Issue 98 MARCH 2022
Broker COMMERCIAL
The award-winning magazine for the National Association of Commercial Finance Brokers
28 INTO THE LIMELIGHT
32 A TABLE FOR NONE
An underwriter’s journey out of the shadows
Timing is everything Why planning now can reduce the tax bill later
Tough times continue for UK hospitality sector
42 COLLECTIVE ENDEAVOUR Using finance to create fairer communities
46 A DUTY OF CARE Funding options for the senior living sector
Contents
In this March issue NACFB News
Special Features
4 6 8
22-23 24-26 28
10 12-14
Note from Norman Chambers Updates from the Association Note from headline sponsor, Allica Bank Industry news round-up Membership news
30 32 34-35
InterBay: Making the move NACFB: Timing is everything Lendhub: Stepping into the limelight iwoca: Investing for growth UKHospitality: Table for none Haydock Finance: Grit in the oyster
Industry Insight 36 38-39 40 42
Reliance Bank: Housing in crisis OSB Group: Green shoots Hope Capital: Bright side of the bridge Social Investment Business: Collective endeavour
Opinion & Commentary 44-45
16 Patron Profile 16-17
Glenhawk: The yellow car
46 48 50 52 54
Philip Meek Commercial: The shadow of COVID Assetz Capital: A duty of care Shawbrook Bank: Bridging the knowledge gap British Business Bank: Breaking through Listicle: Five sectors Members anticipate will grow in 2022 Five minutes with: Jackie Skelt, Regional Director – London and Midlands, Recognise Bank
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Paragon Bank: It’s electrifying!
KIERAN JONES Editor & Feature Writer
33 Eastcheap | London | EC3M 1DT Kieran.Jones@nacfb.org.uk JENNY BARRETT Communications Consultant
33 Eastcheap | London | EC3M 1DT Jenny.Barrett@nacfb.org.uk LAURA MILLS Graphic Designer
33 Eastcheap | London | EC3M 1DT Laura.Mills@nacfb.org.uk
Magazine@nacfb.org.uk
NACFB: Increasing accountability
Ask the Expert
Further Information
MAGAZINE ADVERTISING T 02071 010359
Compliance Update 18
38
32
MACKMAN Design & Production T 01787 388038
mackman.co.uk
NACFB | 3
Welcome
Norman’s Note
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The art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing.” An unenviable task no doubt, and whilst tax inspectors may have their detractors, being able to navigate complex arrangements with confidence should be another string to a broker’s bow. ‘Tax doesn’t have to be taxing’ is one of HM Revenue & Customs’ favourite stock phrases, trumpeted during the simplification of income tax returns and periodically revived as a slogan whenever tax legislation undergoes change. It remains an effective strapline and is no better demonstrated than in this month’s issue of Commercial Broker. As my fellow board director David Newborough casts his eye to the taxation horizon, he makes a compelling case for why timing is everything, especially when making plans to file a return.
Norman Chambers Managing Director | NACFB
This issue also confirms the Association’s place on the Treasury’s Business Finance Council. From the outset of the pandemic, the NACFB maintained dialogue with organisations at all stakeholder levels. Such real time feedback enabled us to steer decision-making, influence details within the COVID loan schemes, and increase awareness of the intermediary route to market. We are proud that this work has been recognised and that we are able to take our seat at the table on merit. The NACFB and its community of funding pathfinders will have many roles to play in the coming years. First among equals will be to restore confidence to the UK’s small businesses, to instil a sense of certainty. But we live in a time where it seems the only certainty is uncertainty, and our community has grown accustomed to operating within the eye of the storm. Whatever is thrown at us next, I for one am certain, we’ll be equipped enough to handle.
4 | NACFB
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NACFB News
Association updates for March 2022
NACFB News Registration opens for 2022’s NACFB Expo
NACFB joins Business Finance Council
The NACFB Commercial Finance Expo, the UK’s largest commercial lending trade show for intermediaries, returns for the twelfth time to Birmingham’s NEC on Wednesday 15th June 2022.
The National Association of Commercial Finance Brokers (NACFB) has accepted an invitation to join the Government’s Business Finance Council.
The flagship event is free to attend, and registration is now open to professionals already working in commercial finance and those looking to access the industry.
The Council is jointly chaired by the BEIS Secretary of State and the Economic Secretary to the Treasury. The NACFB will sit alongside major lenders and providers of alternative finance, as well as UK Finance, the British Business Bank, and the ICAEW. The NACFB was in attendance for the Council’s first meeting of the year on Wednesday 2nd March.
This year sees a wider spread of exhibitors than ever before – with 100 already confirmed to exhibit. Delegates will have access to exhibiting lenders offering products and funding solutions from the asset finance, buy-to-let, bridging, development, leasing, commercial mortgages, unsecured, factoring and invoice, and cashflow sectors. Other exhibitors include service providers selected for the value they add to the modern commercial finance broker, including lawyers, accountants, and technology platforms. Once again, BBC Breakfast presenter Naga Munchetty will host the day’s conference guiding an expert panel through the issues and developments facing the industry with the aim of igniting discussion and debate. As NACFB Expo registration opened, NACFB Chair, Paul Goodman, said: “The Commercial Finance Expo has become the headline event on the commercial finance calendar. Quite simply, there is no better place for brokers to see all the lenders they work with under one roof on the same day.” Find out more and register your attendance at commercialfinanceexpo.co.uk 6 | NACFB
The Business Finance Council was initially established in the wake of Brexit with the aim of working with lenders to ensure their SME customers can access growth finance. Minister for Small Business, Paul Scully, commented: “This Government is working with small businesses and the financial sector through Start Up Loans, the Investing in Women Code and more to ensure all entrepreneurs can access the finance they need to succeed. The insights commercial brokers will bring through the NACFB will be invaluable, and I thank them for joining the Council at this important time.” Paul Goodman, Chair of the NACFB said: “Our trade body sits in a privileged position, in that Members are well placed to observe the realities of the funding process. From the initial awareness barrier that SMEs face to the challenges of navigating shifting risk appetites, commercial brokers sit at the financing coalface.”
Note from our Sponsor
Merit-based lending Banks need to look beyond the sector
Michael Mann Business Development Manager Allica Bank
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he NACFB’s comprehensive annual survey, released in January, was once again full of fascinating insights into the wider broker market.
Most notable for me this year, though, was more to do with the lenders than brokers. Specifically, that almost 30% of declined deals are turned down because the sector the business was in was deemed too risky. Banks understandably have risk policies in place to avoid them becoming overconcentrated. But, when almost a third of declines are due to something out of a business’s control rather than a business’s own performance, something isn’t quite right. After all, every sector has its winners. It doesn’t seem fair that a popular and well-managed restaurant – one that, say, continued to make ends meet by serving customers during the pandemic with delivery services – gets denied funding just because a bank has a red flag next to the name of the sector it operates in. Unsurprisingly, the NACFB’s annual report highlighted hospitality and retail as far and away the most commonly red-flagged sectors. But this is an issue that can affect businesses across the board. 8 | NACFB
Taking a more nuanced view By ‘sectorising’ who a bank will and won’t lend to, healthy businesses will miss out on opportunities to grow and expand. This, surely, is the antithesis of what a country emerging from a pandemic needs to get moving again – we should grasp every opportunity we can get! Instead, banks need to take a more nuanced view and assess businesses on their own merits. At Allica Bank, our underwriters review every application individually, looking beyond just the sector to judge a business on the bigger picture: its opportunities, challenges, and leadership team. To show support to those strong businesses, regardless of the sector they’re in, we offer a special reduced rate for trading businesses with a 2x debt service cover. We also recently increased our maximum LTVs to up to 80%, giving us the wiggle room to lend to even more businesses where appropriate. A more human approach that looks beyond a company’s SIC code is going to be vital if the right businesses are to get the right funding. Other banks need to follow suit.
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Banks need to take a more nuanced view and assess businesses on their own merits
BUY TO LET’S GO GREEN Reduced rates for energy efficient properties with our green buy-to-let product range. Applies to properties with an EPC rating of C or above. Landbay.co.uk
Industry News
Industry News 1. Ukraine crisis set to drive up inflation Economists believe Russia’s invasion of Ukraine will deliver a steeper rise in inflation. Noting that both countries are major exporters of not just oil and gas, but also food, Karen Ward, chief market strategist at JPMorgan Asset Management, has warned the economic fallout from the conflict could result in inflation reaching 8%. Pantheon Economics says the outlook for the UK economy had ‘darkened’. Elsewhere, Investec warned household energy bills could exceed £3,000 a year in part due to the conflict.
3. UK consumer confidence plunges UK consumer confidence fell sharply in February with households holding back spending as surging living costs hit morale. The consumer confidence index, compiled by research company GfK, fell seven points to minus 26 in February – the lowest score since January 2021. “Fear about the impact of price rises from food to fuel and utilities, increased taxation and interest rate hikes has created a perfect storm of worries that has shaken consumer confidence,” said Joe Staton, client strategy director at GfK.
