshly qualified one.

However, while bridging can mean the difference between the life or death of a deal, it is not the same as getting behind the wheel of a car or going under the knife. Allowing a less seasoned broker to gain experience is not a life-threatening risk.

On the other side of the equation, relying solely on experience has its limitations. Without fresh ideas, a market can fail to move with the times. For one with such growth potential, this is a dangerous possibility.

In turn, by banking on experience and favouring longevity above all, the market risks a vacuum when older brokers age out, and – perhaps more importantly – risks missing out on an important opportunity for change and diversity.

When open to new entrants of all ages and backgrounds, and by offering an easy route to understanding through accessible qualifications, the market could build a broker base that is more representative of its current and future clients.

Just as smaller lenders might be more able to understand the needs of small to medium business (SME) clients, brokers from diverse backgrounds are more likely to see different opportunities and appeal to varied clients.

Tyler explains that in 2022 there has been a real divergence in the different advisers in the sector, and adds that looking back 20 years, the bridging market was measured in a few hundred million pounds, and was the domain of the commercial finance broker.

He says: “This market has grown hugely and is measured nearly in double digit billions, and has become far more mainstream and of course very professional. But the real change is the individuals working in the sector.”

Over the past few years, Tyler has overseen a membership in the specialist property finance sector that doubled in 2020, and grew again by another 50% in 2021, driven in some part by residential mortgage brokers and independent financial advisers (IFAs) expanding their remit into the sector.

He adds: “One of the huge advantages is that, whilst they do not bring experience, they bring education, qualifications and a different level of regulation.”

Druce believes that being a successful business is not just about delivering the best products and service, it is about meeting the needs of all staff members, so they feel they are engaged and valued by the business which employs them. This includes creating pathways into the industry. → MARCH 2022 BRIDGING INTRODUCER

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QUALIFICATIONS He says: “We are investing in the next generation through our apprentice scheme which has been a great success.”

PRACTICAL CONSIDERATIONS AND POTENTIAL LIMITATIONS Oatway suggests that one way to lessen the risk of new brokers entering the bridging market without due thought and preparation might be to introduce graded proc fees. He adds that the grades could be based on the quality of business, experience and an adviser qualification.

As it stands, however, there are no bridging specific qualifications. Druce believes that creating a CeMAP module for all new brokers, as well as for those who are already in this market, but want to be confident and do more business with clients requiring short-term funding, could be an easy way to start.

He says that those more experienced intermediaries could be required to take the module within a set time limit, adding: “There is no reason why bridging should be exempt and sit outside the CeMAP qualification.”

Druce also reiterates that the introduction of a new CeMAP module, or even a standalone qualification covering bridging, would raise industry standards, promote bridging to a larger section of the broker community who might still regard it with suspicion, and give customers greater confidence in the advice they receive.

Ahmed says: “To write a regulated mortgage contract, the adviser needs to be qualified with the basics CeMAP, one, two and three.

“And we also distinguish between mortgage types, especially when it comes to the likes of equity release, with increasingly specific qualifications in this area, with exams and practice under supervision.

“Should the same apply to brokers in the specialist and bridging lending sphere? I would be inclined to say yes.”

Oatway says: “I really do believe that a qualification would be accepted – and welcomed – in the industry.

Whether this is standalone or a bolt-on to the CeMap is something to consider.”

He goes on to say that there should, at least, be some basic modules advisers must pass to be able to work in the industry. That would be the minimum standard, followed by higher-level exams which could be taken by those that want to stand out.

As well as this, Oatway believes it should be an expectation for all administrators and business development managers (BDMs) to have the same qualification.

He adds: “I also believe it is important to ensure education is ongoing for new and brokers with less than five years’ experience. Whilst this topic has been highly covered over the past few years, it has been subjected to mixed reviews.

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“The property finance market as a whole, and bridging within that, is becoming increasingly complex, in a trend that is only going to continue.

The severe lack of housing stock means that investors are moving to alternative routes, such as auctions and permitted development driven conversions, in order to create highyield opportunities.”

“In order to maintain consistency across the industry, I have no doubt that the introduction of a qualification is part of the future landscape.”

The larger question that leads on from this is whether the entire short-term finance market, as well as other specialist sectors such as BTL, should be brought under the umbrella of regulation.

Ahmed says: “This can be a thorny issue, but there is an inherent opportunity for the industry as a whole to provide all these answers and more before the Financial Conduct Authority issues the dictate that ‘this is the way’.”

START THE JOURNEY The property finance market as a whole, and bridging within that, is becoming increasingly complex, in a trend that is only going to continue.

The severe lack of housing stock in the UK means that investors are moving to alternative routes, such as auctions and permitted development driven conversions, in order to create high-yield opportunities in the housing market.

Meanwhile, the pandemic has fundamentally changed how people live and work. This might mean more borrowers looking for the funds for extensions or garden offices, or developers finding innovative ways to entice the professional crowd back to city centre workspaces.

All of this means more opportunities for bridging to come into play.

Tyler says that dealing with customers using regulated techniques in the bridging sector is something to be welcomed by the lender community, explaining: “This is already very well demonstrated where we have experienced brokers or packagers providing the same service already for a share of any fee or commission.”

He concludes: “If we implement an educational programme now, there will be a set standard for all.

It may not be compulsory at the outset, but it starts a journey of combining experience and qualifications for the bridging sector.” B I www.sfintroducer.com

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STRONG UNDER

PRESSURE Jessica Bird outlines this month’s panel discussion, which looked at competition and rates in the bridging market, and how shortterm lending could help address the issues looming in 2022

T

he first months of 2022 have been populated with discussions about rising interest rates and inflationary pressures, across both the mainstream and specialist markets.

