16 SHAREDEMBRACINGVALUES Making a andcontributionpositivetolifelending 32
Boiling point TENANTLANDLORD/DYNAMIC A MOMENTLIGHTBULB THEWALKINGLINE
The case for creating a fairer private rented sector 38 42
Businesses at the sharp end of rising costs Issue 103 SEPTEMBER 2022 THE
Just how high will UK interest rates realistically go? Improving your client’s applicationfundingexperience The award-winning magazine for the National Association of Commercial Finance Brokers Broker COMMERCIAL
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CommunicationsBARRETT Consultant 33
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16 NACFB News 4 Note from Norman Chambers 6 Updates from the Association 8 Note from headline sponsor, Allica Bank 10 Industry news round-up 12-14 Membership news In this September issueContents NACFB | 3 Ask the Expert 20 Shoosmiths: Writ large Patron Profile 16-17 Triodos Bank UK: Shared values Compliance Update 18 NACFB: Great expectations 32
33 Eastcheap | London | EC3M 1DT Kieran.Jones@nacfb.org.uk
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KIERAN JONES & Feature Writer
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broking services 54 Five minutes with: Daniel Sproull, Director, Devon and Cornwall Securities
Special Features Precise Mortgages: Scaling new heights NACFB: Boiling point Assetz Capital: The wood and the trees Paragon Bank: Balancing act MFS: Viva la high street
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Opinion & Commentary Yorvik Business Finance: Willing and able Ortus Secured Finance: Holding our own SWIG Finance: Adding flavour Lendhub: Strength in numbers invaluable
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36 LDS Sales Guarantees: De-risk, de-stress and develop Lightbulb Credit: A lightbulb moment National Residential Landlords Association: The carrot or the stick? Prof. Trevor Williams: Walking the line
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Welcome 4 | NACFB
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Norman Chambers Managing Director | NACFB
In any pre-crisis stage, there is always a balance to be struck in the way we react to the early effects. Too sensationalist or reactionary and there will be accusations of scaremongering; too strong a denial of any uncomfortable realities and there will be equally fervent accusations of heads being buried in the sand. But I often find the NACFB membership is an accurate barometer for small business activity and sentiment. The Association’s Members tend to pick up rumblings way ahead of most others, and I for one will be listening carefully to what they feedback over the coming months.
I believe an undetermined path lies ahead. This crisis is the culmination of a multitude of geo- and socio-political factors, and there are no quick fixes or easy remedial levers that can be pulled. In this issue, I explore some of the challenges we face and what we can realistically do to mitigate them in more detail from p.25.
Whilst the trade body’s membership is known for its resilience, it is also known for its uncanny ability to toast to its successes, and there are two big occasions on the horizon. First, the winners of the Commercial Broker Awards will be announced in late September –best of luck to all those nominated. Second, the shortlisted entrants to this year’s Patron Awards will soon be announced and we will be returning to Westminster’s Park Plaza in November to reveal the winners.
Norman’s Note
No matter how tough times get, I have faith in the NACFB community to stand tall, to step up, and to move forward – and I look forward to thanking many of you in person over the coming months.
e live in the age of the crisis, and be in no doubt, we are entering another. Crises tend to follow a similar pattern and in terms of crisis staging we are probably just about reaching the apex of the pre-crisis stage. In a strategic sense, all UK businesses should now be assessing their preparedness and seeking to mitigate against the likely worst impacts. Because before us we have the acute phase, which must then be met with the response stage, prior to entertaining any notion of the post-crisis or resolution phase.
What we don’t know about aligning chakras, we do know about funding every type of Buy-to-Let, Bridging and Development deal, let us do that, you can focus on the chakras.
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Owing to the minimum standards reviews undertaken by the Association, NACFB Members carry a lower risk profile than many non-Members and the Mutual’s pricing will seek to reflect such benchmarks of professionalism. The more competitively priced and expansive PI cover seeks to combat spiralling costs and re-introduce competition into an area of the insurance market that has seen key players leave in recent years.
Members with renewals on the horizon can request a quote via nacfb.org/mutual
100+ Members renew their PI cover via NACFB Mutual
The NACFB Mutual is designed to address rising PI premiums and provide tailored cover for its Members. Managed by Tower Insurance, the Mutual is available exclusively to NACFB Members and seeks to provide more expansive PI cover tailored specifically to the needs of commercial finance brokers.
The NACFB received well over 200 entries for this year’s Patron Awards – a record for the Association.
Commenting on the record breaking number of submissions NACFB managing director, Norman Chambers, said: “The NACFB Patron Awards and Gala Dinner has established itself as the premier occasion to recognise commercial lending excellence.”
NACFB chair, Paul Goodman commented: “Last year, 21% of NACFB Members said the biggest threat to their brokerage was the rising cost of PI. Rather than wait for premium prices to fall, we have taken matters into our own hands.
Written submissions were entered from nearly 100 individual organisations across 15 categories including; Deal of the Year, Specialist Lender of the Year, and the Rising Star Award. A broker judging panel will whittle down the entries into a working shortlist before final voting opens to the entire NACFB membership.
“We were thrilled to receive the highest number of entries we have ever had, this is testament not only to the strength of the lender/broker dynamic, but also the value our community places on merit-based recognition,” Norman added.
Association updates for September 2022
Find out more via nacfbgaladinner.co.uk
Since its launch, more than 100 Members renewed their Professional Indemnity (PI) cover through the NACFB Mutual, delivering average savings of up to 30% when compared to previous PI premiums.
NACFB News
Record breaking NACFB Patron Awards set for November
Early bird tickets can now be purchased at £325 +VAT per person (£3,250 +VAT per table of ten) for NACFB Patrons, before rising to £350 +VAT per person for Patrons after Monday 26th September. Non-Patrons can attend at a price of £400 +VAT per person.
“For the last few months, the Association has rolled out a viable solution, one that not only provides Members with tailored cover at a lower premium but also provides tangible benefits to the policyholders.”
The complete shortlist will be announced ahead of the in-person ceremony at the Westminster Park Plaza on Thursday 24th November 2022 where the winners will be presented with their prestigious trophies.
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A recent survey from Allica Bank suggests that businesses see the opportunities afforded by a commercial mortgage as one potential way to combat these rises. But still, working out the best way to do so is a lot for a business owner to grapple with on top of the day job. And it’s why I think brokers are going to become even more indispensable in the coming months.
When asked to rank terms in order of demand, 65% of brokers put a five-year term top. Demand among brokers was so popular, in fact, that Allica decided to launch a five-year fixed-rate product earlier this year. Interestingly, 55% of brokers also told us that
As costs rise, so will the demand for broker expertise
Allica Bank’s survey polled 143 commercial mortgage brokers on how they think SMEs will respond to the changing market conditions. Most notably, 42% said they expect a greater number of business owners than usual will try and buy their premises rather than rent it. With mortgage payments often much lower than rent, there’s clearly a demand among businesses to get a little more control over their monthly outgoings, along with owning a tangible asset.
Note from Sponsor
The certainty of a fixed rate mortgage has understandably become a lot more popular, too, both with businesses buying their premises and those remortgaging.
In addition to these measures, I also outlined in last month’s Commercial Broker magazine how brokers are expecting more businesses to use commercial mortgages to invest in improving their sustainability and keeping energy costs down. You can find a copy on the NACFB website if you don’t have one to hand.
there’s a tonne of opportunity for brokers to help SMEs prosper in the coming months and years. And Allica Bank will do all we can to support you.
our
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Going up
they expect there to be demand among their clients for a ten-year fixed term.
Brokers will play a key role in helping business owners work out how best to respond to this increasingly uncertain and rising-cost environment. Many may decide this is the time to look beyond their current bank to make sure they’re getting the best deal, while others might need a commercial mortgage for the very first
What are businesses doing?
Eithertime.way,
8 | NACFB
Gareth Anderson Product Owner, Lending Allica Bank
“
’m not sure I can think of a more challenging time for business owners than the past few years. Just as COVID lockdowns look to be a thing of the past, soaring energy prices, rising interest rates and inflation take their place.
Someone to lean on
With mortgage payments often much lower than rent, there’s clearly a demand among businesses to get a little more control over their monthly outgoings, along with owning a tangible asset
Michael Findlay has warned that London will lose its status as a global financial hub and be downgraded without a post-Brexit overhaul of City rules. In a submission to the Financial Conduct Authority’s (FCA) primary markets review, Mr Findlay said the UK has a “once-in-a-generation opportunity to implement radical reforms” to ensure London remains a relevant destination for flotations and capital raisings, or risk being diminished to just a regional exchange.
5. Landlords could leave the buy-to-let sector
2. Compliance staff shortage risk ahead
Industry News
Financial services firms could see shortages of compliance staff due to a surge in regulatory change. According to research published by Thomson Reuters, 74% of financial services companies expect their regulatory burden to increase in the next year but 61% believe their teams will not grow in size. In the UK, 65% of businesses will not recruit additional compliance specialists. Those polled pointed to an increase in the cost of senior compliance staff and budgetary restraints among the reasons behind the potential shortages.