4. £15bn of COVID support lost to fraud
6 6. Bank lending returning to near ‘pre-pandemic levels’
The UK Government could lose as much as £16 billion to fraud and error across the COVID-19 emergency loan schemes, according to parliament’s spending watchdog. A report from the Public Accounts Committee described the losses as “unacceptable” and said the Treasury should outline exactly what it intends to recover. The furlough scheme is estimated to have suffered the largest of £5.3 billion, followed by the BBLS (£4.9 billion). The Committee Chair attributed to the losses to a lack of preparedness and planning.
The British Business Bank’s Small Business Finance Markets 2021/22 report highlights that bank lending has returned to close to pre-pandemic levels, with 2021 lending down 45% from 2020, driven by lower drawdowns of government-supported loans. Challenger and specialist banks accounted for just over half of last year’s bank lending (51%) – a record share, up from 32% in 2020 – while private debt, asset finance, invoice finance and asset-based lending, and alternative finance all experienced rebounding levels of activity after a difficult 2020.
2. Robots could be doing your job by 2035
5. UK customs duties jump 64% in a year
7. UK manufacturing price pressures rising
Research commissioned by Smart Energy GB has revealed that over half of small businesses believe they’ll be employing robots by the year 2035. As many as 43% believe robots will be stacking shelves and making products, and a further 41% believe they will replace customer services entirely. Futurologist Ian Pearson says: “A small accountancy firm could be entirely run by AI. But human contact and the emotional aspect that comes with certain jobs is a vital part of their appeal.”
UK businesses paid a record £4.5 billion in customs duties in the year to 31st January 2022, up from £2.9 billion in the previous 12 months. The 64% jump could become more painful still since the UK Government introduced a requirement that importers show a declaration about the origin of the goods at the point of entry. Questioning business model viability, Michelle Dale at UHY Hacker Young said: “This shows how the post-Brexit increase in custom costs to UK consumers is really biting.”
A survey by the Confederation of British Industry (CBI) reveals that more British manufacturers plan to raise prices in the next three months than at any point since 1976. “Manufacturers will be buoyed by strong order books and output growth, but amid ongoing cost pressures, almost four in five firms expect to increase prices in the next three months,” said the CBI’s Anna Leach. She urged Sunak to use his spring budget statement to increase investment incentives to help manufacturers.
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10 | NACFB
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Membership News
Membership News Business confidence reaches five month high
CAF Bank lending reaches new heights in February
Business confidence bounced back to its highest level in five months (up five points to 44%), moving further ahead of the long-term average (28%), according to the Lloyds Bank Business Barometer for the first two weeks of February. The rise was driven by improvements for trading prospects and economic optimism.
CAF Bank’s advances reached c.£9.67 million in February, the highest ever for a single month. Loans supported housing associations in Hampshire, Oxfordshire, Buckinghamshire, Leeds and West Dunbartonshire as well as a school in London and a Brighton-based property developer.
The survey, which straddled the announcement by the Bank of England to increase interest rates to 0.5%, showed that over one-third of firms (38%) said they would be concerned about interest rates rising to 1%, increasing to 57% if interest rates reached 2%. Hiring intentions were also positive.
Scott Newman, regional director at the NACFB Patron, said: “It’s great to see CAF Bank’s hard work over a number of years enabling positive outcomes on the ground.”
Hann-Ju Ho, senior economist at the NACFB Patron said: “... there is hope that the easing of supply bottlenecks will alleviate a number of challenges that businesses have been facing and help underpin the UK’s growth in 2022.” At a regional level confidence increased in ten of the 12 regions. At 57%, the North East is now the UK’s most confident, followed by Northern Ireland (54%) which continued its notable rise in confidence over recent months. Only Scotland’s confidence level fell, down two points to 35%. Across the sectors there were strong increases in manufacturing and construction. Retail confidence also rose, and services remained unchanged. 12 | NACFB
The February loans have helped rehouse a school, build 136 new homes, refinance existing debt on competitive terms and help one charity to expand its services in its fight to end homelessness in its area. Owned and operated by a charity – Charities Aid Foundation – CAF Bank’s approach is one of high ethics and fairness. It provides day-to-day banking for charities and not-for-profit organisations including transaction services, savings and borrowing. The NACFB Patron which claims a 92% customer satisfaction rating, focuses on accelerating progress in society to create a fair and sustainable future for all. In addition to February’s record-breaking achievement, its loan finance has supported green energy schemes, education providers, places of worship, property refurbishments and purchases, alongside debt refinancing.
Membership News
Membership News
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1.9 million SMEs plan to invest a third of cash reserves
Non-portfolio landlords unaware of EPC changes
As SMEs look at how they will finance their businesses this year, new research from Nucleus Commercial Finance has found that nearly four in 10 (39%) of SMEs plan on investing over a third (35%) of their cash reserves into their business.
Buy-to-let portfolio landlords are more likely to be aware of the government’s proposed EPC requirements than non-portfolio landlords, according to recent research by Landbay. From 2025, all rental properties with new tenancies must have an EPC rating of at least C and for existing tenants, landlords must comply by 2028.
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The majority (91%) have cash reserves, with the average SME holding £39,723 which they have set aside to finance their business for a time of crisis or cash shortage. However, the size of cash reserves is dependent on the size of the business, rising to £61,202 among medium-sized businesses (50-249 employees) and dropping to £9,646 among sole traders. According to the research, cash reserves are the leading way SMEs will finance their businesses this year. Other options SMEs are using include: a bank cash loan (22%), personal savings (21%), cashflow finance (19%), and property backed loans (16%). When it comes to financing their businesses, SMEs like to plan ahead with almost half (46%) having started preparing for 2022 in 2021. Chirag Shah, CEO at the NACFB Patron, said: “Governments and industries need to work together to highlight what options are available and the benefits of using external finance can help businesses invest for the future.” 14 | NACFB
The survey found that 80% of buy-to-let portfolio landlords with 10 or more properties and 70% of those with four to 10 properties are aware of the government’s EPC requirements. But only 54% of non-portfolio landlords with one to three properties knew about the proposals. When asked about upgrading their property to reach the required minimum EPC rating of C, most landlords said they would wait until 2025 to carry out necessary work. A third of larger landlords (35%) with 10 or more properties were willing to upgrade sooner but only 20% of smaller portfolio and non-portfolio landlords said the same. Paul Brett, managing director, intermediaries at the NACFB Patron, said: “With an uptick in remortgaging due this year, brokers should take the opportunity to ask their landlord clients if they are aware of these new EPC rules. Clients will appreciate their broker showing an interest in them beyond just the mortgage.”
Patron Profile
The yellow car Identifying the opportunity Jamie Pritchard Director of Sales Glenhawk
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ost people are familiar with the monotonous question of ‘Are we there yet?’ from children on a long car journey. However, I have learned a distractive counter measure (and I strongly recommend trying it) of asking them the number of yellow cars they can see on the journey. It is amazing how many yellow cars they spot when they are focused on their desire to win a game – and it is this simple analogy and way of thinking that can translate into identifying bridging opportunities. Bridging is an extremely effective use of optimising short-term finance and exploring and spotting the opportunity to make good use of it, is one of the most important offerings good brokers and lenders can deliver for their clients.
Nurturing an education culture Education and understanding the nuances within bridging, development and property legislation can be crucial in optimising its usage for clients. For example, the recent Permitted Development (PD) changes introduced by the government present developers with the chance to repurpose vacant commercial property into residential without the time barriers that planning previously presented them with. I believe this key area is not being discussed enough, with property professionals subsequently missing out on potential opportunities because of it. The new MA class (commercial to 16 | NACFB
residential) will help the government towards their goal of 300,000 new dwellings a year, in addition to rejuvenating town and city centres across England. Based on how commercial property is valued versus residential, acquiring the right property and benefiting from the recent PD changes could provide clients with a solid profit margin from day one. In another example, more than a third of current properties within the private rental scheme were built prior to the 1940s. With this ageing housing stock and the proposed changes to minimum energy efficiency standards predicted to cause more disruption to a significant proportion of landlords across the UK, careful consideration is required on the expense of updating these properties, so the landlord is not left holding an unmortgageable and unlettable asset. Bridging could be one of the solutions for these landlords, however the knowledge on options available to each landlord sits with the broker’s expertise.
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Specialist lending is the cornerstone of the market now, it will continue pushing the boundaries to innovate and adapt as clients’ needs evolve
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Bridging is thought of by many in micro terms as a product, where in reality it is very much a transitional financial solution with multiple uses
The key to this fluidity of education is the relationship between the lender and the broker community. A specialist lender should add true value, exploring untapped opportunities for brokers to help educate their clients. Specialist lending is the cornerstone of the market now, it will continue pushing the boundaries to innovate and adapt as clients’ needs evolve, with the ongoing influences that COVID-19 and Brexit have presented to us all.
The future is exciting Change is a constant in the lender market and that is the same for a growing business such as Glenhawk, where we constantly thrive to explore opportunities and gaps in areas that can benefit our clients. This includes most fundamentally developing new product areas, including further enhancements to our current range and service proposition. Innovation in technology also plays a key role in driving the efficiency of deals, however this will only complement the experience we have in our team, where all deals presented are expertly considered. Despite the sobering economic climate of rising inflation and interest rates, alongside incoming tax and energy increases in the spring, the demand for housing shows no sign of slowing down. Savvy investors are still using bridging as a solution to purchase property either quickly from auction, or utilising refurbishment loans to add value to the property to either exit onto a BTL or sell back to the market.