Alongside this, the buy-to-let (BTL) market is looking ahead to increased regulation around the energy efficiency of properties, while the UK continues to be hit with shortages and rising costs of materials and labour.

Among all of this, short-term finance continues to rise to prominence, becoming better known as a resource for a diverse and evolving range of property investors. Bridging Introducer asked representatives from Shawbrook Bank, Precise Mortgages, Bridge Development, Sancus, Together Money, Movin Legal, and Henry Dannell about the role of bridging in the year to come.

RISING RATES? In February, the Bank of England (BoE) raised the base rate to 0.50%, the first back-to-back increase since

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2004. Soon after the announcement, the mainstream mortgage market saw a flurry of lenders pushing up their own rates; although other sectors have been slower to follow, the consensus is that gradually areas such as BTL will likely follow suit.

However, this does not mean a return to the old higher rate environment for bridging, says Gavin Seaholme, head of bridging and second charge at Shawbrook Bank, who calls for perspective.

He explains: “The market is talking about rate rises happening, but they’re still historically low. Yes, the rises are happening across the mainstream market, but it’s not dramatically shooting up to the crazy levels that we’ve seen over the years and decades, and with bridging as well, it’s historically low.”

For bridging in particular, this follows a recent period dubbed by many as a ‘race to the bottom’ in terms of rates. Traditionally a more expensive form of finance, the pandemic years have seen bridging become much more in line with mainstream rates. This has, in fact, prompted many to question what might be being www.sfintroducer.com

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“Brokers need to learn to become a bit more holistic…

You need to have a holistic approach to the advice you provide to borrowers in order to survive going forward” JASDEEP BHOGAL sacrificed in terms of service and value, and whether lenders’ margins might start to feel the pressure.

Phil Mabb, property finance broker at Bridge Development, notes that the bridging market may not see much change, even as rates rise elsewhere.

He says: “I haven’t seen any change yet, but if you’ve already got funding lines and you’ve got a cost, you don’t necessarily have to make adjustments. It’s where you’ve got different funding structures that you might see some people take advantage in this situation.

“The reality is, I think there’s far too much money in the market at the moment for the amount of deals that need funding, so it’s still got to be competitive, and that might keep suppressing the interest rates that people charge.”

Seaholme agrees that the fact is most lenders have a tranche of funds they need to continue “getting out the door,” which will help maintain low rates.

However, while it may be marginal compared with historical rates, Richard Whitehouse, director of Sancus, notes that the changes will still filter through.

He continues: “It will feed through, regardless of who you talk to. Any of the potential sources of lending for short-term lenders – those facilities now are going to be marked on variable rates, taking into account the potential for passing on those interest rate rises.

“So I suspect most lenders, unless they are deposit takers themselves, will be looking to pass that burden onto the borrower rather than take the risk themselves.”

He adds that the timeline for this depends on how quickly those lenders’ fixed rate facilities come up for renewal or renegotiation, but that ultimately a change will happen over 2022 or 2023.

FURTHER FALLOUT According to Emma Hall, key relationships director at Movin Legal, in addition to the rising cost of living and interest rates, the property finance market has yet to feel the full effects of the pandemic.

“We don’t know where people are going to be in the next 12 to 18 months in specialist lending,” she explains.

“Details have not yet hit the desk; how long were people furloughed, what did they lose, what were the changes in their job? We still don’t know that fallout.”

James Briggs, specialist account manager at Together Money, adds: “We’ve also got a generation of people, www.sfintroducer.com

homeowners and investors, who have never really operated in a rising interest rate environment. People aren’t used to mortgage rates going up in the UK, and haven’t been for over a decade now.”

Nevertheless, Briggs adds that for bridging, specifically, the market tends to “find its own level” and face its own trends and challenges.

He adds: “There’s demand and cost of funding, and the value that investors can get out of investment properties, as well, when you factor in all the additional costs. Stamp duty is an up-front cost that puts a lot of amateur investors outside the space, particularly for light refurb, and the profitability is just gone on the on the smaller projects.”

The competitive nature of the current market might also spark some change, as Mabb suggests tightening margins due to low interest rates might cause some lenders to leave the space, as bridging becomes a less profitable prospect.

Briggs adds: “It’s almost inevitable, with the number of lenders, particularly non-regulated, that are out there and need to compete on pricing.

“Service is equally important, but if the cost of funds has to be passed on in terms of product pricing, and those lenders are not particularly attractive from a service point of view, then it’s going to be very difficult for them to win market share.”

Jasdeep Bhogal, senior relationship manager at Shawbrook Bank, agrees that bridging is about more than just rates.

“I wouldn’t say that brokers can’t do bridging business just because they don’t do it all the time, but they’ve got a duty of care to make sure that they really understand [the] options” EMILY HOLLANDS He says: “You also have to remember the fact that bridging ultimately is a lending solution, but there’s also other areas of that could be taken into consideration, like exits.

“So, when you’re looking at lenders who perhaps don’t provide a more holistic approach to the bridge itself, and then when you incorporate the cost of funds, that’s going to increase as a result of everything at the moment as well, then there is a concern that some may fall by the wayside.”

Seaholme notes that funds which have considered bridging to be a high yield investment might start to reassess, and that “the drawbridge might come up.”

He adds: “That’s where the funding lines probably become a bit rich for people, probably too rich to → MARCH 2022 BRIDGING INTRODUCER

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“Bridging is completely different now…there’s a myriad of lenders, opportunities, and products, but the bottom line is it’s still a specialist area and it can get complex” GAVIN SEAHOLME compete in a low rate environment. There’s a very fine line at the moment between making bridging profitable and making it sustainable.”