Greg Tsuman, of Martyn Gerrard estate agents, has calculated that a landlord must raise the rent by 33% more than the increase in their mortgage bill to maintain the same post-tax income. But the cost of living crisis means that landlords will soon hit a threshold on rent rises because tenants won’t have the funds to support increases. Talking to The Telegraph, Adam King of law firm Portner said: “It may come to a point for landlords where [buy-to-let] is completely unaffordable.”
London Stock Exchange chairman
4. Small shops hit by steep fall in sales
1
Data from the accounting service Xero shows small retailers suffered poor trading in July as revenues, cash flow and hiring intentions weakened across most sectors of the economy. Jo Copestake, UK sales director at Xero, explained that it was a challenging time for many small businesses, especially independent retailers who have experienced another significant decline in sales. She said: “This month’s figures suggest that consumers have less disposable income to spend, which is not surprising given the headlines we’ve seen about inflation and increases in the cost of living.”
1. Bridging activity bounces back in Q2
Bridging applications, completions and loan books all rebounded in Q2 2022, according to the Association of Short Term Lenders (ASTL). The report shows a 17.4% increase in bridging completions on Q1, with these reaching over £1.2 billion in Q2. This marks the fifth consecutive quarter during which completions have surpassed £1 billion. Bridging applications rose to £7.5 billion, with this 18.7% up on the first quarter. The data also shows that the size of loan books has risen to a new high of just under £6.1 billion.
10 | NACFB
3. LSE calls for overhaul of City rules
According to a survey of accountants by trade body the ICAEW, business confidence in the UK has hit minus five, the first negative reading since Britain emerged from lockdowns last year and a sharp decline from a high of 47 in the third quarter of 2021. Michael Izza, ICAEW chief executive, said: “With inflation running at levels not seen for 40 years, ministers must provide targeted support for struggling businesses and households to keep the lights on this winter.”
6. Business confidence in negative territory
5 Industry News
4
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Triodos Bank UK delivers solid H1 2022 performance
For the second half of 2022, the whole of Triodos Bank expects to show limited growth of its revenues base, driven by an ambition to grow the bank balance sheet modestly whilst maintaining a stable loan to deposit ratio, and driven by the positive impact of the European Central Bank abolishing negative interest rates.
The first meeting looked at broker portals and digital interactions with lenders. UTB believes that by consulting with brokers very early in the development phase of its planned new asset finance business platform, it will deliver a system which gives brokers the automation they need to improve speed and efficiency but without losing the vital personal connection between skilled underwriters and brokers.
Membership News
12 | NACFB MembershipNews
Triodos Bank UK has published its half year results for 2022. Total loans and advances increased by 1.1% to £1.145 billion (end of 2021: £1.132 billion) with £59.5 million of new lending to projects. Return on equity grew to 5.3% (end of 2021: 4.3%). Overall customer numbers in the UK grew by 2.5% between January and June, to 86,667. Total funds entrusted remained stable with a small reduction to £1.601 billion (end of 2021: £1.608 billion).
UTB hosts first Exchange broker forum
Commenting, Bevis Watts, CEO of the NACFB Patron said: “In the year to date, we’ve focused on supporting our sustainable banking community through continued challenging times.”
The Bank remains committed to cost containment efforts and will manage the increasing cost pressure from outside factors.
This includes finance for housing organisations that provide energy efficient, affordable homes, as well as companies leading the transition to electric vehicles. The team also announced the successful financing of the UK’s first nature-based investment for natural flood management.
United Trust Bank (UTB) held its first ‘Exchange’ broker forum in July to discuss the future of broker portals and digital interactions with lenders. Hosted by the NACFB Patron’s Nathan Mollett and Astrid Michael, the Exchange comprised representatives from around 15 UK firms of varying sizes from one man band operations to large franchise model brokerages.
UTB will use the Exchange to provide open and honest feedback and suggestions on all elements of the broker/funder relationship including product and proposition, credit appetite, pricing, and the implementation and impact of technology.
The group will meet quarterly to discuss different themes and issues.
Nathan Mollett, said: “Brokers know their businesses and their clients better than anyone, and by consulting with this group regularly we can ensure UTB’s strategy will deliver what brokers need rather than what we think they want.”
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. 9917163 May 2021 Our Business Development Team understand that every deal is unique. That’s why they work with you and take the time to understand your client’s needs, offering tailored financial solutions to drive business forward. Talk to us today. Barclays.co.uk/brokers Make money work for you Broker a great deal
14 | NACFB MembershipNews
managing director at the NACFB Partner said that bank risk-appetites were largely returning to what they were in 2019 but small businesses were paying back more than they were borrowing which only made sense if the business was on a floating interest rate for a loan.
Ortus reports record level of completions
Membership News
they have mitigated the inevitable price increases by offering both fixed and variable options to brokers and so continue to remain confident in their competitive pricing for both residential and commercial lending.
Ortus Secured Finance has seen enquiry levels increase by almost 25%, with conversion rates increasing by a similar percentage.
The NACFB Patron set up in 2013 with offices throughout the UK in London, Belfast, Manchester and Glasgow, said it has completed a record level number of loans totalling between £5 million and £10 million a week since April this year – the highest level since they were Accordingestablished.tothelender,
Small businesses must think like mortgage switchers
Purbeck Personal Guarantee Insurance is urging small businesses to think like mortgage switchers and consider a fixed rate loan now to support investment or to sustain a business, while rates remain low. According to the Bank of England, since March 2021, businesses have, in aggregate, repaid more finance from banks and capital markets than they have raised. Company insolvencies are also returning to pre-pandemic levels after the lows recorded in the Toddpandemic.Davison,
He said: “Around 25% of small businesses made use of the Bounce Back Loan Scheme with a low fixed interest of 2.5%. Given the Bank Rate is forecast to peak at 1.9% during 2023, any small business considering new funding needs to act fast to protect themselves from the impact of rate rises, just like many people switching to fixed rate Davisonmortgages.”wenton
Jon Salisbury, managing director of Ortus Secured Finance, said: “Since 2013 we’ve seen some tumultuous times both economically and politically, however, we are proud to have remained fair and reliable.”
He went on to comment that it would be naive to say that lenders don’t amend their appetite to reflect the environment, but that Ortus has always done this in a controlled and transparent way so as to deliver what was promised. He said: “It is pleasing to see the loyalty we have built over the years, reflected in the excellent current activity levels.”
to say that one of the major comfort factors with a business loan is that personal guarantee insurance protection could cut the risk.
We’re a founding member of the Bankers for Net Zero initiative, which aims to find positive solutions for accelerating progress towards a net-zero world. We also played a lead role in launching the
Ever since Triodos was first established in the Netherlands in 1980 (and in the UK since 1995), we’ve been driven by our mission to direct money into organisations that are driving positive social and environmental impact.
“
How we work
We’re fully transparent about where we invest, allowing brokers to judge for themselves and to decide whether we’d be a good fit for their clients. These details are published in the ‘Know Where Your Money Goes’ section of our website.
Shared values
Partnership for Carbon Accounting Financials, an industry-led approach to standardise reporting on the carbon impact of loans and investments.
A partner on the path to sustainability
In 2021, we provided £8.5 billion of loans to projects across Europe benefitting people and planet. Here in the UK, we won ‘Best Sustainable Bank’ at the Responsible Banking Awards and were highly commended in the ‘Best Ethical Finance Provider’ category at the British Bank Awards, which are voted for by customers.
We can offer brokers specialist help backed by decades of experience when it comes to providing finance that supports their clients in meeting their sustainability goals.
We’re always open to working with organisations from all kinds of sectors, as long as the mission fit is there
n the wake of last year’s high profile COP26 Summit in Glasgow, an increasing number of organisations are looking to reduce their environmental impact and are putting ESG strategies in place.
I
16 | NACFB Patron Profile
Phillip Bate Business Lending Team Lead Triodos Bank UK
Where an organisation sources its financial support will have an effect on its sustainability and therefore brokers are increasingly likely to find themselves factoring in these priorities when it comes to securing finance for their clients.
Given the lack of clear guidelines on what sustainable finance means in practice, coupled with the breadth of terminology that surrounds sustainability, it can prove a real challenge for brokers keen to find products or services that are genuinely going to make an impact. How can you be confident you’re avoiding the ‘greenwash’?
Making a positive contribution
We know that as more and more companies and organisations are looking at their environmental impact, there’s a growing realisation that sustainability is also about making a positive contribution to the environment and to society. Focusing on reducing their carbon footprint isn’t enough.
Our business loan assessment process starts by considering the social, environmental or cultural impact of an organisation’s activities. If we fail to find sufficient impact – regardless of the lending attributes and potential return – we will not lend. What this means for brokers is that, as we only work with organisations that fit our mission and values, we can offer a partner for customers who share these priorities.