A needs-based solution Bridging is thought of by many in micro terms as a product, where in reality it is very much a transitional financial solution with multiple uses, one that can help property professionals and homeowners realise opportunities and progress with investments. At Glenhawk, we realise the importance of standing out in a competitive market, where we offer multi-faceted short-term solutions backed up by a unique service proposition that has proven to work time and time again. The absolute key to this for us is transparency, offering our clients open communication throughout, which in turn builds trust. This can be from commercially pricing a deal correctly at the outset, to reassurance that we will lend based on the open market value and not a 180 or 90 day value. Since conception, Glenhawk CEO and founder Guy Harrington had a vision of providing our clients with the fairest, most ethical and fast financial solution, and with the backing of large institutions such as J.P. Morgan, we are incredibly proud that we continue to provide this for our clients. Bridging should not be seen as the finance of last resort. Brokers across the UK need to consider it as a viable solution for the opportunities that present themselves in front of them. Good luck spotting those yellow cars. NACFB | 17
Compliance
Increasing accountability Proposed changes to the Appointed Representatives regime James Hinch Head of Compliance NACFB
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t the end of last year, in parallel, both the Financial Conduct Authority (FCA) and HM Treasury (HMT) published consultations on the Appointed Representatives (AR) regime. In last month’s magazine I provided an overview of the FCA’s consultation and an outline of its implications. HM Treasury’s “The Appointed Representatives regime: Call for Evidence” (which closed on Thursday 3rd March 2022) sought to gather information on how market participants use the regime, how effectively it works in practice, as well as potential challenges to the safe operation of the regime, and possible reforms. It also proposed several key adjustments.
Changes to the scope of the AR regime The government has stated that if there is evidence to show that the AR regime is generating unacceptable levels of risk for consumers, it would consider prohibiting ARs from conducting that activity. However, HMT has also made it clear that any changes to restricting or prohibiting such activity would be met with caution.
Enhance the role of the FCA Currently, any authorised firm can appoint ARs without requiring FCA approval. The consultation suggests that this should change and proposes introducing a ‘Principal permission’. This would allow the regulator to scrutinise a firm’s ability to provide effective oversight. 18 | NACFB
While this proposal has merit, we would question whether the regulator has the resources to undertake such a task. We have already seen a large increase in waiting times for authorisations and Senior Managers and Certification Regime (SM&CR) reviews, this would add extra strain. Firms could also be negatively affected and may even have to stop all AR activity while awaiting an outcome which could affect their bottom line. Also, firms have already suffered an increase in authorisation costs, costs for remaining authorised, and new AR/IAR charges; will the regulator expect further payment for ‘Principal permission’?
Increase AR obligations The government is considering putting accountability directly onto ARs by subjecting them to the SM&CR. This would apply a consistent level of conduct. Fitness and propriety standards would likely increase, thus reducing risk. However, applying this level of scrutiny and regulation directly to an AR could result in removing the benefit of what it means to operate as an AR in the first place. Effectively ARs would be morphing into independent regulated firms.
Extending the remit of the FOS The issue of extending the FOS’s remit to investigate complaints of AR activity is relatively straightforward. As it stands, the FOS can consider a complaint where it is connected to the AR’s activity in their written agreements between the AR and the Principal firm. The government is considering changes to the AR exemption which would mean that a Principal firm is responsible for all the AR’s activities, even if the AR appointment is invalid. This means that consumers would not need to understand the technical arrangements and agreements of ARs and Principal firms including the activities within the contacts to know whether they have a right to complain. The NACFB submitted a response to the consultation which has now closed. It will be interesting to read the follow-up white paper when it is published, and we will keep you updated.
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Barclays Business is a trading name of Barclays Bank UK PLC. Barclays Bank UK PLC is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority (Financial Services Register No. 759676). Registered in England. Registered No. 9740322. Registered Office: 1 Churchill Place, London E14 5HP. Barclays Bank UK PLC adheres to The Standards of Lending Practice which is monitored and enforced by The Lending Standards Board. Further details can be found at www.lendingstandardsboard.org.uk. IBIM10384_February 2022
Ask the Expert
It’s electrifying!
Q
The lightning growth of electric vehicles
Julian Rance Managing Director, Motor Finance Paragon Bank
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aragon Bank’s motor finance division posted more than £100 million of new lending last year. Managing director Julian Rance discusses the outlook for the used car market in 2022 and what we can expect from the division this year.
How is business at Paragon for Battery Electric Vehicle (BEV) finance?
We’ve been pleased by how the dealers and brokers have responded to the launch of the proposition and we are ahead of where we’d thought we’d be. Finance is offered for cars only, on hire purchase and lease purchase agreements, and loans are available to both consumers and businesses through intermediaries. Demand for electric vehicles (EV) is growing across both the new and used car segments. It’s growing from a small base, but the direction of travel is clear, and we are keen to support that growth.
How do you see the market for EVs developing? After years of talk, we are seeing all major 20 | NACFB
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car manufacturers implementing their electric strategies now and over the next five to 10 years I expect to see electric vehicles dominate model ranges. We will also see new entrants to the market outside of the traditional car manufacturer group; for example, Sony is mooted to be launching an EV. Technologies are also advancing quickly, improving vehicle range, whilst the infrastructure network is maturing, although not at the same pace, and consumer acceptance is growing. There will be a wider choice of EVs in the coming years. With the Government announcing that they are bringing forward the date for ending the sale of new petrol and diesel cars by 10 years to 2030, this only looks set to increase.
used cars in the future, so supply will continue to be constrained.
What do you attribute to Paragon’s motor finance division’s strong second half of 2021?
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What do you think will happen to used car values in 2022?
I have never seen used cars grow in value to the extent they did in 2021. I expect the used car market to remain buoyant during the next 12 months, and that includes values. The supply chain issue for new vehicles is well known and that is not going to be resolved anytime soon, so demand for used cars will be strong again this year. Simple supply and demand economics will continue to underpin prices. I also expect values to remain robust over the subsequent three to four years. Fewer new cars today mean fewer
If we look at Paragon’s financial year, which runs to the end of September, approximately three quarters of our lending for the year was concentrated in the second half. That aligns with what we saw in the broader motor finance market, as reported by the FLA. Car showrooms were shut during the first part of 2021, so a lot of pent-up demand was released when motorists were able to see and test drive vehicles. I also think consumer confidence improved when lockdown restrictions started to ease.
What else can we expect to see from Paragon’s motor finance team in 2022? We are looking at growth across our key market segments, including BEVs and the leisure vehicle market, whilst we expect to see an increase in refinance activity. Given the value inflation and shortage of stock we have seen in recent months, people are increasingly keen to keep hold of their vehicle once a finance agreement has come to an end through refinancing. We have seen an increasing number of requests for that.
Special Feature
Advertising Feature
Making the move The journey into commercial letting Emily Hollands Head of Specialist Finance and New Build InterBay
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on’t put all your eggs in one basket, keep your options open, look at all the angles – how many times have you been offered these wise words when faced with an important decision? It’s sound advice which applies to so much in our lives, and when it comes to investing, they’re often interchangeable as the number one rule. Putting all of your money in one or two stocks or shares can be a recipe for disaster, no matter how well they’ve performed in the past. It’s why so many experts recommend spreading investments around a diversified portfolio to give the best chance of success in the long-term. The same principle should also apply when it comes to investing in property. For decades investing in traditional single let properties was the tried and trusted route for many landlords. However, following years of regulatory and tax changes, the days of the ‘casual’ landlord appear to be a thing of the past. Instead, we’re seeing the rise of a more professional breed of investor who is prepared to adopt more 22 | NACFB
diverse investment strategies by exploring different property asset classes, such as semi-commercial and commercial properties.
Why your clients should consider commercial letting Semi-commercial and commercial properties can offer experienced landlords the chance to earn higher rental yields and a different way to maximise their investment, as well as mitigating the amount of risk they’re exposed to. Traditional buy-to-lets can often experience a high turnover of tenants, resulting in void periods when there’s no income coming in but there are still mortgage repayments that need to be made, whereas semi-commercial and commercial properties can be leased for longer, providing guaranteed income over an extended period of time.
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Following years of regulatory and tax changes, the days of the ‘casual’ landlord appear to be a thing of the past
Of course, as with any investment, there are things which landlords need to carefully think about before making the move. The initial outlay and running costs involved with a semi-commercial or commercial property are higher compared to a traditional buy-to-let, and a vacant space will still incur business rates during void periods. Something else landlords need to bear in mind is finding the right specialist broker who understands the market, has a broad knowledge of the products out there and knows where to find a mortgage with a lender who’s experienced in dealing with these types of cases. Semi-commercial and commercial applications by their very nature can often be more complicated to place than a standard mortgage, so a broker who knows how to place one correctly first time can mean the difference between it being completed quickly and efficiently, or held up further down the line. Making sure an application is placed accurately means a lender will be able to make an informed decision from day one, helping to meet clients’ expectations and reducing the need for the lender to ask for more information.