Another way in which the market is still reeling from the effects of the pandemic is on the subject of speed.

While deals in this market still tend to move quicker than in the mainstream, bridging has been facing snarled processes and congested bottlenecks as a result of the pressure created by a high demand, high competition, low rate environment.

While stimulating schemes such as the stamp duty holiday have ended, Hall says that there are deeper issues – with the efficiency of the Land Registry, for example – which are slowing things down for conveyancers in particular.

“As long as you don’t need to exit out quickly, and it’s a straightforward case, you’re OK,” Hall explains.

“But if you have a case that’s more complex, the Land Registry is struggling, and will only move a case on if the client admits that they are facing a financial detriment.”

Nevertheless, 2022 will see the market start to return to normality, in Hall’s opinion.

She says: “In Q2, I think conveyancers will go back to their traditional service, which we might have all moaned about before, because we thought it was slow.

“Unfortunately, it’s still not an industry that’s quite up to speed, and that’s not necessarily just because of the lawyers.”

Hall cites numerous factors, including more than 400 Local Authorities all working with their own legacy systems and drawn out processes, all of which currently slows processes post-completion, for which the lawyers tend to get the blame.

Seaholme adds that this creates an even greater case for increased standardisation and digitisation as the market moves forward.

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RELYING ON RELATIONSHIPS In a highly competitive market which is still typified by historically low rates, even taking into account the prospect that these might rise, it is important for bridging lenders to ensure they are able to stand out from the crowd.

Mabb says that, from the broker’s perspective, standing out is less about touting a flashy new offering, and more about leaning on those reliable relationships that have worked well in the past. This is especially true following a period of upheaval and uncertainty, during which time lenders’ ability to come through has been put to the test.

Mabb continues: “This is probably true at any time, but we’re looking for consistency and performance.

There’s been a lot of people who’ve tapped me up in the past couple of years, offering new services, but I’m going to rely on the people that have performed in the past.

“If the cost of money is the same, then the only differentiating factor is reliability. I used to look at the whole market, but that started to shrink as I’ve recognised that there’s no point going to the outer edges unless you’ve got a particularly unusual deal.

“So, you hone your skills with reliable vendors, and if what I’m saying is the same as other brokers, that’s going to push some of these lenders out anyway, because no business will come across their desks – or at least not sufficient enough to make their businesses sustainable.”

Matt Karagul, specialist finance broker at Henry Dannell, agrees: “It’s such an overpopulated, competitive market, and lenders are not miles apart unless it’s something very niche. You go to the ones that you’ve had success with in the past, or whoever has shown the most flexibility, that you can trust won’t let you down with the client – that’s how it works.

“I suspect most lenders, unless they are deposit takers themselves, will be looking to pass that [rate] burden onto the borrower rather than take the risk themselves” RICHARD WHITEHOUSE

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MARKET “For that to change, the existing relationship needs to go downhill first, then you might venture out a little more.”

So, while new entrants need to work particularly hard to gain access to those brokers with established relationships, movement within the market might open up chances for new connections to be formed, as long as the lender is able to provide an offering that goes beyond just low rates.

Briggs adds: “It’s very easy to get tied up in rate chasing, and I think a lot of a lot of bridging lenders have been guilty of that over the last few years.

“Rates are an important piece of the puzzle, but it’s the overall proposition and that certainty of providing that service within the right timeframe, and getting the right outcomes for clients, whether that’s through the legal process, the valuation, underwriting, or how flexible the lender can be when the chips are down, or when something unexpected comes out of the woodwork. That can be just as important.”

Bhogal adds that there has to be a focus on sustainability, and that innovating with new products is important, but only if a lender is able to consistently provide good solutions and a strong service proposition.

Mabb agrees that, as a broker, there is little drive to place a client with a new lender if there is a risk it will shut up shop.

Ultimately, he says, “honest brokers just want to do what’s right by the client,” so lenders must “play the long game, not the short one.”

GAINING TRACTION Part and parcel with the growing competition in this market is its emerging popularity among a wider base of borrowers. Bridging, which a decade ago might have been seen as expensive at best, and at worst as ‘cowboy’ finance for those in dire straits, has become a valuable tool for property investors.

Emily Hollands, head of specialist finance and new build at Precise Mortgages, says: “Bridging has clearly got an important role to play, otherwise we wouldn’t be sat here talking about it. One of the other reasons that rates have become so much more competitive in the past few years is for that reason – you don’t need to charge huge percentages for bridging, as it’s not seen as the riskier lending that it once was, because of lenders like us in the market.”

However, she notes that there is always more work to be done in terms of learning and upskilling when

“If the cost of funds has to be passed on and those lenders are not particularly attractive from a service point of view, then it’s going to be very difficult for them to win market share” JAMES BRIGGS it comes to specialist products, especially as this market becomes more diverse and populated with varied products.

Hollands adds: “From the broker perspective, it might be difficult to understand what opportunities or what options there are for the client, and I think if you’re not doing bridging business regularly, it’s very difficult to say that you’ve given the client the best advice.

“If a broker is going to do bridging business, they need to make sure that they are upskilled on all the opportunities that are available, and that they understand them.

“If they don’t feel like they can get there, then they need to understand which distributors can help them and place that business for them. I wouldn’t say that brokers can’t do bridging business just because they don’t do it all the time, but they’ve got a duty of care to make sure that they really understand what options are out there.”

Seaholme agrees that it is important to be clear on the differences between the specialist and mainstream markets. While bridging is becoming a more widely used tool, it still needs specialist expertise, and to be treated differently and with care.

“It’s still a specialist and complex lens,” he explains.