All clients have a named relationship manager to contact directly when they need to speak to someone throughout the loan process. They’ll understand the customer’s organisation, the challenges they face and the world they work in and will be able to support them in finding the right structure to help maximise the impact they’re seeking.
We also have a corporate finance offering for strongly mission-aligned
organisations, through which we are able to explore bond and equity raises.
Balancing priorities
“
NACFB | 17
A typical deal would have a value of between £1-15 million and usually falls within the sectors we often work in, such as health and social care, education, renewable energy, charities and social enterprise, plus faith-based and arts and culture organisations, along with social and community-led housing. However, we’re always open to working with organisations from all kinds of sectors, as long as the mission fit is there.
There’s a growing realisation that sustainability is also about making a positive contribution to the environment and to society. Focusing on reducing their carbon footprint isn’t enough
As this shift in thinking continues to take hold, brokers will need a wider variety of potential lenders to find the right cultural fit for their clients. And, as new Patrons of the NACFB, we’re looking forward to building new relationships with brokers whose customers share our mission and values.
We understand that for SMEs facing the challenges posed by rising inflation plus mounting fuel and energy costs, balancing financial priorities with their ESG agenda can prove particularly difficult. As we’re driven by our unique guiding principles, we can be innovative about what we can do to help our customers, taking a bespoke approach that suits their individual business needs while meeting their goals in environmental sustainability and social responsibility.
The FCA has not introduced any new regulatory reporting requirements at this stage but that is not to say it will not collect data to assess firms’ compliance with the Duty. Firms will need to be able to demonstrate their ability to measure and monitor consumer outcomes to ensure they are complying with the cross-cutting rules of the Duty and the four outcomes. They will also need to have appropriate systems and controls in place to prevent barriers to consumers achieving their financial objectives.
Implementing the FCA’s Consumer Duty principle
Compliance
objectives. These requirements have resulted in amended guidance to make it clear that firms should have a champion at board level (or equivalent) who, along with the Chair and the CEO, ensure the Duty is discussed regularly and raised in all relevant discussions. The regulator has set out several key questions they expect to be asked on a regular basis. Senior Managers will be accountable for delivering good consumer outcomes within their areas of responsibility, in line with regulatory expectations.
T
Firms are expected to use the whole implementation period and be able to demonstrate progress when asked. Some of this will run alongside the four-month implementation period for the new Appointed Representatives regime rules which could strain the resources of firms which have the two initiatives running in tandem.
Charlotte Mathieson Senior Compliance Officer NACFB
Firms must consider any ancillary activities connected to their regulated products or services. These include unregulated activities necessary for the completion of a regulated activity, for example, product design or customer service support.
In the coming weeks the NACFB will be announcing a framework of support to help deliver the objectives of the Consumer Duty. We look forward to working with our Members to deliver reasonable and proportionate solutions. If you have any specific questions, please don’t hesitate to contact the compliance team at compliance@nacfb.org.uk
he implementation period for the FCA’s Consumer Duty is now live. The principle and cross-cutting rules formally come into effect on 31st July 2023 for new and existing products and services that are currently on sale with a further 12 months given to allow firms to apply the new rules to closed book products.
Expectations
The FCA has confirmed that the Consumer Duty will only apply within their regulatory perimeter, so it will not apply to activities where an exclusion exists either within a handbook or within legislation. With mortgages, the Duty follows the position laid out within the Mortgage Conduct Business Sourcebook (MCOB) and does not apply to unregulated buy-to-let contracts or large business customers.
The Duty applies to products and services offered to ‘retail customers’. For consumer credit, application of the Duty applies to all regulated credit activities.
The FCA has made it clear that they expect the delivery of good outcomes to be a key element of a firm’s strategy and their business
Great expectations
Operational considerations
18 | NACFB
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from infrastructure and software to renewable energy.
Here to support the transition to zero emissions is a key part of the UK’s agenda,
&
End of July 2024: Consumer Duty will come fully into force also applying to closed products which are no longer available for purchase.
It's certainly very tight timing. Firms will need to prioritise their implementation plan carefully. After the end of July 2023, I expect that Consumer Duty will be an ongoing journey of continuous improvement for most firms.
What should commercial finance brokers be doing now?
Perform a gap analysis of their business to devise an implementation plan. I recommend starting with identifying in-scope products and then mapping the customer journey against the four outcomes. Considering gaps within brokers’ governance framework is also critical. Brokers should also set the tone of their business. Appoint the Consumer Duty champion now and start discussing the Duty openly to set the correct culture and tone from the outset.
End of October 2022: Clear, robust and
to prepare their own distribution strategy and value assessment. If a broker does not get this information, it should not offer a lender’s product.
It requires firms to put customers’ needs first, so brokers will have to work with lenders to understand the target market and the characteristics and limitations of each product offered and their fair value
End of July 2023: Consumer Duty will apply to all products and services that are on sale or open for renewal.
Suzanne Taylor ShoosmithsPartner
A
Whilst the FCA has not mandated disclosing commission amounts, this information is clearly important to allow customers to make informed and timely decisions, particularly where the commission is significant.
T
I also expect more focus on the role of each party in the customer journey – is each party’s role justified and does it offer fair value to customers?
How might the new rules affect commission disclosure in the motor finance industry?
Writ large Consumer Duty and its impact on commercial finance brokers
What impact will the Consumer Duty have on commercial finance brokers?
he FCA’s new Consumer Duty will require firms to act to deliver good outcomes for retail customers. Developed to enable growth based on high standards and promote competition, the regulator says it will lead to a major shift in financial services. But what will it mean for commercial finance brokers? We asked Suzanne for her opinion.
Mode of communication is also important. Disclosures in small print will not deliver a good outcome if brokers know that the disclosures are not read or understood by customers. Firms will need to understand how best to communicate with their customer base. I expect that firms will focus on innovative ways of communication. As an industry, we have to move away from lengthy disclosures in legal documents if we are to deliver good customer outcomes. Of course, this also requires the FCA to engage with reform of the Consumer Credit Act.
Whilstassessment.lenderswill be primarily responsible for completing a fair value assessment on a product, brokers will need to assess whether their charges or commissions offer fair value (both alone and cumulatively with other product charges).
What are the key dates?
Lenders are required to provide information about product design, distribution strategy and price and value to brokers by end of April 2023 to allow brokers time
Q
20 | NACFB Ask the Expert
deliverable implementation plan to be in place.
Is this sufficient time?
With fast access to funds, we can help businesses ease restricting cashflow due to rising costs and respond quickly to market changes. Our straightforward finance options and quick decisions on lending, enable customers to react with confidence in their own marketplaces. help.
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Emily Hollands Head of Specialist Finance OSB Group
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Scaling new heights
It was this need to provide brokers of wealthy clients with a personalised, bespoke service that led to us setting up our high
But while it may be an enviable position to be in, especially in the current economic climate, sometimes making more money, or having a larger portfolio of properties, means you’ll encounter a new set of unexpected problems.
22 | NACFB
It’s all contributed to a growth in the number of millionaires in the UK, with The Guardian sharing an investment bank report by Credit Suisse which found that more than 258,000 British people became millionaires in 2021, taking the total number in the country to a record 2.5 million.
“
…when it comes to buy-to-let, many landlords have grown their rental portfolios past the £1 million mark, either through purchasing more property, house price inflation, or a combination of the two
I
think it’s fair to say that COVID-19 has affected our lives in ways no-one could have predicted. Whether it’s the way we work, where we choose to live or how we pay for things, the pandemic has led to a number of changes that would’ve seemed unimaginable just a couple of years ago.
Take the surge in house prices we’ve seen over the past two years, for example. While there are signs that things are likely to cool off, according to Lucien Cook, head of residential research at Savills, nearly 690,000 residential properties in the UK are now worth more than £1 million – the equivalent of one in 42 homes. And when it comes to buy-to-let, many landlords have grown their rental portfolios past the £1 million mark, either through purchasing more property, house price inflation, or a combination of the two.
Clients with complex financial situations are often more likely to undertake complicated financial transactions, something which can make it difficult for them to find the advice or funding they need on the high street. Mainstream lenders may not have the expertise needed to support the nuanced requirements of wealthy individuals, and their sometimes black and white approach to funding often means they can’t meet their particular borrowing requirements.
“
It’s all part of our wider two-tier bridging offering available through Precise Mortgages and InterBay which provides you and your clients with even more bridging solutions.
We know that every second counts when it comes to securing quick finance for your high net worth clients, so as you’d expect when you place your cases with one of the UK’s leading specialist lenders you’ll benefit from a wide range of product options, dedicated underwriter support every step of the way, regardless of the product or journey, and streamlined valuations with the ability to desktop ahead of full valuation.
And after noticing a recent increase in the number of clients looking to secure short-term finance, we’ve extended the team’s tailored and personalised support to clients who have larger and more complex bridging finance requirements.
