Bridging LTVs shouldn’t be higher as standard, but available if circumstances are right
The suggestion from some brokers is that overall, finding lenders that are prepared to offer higher LTVs is difficult and that access to these types of deals should be easier.
However, I don’t think this is a particularly helpful discussion.
Over the past few years, bridging has become a much more mainstream source of finance, especially as the uses for bridging has started to shift more towards refurbishments.
As a result of bridging’s increasing popularity, we are understandably seeing an increasing number of bridging lenders coming into the market.
However, many of these new bridging lenders are tick box lenders, which means they may be able to offer good rates, but only if the client meets the criteria set by whoever is actually controlling the purse strings.
Most of these types of lenders have to look to outside sources for their funding, and when you obtain your funds from someone else, they will put restrictions on that money. More often than not, these restrictions will be around LTV.
But a principal lender, like Hope, has its own funds and is, therefore, able to make a decision about each individual client based on its individual circumstances.
Therefore, rather than saying, in general LTVs should be X, we are able to set the LTV based on each individual case.
So while in general, I don’t think bridging loan LTVs should be higher – it just increases the risk – that doesn’t mean higher LTVs should not be available.
At Hope, we look at every case on its own merits, which is what you do if you are a prudent lender.
Rather than making a sweeping statement about the bridging industry, and saying that LTVs need to be higher, what we need to do is highlight the benefits of borrowing from a principal lender that can make its own decision. Rather than treating a case as a box ticking exercise, lenders need to be looking at the borrower’s circumstances and making a decision based on the risk attached to that case.
Case by case basis
For example, we recently had a case with a client we knew well who had a lot of experience in refurbishing properties to increase their value significantly. In his case, we were prepared to offer an LTV of 87% because we were confident that the property would be worth considerably more once the refurbishment was completed.
And in fact, once the project was finished the LTV dropped to 50%.
But that doesn’t mean we would readily offer 87% LTVs. In fact, I am not sure there should be any standard LTV because it is ‘tick box’ lending that tends to cause problems.
I think bridging lenders need to set their broader LTV limits based on what is comfortable for them, but that individual LTVs still must be set at a sensible level for each loan.
For example, if a higher LTV is agreed, it is important that the other criteria of the loan is set accordingly.
If, in order to balance the risk of a higher LTV, rates are too high or restrictions are too stringent, making it difficult for the borrower to exit, the advantages of taking on a higher LTV product in the first place are quickly lost.
Together hires Robert Goodall as lending director
Goodall (pictured) comes with more than two decades of experience in the commercial property market and will be based at Together’s headquarters in Cheadle, south Manchester.
In his new role at Together, he will be responsible for planning, organising and directing the finance company’s commercial lending operations.
Goodall will also sit on the group’s credit committee when he joins the company in May.
The chartered surveyor previously ran his own company Goodall Investments, advising on the purchase, asset management and disposal of commercial property across the UK.
He also has experience of development finance, having acted as a consultant for Goldentree Financial Service.
Marc Goldberg, commercial chief exexcutive at Together, said: “Robert is somebody who has more than 20 years of experience as a chartered surveyor and not only deeply understands the property business but also has a wide-ranging knowledge of finance.
“He is a great addition to the team and will be able to work together with his strong network of clients, as well as Together’s existing customers and introducers, in making lending decisions and delivering our message of commonsense lending across the UK.”
Goodall added: “When I came to Together, I was really impressed with the size and the scale of the business as it is.
“However, seeing its ambitious plans, and where it could go over the next three to five years, has confirmed I’ve made the right decision.
“I’ll be joining an already-strong team and having the chance to help to grow the business will be fantastic.”
Vida moves to new HQ as lender aims to double lending
The 20,000 square feet larger office is located in Staines-upon-Thames, with plenty of room for the lender to expand.
The move comes after Vida launched into the first charge mortgage market, with more than £400m in mortgage completions in its first year of trading.
The lender is now conducting a pilot in the second charge mortgage market, offering a range of secured loans through selected master brokers.
Guy Batchelor, sales and marketing director of Vida Homeloans comments: “We are presently in full recruitment drive, as we look to build on 2017’s success by more than doubling the lending volumes in 2018.
“Our new head office will give us space to increase our workforce and service a growing number of intermediaries who are using Vida as their specialist lender of choice.”
Hope Capital loan book jumps by a third
The bridging specialist reported a surge in completions and enquiries at the start of 2018 and attributed the rapid growth to its low loan rates.
Investment in new staff and premises to support higher volumes of business have also helped, with new processes at the provider reducing the time it takes from enquiry to completion to often under a week, according to Hope.
Chief executive Jonathan Sealey said: “In the middle of last year we surveyed brokers to see what we could do better.
“We listened closely to the feedback and put all those measures in place, focusing on communication, education and collaboration.
“As a result, we started the year with some of the lowest rates we have ever offered and the appointment of key people to help with our expansion plans, with more underwriters to help reduce turnaround times.
“It is clear brokers have noticed what we have done and that this is paying off. Our deal flow and the number of enquiries we have received so far this year have exceeded all expectations.”