How InterBay can help Fortunately, at InterBay we’re experts in all types of commercial property, from individual units to multi-million pound retail portfolios. We pride ourselves on working in partnership with our brokers to shape bespoke solutions which meet their clients’ needs. Our dedicated underwriting team manually underwrites each application to provide a personalised and streamlined approach, and liaises with brokers to find solutions, no matter how
challenging a case. To ensure a seamless service, the underwriters work closely with our in-house real estate team which is filled with fully qualified RICS surveyors who carefully analyse and asses the merits of all commercial properties. And with more than 50 years of commercial knowledge, as well as experience in working with large portfolio property investors, you can be sure you’ll receive all the support you need from our team of specialist finance account managers. We’re determined to deliver on each application we receive, so to help you place even more of your clients’ cases we started 2022 by completely refreshing our semi-commercial and commercial ranges. We increased our maximum LTV to 75%, and significantly expanded the asset classes we’ll consider. We’ve also removed all trail ERCs, reduced the proof of rent to just three months, and have the ability to assess loan sizes over £2 million if you refer to the sales team. And that’s not all. Clients choosing one of our mortgages can select an interest-only option on any of our commercial products (product and criteria information correct at 21.02.22). So if you have a case in mind, let us go the extra mile for you and InterBay it! You can find out more about how we could help by speaking with your specialist finance account manager, getting in touch using live chat or calling our broker sales support team on 01634 835 006. FOR INTERMEDIARIES ONLY NACFB | 23
Special Feature
Timing is everything Why planning now can reduce the tax bill later
David Newborough Finance Director NACFB
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iming is a key element to the success of any business. From an accountant’s perspective, timing is particularly important when tax rates or tax rules are changing. In this article, I scan the horizon to see what the tax authorities have in store for the UK’s SMEs and then suggest ways in which business owners can use this knowledge to make better decisions that will affect both their tax liability and their bottom line. I’ll begin, however, with just a bit of clarity on SMEs and their use of some of the government’s key COVID support schemes.
The furlough scheme First off, the Coronavirus Job Retention Scheme, commonly known as the furlough scheme, ran in various guises from March 2020 until the end of September 2021. Designed to support employers to retain and continue to pay staff while businesses were closed, the scheme originally paid 80% of workers’ wages reducing to 60% as the scheme was phased down. The government estimates that a total of 11.7 million jobs were furloughed, costing the taxpayer some £70 billion. In my experience, many business owners thought that because they were claiming furlough, the wage figure in their accounts would reduce. However, that is not how the scheme worked. The grant given to businesses under the furlough scheme is classed as taxable income, so from an accounting and tax perspective, it should be treated separately and not offset against the costs of wages. The wages figure shows in the accounts in full and the grant income is shown separately as well, although the two can be set against each other for profit in internal reporting. It’s likely that many businesses will already have had to file their first accounts including the furlough income, so if they have made an error it should be corrected now.
Employment Allowance An associated issue, and one that has caught many smaller businesses out, relates to the Employment Allowance. Normally, this allows eligible employers to reduce their annual Class 1 National Insurance liability by up to £4,000. However, businesses cannot claim this allowance and furlough for the same liability. As you can imagine, this has caused confusion. Some businesses have ended up claiming both and will now have to rectify the situation, and others have not claimed for either, so they will now have to do that retrospectively. Either way, the business will have to work out which option is most favourable for them.
Super-deduction
investing in qualifying plant and machinery assets. It was introduced to encourage firms to invest in assets that will help them grow and to make those investments sooner rather than later. Introduced last April it is available until 31st March 2023. A 50% first-year allowance for qualifying special rate assets is also available. Essentially, the super-deduction allows companies to cut their tax bill by up to 25p for every £1 they invest on qualifying assets. It was broadly welcomed by businesses when it was introduced, and I know that many firms have been keen to take advantage of it. Similarly, firms that sell qualifying assets have been using this scheme to entice buyers into action, using examples of the enhanced tax savings as part of their sales and marketing plans. I am sure most brokers are already well briefed on the super-deduction and their SME clients are taking advantage of this enhanced tax relief to invest in the growth and development of their businesses. Of course, there are also current enhanced tax reliefs surrounding zero-emission vehicles that SME businesses can use to their advantage where appropriate, as well as enhanced tax relief for research and development expenditure incurred by SMEs.
Looking to the future now, there are a couple of increases on the tax horizon that are causing concern to SMEs, including brokers.
NIC up 1.25 percentage points Under the government guise of the Health and Social Care Levy, from 6th April this year National Insurance Contributions will increase by 1.25 percentage points. Essentially, employers, employees, and the self-employed will all be affected.
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Many business owners thought that because they were claiming furlough, the wage figure in their accounts would reduce. However, that is not how the scheme worked
The super-deduction is a 130% capital allowance for businesses NACFB | 25
From 6th April 2023, the rate will return to the 2020/21 levels, and instead, the levy will become a separate new tax of 1.25%. Existing employer reliefs and allowances that apply to NIC will also apply to the levy. Earnings on which contributions are calculated will also be used to calculate the separate levy. The government says it will publish information later this year on how to report the levy from April 2023. There has been widespread reporting in the press that the increase will sorely affect those on lower incomes at a time when the cost of living is rising quickly. However, it will also cause a significant squeeze on businesses that are already under pressure from cost rises and salary expectations from their employees.
Corporation Tax rises to 25% Perhaps more importantly, next April, Corporation Tax (CT) is going up from 19% to 25%. This is a massive change for all businesses except those with very low-profit levels (where profits up to £50,000 will remain at 19%). Particularly for owner-managed businesses, who have taken a strategy in the past to pay themselves a small salary and take dividends for their income. Effectively those people will have a 6% reduction in the profits available for dividends due to the Corporation Tax increase and will also pay 1.25% more tax on any dividends they do take. These owner managers missed out during the pandemic because dividends were not covered by the furlough scheme or any equivalent, and now face the brunt of the tax increases to fund the pandemic. For larger SME companies and groups part of the Corporation Tax changes also revise the rules around associated companies, moving back to rules that were used several years ago bringing in ‘common controlʼ. This is a complex area, but one to review carefully for those businesses that could be affected, especially those with high levels of investment in assets. 26 | NACFB
Planning ahead The best advice I can give to owner-managed businesses would be to make the best opportunity of timing. Often SME businesses can be flexible about when some of their costs are incurred, particularly things like repairs and maintenance and bonuses or pension payments. Planning will allow tax relief to be maximised. For example, say a business has a significant repair cost looming and is planning for when to get this done. If the business spends that money now, it goes through the accounts and there is 19% tax relief on it. If the business waits and spends the money after April 2023, it will get 25% tax relief on it. In this case, the tax planning would suggest it prudent to delay that repair cost and spend it later – if, that is, the repair can wait. Of course, there are other things you might want to bring forward, or cases where buying a new machine becomes more attractive than repairing older ones. The point is, that if you are running a business, you want to advance profit where possible before the Corporation Tax increase and move costs where possible afterward. These are just a few examples of how planning now could help businesses both now and later. Proactive brokers may already know this and should steer their clients towards taking expert advice. They should also consider their businesses and their remuneration strategies to maximise the opportunities presented by getting the structure and timing right before or after the relevant tax changes. It has been a difficult and turbulent time through the pandemic and much of the government support has been invaluable. But we’re not out of the woods yet, and with a little bit of help and direction, there is much that can be done to support SMEs to reduce their tax liabilities as well as to help them access the finance they need to grow.
Special Feature
Stepping into the limelight An underwriter’s journey out of the shadows Asim Shirwani Chief Commercial Officer Lendhub
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he term underwriter originated in the 17th century when marine vessels would be underwritten for insurance risk. The insurance company would subscribe (literally to write underneath or underwrite) the policy by signing their name at the bottom of the document and acknowledging consent that the policy was in force. Things were much simpler back then. These days, however, some of the job adverts I see for underwriting roles feel like they are looking for someone with industry expertise and extra-terrestrial powers all rolled into one. So, is it right to expect our underwriters to be relationship managers, case managers, credit managers and portfolio managers? I believe the opinion is firmly divided on this point. Gone are the days when your typical credit underwriter was someone towards the end of their career, poised in the knowledge that they’ve both seen and done it all. Having previously been on the front line, they knew every trick in the book when assessing a credit application, namely, how to spot and pre-empt issues, which often resulted in a prevalent modus operandi where the default position was to say no, unless convinced otherwise. Over the last decade or so, lenders gradually realised that they needed to wake up and smell the coffee, that they could no longer afford for 28 | NACFB
their underwriters to be inconsistent, even unpragmatic at times, and remain too remote from the borrower when making lending decisions. The recurring challenge has been to push the boundaries of commerciality while preserving the integrity and the expected independent nature of the underwriting process. Fast forward to the post credit-crunch era and along came the ‘new and improved’, very sensible, practical, but relationship driven, credit manager. Sometimes referred to as a credit partner or a lending manager, the purpose for this very deliberate shift was to bring the underwriter out from the shadows and into the limelight to work alongside expedient business development folk. Constant technological advancements into process efficiencies have meant the underwriters are able to instantaneously retrieve reliable information they need on the security, but they still must assess and evaluate the counterparty risk – this is where the modern underwriters earn their stripes. Historically this was done via handovers with heavy reliance on the front line capturing and relaying data effectively – some of you may even remember the travel packs! There is none of that these days, most lenders have done away with periodic credit committees and have given their underwriters the power and autonomy to liaise directly with the intermediary or the borrower to act as the first line of defence. Whether it is for quick bridges or term facilities, being a loan underwriter in this new world is challenging. Their involvement through the life of a loan, particularly on development finance arrangements, never changed. They must remain engaged throughout, monitoring progress, looking for warning signs and making sensible decisions when drawdown requests come in – so, no rest for the not so wicked.