Clients with complex financial situations are often more likely to undertake complicated financial transactions, something which can make it difficult for them to find the advice or funding they need on the high street
net worth client management team this year. The team holds regular review meetings with brokers to see if we can help them with supporting their clients with any new borrowing needs, as well as ensuring they’re getting the most from their relationship with us in connection with their evolving borrowing requirements. This collaborative approach keeps the broker at the epicenter of the relationship, all backed up by our specialist lending products and years of sector experience and knowledge.
Our multi-brand proposition could be suitable for those looking to improve an investment property by carrying out straightforward investment works, as well as those who need finance to carry out more complex redevelopment projects. We also offer our developer exit products for those looking for alternative finance as they approach the end of a development project which could be suitable for single properties valued at £2 million or more, multi-unit schemes of 10 or more units or developments worth £5 million or more.
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This could be ideal for clients who need short-term funding to purchase luxury properties, buy single high-value residential or commercial properties or raise funds to increase large property portfolios. It could also be suitable for those looking to refinance to consolidate their portfolios, secure finance to buy a block of buildings or facilitate the purchase of multiple flats or buy-to-let properties.
Special Feature
Businesses at the sharp end of rising costs
Boiling point
From next month, surging gas prices will have a “frankly catastrophic” impact on millions of Britons, Martin has warned. At the time of writing, estimates suggest the energy price cap will increase by 77% on 1st October to £3,500, and from January next year, it is set to rise even further.
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Up until now the government has shown little appetite for helping the millions of small businesses across the UK ahead of the impending energy crisis. Although this year’s Spring Statement outlined some assistance in the form of changes to business rates and National Insurance Contributions, it’s up for debate whether these measures go far enough. And there was no mention of any support at all for business owners struggling with their energy bills.
ver the last decade, self-titled ‘money saving expert’ Martin Lewis has quietly become something of a national treasure. With a chipper disposition, Martin can often be found doing the morning television rounds advising on various consumer current accounts or car insurance deals. He’s trusted by millions and has established himself as a legitimate authority on all matters financial.
This is an issue that will affect all businesses, from heavy industrial and large corporates to the small corner shops, mechanics, and salons that make up the UK’s SME base. Every business needs energy to keep running, and business owners can only set aside a certain amount of money to cover these costs, regardless of how much they’re using each month. A 100% increase on the cost of energy could be catastrophic for any business owner.
It was quietly hoped that as the Truss and Sunak hustings roadshow made its way around the country, Treasury officials and those with the power to influence were concocting a plan, one to help alleviate spiralling costs and provide the new Prime Minister’s party with a much-needed poll boost. Such faith has seemingly been repaid, as at the time of writing, leaked sketches of a targeted relief scheme for both consumers and business are emerging.
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It is known that Prime Minister Liz Truss had been mulling over two options – setting a fixed energy price for businesses or a flat
No cap for businesses
It is far too early to assess any effectiveness or indeed the scope of any support package, but it would be surprising if efforts were not on the same scale as the furlough scheme
The energy price cap is designed to protect consumers and is the maximum unit price of energy charged to a standard variable tariff household consuming an average amount of energy. But as we all know, there is no price cap on business energy. This means that suppliers can increase their out of contract rates by as much as
Norman Chambers Managing Director NACFB
But anyone who has seen Martin of late will have noticed a clear change in tone. Gone are his trademark warnings against the use of store cards or advice on the best supermarket two-for-ones, instead, his demeanor is altogether more serious. And so is the message he carries. For his cost-of-living warnings have progressed from the concerned waving of a warning flag to a more frantic sounding of the sirens, coupled with increasingly desperate pleas for government intervention.
they deem necessary to cover their increased costs. Indeed, out of contract enterprises have seen rates rise by an average of 100% since August 2021.
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Such portents of doom are avoidable. We don’t have to look too far back in our history to find examples of how a delayed response and early inaction ahead of a national crisis could have made a difference. With a departing Prime Minister, a protracted Conservative leadership contest, and a parliamentary recess combining to limit the number of levers that could be meaningfully pulled, millions of business owners spent the scorching summer months on the precipice, their finances beginning to squeeze, with little hope on the horizon.
by inflation. It is these areas where the lending community can seek to alleviate pressures further and supplement the proposed state-backed energy support. It is these areas where our collective focus should be, because seldom is it possible to justify advising a business to borrow just to keep the lights on. Affordability and vulnerability assessments will be paramount during the upcoming recession as intermediaries seek to maintain the solid reputation that saw them through the worst of the COVID era.
Cost of living rises have long since been on the radar of commercial lenders. Even if we are to assume the solution to the worst impacts of business energy rates will be provided by the government, there is still much to address. The NACFB spoke to several lender Patrons to ascertain their plans, to listen to their feedback, and to learn of how they intend to adapt to pre-recession lending.
percentage discount that energy suppliers will be obliged to offer companies. The government could agree to reimburse energy suppliers for their losses, with the cost set to come to £40 billion over the next six months and up to £67 billion over the next year. It has also been suggested in leaked documents that small businesses could receive a larger discount on bills, with Whitehall keen to protect local high street firms as much as households. The package could be in place for the start of October, which is when energy contracts for many businesses are ending, and the terms will be revisited on a rolling basis.
From the frontline
Resolute in focus, determined in delivery, and unwavering in resolve, we are being called upon once more
Time Finance’s Ed Rimmer told us how in the last six months his firm had seen a significant swing in what businesses required finance for. “After COP26, businesses had sustainable investment and ambitious growth plans at the forefront of their strategy, but soaring costs are now causing those same businesses to prioritise operational borrowing,” Ed outlined, echoing the sentiments of
Such centralised deployment of relief measures does not mean the lending community will not have a vital role to play in supporting enterprises through this winter. Far from it. Energy prices represent only one aspect of tightening financial conditions for small businesses. Escalating labour costs, increased supply and material costs, as well as the servicing of existing debt hang heavy on the shoulders of business owners – factors only compounded
Keeping the lights on
Without yet seeing sight of any detail, it is far too early to assess any effectiveness or indeed the scope of any support package, but it would be surprising if efforts were not on the same scale as the furlough scheme. Given the noises coming from Truss during the leadership hustings, one can assume that the taxpayer will be footing the bill for the intervention for decades to come and that the energy companies will not be challenged by any windfall taxation.
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Unlike COVID loan schemes and the various iterations therein, it also seems highly unlikely that the commercial lending community will be called upon to deliver and facilitate any such energy scheme. The precise mechanism to help businesses is certain to be more complicated than for consumers and would be reviewed more frequently but reports suggest it could see the government mandate energy firms to offer specific reductions on the unit price of the energy businesses use.
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The Association sought to find out the ways in which lender Patrons were seeing changes to the nature of client funding; were they seeing moves away from growth financing to sustaining more operational borrowing? Gareth Anderson, Allica Bank’s product owner for lending shared that managing cashflow tightly and boosting cash reserves had “more than ever” become a key priority for SMEs. Whilst Paresh Raja of Market Financial Solutions, spoke of the growing calls from brokers and their clients for greater lender flexibility. Paresh outlined some of the ways that lenders could be more agile: “Deferred payments, rolled-up interest, different methods of calculating ICR, and generally being able to see the bigger picture when making a lending decision.”
“It may seem obvious but taking a much more hands-on approach to managing the working capital cycle while strengthening relationships with customers and suppliers will become more important than ever,” shared Allica’s Gareth Anderson. Such a ‘hands-on’ approach is echoed by Shawbrook’s Stuart Doignie: “It’s important to explore the benefits of having a deeper look into their clients’ indirect costs and to identify any opportunity to reduce these by switching suppliers or negotiating better deals.” And the timing of any intervention could be crucial to avoid any surprises says Ultimate Finance’s Josh Levy: “Try and limit the impact [of future price increases] by getting in early and gaining as much insight as you can before any increases are just imposed on you.”
Re-entering survival mode
Much like Martin Lewis, commercial brokers – indeed all NACFB Members – have become dependable cornerstones of a bigger cause. Resolute in focus, determined in delivery, and unwavering in resolve, we are being called upon once more. Our role in this crisis may not be as direct as others, at times it may even feel comparatively underappreciated, and that is okay. The duty of the modern finance professional lies within the art of the possible. We have played a pivotal role in Moving Britain Forward before, and we must now ready ourselves to do so again.
NatWest’s Dave Furnival called upon commercial brokers to maintain a clear dialogue with the businesses they support. “They should be ensuring that any application highlights the challenging economic conditions we are currently facing,” he told us, before outlining that brokers should consider the impacts of key external factors, such as global logistical delays and inflationary pressures on end products.
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The best commercial intermediaries know that in addition to their role as a funding pathfinder, it is the steering, advice, and guidance they provide where added client value can be secured. But beyond funding, what practical advice should the intermediary community be giving their clients ahead of further price rises?
Sure, as night follows day, shifting SME requirements will result in lenders adapting not only their product suites but their processes and affordability checks. Lenders do not operate in a vacuum and have sensitive antenna to market movements, but as Paresh confidently affirms: “…that does not mean becoming overtly risk-averse and shutting up shop.”
