Specialist Finance Introducer

Stargazing in the market

Sam Howard

managing director, Magnet Capital

As I sit working from home with the news on a constant loop, the picture is forming of a dystopian world where from a corporate perspective there will be few thrivers, aside for big tech, and the rest will compete to emerge as survivors.

Undoubtedly, the world is facing a crisis like we have not seen for probably 100 years, and the impact on people’s lives has and will continue to be unprecedented in the short-term.

Reports suggest there will be a wave of soured UK commercial property loans, owing to the slump in retail property. From the development fi nance perspective, restrictions on movement, closure of building suppliers, and the eff ective shut down of the residential property market for sales and rental has and will lead to serious delays.

With regards to residential property, I believe this is overly bleak; once a vaccine and suitable drugs have been discovered, the UK’s passion for property will return.

However, whilst running a development business from my home offi ce, in between Zoom calls and reviewing drone footage and photographs of our sites, I wanted to take the time do a bit of stargazing to see what changes, for the better or worse, might aff ect our industry.

Clearly I have no crystal ball, but just a deep interest in the development fi nance industry.

An argument that is raging at the moment is whether COVID-19 will lead to a rise of nationalism over and above globalism.

Given that the UK imports signifi cant amounts of its building materials, with one-fi ft h coming from China, should the country be focusing on ramping up domestic production? Whether it is electrical wiring, soft wood timber, or clay tiles, there is an argument that the UK should aim to be fully self-suffi cient.

My guess is that there will be a signifi cant move to on-shoring capabilities where possible, although of course some countries are better endowed with natural resources than others and we will still import where there is little alternative.

We are all starting to use technology more in our day-to-day roles, whether that is valuation soft ware, drones for building inspections, or Zoom sign-up meetings. Therefore, we are shift ing in the belief that development fi nance underwriting can’t be automated and that borrowers need to be met in person and the sites visited.

With regards to the surveying profession, whilst physical valuations will still be necessary for the majority of development schemes, we will see a degree of change, with more virtual monitoring inspections taking place.

However, this is likely owing to the rise of modular housing that will reduce the need for so many physical monitoring inspections, rather than due to COVID-19.

From a lender’s perspective, no matter how much a system can be automated, you still need a human to make decisions and review the due diligence that the computer programmes produce.

Face-to-face sign-up meetings with borrowers are still crucial to assessing the risk of a development project.

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Yes, you are also looking at the valuation information, the site details, cashfl ow, business plans etc, but ultimately you are backing an individual or individuals.

At Magnet Capital, we will be reinstating this, of course adhering to social distancing rules, as soon we can. So, don’t get rid of those meeting rooms just yet.

Which leads me on to the question of working from home, one that the industry has struggled with for years.

The mantra of management has always been that you need employees in the same physical space to create the optimal working environment.

The reality is that with modern technology it is possible to work effi ciently and productively without being in close physical proximity. Using Slack, Zoom, Dropbox, Xero, alongside a business’s existing databases, the ability to work remotely is if not seamless, then close to it.

Avoiding the daily commute, not being crammed into a hot-desk environment with little natural light, and having the ability to work fl exibly is attractive. Now, I am not suggesting that offi ce space is no longer needed, but I think there will be a realisation that big expensive offi ces might need another look.

It is, of course, about having the right systems in place and yes, it is easier with a small team such as Magnet Capital’s who have all worked together for many years, rather than a giant multinational. Nevertheless, the modern offi ce will be reshaped, perhaps with meeting rooms and desks for those who need to be in, rather than paying for a space for hundreds of people.

And just a thought – perhaps from a residential development fi nance perspective, there might be an opportunity for developers to turn the unused offi ce space into fl ats. It would mean borrowing a well worn but largely derided phrase in the fi nancial markets to say that ‘this time is diff erent’, but I think in some ways it possibly could be.

Talk today for a lifetime customer

Shaun Almond

managing director, HL Partnership

Little did I know, when I talked last month about the importance of customer contact, that advice on protecting families would take on such importance now the consequences of illness are a stark reality.

Proper advice, rather than plain mortgage broking, has become even more important. To separate themselves from the ‘order takers’, mortgage advisers have a duty of care to be in touch with customers.