“Bridging is completely different now, and it’s being used smartly by investors – there’s myriad lenders, opportunities, and products, but the bottom line is it’s still a specialist area and it can get complex.

“It’s great that it’s in the mainstream, but you still need to make sure you work with the right broker or the right distributor to make sure you get the right solution for clients.”

For Hall, this highlights the importance of experience in this market, even above the potential for education and qualifications to give brokers a boost in their specialist knowledge. →

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MARKET “It’s experience over qualification. Back in the day, if you said ‘bridging’ people thought it was a dirty word and wouldn’t understand what it was or how it worked,” she explains. “Now, it’s a genuinely good product for the right client, in the right circumstances.

“I don’t think it will be long until the [Financial Conduct Authority (FCA)] starts looking at it from a regulated perspective, and we’re going to start asking, should there be a qualification? Should the broker be giving advice off the cuff, without knowing what they’re doing?”

To this end, Hall notes that codified qualifications might become a reality for brokers looking to enter the bridging market. However, most agree that it is still track record and experience that should come out top.

Bhogal says that while being steeped in a market is the ideal, the fact remains that brokers need to diversify their offerings to keep up with today’s customer base – a lesson learned in particular during periods of upheaval such as the Credit Crunch and, more recently, the COVID-19 pandemic.

“Brokers need to learn to become a bit more holistic,” he continues. “If they get stuck in certain markets, they might be in situations where that area is really suffering, and that’s going to be trouble. You need to have a holistic approach to the advice you provide to borrowers in order to survive going forward.”

Bhogal adds that there are certain areas, such as second charges and bridging, that it is always worth brokers having some knowledge around in order to ensure they are addressing all a client’s needs.

“Back in the day, if you said ‘bridging’ people thought it was a dirty word…Now, it’s a genuinely good product for the right client, in the right circumstances” EMMA HALL “

GREEN BRIDGING One of the key trends that might see more brokers suggest their clients consider bridging is the upcoming Energy Performance Certificate (EPC) deadlines facing landlords. Although still in consultation, and with the

“I think there’s far too much money in the market at the moment, so it’s still got to be competitive, and that might keep suppressing the interest rates that people charge” PHIL MABB “

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potential for exemptions, the likelihood is that every landlord will face a looming need to update property to meet the new standards in 2025 and 2028. Those who are well prepared will already be putting plans in motion, but there are many who either do not know about, or do not realise the importance of, the changes.

Shawbrook’s research recently found that 25% of landlords have “little or no knowledge” of the upcoming changes. By the time reality sets in, they might find themselves in need of fast finance, particularly as material and labour shortages look set to persist.

Whitehouse notes that bridging could be crucial in order for landlords to either buy assets now and bring them up to scratch, or for those whose portfolios need extensive modifications to raise the necessary funds.

Briggs agrees that, even aside from the environmental benefits, the EPC changes bring a considerable opportunity for bridging to help landlords, driving significant activity in this market over the coming years.

In the meantime, however, Hollands calls for more clarity on what is expected of landlords, saying: “I still don’t think the government has been 100% clear on what exactly is they want, and when it is they want it.

The deadline has already been pushed out by another year, and it’s still really unclear as to what sort of things are going to [improve] a property’s EPC.” Hollands points out that the science is constantly changing – for example, air source heat pumps are no longer considered to be as strong an option as previously – causing the whole issue to feel “up in the air.”

She adds: “I do agree it’s a great opportunity for specialist vendors to move into this area if they haven’t already, but equally I think that we just all collectively need to make sure that the government is giving us clear direction and giving investors and people that are buying at auctions clear guidelines as to what actually they need to do.”

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MARKET Karagul points to parallels with the lack of clarity and slow progress of improvement to cladding following the Grenfell Tower tragedy, while Seaholme agrees, adding that this will likely lead to confusion over how the EPC changes are going to be enforced and monitored.

In general, though, the housing market is pushing towards a greener future, as part of a wider trend fueled on all sides by borrowers, investors and legislators.

Whitehouse says: “Even if legislation wasn’t coming in, this would be happening anyway, because at the investor level the money would be creating this drive towards [environmental, social and corporate governance (ESG)] and sustainability and all the things that go with it.

“I suspect you’ll see innovation in the mainstream market as well, because it will have to come, but invariably they tend to be – just because of size and regulation – slower to adopt some of this stuff.”

“We’re far away from the taboo of bridging now…and when we explain the kind of rates that are achievable for a regulated bridge, the borrower is quite pleasantly surprised” MATT KARAGUL DIVERSE DEALS As bridging becomes a better known and more widely used tool, the type of borrower it caters for is also becoming more diverse. This might mean younger developers, entering the scene and looking to create higher yields from properties bought at auction, or through opportunities to convert commercial sites.

Mabb notes that the word ‘bridging’ itself is somewhat outdated, harking back to a slightly more negative past, while ‘short-term property finance’ is more reflective of the broader, more legitimate reality.

According to Briggs, the growth and change in this market can be seen not just in the entrance of new, more varied borrowers, but also in the types of assets in question.

“It’s the types of security and asset class over the past couple of years where we’ve seen a swing, particularly towards holiday let investment,” Briggs explains.

Bridging Finance

FOR INTERMEDIARIES ONLY

www.sfintroducer.com

“Landlords are capitalising on the on the ‘staycation’ market, as well as finding assets that maximise yields – so multi-unit freehold blocks [MUFBs] or conversions to [houses in multiple occupation (HMOs)], and also the permitted development [PDR] stuff as well – we’re starting to see those come through, so commercial properties being turned back into residential, which is great, as it helps ease a small part of the burden on the housing shortage. There’s a diversity of projects.”