If all you have is a hammer, then everything begins to look like a nail.
Enterprises are for now at least showing some resilience, as Lloyds Bank’s Keith Softly highlighted: “Many firms are still reporting that they are not passing on the full effects of rising costs to their customers; absorbing some of this as they look to maintain sales and cashflow at the expense of margin.” Although Ultimate Finance’s Josh Levy underscored how even strong businesses are beginning to feel the pinch: “The inflationary impact is starting to affect some clients who have previously had stable funding review limits but are now looking for increases because of cost pressures.”
the many other lenders we spoke to who reiterated the importance of access to working capital.
All the NACFB Patrons we spoke to acknowledged that difficulties lie ahead, whilst some disagreed on the severity and others on remedial actions, they were united on another front; that the commercial finance intermediary is more fully embedded into the SME funding landscape than at any time before. The lending community has only strengthened through COVID, processes have become refined, with relationships forged and reinforced through external adversity.
Beyond funding?
With price rises in wages, supplies and raw materials, as well as energy, which aspects are enterprises prioritising? It seems that for many recruitment plans are on hold, as Allica’s Gareth Anderson confirms: “With wage costs increasing, many SMEs have begun to delay new hiring and pause some of their shorter-term investment plans.” Keith Softly shared the results of Lloyds Bank’s UK sector tracker which seemed to validate that the high prices for fuel, energy, raw materials, and transport were accompanied by clear evidence of rising salary costs, driven by the combination of skills shortages and pay demands.
Resolve
The drivers behind supply provision are shifting too: “One such example is buying patterns, where we expect to see more SMEs looking to bulk-purchase supplies and raw goods,” said Shawbrook Bank’s Stuart Doignie. Whilst NatWest’s Dave Furnival pondered just how prepared pre-recession SMEs were for tougher times ahead: “We are still seeing most applications being made without full consideration given to the current economic conditions or projected conditions through next year.”
Accommodating raw material and supply chain disruption
when compared to other products such as steel, which come at a high energy cost. Choosing building materials carefully will help developers to manage costs in the long run.
The construction and lending sectors are unique in that we are constantly innovating in order to meet the needs of borrowers. We are aware that product availability is proving to be a significant and prolonged issue for Britain’s housebuilders and developers. Fixing interest rates goes a long way to providing security for clients using development finance. We have always done that and in this market, we are proud that our rates don’t fluctuate once an application is accepted, which is just one reason why brokers feel confident working with us. Also, we aim to be consistent and are always looking for ways to improve criteria to support developers who are experiencing issues.
The housing market has already been feeling the effects too. According to the House of Commons Economic Indicators report there were 11% fewer house building completions in Q1 2022, compared with Q1 2021. However, that was a 3% increase from the previous quarter, so not all bad Despitenews.ableak
urrent feedback from many of our brokers is that their property developer clients are struggling to accurately price projects. Fluctuating cost projections are stalling advances, plus rising interest rates and inflation have pushed up build costs.
Heavy sanctions have also been imposed on the import of Russian oil and gas which has significantly increased energy prices in the UK and across Europe. This is making logistical and construction costs expensive. For example, birch plywood and Siberian larch cladding are likely to experience direct price rises as a major source of these products is now cut-off from the international market.
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Andrew Charnley Managing Director Assetz Capital
Like any construction project, planning is critical. Planning in advance means developers are less likely to be caught out by shortages or price rises. Working closely with those in the supply chain is also important. Developers should communicate their requirements early with suppliers, distributors, and builders’ merchants. Also, using local materials and suppliers not only has a positive socio-economic impact, but there’s an argument that the finished product has a touch more authenticity by closely connecting with the local area.
The wood and the trees
The global shortage of raw materials and labour scarcity from last year has continued into 2022 which has constrained the production of many products. This has since been exasperated by the conflict in Ukraine as the uncertain supply of raw materials such as timber has affected consumer confidence and spending.
Our rates don’t fluctuate once an application is accepted, which is just one reason why brokers feel confident working with us
Timber Development UK has suggested that the conflict, coupled with post-pandemic economic recovery, paints a gloomy picture for Q3 and Q4 2022 with inflation, high interest rates and low consumer confidence likely to impact key construction sectors.
Special Feature
outlook, the timber industry does remain strong because trees require relatively low energy to produce, particularly
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Balancing act
Richard Rowntree Paragon ManagingBankDirector of Mortgages
But balance – and calm – is now what is required from the interested parties of the rental sector following the publication of the Government’s White Paper on the future of renting.
Under the Government plans, landlords will still have rights to possession of their property via a reformed and strengthened
alance. It’s not a word we often associate with the emotive subjects of the private rented sector (PRS) and the buy-to-let market.
A fairer private rented sector?
Special Feature
The paper, ‘A fairer private rented sector’, has prompted some hysterical media reporting on the future of the sector and buyto-let lenders’ appetite to participate in the market. Some have predicted it will lead to an exodus of landlords.
The negative media articles are largely centred on the removal of Section 21 of the 1988 Housing Act. This offered landlords a ‘no fault’ right to possession of their property and its planned removal has stirred concern that landlords will not be able to take control of their property if needed.
Let’s be clear – the changes proposed by the Government in the White Paper are not expected to have any significant impact on landlords’ ability to gain possession of their property. The majority of the proposals are sensible and recognise the role landlords play in providing a home to one in five households.
Nor are they a surprise; the Government said it intended to scrap Section 21 years ago, but the pandemic delayed its ability to do so.
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For example, if a tenant is in rent arrears for two months at the time the Section 8 notice is served and at the time of the court hearing, the court can issue a four-week notice period for the tenant to leave the property. To prevent tenants from playing the system, a new ground for repeated arrears will also be introduced.
the time it takes for their case to be heard via an overburdened court system.
in 10 tenancies that come to an end is at the instigation of the landlord. In the majority of cases where the landlord is the catalyst, their intention is to sell the property rather than rent arrears.
The use of Section 21 notices by landlords was already in long-term decline over the past seven years as more landlords used Section 8 notices under the current system. The number of Section 21 claims peaked at 37,690 claims in 2015, before falling to 18,740 claims in 2019.
Most landlords and tenants enjoy a strong relationship. A report by the Social Market Foundation, commissioned by Paragon, found that 80% of tenants liked their home and 85% enjoyed a good relationship with their Fewerlandlord.thanone
The Government wants to create a fairer system for tenants; one that gives them peace of mind that they won’t be forced out of their home for no good reason. Again, we welcome this, but at the same time, the myth that landlords are hellbent on removing tenants from their homes needs to be challenged.
It’s important to note that the proposals set out in the White Paper are not yet law and that any changes remain some way off. It is a roadmap to change, and at this stage, the White Paper represents a set of proposals which the Government will be consulting on. Paragon, along with a host of interested parties will be adding to that conversation.
As part of the White Paper, the Government has committed to increasing the resourcing of the court system to improve the fluidity and speed of cases, which is welcomed.
The National Residential Landlords Association highlights that it can currently take nearly a year for a landlord to gain possession of property, which is far too long if they are facing arrears, or a tenant is disrupting the lives of their neighbours.
The Government is focused on reshaping the PRS and creating a sector that addresses the needs of both landlords and tenants. The conversations required to achieve that must be fair, realistic and, of course, balanced.
Section 8 process, where reasons for eviction must be given. It has proposed mandatory rights to possession across 17 grounds – nearly double those available under the current laws – plus a smaller number of discretionary grounds.
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The myth that landlords are hellbent on removing tenants from their homes needs to be challenged. Most landlords and tenants enjoy a strong relationship “
They include clearer grounds across areas such as rent arrears, anti-social behaviour from tenants and if the landlord wishes to sell or move into the property.
The proposed changes aren’t replacing a system that is working in absolute harmony. Both Section 21 and Section 8 notices need to go through the courts and a common complaint of landlords surrounds
Retailers were already struggling with shifting consumer shopping habits and the pandemic accelerated the shift. High street retailers in particular, have struggled to move away from traditional sales models but that doesn’t mean they can’t re-strategise.
Special Feature
Yet, despite these positive developments, many high streets across the UK still face an uphill struggle. It’s unlikely consumers will give up on the convenience of online shopping. Rising bills in general may render physical shopping sprees a thing of the past.
So, what can be done to protect and boost our high streets?
The impact of COVID is still affecting high streets too, even as we put the worst of it behind us. As consumers were left with no alternatives, they embraced online spending like never before. Online shopping levels have dropped slightly since the world started opening up again, but they’re still much higher than pre-pandemic.
A few success stories have already come to light following some of these efforts. In Dorset for example, footfalls on high streets in Bournemouth, Christchurch and Poole are now higher than what they were in 2019 after a range of public initiatives. Further north,
A poll from PWC examining the changes people want to see in their towns shows they’d like more opportunities for experiences, and not just the mere purchasing of goods
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Viva la high street
Efforts are already well underway to bring life back to the nation’s high streets. In 2021, the government launched a strategy to reinvigorate the UK’s high streets. Meanwhile, the latest Levelling Up funding prospectus shows money will be flowing into dated infrastructure and building sites. In London alone, improvement projects have been completed in 40 major shopping hubs across the capital.