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lendinvest.com/intermediaries LendInvest plc is a public limited company registered in England and Wales (No. 8146929). Registered Office: 8 Mortimer Street, London, W1T 3JJ. Your client’s property may be repossessed if they do not keep up repayments on their mortgage. For intermediaries only.
Special Feature
Investing for growth Small business’ demand for larger loans rises Colin Goldstein Commercial Growth Director iwoca
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he doors may have closed on 2021, but thankfully those of SMEs remain open and ready for business. As the year came to an end, so did small business economic fears around COVID. These resilient business owners started a new chapter, leaving the recovery phase behind them, and looking instead to powering their growth. Our Q4 SME Expert Index indicates growing optimism among small businesses, who have endured the blow of Omicron. The end of 2021 saw them feeling confident about taking on larger loan amounts to support their growth ambitions in 2022.
Borrowing for growth on the rise – borrowing for recovery in decline After two years of uncertainty, SMEs are once again able to set their sights on growth – an encouraging sign that the mainstay of the UK economy is back on its feet. Financing for growth was the most common loan purpose among SMEs in Q3. Q4 results saw this upward trend continue with close to half (43%) of brokers citing growth as the primary focus for SMEs (up from 35% in Q3). As economic fears around the spread of the Omicron variant begin to dissipate, fewer than one in ten (9%) brokers reported ‘recovery from lockdown or closure’ as the most common loan purpose for SMEs in Q4. This represents a decrease of 11 percentage points since 30 | NACFB
the last quarter, suggesting that small business’ preoccupation with shorter term COVID concerns has evolved into ambitions for expansion. The changes in business owners’ priorities indicated by our results reflect a shift in confidence in the economy over the past year. In the first quarter of 2021, only 25% of brokers cited growth as the most common reason for finance, compared to 43% in Q4. Similarly, whilst 41% pointed to managing cashflow as a primary reason in Q1, this has fallen to 24% as COVID restrictions ease and businesses look forward to life post-pandemic.
SMEs looking for larger loans The confidence of small businesses in the economic recovery is reflected in the demand for larger loans. Over a quarter (26%) of brokers said that loans valued between £100,001 and £200,000 were the most commonly requested among their SME clients, increasing by 17 percentage points since Q3, when fewer than one in ten (9%) loan requests were of this size. In contrast, demand for small loans, less than £25,000 – which were the most commonly requested in Q3 – fell by 15 percentage points.
Recovery Loan Scheme extension keeps demand at bay With RLS now set to wind down in June this year, a quarter of brokers (25%) saw demand fall over the last three months, balanced by 32% reporting an increase. 2022 will see different trends emerge I’m sure, but I hope we can remain confident that our small businesses are through the worst of it. We will continue to support small businesses in accessing finance, to power this growth and contribute to a meaningful economic recovery.
Black Arrow — the lender of choice for Soft Asset finance
BLACKARROWFINANCE.COM Let’s talk: 020 8572 7474
Special Feature
Table for none Tough times for UK hospitality continue Kate Nicholls Chief Executive UKHospitality
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he UK’s hospitality industry has garnered a great deal of sympathy during the pandemic, with most people acknowledging that it’s been the hardest hit of all business sectors. Some of that understanding could be about to evaporate, however, as increasing cost pressures faced by operators threaten double-digit price rises for customers. A perfect storm of rising costs – from food to energy – and with a return to 20% VAT on the horizon, it appears inevitable that many in our sector will have no choice but to pass on those higher prices to their customers. In a UKHospitality survey of more than 340 hospitality businesses representing 8,200 venues employing 190,000 people, nearly half of operators (47%) are reporting that they will be forced to increase consumer prices by more than 10% this year, with 15% anticipating hikes of more than 20%. Overall, it is expected that prices across the sector will increase by 11%. The rises come on the back of a Christmas and New Year trading period devastated by Omicron and Plan B restrictions, and in a sector already mired in debt and low on cash reserves, following nearly two years of severely disrupted trading. Soaring operating costs are driving price increases, with hospitality businesses reporting average rises of: 41% – energy bills, 19% – labour costs, 17% – food prices, 14% – drinks prices, and 21% – insurance costs. 32 | NACFB
With a return to 20% VAT, plus a rise in business rates and higher labour costs proposed for this April, the sector’s plight looks set to have a significant impact on the UK’s economy. Hospitality’s proportionately larger weighting in the Consumer Prices Index (CPI) means that the average 11% price increase would mean a 1.7 percentage point rise in CPI. By comparison, it would take a rise of more than 50% in energy prices to have a comparable effect. The knock-on effect to the wider economic recovery could be significant, particularly given that consumer confidence remains low. More than 80% of operators surveyed said they had experienced either moderate (39%) or severe (42%) levels of cancellations since the start of the year, indicating that consumers are already feeling the pinch. Omicron infected the start of 2022 with lower-than-expected trading levels and higher than expected cancellations in hospitality venues, at a time that is traditionally already very slow. One in three businesses in our sector have no cash reserves left and are already carrying heavy debt burdens. Many of our community pubs, restaurants, hotels and hospitality venues will therefore fail, as the cost-of-living crisis bites, causing demand to falter. This can only cause the UK’s wider economic recovery to stutter. This April’s planned increase to 20% VAT, employment costs and business rates are therefore likely to prove one financial burden too many for businesses which, emerging from the quieter winter trading period, will hope to start trading at full capacity once more. The industry wants to play its full part in the UK’s recovery from the pandemic but, as these latest figures highlight, we can only do that with further support from the Government – support that must include keeping VAT at 12.5% permanently.
Special Feature
Advertising Feature
Grit in the oyster Owning the customer journey John Jenkins Chief Executive Officer Haydock Finance
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have attended a number of conferences and seminars recently and had various discussions with systemsʼ providers who all point to their ambition for an entirely frictionless customer experience. I am not sure this is the best insight when it comes to ensuring the customer receives the most appropriate solution. Often it is the ‘grit in the oyster’ element of a credit profile, deal, or required structure that allows a broker and funder to work more seamlessly together to meet the individual needs of the customer. Don’t get me wrong, we should all aspire to a customer journey that is as efficient and effective as possible, but it is a combination of the process and, very importantly, the element of collaboration that I believe delivers the best result. This has always been true, but as we emerge from this period of uncertainty, with more leverage on balance sheets, thinner profits or even losses, it is more important than ever. The past few months have provided funders like us with the chance to look critically at how we are organised to support both brokers and their customers. We also took the opportunity to conduct our first in-depth broker survey to challenge assumptions and seek feedback. It became clear that the focus has shifted from ‘surviving the pandemic’ to now seeking the best customer experience. In response to this we need to deliver the right solutions in a fast and effective way to meet the increase in demand driven by the return to growth and investment. Whilst by no means exhaustive or indeed earth shattering, some of the areas we have focussed on which may provide some food for thought include: • Creating a collaborative environment – There is no doubt that working from home has its own up sides, but a definite downside is the ability to collaborate creatively and 34 | NACFB
spontaneously. That ability to chat across the desk or even shout across the room is so valuable when putting the deal together and getting it done effectively. Simple changes that we have implemented include a re-look at role descriptions to ensure everyone knows the part they play and to better reflect accountabilities. We have also evaluated where people sit to make discussions easier between functions rather than just within the team. • Increasing understanding – We have assessed our training, especially induction and at the early stages, to ensure our teams fully understand the job we are asking them to do and the reasons for doing it. Furthermore, we have encouraged and supported departmental cross training to help our teams understand the importance of getting tasks completed correctly. Something as simple as understanding that inputting customer details correctly ensures documents are right first time and pay-outs can run smoothly or, understanding the scale of difference the exact make, model and specification of the asset has on valuations. • Improving accountability – Unfortunately, and all too often, over-engineered and automated processes can lead to a ‘task completed’ culture. We have shifted the emphasis away from
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Unfortunately, and all too often, over-engineered and automated processes can lead to a ‘task completed’ culture
completing a task and instead encouraged owning the customer journey. Making a simple phone call to try and resolve an issue is much more effective and likely to meet with customer and broker requirements for a fast and clear decision rather than passing a proposal back along the line. In short, don’t pass the parcel. • Being clear and consistent – Throughout the pandemic many funders adapted, moving their appetite and position as the market and their own needs demanded.
It’s important now that we return to clear and consistent positioning, making appetites transparent for credit profile, assets, sectors and structures so we can work effectively with brokers on opportunities that we can deliver. The world has changed, we need to be clear what the new world looks like. So back to my thesis. This is not the time to focus on the frictionless but on the effective. It is time to use the excuse of the grit in the oyster to work better together to support our customers’ ambitions.
Asset Finance for Agriculture We take a personal approach to asset finance. All our agri division specialists have a passion for farming and helping SMEs to achieve their ambitions.