Whitehouse notes that, while bridging still serves a “fairly well-defined segment of the market” in terms of its clients, the assets and strategies are becoming “much more interesting,” including things like brownfield sites and PDR conversions.

Karagul adds: “I’m seeing an increase in, let’s say, landlords using 75% [loan-to-value (LTV)] bridging, there’s absolutely quite a rise in that, a lot of demand.

Some of them are going to auctions and playing the game of being a cash buyer, but guaranteeing to complete within two weeks, and I’m seeing facilities that can support that.

“We’re far away from the taboo of bridging now, so there’s downsizing, or conversions, where the prime team hasn’t been able to help, and when we explain the kind of rates that are achievable for a regulated bridge, the borrower is quite pleasantly surprised.”

Bridging is maturing into a product that can cater for a wide range of clients’ needs, and looks set to be a key tool for a future in which the UK must get creative in order to address the housing shortage, the green revolution, and other seismic shifts. But does this mean the face of the market also has to change?

Hollands says: “In a nutshell, there needs to be more diversity in our industry. I think we all know that, and it’s a big conversation – we’re all having it, and the answer is yes, across the board. We all see the issue, and I think all of our businesses are working towards having more diversity and inclusion within our companies.

“It isn’t an easy fix, and it’s not a short-term thing. It’s going to take time, even just bringing more women in, for example, and the diversity piece is bigger than that.

“It takes time to encourage people into this industry, and we need to look at how we support that.”

However, Hollands warns that the market must avoid being tokenistic, and erring towards giving people jobs based purely on ticking a diversity box. Any effort to grow diversity and inclusion in the sector must be concerted, long-term, and based on celebrating skill and finding the best person for the job. B I

Think Bridging Think Shawbrook

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MARCH 2022 BRIDGING INTRODUCER

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Short-term lending, long- t Jessica Bird and Gavin Seaholme, head of bridging and second charge mortgages at Shawbrook Bank, discuss bridging on the rise, plans for 2022, and why this market thrives on relationships Bridging Introducer last caught up with

Shawbrook Bank in May 2021 – how has the bridging market fared since then?

The world of bridging is growing and becoming a part of the norm now for property investors. Each year this market keeps growing, as more investors see it as a smart initiative with which to fund projects.

That’s coming through now with more entrants, and a lot more competition, which is not a real surprise.

In the year since we last spoke, the market has remained very buoyant, and that growth in the sector has continued. After COVID-19, and as we move through into 2022, there is more liquidity and there are an increasing number of lenders that are prepared to look at innovating.

Indeed, innovation has changed this market. Rather than bridging having just the typical ‘quick and cheap’ or ‘quick and reliable’ image, a lot more lenders – ourselves included – have become more innovative in order to add real value to their offerings.

Overall, what we have seen change in the past few years is that this pace of growth and change has made everyone take note of bridging as a fundamental strategic tool, and ask how it can remain innovative and transparent in support of changing investor needs.

Increasing numbers of people have got access to bridging, with more customers coming in via their brokers. They’ve got access to some very good products, in my opinion, in the short-term market.

Is increased competition always a good thing, or are we seeing the market become quite saturated?

We have asked ourselves that question quite a lot as well. There are two schools of thought – you can become an agile lender, have a funding line, and you can look to replicate, but what you don’t want to do is cannibalise. You need to add value.

You might have a good rate and be quick, but bridging by its nature is quick, so what else do you do to stand out? It’s very easy to get money out of the door, but the part of bridging that people seem to forget about is the importance of providing a ‘cradle

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to grave’ journey for the customer. The only thing I would say to a new entrant, especially now, is that bridging is following a very similar path to traditional mortgages with regards to due diligence. It’s quick, but quite rightly, there’s a lot more focus on the customer, the asset and so on.

The market may continue to grow, but there are rumours of more lender exits on the horizon – would you agree this is part of the picture for 2022?

It depends on a few factors, such as how you’re funded and what kind of margin squeezes there are. As the market gathers momentum and the competitive space broadens, we’re definitely seeing this compression.

Bridging finance is as cheap as I’ve seen it for a while, and for some lenders that margin compression compared to the cost of funds doesn’t make it viable.

You also need to look carefully at how your back book is performing, and whether you have been smart enough at the front end to make sure you don’t get a burn at the back end as well.

So, we’ve heard the noises, and had a few lenders exit stage left recently, but there’s still a strong market.

It’s just about whether it’s sustainable or sensible to continually keep moving down the curve. More broadly, rates are moving up, and so the bridging market will probably follow that trend as we move further into the second half of the year.

Will rates start to look a bit like they used to, or will they stay low compared to historical bridging rates?

I think they will stay low; I don’t think bridging will be – or in fact be seen to be – as expensive as it was in years gone by.

For us, we want to work in tandem with our brokers to retain customers and maintain that relationship over the long-term, offering a really good, keen solution day one, and a longer-term exit to suit their strategy.

As well as a natural focus on rates, retention, for me, is one of the key drivers in this.

You can have a great cheap rate, but what do you do once that nine or 12 months is up? What we want www.sfintroducer.com

COVER

INTERVIEW

g- term relationships to do is offer an all-encompassing solution from bridge to buy-to-let (BTL), giving the customer and broker a market-leading service from start to finish.

Gavin Seaholme

2021 was a strong year for bridging, fuelled in part by the pandemic – will we see this slow in 2022?

There will be continued growth, and it’ll be interesting to see where that growth lies. Considering the different complex transactions that will be coming out this year with regards to development exits, as well as larger transactions, there might be a bit of a change in terms of the direction of growth.