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he high street has been declared dead more times than one can count, especially over the last two years. Admittedly, looking at the numbers doesn’t inspire confidence. In 2020, over 17,500 chain stores and other venues closed in Great Britain as lockdowns emerged an average of 48 closures a day. Footfall on British high streets in November 2020 (which, due to Christmas approaching, should have been busy) was at 45% when compared to the same period in 2019.
Paresh Raja Chief Executive Office MFS
Huyton’s high street has also rebounded by embracing a more hospitality-centric strategy. New restaurants, cafes and bars drew consumers back, creating fresh hope for the small Merseyside town.
Re-examining what the modern consumer actually wants from their high street can help answer this question. A poll from PWC examining the changes people want to see in their towns shows they’d like more opportunities for experiences, and not just the mere purchasing of goods. There is a clear preference for restaurants, pop-ups and greener spaces for pedestrianising.
A reimagining of what the high street is for is crucial. Dedicating some commercial space focusing on activities, as opposed to the selling
Consumers can’t get everything they want online
There is also the clear need for more housing. Re-purposing high street buildings into residential dwellings, or a mix of retail and residential already seems to be ramping up.
of ‛things’, could be just what’s needed to keep a recovery going. Consumers can’t get everything they want online. A game of crazy golf with friends, or a race around an indoor karting track
Unfortunately, this challenging context will disproportionately adversely affect smaller housebuilders, who need to continue building to make profit to stay in business – even with limited levels of equity.
ith interest rate increases now affecting mortgage affordability and resulting in lower mortgage attainability, more than ever, lenders are focusing on mitigating sales risk whilst also seeing the cost of their own funding rise from institutional and retail funders. Ultimately this will lead to reduced lending within the development finance sector and the lending that is available will become more expensive and require larger amounts of upfront equity.
A sales guarantee is just one solution, but it could prove vital to ensuring that both borrowers and lenders can continue to operate successfully even in these worsening economic times, i.e., allowing SME housebuilders to continue building whilst helping lenders to mitigate risk.
Over the last 15 years, the emergence of challenger banks, peer-to-peer lenders and boutique funders has vastly increased SMEs’ access to finance. Now more than ever, it is imperative that these providers continue to support SME housebuilders without restricting loan-to-value (LTV) ratios or hiking rates too drastically as this would significantly reduce output due to the increased equity required.
De-risk, de-stress and develop
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IndustryInsight
A solution that can help SME housebuilders to continue building is to sign a sales guarantee contract. Using an LDS sales guarantee, we guarantee to purchase any completed and unsold homes on a site at a pre-agreed, fixed price (of 80% GDV based upon lenders’ Red Book valuation). This removes sales risk for both the developer and the lender in all market conditions.
There is also no escaping the fact that the cost of funds for lenders from their institutional or retail investors is likely to increase over the coming months as interest rates rise. Inevitably, these increases will have to be passed on in some form to borrowers which will likely create downward pressure on land values as gross development values (GDVs) start to stagnate and housebuilders look to maintain their margins. The increased build costs that have been felt over the last 12 months due to the increase in the cost of materials will also surely start to show some negative impact on land values.
An added benefit to SME housebuilders is a 10% deposit, released unsecured and interest free, on exchange, into project cashflow. When combined with the development finance loan, this provides the housebuilder with the option to reduce their upfront equity contribution or redirect resource to be spread up to three times further across more new developments.
Viable housebuilding for SME developers amid rising rates and costs
Mark Roberts Relationship Director LDS Sales Guarantees
Whilst we recognise that lenders will always look to mitigate their risk, it is imperative that they continue to support both their existing and new SME housebuilders with leverage and price points similar to the levels offered in recent years. The larger housebuilders cannot fix the undersupply of housing in this country alone and need the support of SMEs to meet with demand. However, equity is more limited for SME housebuilders which means that any decreases in LTVs or increases in borrowing costs will inhibit their ability to work on multiple or larger schemes.
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Why ratings are so critical to funding
James Piper Managing Director Lightbulb Credit
Company credit ratings have also taken a hit, with the decline in revenue causing reduced net worth, lower cash holding and deteriorating payment performance. All dragging ratings down and making it more challenging for businesses to get the funding they need.
For brokers it’s also vital to know that two of the six agencies have traditionally dominated the funding approval market. The key to gaining the best funding for a client is to focus on scores with these specific agencies and take direct action when needed to improve them.
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Why understanding the rating agencies can add value
Brokers can benefit hugely from understanding how the rating agencies work in greater detail. This knowledge can be used to advise clients, and together with a specialist service like credit improvement, it can enhance the client’s position before the funding application.
Many funding providers use a credit score in their decision making, creating a direct correlation between ratings and borrowing. Meeting the minimum hurdle rating is a simple go/no go decision for most applications, so it’s extremely beneficial for brokers to know a client’s score early in the process.
Credit ratings have a direct impact on borrowing of any kind. If a rating is low, it can negatively influence rates and terms, or completely restrict access to funding. By making clients aware of this and checking ratings before the application is made, brokers can add real value to the client experience.
The six main credit rating agencies in the UK all utilise data from Companies House, alongside payment data collected to evaluate how suppliers are paid against agreed credit terms. This combined data then determines a company score and their recommended credit limit. Each agency has its own unique algorithm and scoring methodology, so discrepancies between agencies and ratings is not uncommon.
ost company owners would say that applying for funding is a nerve-wracking experience. It requires delving into the finer detail of their finances and the outcome can often make or break future growth plans. Therefore, it makes sense to give them the best chance (and experience) possible.
A lightbulb moment
Lenders are applying tighter criteria to their offers, and more credit checks are being run than ever before
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It’s impossible to ignore the fact that the pandemic has made the funding process tougher. Lenders are applying tighter criteria to their offers, and more credit checks are being run than ever before.
Improving the funding application experience
By building credit improvement into the funding process and sharing all the knowledge mentioned in this article, brokers can maximise every opportunity. They can also add real value to clients in the form of insight and in many cases, a more positive funding outcome, which is a win-win for everyone.
Utilising credit improvement to influence funding
Business credit improvement is a relatively new concept in the UK and many business owners don’t realise that they can challenge a poor rating, or get their scores re-evaluated using real time data.
offered a rapid solution in a decline situation really enhances their experience with the broker and provides valuable insight into how their company is viewed externally.
Improving a company credit score can have an immediate positive impact on funding applications. It can also make a significant difference to brokers in completing difficult or more complex deals.
A decline not only hurts the applicant, but also the broker who loses out on a potential deal. Ordinarily a decline would signal the end of that customer interaction, but credit improvement can give them a second chance.
Turning declines into fundable deals – quickly
For the broker, turning a decline into a fundable deal maximises every opportunity, keeps that customer journey going and potentially paves the way for a more positive outcome. For clients, being
Gavin Dick Policy NationalOfficerResidential Landlords Association
Several solutions could be introduced to address this question. For instance, individual property assessments could set out what is required for that property to move to zero carbon. This would allow for financial decisions which are rooted in fact rather than speculation.
Also, the planning system could be made easier so that landlords and homeowners can make necessary changes. Planning permissions in default could be required to deliver against the proposed targets. This is vital in conservation areas – how can these residents best improve their properties within the law? There really is a need for clarity over what they can do, as well as on target dates to enable them to Preparationplan.has
to be the watchword for landlords. Where possible they should make property improvements where they can and try to put themselves in a position where they can best respond to the government’s future proposals. The carrot always works better with landlords than the stick.
Supporting landlords to improve energy efficiency
landlords should borrow to improve their properties but some are not able to take on more debt. The unlikely hope from many landlords is that the government will provide grant-funds.
The big challenge is, who is going to pay? Currently, the tenant receives the benefit and the landlord the cost
We have made the argument to government that the changes need to reflect the financial position of properties and landlords. The NRLA has argued that a property value should be considered, and lower value properties should have a lower price cap based on the Local Housing Allowance. Taking this step would give landlords the chance to make the changes to the property within an affordable budget before, if applicable, going on the exemption register. This will reflect the cost of properties and the ability to borrow to finance the necessary energy efficiency retrofitting.
The big challenge is, who is going to pay? Currently, the tenant receives the benefit and the landlord the cost. It’s easy for policymakers to say
oo often political dogma prevents support for private landlords because of political dislike of the tenure. The private rented sector (PRS) is often overlooked and, as a result, regulations are made without understanding the disparities within the sector. However, the NRLA is engaging with the government on how the Minimum Energy Efficiency Standards (MEES) reforms will affect landlords and tenants.
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For most properties an improvement in the fabric, windows, loft and wall insulation, low energy lighting, as well as having an efficient boiler, will go a long way towards making them more efficient. A property should have done all that the property can achieve fabric-wise, before moving to replace the heating systems. A passport/logbook would support this change over a rather blunt instrument such as the Energy Performance Certificate (EPC).