Products that power growth: • Hire Purchase
• Refinance
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• Dairy Cattle Finance and Refinance
Dedicated support: agriculture@haydockfinance.co.uk NACFB | 35 FOR INTERMEDIARY USE ONLY. Haydock Finance Ltd is authorised and regulated by the Financial Conduct Authority. Financial Services Register no. 722545.
Industry Insight
Housing in crisis Financial disparity and housing demand Paul Wedderspoon Relationship Director Reliance Bank
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he financial disparity between low-income and high-income households is growing. Housing unaffordability has become a prominent problem in the UK particularly for those on low incomes. Rising property prices only exacerbate the issue, especially for those trying to get on the property ladder. According to the Affordable Housing Commission there are several factors causing the disparity. These include: • The sharp decline of social housing; • Rising rents in the private rented sector; • Social tenants have halved while the number of private renters has doubled; • Nearly five million households pay over a third of their income in rent; • One in three low-income earners are having to borrow to pay their rent; • Overcrowding and under-occupation are both rising simultaneously. Research conducted by the Bank of England found that the accumulation of savings was concentrated among wealthier households, creating further financial disparity between low-income and high-income households. Additionally, increased demand and low supply has also caused housing prices to soar. Sadly, the stamp duty holiday may have boosted the property market during the pandemic, but it also made it more difficult for low-income households to purchase property due to increasing house prices. Despite the ongoing housing crisis in the UK, young people are continually being told to save as much as they can for a deposit to buy 36 | NACFB
a house in the future. The idea is that the larger the deposit, the better mortgage rate they will get. But saving up for a deposit takes years and that’s if would-be first-time buyers have enough spare money left over at the end of each month to save up. The UK average salary is £31,772 per year (for the tax year ending April 2021), which means monthly earnings are approximately £2,647 before tax and £2,106 after tax. No matter how much you earn, we have made some calculations to work out how long it might take to save £26,424, which is a 10% deposit of the average UK house price of £264,244 (as at August 2021), based on how much you save per month. For those saving £800 a month, it would take 2.7 years. For those able to save £500 per month, it would take 4.4 years. For those with only £100 per month to spare, it would take a massive 22 years to amass a 10% deposit. One solution for helping those on low incomes to get on the property ladder is the Shared Ownership scheme which allows first time buyers to own a share of their own home. It can reduce the deposit amount required and they can ‘staircase’ to full ownership over time. This scheme has a positive social impact which Reliance Bank is keen to support from both sides. Reliance Bank provides funding to Registered Providers of Affordable Housing that specialise in high-quality Shared Ownership homes. Also, Reliance Bank is proud to support Shared Ownership Mortgages. Recently, we supported a Registered Provider of Affordable Housing which specialises in high-quality Shared Ownership homes with a commercial loan over a 30-year term that enabled them to secure 24 apartments. The apartments have made it easier for first time buyers to get on the property ladder. Clearly, this one scheme won’t repair the disparity in the market, but Reliance Bank will continue to work with partners on all sides to improve the accommodation choices of those on lower incomes.
Fast, hassle-free finance perfect for small businesses With our business loans starting at 2.9% and the Government’s Recovery Loan Scheme still available, there’s no better time to help your clients fund their next step. Get in touch to hear about our flexible commission rates, and our brand new instant decisions tool. Contact us at broker@fundingcircle.com or on 020 3667 2208 fundingcircle.com/introducers Please note the Government’s guarantee is to the lender and the borrower is 100% liable for the debt. If we can offer you a loan on similar or better rates without the Government’s Recovery Loan Scheme (RLS), we are obliged to do so under the scheme’s rules. In these cases, a personal guarantee will be required. On all loans, you need to pay interest from the outset and the upfront fee.
Industry Insight
Green shoots Landlords growing in confidence across the UK Roger Morris Group Lending Engagement Director OSB Group
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reen shoots are appearing in London as renters return to the city, according to data analysis by our in-house insights team who have been tracking historical variables sourced from BVA BDRC. They have discovered that although landlords operating in London generally remain less optimistic than in other parts of the country, there has been a definite bounce back in confidence in the region for the first time since the start of the COVID-19 pandemic.
Tenant demand The data shows that tenant demand in London has tracked below the UK average since the first national lockdown. In comparison, UK regions have on average reported steadily increasing tenant demand since a low point during the first national lockdown. This recovery has picked up pace in recent quarters and central London has recently observed a particularly sharp recovery in demand, jumping from just one in ten landlords reporting increasing demand in the second quarter of 2021 to more than half of all respondents in the fourth quarter.
Rental yield With this increasing demand, the proportion of UK landlords reporting positive prospects for UK rental yields has also trended upwards. Despite this, central and outer London were the two worst-performing regions in four consecutive surveys from the third quarter of 2020. Q3 2021 saw confidence in rental yields in both 38 | NACFB
London regions increase to an all-time high in the series, which spans back to late 2016. Central London jumped from the lowest-ranked region in Q2 2021 to exceed the national average in Q3 for the first time in over two years. There was also a drop in confidence nationally in the fourth quarter, which was particularly pronounced in central London, suggesting that this coincided with the introduction of the ‘Plan B’ measures which once again mandated mask-wearing and working from home. Despite this dip, London landlords’ prospects for rental yields at the end of the year remained higher than any other point since 2017.
UK Private Rented Sector Landlords’ overall confidence in the UK PRS has trended upwards from a low point in Q1 2020. Over recent years, landlords operating in London have consistently ranked amongst the most pessimistic, but for good reason – they have witnessed the most significant impact as a result of the pandemic. They have also seen capital gains moderate as a result of slower property price growth. ONS data for
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London landlords’ prospects for rental yields at the end of the year remained higher than any other point since 2017
November 2021 showed that annual price growth in London was just 5.1% compared to a national average of 10.0%. However, with lockdown restrictions now eased and becoming less likely to return, landlord confidence is starting to rebound. One of the biggest reasons the buy-to-let market in London was hit hardest during the pandemic is because a large amount of property was rented on a short-term let basis. During the pandemic, the demand for short-term let properties fell sharply and flooded into the long-term rental market, further impacting this fragile rental
sector. There was a clear trend also showing that many renters returned to their family homes where they could see their families, save on rent, and have increased access to outdoor space. Now, however, buy-to-let is picking up as more properties go back on the London short-term rental market as demand grows, reducing the volume of long-term let properties available. Renters that had relocated outside of London are returning, possibly missing the city’s vitality but also in response to employers requesting staff to return to the office.
Industry Insight
Bright side of the bridge Recognising quality bridging brokers Gary Bailey Managing Director Hope Capital
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here is no doubt the appetite for bridging loans has increased significantly over the last few years. With the worst of COVID hopefully now behind us, we at Hope Capital feel confident that the growth of the specialist lending sector will continue to stride forward. The findings of the NACFB’s annual survey of brokers uncovered some interesting results, which no doubt, will help set the tone for the year ahead. It came as no surprise that the most common answer to ‘what influenced a client’s decision’ when choosing a particular funding option was ‘lowest rate’ (44%). As the bridging market has become more popular, competition has subsequently lowered rates. However, it is important to remember that while this might bring in a lot of enquiries, it will test a lender’s product transparency, credit risk appetite, and service levels. Therefore, if a lender is focusing on providing cheaper rates, brokers need to be aware of the lender’s whole pricing proposition, including interest rates, costs, and any other management fees throughout the term of the loan before they advise their client. What appears to be a cheap deal day one, can actually be something very different when other costs are charged post-completion on the loan. The second and third most popular answers to the question were ‘certainty of funding’ (19%) and ‘previous positive experiences’ (11%) respectively. After two years of so much uncertainty, the importance of brokers having peace of mind that a lender can deliver what they say they will is paramount. Likewise, providing a high-quality service, which builds trust and confidence and in turn, the likelihood of that broker revisiting the bridging lender with their future cases increases too. 40 | NACFB
At Hope Capital, we recognise the importance of delivering innovative products, which provide competitive LTVs and rates, as well as providing an excellent service which is renowned for being transparent, reliable, and supportive of brokers. Moving forward, we plan to help continue to raise the profile of the bridging finance market and also ensure that there are opportunities created for brokers to find an ideal solution for their clients. With this in mind, we are providing an exclusive offer to NACFB Members, where brokers could receive 0.25% additional commission of the loan amount on all new applications submitted across residential, mixed-use and commercial property. It’s our way of recognising the professionalism and quality of service that goes with being an NACFB Member. From a lender’s perspective, it is promising to see so many brokers, especially those who are part of the NACFB community, embracing the many uses that bridging finance offers. Looking ahead, Hope Capital plans to continue to play its part in driving the economy forward in 2022 by providing brokers and their clients with access to fast finance, in a responsible, transparent, and sustainable way.
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What appears to be a cheap deal day one, can actually be something very different when other costs are charged post-completion on the loan
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Industry Insight
Collective endeavour Using finance to create fairer communities Will Thompson Policy and Public Affairs Manager Social Investment Business
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he Government’s long-awaited Levelling Up White Paper set out an ambitious plan to transform the economic geography of the UK but, for many, it lacked the imagination and resourcing necessary to genuinely tackle these structural challenges. That said, there was much to like in the 300-page report. It made a strong argument for systemic reform that would enhance government decision-making with better data. It proposed empowering local leadership through devolution and extending policy time horizons over a decade (rather than the churn associated with a single electoral cycle). At Social Investment Business, we are interested in the ways that finance can be used to create fairer communities and we think the most effective way to do this is through supporting a strong social economy comprised of charities and social enterprises, community businesses and other impact-led organisations. With this in mind, there were three key areas where the Levelling Up White Paper showed some positive progress for the social sector.