To this end, we actively encourage our members to be in contact, or at the very least communicate by email or another method.

Whatever their circumstances, customers need to know their options. Whether they face furloughing and a temporarily reduced income, or are self-employed and falling through the cracks of government assistance, a supportive conversation can help, and a call today might create a customer for life.

Our fi rst concern was the phrase ‘payment holiday’ and what borrowers would interpret it to mean. A holiday suggests time off , but in reality, interest still accrues on the whole mortgage balance, including payments that were not made. It does not mean that payments and interest are waived.

At times like these, customers need to know the facts. Who better than advisers to talk to them about what would work best for them? This might mean reducing payments or moving to interest only for a period, rather than

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full deferment, or at least waiting until the latter is really necessary.

The second concern in the payment holiday scenario is if misinterpretation leads to a stopped direct debit and damage to borrowers’ credit scores. For those who apply formally to lenders, the understanding is that credit scores will be unaff ected. But what about for those that didn’t need a holiday, but took one anyway?

If we consider them to be ‘our’ customers, we need to be on the phone to them now. If we don’t and are just passing the buck to lenders, we can’t then be surprised if the dust settles and they look elsewhere for guidance.

Ultimately, the job is about advice. Just because every call isn’t about arranging a mortgage doesn’t mean you aren’t working. Being proactive at a time of crisis will demonstrate the true value of advice and advisers.

It’s not all doom and gloom... BRIDGING

Brian Rubins

executive chairman, Alternative Bridging

This has been the warmest, driest April in decades, without football there’s no nail-biting for the Cup Final, and when did you last wear a suit? I could go on. There’s another positive to the pandemic: it has generated unprecedented change for borrowers, brokers and lenders, not just in how we work, but how we think.

We are now holding client, broker and offi ce meetings by Zoom and Teams, and moving to fewer emails and more phonecalls. As a result, applications are being interpreted more accurately, misunderstandings avoided and relationships strengthened.

Lenders with strong funding are, more than ever, reviewing proposals started with others no longer able to off er funds. This is creating new relationships for both borrowers and brokers which, handled correctly, can blossom in the years ahead.

Let’s admit it, valuations are a headache! Some small loans will be satisfi ed by automated valuation models (AVMs), perhaps alongside a drive-by or internal video, but this won’t work for larger loans needing a Red Book report. However, this has also driven change; many applications are supported by an acceptable valuation carried out for another lender, and so more lenders are prepared to have reports readdressed.

Lenders are facing some new and uncomfortable challenges, in particular the need to grant interest holidays. Borrowers must understand that

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holidays end, and plan to repay the unpaid interest while current interest is serviced on time. It is probable this will need time, so it is better to agree a payment plan which can be achieved.

There is also the need to take a grown-up approach to expiring loans. Sales are now either impossible or at best delayed, and the same applies to refi nance. An extension of three or even six months may be needed. For wellestablished and experienced lenders this is challenging, but familiar; for newcomers, it is a wake-up call.

Out of adversity, there is always something to learn. For brokers, it’s to introduce clients to lenders which are there for the long-term and can be fl exible. For borrowers, to stay in close contact with their lender and broker, and to address problems before they occur. It is not all gloom and doom, just a new and better way of working.

Suspend house price indices

Rob Jupp

CEO, The Brightstar Group

You may have seen that, last month, Brightstar kicked off a campaign for the immediate and indefinite suspension of all house price indices. It’s a big ask, so what was our rationale, and why do we believe that this is such an important cause?

On the day the campaign launched, City AM ran a story with the headline: It’s official: Coronavirus killed UK house prices’ Brexit recovery.

House price indices will always create headlines, and these will rarely take a measured approach.

This is something that we have come to expect, and is fine when the data is a fair reflection of the market, but we find ourselves in a completely unprecedented situation where the government has, quite rightly, paused nearly all economic activity.

This has imposed an artificial halt on the housing market, and transaction levels have plummeted.

A report by Zoopla said that newly agreed property sales fell by 70% in the first two weeks of lockdown, which is to be expected as people are unable to view properties. or surveyors carry out physical valuations.