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The carrot or the stick?
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since WWII. So, how high rates can go is not as straightforward as the inflation figures suggest. On the one hand, rates need to go higher to combat inflation; on the other, a contracting economy means weakening inflation. Accordingly, rates would need to be lower. Moreover, interest rate hikes can take up to 18 months to fully impact the economy.
Prof. Trevor Williams Chief Economist TW Consultancy
However, the Bank of England is also forecasting that the size of the UK economy next year will be smaller than this year. It predicts that the economy will start to shrink from the final quarter of this year, and, worse, it will experience one of the longest recessions in
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Thedecades.onlygood
news in their forecast, it seems, is that the recession will be shallower than the average downturn the UK has experienced
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In other words, by the time some of the hikes that we see now impact the economy, it will be when it’s weakening. Admittedly, the Bank of England wants the economy to soften to squeeze out inflation, so its forecasts suggest that its medicine will work. But this would be a misunderstanding of the current source of price inflation and the power of interest rate policy or of the Bank of England to determine future inflation.
ollowing the Bank of England’s August interest rate hike of 50 basis points to 1.75% the highest level it has reached since December 2008 the critical question is how much higher can they go?
Based on the Bank of England’s forecast of a peak in consumer price inflation of 13% by the end of the year, the answer seems to be that they may have much higher to go. Indeed, that appears to be the financial market view, with the Overnight Indexed Swap (OIS) interest curve suggesting a peak of 3.5% in Bank Rate by the end of the year. The Bank, though, assumes that its equivalent – the Bank Rate –will average 2.4% in Q3 2022 and 2.9% in Q3 2023.
F
UK price inflation has not soared because the economy is overheating due to excessive consumer demand or bank lending to households or the property sectors. The proximate initial cause of the inflation
Vacancies are unfilled because there aren’t enough workers, and higher pay won’t magic them up
How high will UK interest rates go?
Walking the line
They can only be solved by supply-side outcomes such as the end of the war in Ukraine, which would increase grain and food supply and lower food prices. As such, domestic policy actions cannot offset shocks like this but only react to the positive or negative consequences. Central bank monetary policy did not create these conditions; hence it cannot solve them. But it can exacerbate or alleviate them.
NACFB | 43
Therefore, one current risk is monetary overtightening. Suppose the Bank Rate reaches the levels implied by financial markets of over 3% by year-end, then the economy would be very badly hit. So, I would bet they do not get to that level, as the economy is already slowing down. If they do, the financial market chatter by the end of the year will turn to rate cuts in 2023.
crisis we are currently experiencing is the supply side shocks created by the pandemic and the war in Ukraine, which is a global phenomenon.
To help keep a lid on inflation expectations, the Bank of England has now announced quantitative tightening (QT) from September. That could lead to a fall in annual money supply growth and sharply lower fears that price inflation will become embedded.
One thing is for sure, the UK’s Monetary Policy Committee (MPC) has a fine line to tread between keeping a lid on price inflation and tipping the economy even deeper into a downturn and having to lower interest rates sharply next year.
There’s very little chance of a so-called wage-price spiral despite the seemingly high level of job vacancies in the UK. Those vacancies are unfilled because there aren’t enough workers, and higher pay won’t magic them up. Only a more liberal immigration policy and long-term training will change that, i.e., a ‛supply’ side response. Indeed, all the evidence is of a UK cost-of-living crisis as price inflation outweighs pay rises, meaning that pay adjusted for inflation is falling sharply.
This pattern will likely extend into 2023, therefore being both a cause of the economic slowdown and a consequence.
“ Interest rate hikes can take up to 18 months to fully impact the economy. In other words, by the time some of the hikes that we see now impact the economy, it will be when it’s weakening
I
Traditionally, many clients have preferred to look at unsecured funding. In fact, research of our own clients shows that 67% of our clients would only consider looking at unsecured funding via term loans, MCAs or RCFs.
This growing trend appears to be common throughout the industry. According to the latest information from UK Finance, total ABL advances for the quarter ending March 2022 were at £19 billion – up by £1.6 billion (9.2%) when compared to the end of December 2021.
Whilst the BBL, CBIL and RL schemes all had the best of intentions, there were mixed results with these applications and many clients who didn’t qualify or pass affordability checks set out by lenders.
Willing and able
Opinion Andy Munson Managing Director Yorvik Business Finance
t’s safe to say that the last two and a half years have been somewhat challenging when it comes to commercial finance – not only tough for business owners, but also for brokers trying to source the best funding possible for our clients.
However, we have seen a huge increase in the amount of funding applications over the last three to six months where clients are now more than happy to use existing assets as a form of security –ranging from soft assets such as commercial coffee machines, all
the way up to hard assets such as manufacturing equipment and plant machinery.
44 | NACFB Broker Voice
With funding available from £1,000 to more than £2.5 million, many clients are now open and willing to use their existing assets as a way of accessing funding. Benefitting from terms of up to six years, with yield/interest rates significantly lower than unsecured options available, ABL options now appear to be becoming a much more cost-effective and preferred option for clients.
One of the key benefits from a client’s perspective of the various government-backed schemes was the lack of PG required. However, we’re now starting to see a shift in how SME business owners are viewing what guarantees/security they are happy to provide to obtain the right funding for their business and specific requirements.
Can ABL steady the crisis?
In comparison to traditional financing options, where lenders look at historic and future cash flow and profitability, asset based lending focuses on the value in the assets which are likely to maintain value, even in times of declining financial performance. As a result, asset based lending tends to be financial covenant light with a greater focus on the value in the asset base and its revolving nature. In the current economic climate, this should provide a crucial aid to businesses which may struggle to meet existing debt covenants and generate additional funding given the impact the pandemic has had on trading.
Earlier this year there were signs of some optimism as the economy began walking its recovery path, but it appears to have been a false dawn, as another crisis looms. Growth for businesses must be treated with caution and as brokers we must consider the working capital implications of any recent growth carefully. Overtrading can cause as much cash pressure as the alternative. Investment should be made in financial forecast models that can support decision making and identify cash pressure points. To alleviate any cash pressure, we should be promoting asset based lending as an option to minimise cash lock-up and appropriately fund SME growth.
At the time of writing, we’re still waiting for the next iteration of the Recovery Loan Scheme to go fully live and we eagerly await to see how many lenders become accredited for this and what the specific guidelines will be.
The funder market
But we have resilience built into our DNA and the local economy has continued to outperform many expectations. In fact, recent
The future
Inherent cultural resilience
The funder market for real estate has been interesting over the last three to four years, with many clearing banks resizing and refocusing. Any gaps have been created mostly by the impact of the pandemic, and the performance of the clearing sector in supporting economic activity in Northern Ireland, which has been inconsistent.
Opinion Shane Donnelly Director – Northern Ireland Ortus Secured Finance
Clearly some of those historic factors have been resolved, and although we have some issues to work through in Stormont as the Northern Ireland Protocol row rumbles on, Northern Ireland has enjoyed a long period of stable politics with an entire generation growing up without direct experience of ‘The Troubles’.
economic activity measures place Northern Ireland ahead of most regions of the UK. Unemployment is at historic lows and anecdotally, many industries are enjoying the benefits of our (current) unique position as an axis between the UK and the EU as a result of Brexit.
Bridging and development lenders
Generational change
Like the people, business in Northern Ireland always finds a way. Those gaps have created the opportunity for a growing alternative lender market, with bridging and specialist development lenders now amongst the most active in the region.
O
Leisure and hospitality remain strong for the right product, while industrial and distribution demand is buoyant with limited supply. Office and retail, understandably, are in a state of “wait and see”. The residential market continues to retain price growth, and although this might tail off towards the end of the year, we are still operating below our 2007 peak.
The property sector
Despite the current global and national economic conditions, we remain buoyant about lending to SMEs in Northern Ireland. For us it is a key market which we support with a local team, and we are proud to continue to provide reliability in uncertain times.
Commercial lending in Northern Ireland
Holding our own
utside of London, Northern Ireland is more than holding its own with the rest of the UK, but how is this reflected in the commercial space and what trends are we seeing?
Historically, Northern Ireland has lagged behind many regions of the UK in most economic indicators partly as a result of our political instability, our geographical separation from the rest of the UK, and an emerging neighbouring market in the Republic of Ireland. We have also had to go through a long period of reinvention, from historic reliance on heavy industry and agriculture towards services and tourism.
There are however, many areas within the region that remain a challenge. Brexit and the ongoing negotiations over trade borders continue to create uncertainty. So too, the pandemic and its aftermath have forced many industries to rethink their strategies as they work to recover lost years.
46 | NACFB
O’Malley,
“Since the start of this year we have recruited 4 new underwriters which has helped us to focus on strengthening our b roker r elationships.”
Our credit team thrive on strengthening broker partner relationships by helping their customers to achieve their goals. Combining creative thinking with a strong commercial focus, our underwriters will work with you to find a funding solution that meets your customer’s needs and fuels their ambition.