Embed social value in public procurement The second is the commitment to embed social value in public procurement, making it easier for charities and social enterprises across the country to bid for and win public contracts. The Government spends around £300 billion on public services and this money should be used more directly to support national and local priorities, including levelling up the country.
Develop the social economy Finally, there were some helpful proposals around high street regeneration and community empowerment. We are supportive of any place-based investment that strengthens community ownership of local high street infrastructure – but we should also be thinking about what will occupy these spaces and buildings. For us, it should be an opportunity to develop the social economy that can provide good jobs, accessible services, and strengthen local supply chains.
Leverage local authority pension schemes
We agree with the Government that levelling up is a ‘collective endeavour’ – it will not be the work of a single parliament, but a coordinated effort across the public, private and social sectors to rebuild communities, improve living standards, and create a more equitable, inclusive, and green economic system. We believe that NACFB Patrons and Members can play an active role in this effort by working together to get funding into social enterprises and charities that run the spaces, facilities, and networks that are crucial to the development and maintenance of social connections within a community.
The first is the proposal to leverage local authority pension schemes for local projects. We think that this could be a real opportunity to crowd in additional capital for long-term, place-based investment to develop and strengthen local social infrastructure.
We look forward to working with all layers of government, the private sector, our social sector partners, you the NACFB membership – and most importantly those who live in these communities – to make change happen.
42 | NACFB
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Broker Voice
The shadow of COVID Why the Southwestʼs leisure sector is defying expectations Philip Meek Director Philip Meek Commercial
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s soon as we feel the c-word leaving our vocabulary and our clientsʼ optimism increasing, it becomes evident that a legacy remains within the trading accounts of leisure sector businesses here in the Southwest. COVID is likely to remain a talking point for us for years to come, however, as many of our clients have realised, whenever there is a challenge, there is an opportunity ready to meet it. Like many others within our industry, our Devon-based team of commercial and residential advisers has had several accentuated challenges to compete with in recent years. Erratic lending criteria, base rate movement, untypical trading accounts, and a slightly different type of client – some of these differences are welcomed, others are not. However, we have noticed that these changes have 42 | NACFB 44
allowed us to challenge the lending norms, as purchasers and leisure sector businesses are not the same as they were previously. Consequently, we have had to adapt how we structure lending proposals looking at cases far more holistically and with a much narrower choice of lenders to present to. In the last two years we have witnessed a significant increase in lifestyle choice decisions, seeing many clients much younger than we might have previously. Families deciding to up-sticks and purchase a guesthouse, hotel or holiday complex in the Southwest has become an increasingly common scenario. The idea of living in a beautiful part of the country, serving happy holidaymakers seems to be irresistible to young families that had been locked inside their city apartments or town houses for multiple lockdowns. The increase in working from home has allowed many the option to take a salary with them. This type of client is a pleasure to work with, as they are incredibly motivated, engaged, and excited about their new direction.
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Quote
Predictably, the initial reaction of many lenders in the leisure sector in March 2020 varied. There were those that simply closed
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Our experience is that lender confidence is now also growing, criteria with the specialists is beginning to relax and those lenders who withdrew are returning
the door and others that severely tightened their criteria which effectively excluded many potential applications from finding a home. Although businesses struggled in this first year, a surprising number saw an uplift in income due to the addition of sizeable government grants, and even more surprisingly, many experienced 100% occupancy rates once restrictions were lifted sufficiently to allow domestic travel. Insolvency practitioners now seem to be reporting a significant increase in enquiries from businesses struggling to repay Bounce Back Loans. Although this does seem to be at odds with what we hear from many traders, who whilst open during the 2021 season were unable to trade as normal and have indicated occupancy rates above those of previous years and profits higher than that pre-pandemic. Perhaps this is a case of the weak getting weaker, and the strong getting stronger? Domestic tourism in the Southwest seems to have experienced a raising of its profile with many exploring holiday options closer to home, initially due to foreign travel restrictions and subsequently because people have started to discover their own country. Where
have you been in the last two years and how difficult was it to find somewhere to book? Our experience is that lender confidence is now also growing, criteria with the specialists is beginning to relax and those lenders who withdrew are returning. One specialist lender recently reported “…a 600% increase in pipeline hospitality lending for hotels and holiday lets…” The tranche of younger buyers seeking an escape to the countryside, although inexperienced, bring energy and enthusiasm and when they move on will undoubtedly provide better trading accounts and stronger businesses than were presented when they purchased by typically older vendors selling due to retirement, divorce, or ill health. There are clearly challenges ahead for the whole economy but there seems to be a recognition amongst lenders that despite experiencing a wobble of earthquake like proportions two years ago, this is at least one sector that may benefit from the legacy of coronavirus. NACFB | 45
Opinion
A duty of care Funding in the senior living sector Mark Standley National Commercial Director Assetz Capital
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he care home sector is reporting signs of recovery following a challenging year, according to Knight Frank’s 2021 UK Care Homes Trading Performance Review. Although average occupancy fell year-on-year from 87.9% to 79.4%, a backlog of potential residents is expected to help reverse this trend. Many operators are planning to expand by purchasing older care facilities, and we have already seen a rise in demand for finance to fund purchases, refinances or for capital raises.
Short-term finance against closed care facilities is proving particularly popular among many of our borrowers while they secure planning permission to expand the facility or build another one. These commercial bridging loans provide the short-term flexibility that care home operators require, enabling them to pay off outstanding debts and pay for planning costs while they bounce back from the pandemic. However, many operators are reporting that banks are refusing to lend to them or provide new services. With that in mind, we have outlined reasons why brokers should consider working with alternative finance providers to deliver bridging loans for their clients in the care sector.
Complete loan lifecycles Bridging loans enable care operators to achieve their short-term objectives, but they also enable lenders (with the right product set) and their brokers to support clients throughout the entire lending journey. We cover residential, land with planning, commercial and refurbishment options in our bridging offering, and our intermediary 46 | NACFB
partners have embraced the opportunity to forge stronger relationships with borrowers in the care sector as a result. Whether it is bridge to term, bridge to development or development exit, alternative finance providers can often provide a fast, flexible, and comprehensive solution for brokers. After a challenging couple of years, care home operators are seeking the appropriate funding for their organisation without being crippled by large monthly interest payments. With this in mind, brokers should look for competitive rates in the alternative finance sector. After listening to our brokers and borrowers about their market requirements, we streamlined our bridging finance offering with loans of £150,000 to £5 million with rates from just 0.60% per month, giving our borrowers a more positive experience.
Real-world lending After being shunned by the high street, lenders and brokers alike have an opportunity to provide more of a personal approach to lending for clients in the care sector. Operating a UK-wide network of specialist relationship directors, Assetz visits potential borrowers to personalise the service and provide a ‘real-world lending’ approach, rather than relying solely on computer-based loan approvals for bridging, commercial mortgages and development finance. Each loan is structured and priced on its own merits, there is no ‘one size fits all’ – which gives borrowers a realistic chance to access the finance they need in order to grow their business. With the care sector looking forward to rebounding from the pandemic, it’s clear that demand for short-term finance to help operators expand will not be going away anytime soon. With that in mind, brokers that work with alternative finance providers to deliver bridging loans now could be well placed to continue working with those clients when they progress to additional funding requirements in the future.
NACFB | 43
Opinion
Bridging the knowledge gap Upskilling ahead of EPC rule changes Emma Cox Managing Director Real Estate Shawbrook Bank
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s we head towards spring, the property landscape remains a complex one with many challenges still facing both buyers and landlords. A lack of quality supply is still heavily outweighed by demand, which has only served to increase the importance of professional landlords in the Private Rental Sector that can offer quality housing. Yet, there are changes potentially coming round the corner that may pose a challenge for some landlords. Under current proposals set to take effect in 2025, all properties beginning new tenancies will be required to have an EPC rating of C or above. Currently rental properties only require an EPC rating of E or above, and existing tenancies will have until 2028 to comply with the proposed new rule changes. This is shaping up to be a potential challenge for landlords, particularly as significant quantities of the housing stock in the UK dates to pre-1940. Following some independent research carried out in November 2021, Shawbrook has identified a significant knowledge gap, with 25% of landlords admitting that they have little to no knowledge of the proposed EPC rule changes. This is a concern given the difficulties that the policy could create. It is unlikely that making sufficient upgrades to a property for it to meet the standards for a C certification is going to be a quick fix for many landlords, and it is much more likely to require significant financial resource to carry out – especially in the case of older, period properties. 48 | NACFB
With 36% of landlords owning a property built before 1940, cost is going to be a huge factor, and the risk is that where the cost is high, and the property value relatively low, landlords will choose to sell rather than complete the works (more of a threat to the North of England where properties are on average cheaper). In addition, a shortage of skilled workers and limited supply of materials could see the costs to complete the works soar as the deadline approaches. While it is likely that support measures will be put in place for landlords needing to make changes to their properties and, with 2025 looming, many landlords may not want to wait for this announcement. That is where alternative finance routes such as bridging might be considered as a useful way to fund the works. Bridging is often faster in comparison to other financing options and could offer a quick cash injection to support refurbishment and improvement – well ahead of the proposed EPC deadline. This flexibility is one of the key benefits of bridging, especially in the current uncertain climate, where landlords may want to sell, or keep other properties on the market for longer. And, while bridging may have been viewed as an expensive alternative in the past, current demand combined with an increasing supply of bridging products means there are many more favourable options available. The proposed changes to the EPC regulations will bring us a step closer to greener and more cost-efficient housing, which is clearly a desirable outcome for all. But there are several obstacles to be navigated prior to the deadline to protect landlords and investors throughout this period of uncertainty and transition. At Shawbrook, we are working closely with policymakers and leading industry figures to consider the best ways to support landlords and their brokers, and plan to share more on this in the coming weeks.