This dynamic was recognised by Rightmove, which suspended its house price report saying that, “given the lockdown and pausing of key activities in the housing market, statistics on the number of properties coming to market, new seller asking prices, and new sales agreed are not meaningful.”

Analysis by Savills added that “in the coming months, low market activity is likely to make it relatively difficult to

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establish what has happened to prices, meaning this is only likely to become clear as we come out of the lockdown and transaction levels start to pick up.”

It seems unhelpful and potentially harmful, then, to continue to measure the health of the market using traditional methods.

The data simply cannot provide any type of meaningful house price index during this period.

Continuing to publish house price indices based on limited data will lead to sensationalist headlines and create panic, which could impede the return of the market when lockdown lifts. It may also result in knee-jerk policy decisions with a lasting and negative impact on the market.

For the time being, while low transaction volumes make meaningful data unavailable, the most appropriate solution, seems to be to put publication of price data on hold.

The networking event of the summer is back.

FRIDAY 25 SEPTEMBER 2020 SUSHISAMBA | LONDON

Better together

Adam Tyler

executive chairman, FIBA

Week five of the lockdown, as I write this, and stories of positive action have become more important to us than much of the news coverage.

As we try and move forward, and see the difficult decisions that have to be made by a government facing a crisis the likes of which no one has seen in living memory, I prefer to look at the extraordinary efforts being made not only individually (thank you, Captain Tom!) but also by government in helping individuals and businesses with unprecedented financial support.

ASSISTANCE PACKAGE

A lifeline for businesses is crucial at times like this, and I am delighted that here at FIBA, in partnership with SimplyBiz Group, we have been able to offer a comprehensive assistance package to equip our members with tools that will help them during these difficult times.

We are all having to adapt. Just as we have adjusted to the confines caused by the lockdown, our businesses and the way we run them have either got to be packed away until everything normalises, or we must look at ways to maintain a presence so we stay well positioned for the upturn when it finally comes.

While I am a great believer in maintaining independence as an adviser, there are times when being part of a bigger organisation makes a lot of sense. This is one of them.

Being part of a trade body such as FIBA, particularly one that is not just a political talking shop, provides members with many extra benefits that non-members are unable to access without losing independence.

Leaving aside the curated lender panel, compliance support, professional indemnity (PI) block policy and representation at the highest level to government and regulators, FIBA, as part of SimplyBiz Group, is able to provide additional support to members via a package designed to help in four key areas: cash flow management, client communication, financial support signposting for clients and mental wellbeing support.

CHANGING TIMES

As we emerge into a different landscape, the relationship between customer, broker and lender will inevitably change.

We all need to adjust to a new way of working and, more importantly, continue to write business through these changing and challenging times.

In order to do that, we need to call on all the help we can get.

Being a trade body member will give you access to help at a time when you need it the most.

A lifeline for businesses is crucial

Embrace technology

For many, like myself, who were brought up in a pre-digital age, comfortable with paper application forms and a reliance on Royal Mail and the fax machine (does anybody still have a fax machine in the office?), technology and its adoption in our businesses was something we would eventually get round to, but old habits die hard.

Yet, in my own business over the last 10 years, I have become evangelical about moving online. Clients simply expect it and everyone has now been opened up to the advantages of running their businesses more efficiently.

More and more of our lender partners, particularly the newer ones, are set up to work online. So, it is not just a luxury, it is becoming a necessity for advisers to accept the need to change by updating and upskilling to take advantage.

Some lenders have had to make a huge effort to move their businesses online so

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that employees can work remotely. This is a good moment to reconsider how your clients would be better suited in the future, as more lenders accept a fully online process is the way forward, with the added benefit that their teams are able to work just as easily from a home address as they are in an office.

There are no easy routes out of this current crisis, but no matter what our political affiliation, most of us would agree that the choices facing the government over how and when to lift the lockdown are fraught with consequences that we cannot measure. While lockdown is proving to be successful in helping the NHS to build its resources and cope with the current influx of COVID-19 sufferers, it has to be weighed against the damage to the economy if it goes on too long. All of us want to get back to work as soon as possible, but at what cost in respect of lives lost?

The ultimate Catch 22.