“We enjoy visiting our brokers with their clients as it provides us with a strong insight into the business and how best port
Creative Thinking, Personal Touch
Risk
we can
FOR INTERMEDIARY USE ONLY. Haydock Finance Ltd is authorised and regulated by the Financial Conduct Authority. Financial Services Register no. 722545.
t hem.” G e o ff W orrall , A ssociate D irector - S tructured C redit Dedicated support: 01254 685850 or email newbusiness@haydockfinance.co.uk
Director
s up
Michael Associate - Credit &
48 | NACFB Opinion
The social impact of financing SMEs in the South West
In line with net zero ambitions, a combined 27% of businesses supported by us were actively working to protect, restore and promote sustainable use of life on land and below water by putting sustainability amongst their highest priorities.
Over 30% of businesses supported were actively working to improve the wellbeing of people within their communities. This year, we saw an increase of applications from wellness businesses, and a growing number of new businesses have integrated raising awareness for good causes into their business models.
Like all regions, the South West is home to many SMEs and start-up businesses, and just like larger corporations, many of them require finance to succeed. As a Community Development Finance Institution (CDFI), we play an important role in supporting these businesses who often struggle to access the funds they require from mainstream providers.
The financial year 2021/22 was record-breaking for SWIG Finance. According to our social impact report, we lent c.£10.8 million to over 500 underserved SMEs and start-ups in the region, resulting in the creation or safeguarding of more than 1,000 jobs and generating £32.2 million in social impacts. In fact, 44% of our lending supported SME growth, and half of the SMEs supported were creating new jobs within their local communities.
John Peters Managing Director SWIG Finance
Further, 15% of lending was made to businesses led by ethnic minorities with 50% or more ethnic minority representation, up 2% from the previous year, indicating increasing awareness, and accessibility, of our finance products to these groups.
According to the Great South West, the economy of the region is worth £64.4 billion – almost double the size of Greater Manchester.
W
Adding flavour
We are particularly pleased to discover that 43% of our lending was made to women-led businesses with 50% or more female representation – up 10% on 2020/21, reflecting the national increase in female entrepreneurship.
Up to 34% of businesses assisted by SWIG Finance have plans in place to support sustainable consumption and production. Focus areas are using sustainable materials and ingredients to create products, providing eco-friendly packaging, and reducing plastics within supply chains.
Some 25% of businesses supported by us operate in the most deprived areas of the South West, highlighting the difficulty often experienced by SMEs in accessing finance in these areas.
hether you put the jam or the cream on your scone first, the South West is synonymous with tourism. But you’d be surprised what else it has to offer: marine industries, advanced engineering, digital innovation, agritech, and food and drink production – and that’s just for starters.
These are just some of the key findings of our social impact report which is published in full on our website. For brokers, I hope it illustrates a region that is keen to flourish as well as survive in the current uncertain economic environment. It may also provide pointers of where to identify new clients with borrowing needs, from those already on the path of growth to start-ups who, with the right support, could become mainstay clients of the future.
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50 | NACFB Opinion
It’s safe to say that most borrowers are naturally synergetic and share and discuss their plans with people they think are in the know, such as other professionals with similar business interests, friends, or family
eaders here would know that, in most cases, when a loan is being arranged there are three main parties involved: the borrower, the broker, and the lender.
I believe lenders are missing a trick here, particularly as most of them are regulated in much the same way. I would go as far as saying that lenders need to create alliances that don’t feel like collusions or conspiracies. There should be open platforms and notice boards for lenders to refer business to each other.
Lenders seem reluctant to collaborate with other lenders, despite also being like-minded entities with similar challenges
This is all very well if you believe in the notion that all and any competition is good and will translate in increased efficiency and
In a world moving towards people virtually existing in a metaverse and spending their alternative currency, surely lenders can also evolve and begin operating in partnership with one another for the greater good of their clients, as well as the industry in which they operate.
R
To my mind, lenders seem reluctant to collaborate with other lenders, despite also being like-minded entities with similar challenges. For most of us working in financial services the significance of teamwork and building professional relationships is drilled into us from an early age, as well as the importance of gaining and maintaining our competitive edge, whether it’s for our own personal brand or the corporate logo we represent. This often, and somewhat instinctively, means keeping our cards very close to our chest to outthink and out-strategise our closest rivals.
“
Commercialmembers.brokers
Strength in numbers
have come a long way when it comes to forming and strengthening their alliances with other brokers. This sometimes happens when people move jobs or start out on their own, and other times due to lack of specialisms and the perceived return on time and capital employed on a deal. In any event, it would be fair to say that the broker community has embraced the need and benefits of cross-cooperation and informal associations with a lot more vigour and dynamism than the lender community – if we can call it that...
Should commercial finance lenders collaborate more?
Arguably, self-preservation is one of mankind’s strongest instincts. Whilst it may be perfectly natural and entirely human to protect ourselves physically and emotionally from harm or destruction, should this feeling spill over into our professional lives and practices? Is working alongside competition a case of effective strength in numbers or a recipe for stifling your market share? Surely there is enough dough to go around.
Asim Shirwani Chief Commercial Officer Lendhub
better results. However, in today’s digital era we are seeing more and more people working in silos. The time spent interacting and communicating with others in person is rapidly reducing and the theory of competition being a social process is fast diminishing.
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Brokers often need to help their clients source independent legal advice in cases where individuals are asked by lenders to separately sign documents in support of borrowing. This includes personal guarantees, occupier waivers and gifted deposit forms. NACFB Partner Phelan Independent provides this service quickly
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1. Business credit repair
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4. Independent legal advice
A sales guarantee is a contract, agreed pre-construction to acquire all units on a site, removing all pricing and demand risk. For brokers, a sales guarantee can improve terms and leverage, maximise deal conversions and boost fee income. For developers, a sales guarantee improves the chances of accessing finance and reduces the upfront cash contribution which, in turn, can lead to a trebling or even a quadrupling of output from the same capital base. NACFB Partner LDS
of any deal. Not only must the valuer be up to the task, but the broker must also ensure that the firm chosen is on the lender’s approved panel. NACFB Partner Method Valuation connects brokers and currently, more than 60 lenders that require valuations and development monitoring reports to the right, approved surveyors and ensures that the resulting reports are received at an earlier stage in the lending process. Fair contract terms and a fixed price are key to the offering and help brokers to accurately communicate costs to clients. All types of properties can be valued with coverage across the UK.
he business of commercial finance broking often requires support from third parties to improve the success rate of applications and enhance lenders’ terms. Offering additional services from experts in their field can also increase a broker’s income. Mindful of these benefits, the NACFB works hard for Members to select Partners that complement the broker’s overall offering to clients. Listed below are five NACFB Partner firms whose services can add immediate value.
personal guarantee to support the facility. Research has found that 74% of business owners would be more likely to sign a PG if they could insure against the risk of taking it. Backed by a global A-rated insurer, NACFB Partner Purbeck Personal Guarantee Insurance can provide cover for up to 80% of the risk on a variety of secured and unsecured business loans. The process is straightforward and enhanced commission is available for NACFB Members.
Poor credit ratings can have a direct impact on borrowing, working capital, trade terms and tendering. If a rating is low, it can immediately restrict access to funding, and in cases where funding is obtainable it can also have a negative impact on the rates and terms offered. NACFB Partner Lightbulb Credit is the UK’s only whole market credit rating review,
invaluable broking services
What changes do you hope to see in the ‘new normal’?
Something that might lead to the UK re-joining the EU.
Probably the assertion that “I am buying the property for £200,000.00 but it is “really worth” £500,000.00”. In almost all circumstances, a property is worth what somebody will pay for it.
If you were to start your own small business, what would it sell?
What is your favourite SME success story?
Where is your favourite place in the world?
Ian Curtis from Joy Division.
What was the last great book you read?
SproullDanielwith:MinutesFiveDanielSproull
What is your favourite piece of management/leadership advice?
Spending less time in the office.
Chums by Simon Kuper – the history of how we came to be governed as we are. A must read.
What’s the most common reason for turning away a deal?
How do you make a difference?
DevonDirectorand Cornwall Securities
Juggler.
If you could have dinner with anyone from history, who would it be and why?
What law would you pass if you were Prime Minister for the day?
In your view what are the key elements to a successful deal?
Describe your role in ten words or less?
54 | NACFB FiveWithMinutes
Time.
Staircase with Colin Firth playing an American whose wife “falls down the stairs”.
Anywhere on the sea. What is the best live music experience you’ve ever had?
What was the last show you binge-watched?
Probably the Glastonbury Festival which I have been to many times – it was great to be back there this year.
By not dropping anything.
Only touch a piece of paper once – do it, delegate it or dump it.
Try to ensure that your client instructs a solicitor used to dealing with commercial mortgages.
What advice do you have for the modern commercial finance broker?
Ours.
Everybody doing their bit – generally the transaction can only move at the pace of the slowest party to it.
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