But I would say that the general market trend is that people will continue to find an asset and add value to that asset, and while bridging is on the complex and specialist side, people have far wider access to it now.

With that comes the opportunity for investors looking for the next way to add value to an asset. As with anything, the pandemic quietened things down for a bit, and then we had this sort of uplift in 2021, but I don’t think we’ve seen the last of this uptick.

It’s now just about how we can support this growth, and for us that comes with the development and use of creative technology, and ongoing product innovation.

Shawbrook has made a considerable investment on the digital side, can you tell us what that entails?

Technology has been a big thing for Shawbrook over the past few years, and especially in the past 12 months, during which time we’ve enhanced our digital process on the bridging side.

We’re currently running a pilot with some of our distribution to really automate the heavy lifting part of the process, mirroring the success of what we’ve done with the MyShawbrook Buy-to-Let portal.

This will form the next part of the journey for our bridging proposition.

It’s our portal, as in it’s not off the shelf, we’ve designed and created it, and we can introduce new products and develop in line with what best suits brokers, customers, and our own goals.

As I mentioned, the idea is to use technology to do some of the heavy lifting, to be able to digitise and automate where possible, while continuing to keep the human decision-making and pragmatism that is required in this market.

Bridging finance is not ‘cookie-cutter’ – every deal needs a different lens and a different thought process, → www.sfintroducer.com

→ MARCH 2022 BRIDGING INTRODUCER

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INTERVIEW but you can automate it to a degree. Bridging with greater automation means we can be faster and easier to do business with, and it creates a far better customer journey due to the efficiencies it delivers.

For us, it’s about trying to make sure that when we digitise the process, most of our focus is around enhancing the user experience and retaining technological agility to be able to pivot and change in response to market forces.

closely at the asset and working with professional brokers and experienced investors.

We have a relationship team on the ground that works with the clients very closely from day one and will stay close to these transactions throughout the life of the loan. Of course, we also have an underwriting team that is highly experienced and understands the complexities as well, which is fundamental to the whole process.

How do you balance tech innovation with the need for that bespoke decision-making?

In terms of market trends, EPCs are a big topic for landlords this year. What is the role of bridging in helping address this issue?

You just need that experience. One of the big challenges for Shawbrook over the past year or so was trying to grow and make sure we got the right people on the pitch, which we’ve managed to do. We spent a lot of time expanding the team, especially in bridging, to ensure we have the right expertise.

This meant really pushing for a big, experienced, and enviable underwriting team. This team is complemented and underpinned by our innovative technology, but the actual decision-making is still done by someone who is highly experienced and who understands the market, and what bridging finance is.

Getting that balance between automation and maintaining the core principles of underwriting is key. If you automate too far, then you become very linear and the experience degrades.

We had expertise within the existing team, but those who have recently joined have really complemented that and delivered what we think is an unrivalled journey for our brokers and customers, closely supported from application right through to completion.

There’s a really close relationship between our distribution, underwriting and relationship teams, all working towards the achievement of a collective vision and underpinned by the experience we have been careful to build as we’ve grown our team.

Is the average deal getting more complex, and how does Shawbrook deal with this?

Bridging is a specialist and complex market, which means you must have the right people around you, the right product, the right knowledge, and the right expertise.

This allows you to understand the inherent complexities of the bridging world, especially having operated in the market for such a long time. We work closely with both broker and client, and that’s where the relationship piece comes in.

We’re not just about getting the cheque out of the door and moving onto the next deal, we’re trying to retain a relationship.

We see a lot of repeat clients because of that, and we stay close to the projects, making sure we’re looking

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This didn’t come across the horizon a week ago, it came in 2015 when the government realised that the energy performance of rental properties needed to change. The proposal is for Energy Performance Certificates (EPCs) for new tenancies to be at least C by 2025, and all tenancies by 2028.

We’ve gathered a lot of market intel in that time, and recently launched a useful report on EPCs, highlighting the need for clarity and where the knowledge gaps are in the market.

We’ve got a lot of great refurbishment products which our brokers and their customers use already, using bridging finance to bring a property up to the required standard.

We’ve been supporting landlords with this activity for the past few years, since the proposed legislation was originally announced.

How the EPC issue is going to challenge people is this: moving forward, are more landlords going to buy an already efficient home, because it’s just easier, or are landlords going to look at the opportunities to take some of the housing stock that needs upgrading, if that improvement can add to the value of the asset?

We are also seeing a North-South divide. If the property is worth £80,000 and you’ve got to spend 10% to 20% of the value to get it up to scratch, is it a viable asset? Whereas down South, because there’s generally better appreciation, that may only be 5% of the value of the asset. That’s where we might see a fundamental shift.

I think there needs to be more clarity from the government. For example, some properties won’t fundamentally be able to reach a C rating, so what are we going to do about that, and what exemptions are there going to be?

For bridging finance, specifically, we just have to make sure that we’ve got the solution to be able to get people to that point, and then from that, move from a bridge to a long-term solution. Shawbrook can create that journey.

I do think there’s still going to be an element of people putting their head in the sand a little bit, so we’ll likely see a traffic jam of supply and demand, and available contractors to undertake work. www.sfintroducer.com

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INTERVIEW

“By having a dedicated bridging relationship team and developing bespoke supporting technology, we can really point and shoot and offer a frictionless journey – almost a concierge service for our brokers to their clients” That is where lenders can offer bridging finance to cater for their needs and support the market through this period of change.

Does we need more education to ensure people understand the urgency of EPC improvements?

You can educate from a lending point of view to the wider community – your distribution, your book, and obviously via various market publications. You can really push that message, but the government needs to do more to contact people who work in property to make sure they are aware.