Bridging finance made easy. Does your client need to purchase or remortgage a property, auction finance or exit their development loan? Our bridging rates start from 0.60% pcm and we lend up to 75% LTV. So, when your client needs a short-term solution, look no further.
Laleta Buctkuar, Relationship Director: Bridging
Real world lending 0800 470 0430 bridging@assetzcapital.co.uk Assetz SME Capital Limited is a company registered in England and Wales with company number 08007287. Assetz SME Capital Ltd is authorised and regulated by the Financial Conduct Authority in respect of its peer-to-peer lending platform only. ’Assetz Capital’ is a trading name of Assetz SME Capital Ltd. Assetz SME Capital is registered with the Office of the Information Commissioner (Reg No: Z3338899) for data protection purposes. Assetz Capital also offers Recovery Loan Scheme (“RLS”) loans to corporate borrowers through Assetz Capital Lending Limited. Assetz Capital Lending Limited is a company registered in England and Wales with company number 12632494. Assetz Capital Lending Limited is not authorised or regulated by the Financial Conduct Authority. Assetz Capital Lending Limited is registered with the Office of the Information Commissioner (Reg No: ZA759694) for data protection purposes.
Opinion
Breaking through Strengthening the position of funding pathfinders Bernie Skivington Director & Head of Origination & Relationship Management, Guarantee & Wholesale Solutions British Business Bank
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he British Business Bank’s Small Business Finance Markets 2021/22 report provides a timely and comprehensive review of finance markets for smaller UK businesses. This year the report focuses on the role of finance in sustainable growth in addition to the detailed analysis of market developments and individual finance markets that we provide each year. The report suggests that output and investment growth in 2022 should create demand for finance but that notes of caution remain, particularly in sectors most impacted by COVID-19. In the longer-term, finance can help unlock sustainable growth, but there is evidence that female-led and Ethnic Minority-led businesses are being discouraged from applying and, in the case of Ethnic Minority-led businesses, facing higher rejection rates if they do apply.
Funding pathfinders This is the first year that the NACFB and its survey data has featured in the report. In the wake of COVID-19, it is heartening to know that smaller businesses that have either been unsuccessful in finding the funding they want when approaching a lender directly, or who do not have the time or financial confidence, can instead tap into the expertise of the broker. After the global financial crisis and the push to increase competition in the banking sector in the UK, the arrival of new challenger and specialist banks created an additional channel for brokers to explore, with many of these new banks only dealing with smaller businesses via brokers. Despite the challenges faced by many finance providers and alternative lenders during the pandemic, the average size of NACFB Member 50 | NACFB
brokers’ panels increased in both 2020 (106) and 2021 (117) up from 101 in 2019. While this suggests increasing diversity in both smaller business finance markets and what brokers can offer clients, the available data is not able to show what percentage of these panels were actively lending during these years.
Decision makers The British Business Bank’s own business finance survey asks smaller businesses not using a broker for the reason they chose a particular finance provider. They most often report a previous relationship with a lender or a trusted brand as important factors (32% and 18% respectively in 2021) with only 8% mentioning price. This likely reflects the need to be confident with whom they are applying for finance as a key factor when going directly to a lender. According to the NACFB survey, however, the most common reason given for why a broker’s clients choose a finance provider was that it was the lowest price (44% of respondents). A previous positive experience with the lender was only third with 11%. This suggests that businesses are gaining the reassurance they seek when going via a broker and are more willing to consider a range of lenders or products. The suggestion that smaller businesses take comfort from the broker relationship may also be supported by the finding that 50% of broker business in 2021 was from returning customers.
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Specialist banks created an avenue for brokers to explore with many of these new banks only dealing with smaller businesses via brokers
Listicle
sectors Members anticipate will grow in 2022
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orecasting which sectors and industries will grow is complicated. It depends on lots of factors, not least, how the word ‘growth’ is defined and who is doing the defining. For NACFB Members, knowing which sectors may require finance to grow is a key part of defining their own growth strategy as it helps them to target businesses and generate enquiries. In the NACFB broker survey carried out at the end of last year, we asked our Members which UK sectors they anticipated would grow in 2022. Perhaps unsurprisingly, five industries garnered more than three quarters (76%) of the answers.
2. Construction According to Allan Wilen writing in Property Week, starts remain substantially ahead of last year when an initial surge of construction projects was hampered by disruption across the global supply chain. Now, he writes, that we can expect further growth over the next two years to lift the value of underlying starts to a total of £61 billion by 2023, which is 3% above 2019 levels. For Members this should translate into an increase in enquiries from small building companies and property developers.
1. Hospitality Nearly a fifth (19%) of Members who responded to the survey anticipated growth for the hospitality sector which is rather at odds with trade body UKHospitality’s forecasts – see p.32. Hospitality covers a wide gamut of businesses including pubs, restaurants, hotels, and venues all of which took a hit in the recovery stakes over the usually busy Christmas period due to the exponential rise in Omicron cases. It is likely that brokers are anticipating growth due to the continued rise in demand for UK holidays, shorter-term breaks and smaller independent restaurateurs and café owners who are setting up on the high street.
52 | NACFB
3. Commercial property investment From finance for out-of-town distribution and retail centres, to small retail units on the high street, to the growing need for care homes to house an ageing population, there are multiple commercial property investment opportunities across a variety of industries. Responding to the survey, 18% of Members anticipated growth in this sector this year. Members can expect to help those looking to finance commercial property as a straightforward investment and hear from business owners themselves looking to move away from leasing and into investing in property to expand their operations.
4. Manufacturing Almost two-thirds of SME manufacturers reported concerns that supply of materials/ components could impact output in the next three months – the highest share on record (since 1988) according to the CBI’s Q3 2021 SME Trends Survey. On the upside, at the UN COP26 held in Glasgow last November, manufacturing trade body, Make UK showcased how the UK manufacturing sector is playing its part in transitioning to a net zero carbon economy. In addition to cutting greenhouse gas emissions, the sector is already delivering the innovative products, processes, and services that will become an integral part of the green industrial revolution. Whilst it might be a bumpy ride, Members understand the ongoing need for finance for Britain’s manufacturers.
5. Residential property investment The ongoing shortage of housing across the nation continues to play into the hands of private rental sector landlords despite a barrage of fiscal and regulatory changes designed to create a more even playing field between investors and homebuyers. These changes may well have disadvantaged non-portfolio landlords but there are still plenty of investment opportunities the length and breadth of the country. Members know this and continue to stay abreast of developments in order to support investors who are now familiar with borrowing through corporate structures and keen to purchase more complex property types such as HMOs and multi-units.
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Five Minutes With
ive F Minutes with: Jackie Skelt Jackie Skelt Regional Director, London and Midlands Recognise Bank Describe your role in ten words or less? Leading a successful BDM team to achieve success supporting SMEs.
How do you make a difference? I use my extensive experience of the lending sector and expertise with SMEs to help shape deals, ensuring the customer is at the front of everything we do.
In your view what are the key elements to a successful deal? Making time to understand the customer’s business and what they want to achieve with their funding. This insight is vital so I can work with them to ensure their proposal is viable and they will get the finance they need.
What’s the most common reason for turning away a deal? The issue that comes up most often is that the borrower can’t confirm they will be able to service their debt if there are any adverse events. 54 | NACFB
If you were to start your own small business, what would it sell?
What was the last great book you read?
It would sell wine. Whether that would be a small wine shop, or an importation business, I’m not too sure. But it would definitely be wine!
The Thursday Murder Club by Richard Osman, a great read. No wonder Steven Spielberg wants to turn it into a film.
What is your favourite piece of management/leadership advice?
What law would you pass if you were Prime Minister for the day?
Listen!
What changes do you hope to see in the ‘new normal’? The last couple of years have forced us to change the way we work and given us time to think about our priorities, both at work and in our personal life. I hope the ‘new normal’ means more people can achieve a healthy work/life balance.
Which person has inspired you the most? My mum, who worked three jobs and looked after us all – I have seven siblings!
I would make every weekend a long weekend – three days at least!
Where is your favourite place in the world? Anywhere with a beach and the sun is great, but Sri Lanka is probably my number one destination.
What is the best live music experience you’ve ever had? There are so many as I love live music, but probably The Killers live at the O2 in London is the top for me.
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