There’s more clarity needed, and it’ll be a collective effort, with lenders checking and assessing their books, writing to customers, and maximising on the opportunity to speak to clients.

There’s some noise in the market, which is great, but that momentum must continue and it can’t just be a ‘tick box’ green agenda, as this stuff is really important at every level.

Tenants are also, quite rightly, desiring more environmentally sound properties which is a trend to be welcomed and supported.

What are some of the other big trends you are looking out for over the next year?

We need to be looking at customer need. We’ve seen a lot of development exit options for clients because of the pandemic, with delays in development projects and materials.

We are also seeing an increasing number of larger loan transactions, which also require a specialist processing mindset. This is a skill set we’ve also managed to bolster across the team, and we’re confident in our ability and appetite in this space across multiple asset classes.

With the relaxing of permitted development (PD), borrowers are also starting to really maximise the opportunity for creating an asset.

As well as the traditional house in multiple occupation (HMO) conversions, some people are looking at taking commercial property and converting it, turning the vacant commercial space into residential, www.sfintroducer.com

and we are seeing many savvy investors undertaking these sorts of projects.

What are Shawbrook’s plans for this year?

As I mentioned, we’ve made significant investment in the growth of our underwriting team, with a structure that complements our distribution.

What we have also done is expand our relationship team, and we have recently taken on two bridging relationship managers to work closely with our broker partners in order to support the customer journey even more closely.

The big news is that we are also growing a new dedicated bridging team, which I will head up, with a senior relationship manager for both the North and the South, as well as plans to expand our distribution.

Bridging is fundamentally different, so Shawbrook has focused on resourcing this market appropriately and building out supporting technology to allow further growth.

We are looking to have an unrivalled bridging offering, and we have the people, the technology and the desire to make this a reality.

What do you think it takes to form a great relationship in the bridging market, specifically?

It’s about understanding the transactions and creating confidence. It’s often easy to build a relationship, but it’s hard to maintain that relationship.

So, we need to maintain the trust and be able to deliver consistently.

By having a dedicated bridging relationship team and developing bespoke supporting technology, we can really point and shoot and offer a frictionless journey – almost a concierge service for our brokers to their clients.

We want to develop a bigger presence by building a deeper relationship structure, and by making sure that we can deliver with confidence, in not just our traditional, standard bridging, but also our large, complex bridging. It’s not a small task, but it’s one I’m both excited and confident about.

Finally, what makes Shawbrook Bank stand out in this market, and why should people want to work with you?

I firmly believe we have the technology, the people, the relationships, and the products. Have we had our challenges? For sure, but we’ve not taken a backward step throughout some pretty tough times, and I think that has instilled confidence in those we work with.

We’re now focused on moving forward with these strengthened foundations, supporting our brokers and their clients, and delivering a best-in-class experience in this market. B I MARCH 2022 BRIDGING INTRODUCER

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IN OUR OPINION

The next f How tech can transform t Claire Rankin, director of strategy and digital transformation, looks at the growing strength of the bridging market, and the commitment to digital innovation that places Shawbrook Bank at the front of the market

T

he bridging market has gone from strength to strength over the past year, and looks set for another strong year in 2022. In fact, the value of bridging loan books topped £5bn for the first time in 2021, as brokers and their clients recognised the benefit of short-term finance during times of uncertainty.

Fast and efficient bridging products have helped developers invest in new properties and improve their current portfolios. With the landscape of the high street and our city centres changing as hybrid working cements itself as the future of the workplace, property investors are capitalising on the opportunities available, and using bridging to do so.

Anyone working within the bridging market will know that the speed and execution of the deal is key. There are often very short timeframes involved, and lenders that can provide a quick and efficient

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process will be attractive to brokers and their clients alike. This is why we chose to focus the next step in our digital journey on bridging.

COMMITMENT TO DIGITALISATION In 2021, we made clear our commitment to digitalisation with the launch of MyShawbrook Buy-to-Let. The technology – the first of its kind in the specialist market – sought to revolutionise the buy-to-let mortgage journey and drastically improve the application process for brokers and landlords. Applying advanced decisioning techniques and sophisticated insights via application programming interface (API) technology, the system offers a quicker and more intuitive journey to credit decisions.

By integrating with third parties such as Companies House and Hometrack, we have reduced the need for unnecessary documents and data input, cutting down the heavy lifting for brokers, and freeing up more time for our underwriters to focus on complex underwriting decisions.

Since launching the MyShawbrook Buy-to-Let portal, we’ve seen cases move to formal mortgage offer in a matter of hours, and complete in as little as seven working days.

With fantastic feedback from brokers, and continued investment in our technology and digital capabilities, the next step was to roll out the portal further to benefit customers looking for other products. With the bridging market favouring quick decisions and executions, as well as our increasing appetite to support this market, it was a natural fit. www.sfintroducer.com

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IN OUR OPINION

tm the frontier bridging market Built on the same advanced technology as MyShawbrook Buy-to-Let, MyShawbrook Bridging is designed to provide a more efficient, frictionless journey for bridging clients, so they can quickly take advantage of the opportunities available to them.

Rolled out to a select group of brokers, the pilot scheme has already received encouraging feedback, and we will be rolling out the portal to a wider pool of brokers in the coming months.

IN ACTION From the pilot, one of the key use cases for this technology in the bridging market is already evident. With the government’s net zero agenda, and the proposed Energy Performance Certificate (EPC) regulation changes that will mean landlords will require their properties to have an EPC rating of ‘C’ or above – by 2025 for new tenancies, and 2028 for all tenancies – there is a real drive from property investors and landlords to make changes to properties.

Bridging products are well-positioned to help investors and landlords make energy-efficient improvements to their current and future properties, helping them tackle the challenge of bringing their EPC ratings to the proposed standards, and providing healthier and more environmentally friendly homes to the private rented sector in the process.

Landlords may face a time crunch as the proposed deadline approaches. Bridging enables them to act quickly, avoiding potential rises in prices that could be prompted by the tight deadline. Indeed, research from our new report ‘Confronting the EPC www.sfintroducer.com

Challenge’, shows 15% of landlords are unaware of the proposed changes, and 10% believe that they can start making refurbishments in three to four years, so there could be a rush of landlords needing to make changes very quickly in order to comply with the proposed regulations.

While greater clarity and communication is clearly needed from both the government and industry on these proposals, landlords will also need support from lenders. Bridging has the potential to offer this support, and technology can play a key role in making this route as quick and simple as possible for those needing to make changes swiftly.

As with all industries, digitalisation brings with it significant efficiencies and improved user experience, and within our market this is no exception.

We have been working hard behind the scenes to offer our brokers and their clients a user journey that is seamless and efficient.

Speed is a key requirement for bridging, and with our new portal, we can offer brokers quicker decisions, and a smoother application process.

We are committed to making the lives of our brokers easier, and we see technology as a significant contributor on this mission.

As we roll out MyShawbrook Bridging to a wider selection of brokers, we will continue to make improvements so that our customers get exactly what they need as quickly as they need it.

At Shawbrook, we are committed to supporting the bridging market to continue its growth trajectory in 2022 and beyond. B I MARCH 2022 BRIDGING INTRODUCER

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REVIEW

ASTL XXXXXXXXX

Building on a record year backwards, and we cannot afford to remain in this position.

Vic Jannels

GETTING ON THE FRONT FOOT

CEO, ASTL

I

t’s fair to say that, despite the complications of COVID-19, building supply chain issues and rising inflation, 2021 was – on the whole – a very successful year for the bridging market. The latest ASTL data shows a record period for bridging lending in the last quarter of 2021, with completions and applications both reaching an all-time high.

The figures show that bridging applications reached a record high of £12.7bn in the quarter ending December 2021 – an increase of 65.4% on the previous quarter, which itself was a record period at the time.

The value of completions in Q4 2021 increased by 19% on Q3, reaching a new record of £1.2bn. This led to another increase in the value of loan books, which reached £5.08bn at the end of December, representing a slight uptick on the previous quarter, which was £5.07bn.

At the same time, the value of loans in default continued to fall for the fourth consecutive quarter, showing a decrease of 7.6% over September 2021, and the number of repossessions also fell slightly.

These statistics speak for themselves.

Today, we sit in a position where loan books are at a record level, completions are higher than they ever have been, and there is a strong pipeline with record and rising application numbers.

Even more positive, however, is the indication that this lending is being delivered without any significant advance up the risk curve. Loanto-values (LTVs) have crept up, but remain modest, and falling values of loans in default and numbers of repossessions indicate that risk is being well managed.

However, as anyone in business knows, if you sit still, you move

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MARCH 2022

At the ASTL, we are taking the opportunity to build on a record year in 2021 and getting on the front foot in 2022, in terms of regulator engagement, consumer awareness and broker education – amongst other things.

So far this year, we have already submitted a response to the Financial Conduct Authority (FCA) consultation CP21/36 – A New Consumer Duty, representing the interests of the short-term lending sector, and we have quickly been invited to meet and discuss our concerns with the regulator, which is a very positive step in the right direction.

We have also conducted an important piece of research, in association with YouGov, amongst more than 2,000 consumers, seeking to better understand customer awareness and understanding of bridging. We will use these results to create a white paper on the current market and uses of bridging, and we will engage with journalists to help raise their awareness

“The important thing here, in our opinion, is that education should be ongoing, not just as a one-off participation, but as part of an ongoing environment of continuing learning” to benefit their readers, and ultimately increase the potential for our sector.

One interesting statistic I can reveal now is that, when it comes to choosing a bridging lender, membership of a trade association like the ASTL was the fourth most important consideration for respondents, just behind rate, recommendation from a broker and established brand.

So, it’s clear that consumers take reassurance from our commitment to

high standards, Membership Rules and our Code of Conduct.

Finally, we have made no secret about our collaboration with the Financial Intermediary & Broker Association (FIBA) to launch an ongoing programme of education for the commercial property finance industry, which includes bridging, short-term finance, development finance and specialist buy-to-let.

We are currently working with The London Institute of Banking & Finance (LIBF) on the creation of a series of optional e-learning modules that will be recognised through the award of a LIBF digital badge and accredited for continued professional development (CPD) purposes. As an industry, we believe there will be a much greater emphasis on ongoing education as we proceed through the year.

The important thing here, in our opinion, is that education should be ongoing, not just as a one-off participation, but as part of an ongoing environment of continuing learning.

The bridging market is in a stronger position than it ever has been before.

Lending volumes and business pipelines are at record levels, and we are actively engaging with the regulator and raising awareness amongst consumers. We are taking steps to raise levels of education within our industry. We are in a great position to build for the future and excited about the opportunities.

This has all been positive news.

Yet it would be remiss of me not to mention the rather sad news that our good friends at Masthaven Bank will be shortly be withdrawing from all banking activities, including bridging.

Masthaven has made an important contribution to our sector, and we would like to take this opportunity to send our thanks and very best wishes to all those who will be impacted by this decision.

Whilst this is sad, it is a commercial decision on the part of the bank and we do not consider that it will have any real effect on the overall strength and growth of our sector. B I www.sfintroducer.com

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