Bridging lenders Oblix Capital and Fiducium also recently reported strong growth in the sector, with expectations of further expansion in 2018.
SimplyBiz Mortgages adds InterBay Commercial to lender panel
The lender’s commercial, semi-commercial lending, buy-to-let and HMO, and bridging loans are available to club members.
The commercial specialist said lending highlights include higher LTVs and extended loan terms, lending on vacant property and loans offered at investment value.
Martin Reynolds, chief executive officer at SimplyBiz Mortgages, said: “We are very pleased to welcome another part of the One Savings Bank Group to our panel, having held long established relationships with other parts of the group for a number of years.”
Adrian Moloney, sales director, OneSavings Bank, added: “Members will also be able to take advantage of our new streamlined process with regards to our competitive bridging solutions which will enable them to respond faster to their clients’ needs.”
Simplybiz achieved flotation on the London Stock Exchange’s Alternative Investment Market on 4 April this month giving the group a capitalization of £130m.
The firm currently supports over 3,400 directly authorised financial advisory firms in the UK.
Announcing the plan to float, joint chief executive Matt Timmins said the initial public offering would “mark the next stage in our growth story”.
According to its admission document, SimplyBiz is floating to “enhance the profile of the business, assist in incentivising management and employees, to provide permanent capital from institutional investors, to enable the directors to take long term investment decisions and to provide Ken Davy, the group’s chairman and current majority owner, and the other selling shareholders the opportunity to sell down all or part of their respective holdings.”
Deals from the specialist lending shop floor – Coreco
While there are a lot of changes that may threaten to stem the momentum of the market, at present the specialist lending sector is thriving.
With the regulated market staring longingly at the freedom which the specialist side has, there seems an uplift in activity, specifically around the bridging and limited company lending sector.
For me, being able to fund large developers who have gained the planning rights to a particular scheme for 100+ units shows us all the London market is very much going in the right direction.
I find myself financing these transactions through dedicated development lenders within cost expectations given the relatively low interest rate environment.
Schemes such as a £55m gross value development at 65% loan to cost have had terms fully offered.
The current market also allows me to offer my client an exact comparison for funding via an alternative structure; this being a joint venture lender who will happily take on the project without any further financing from the client.
It would position the project as a joint venture with a 10% coupon – the annual interest rate paid on a bond – and 25-35% profit split at the end of the scheme.
The land has been purchased already by the client for £2.5m and the attraction of such a proposition is of course cash flow, golden words to any developer if this can be protected.
We expect to break ground on the development in June and conclude in 2022.
Other areas which are of interest include Network Rail apparently keen on selling off arches throughout the country.
This is opening up many opportunities for businesses, and as a result for specialist lenders to provide the funding, and I find myself with two propositions on my desk currently.
There are however some caveats here as the leases which Network Rail are issuing may prove prohibitive.
The devil is very much in the detail, but I will expand on this in the future.
Going forward, the trends of the specialist sector seem to be consistent throughout most lenders, with each generally staying to the expected parameters.
As an example; the bridging lenders are consistent on loan to values with variation between them only evident with preferences on property types, client profiles and pricing.
For instance, I have recently completed a bridge for a commercial property which had an overage – the amount by which a sum is over a previous estimate – is attached to it.
We had all the numbers from the Greater London Authority giving us a projected overage figure, without being formally confirmed.
The original lender just could not get comfortable, even though we offered a retention of funds for the amount of the overage.
However a direct competitor saw the calculated figure and was happy to issue the loan.
These differences are really what makes the specialist lender section very intriguing as the variances are hard to spot even for experienced brokers.
The beauty of this section of the market is that feedback is regarded, considered and applied after the event, due to the nature of the business in terms of the risk and reflected pricing.
Limited company mortgages hit record numbers with more to come
Since April 2013 when just 17 limited company mortgages were available, that number rose to 212 in April 2017 and hit another high this month.
The tax relief for mortgage interest changes announced by George Osborne in 2015 will finally start to hit the majority of tax returns in January 2019, but landlords have been seeking out limited company tax shelters for their loans since the changes were confirmed.
Previously, landlords could deduct mortgage interest and other allowable costs from their rental income, before calculating their tax liability. From 6 April 2020, tax relief for finance costs will be restricted to the basic rate of income tax, currently 20%.
Charlotte Nelson, finance expert at moneyfacts.co.uk, said: “Borrowers considering this type of mortgage should be aware that they could find themselves on a more expensive deal compared to the rest of the buy-to-let (BTL) market. For example, the average two-year fixed rate BTL mortgage, for those applying as a limited company, stands at 4.29% today. Whereas the average two-year fixed rate for the rest of the market is significantly less at 3.01%.
“With all the extra legwork that becoming a limited company entails, and how widely the costs can vary depending on circumstances, any borrowers considering it should consult a financial adviser and do the sums before committing to this option.”
Steve Olejnik, COO of Mortgages for Business said there will continue to be more availability of limited company loans because two or three more buy-to-let lenders will be entering the market this year and older lenders like Lendinvest are already ramping up their game.
“I would expect the BTL lending market to contract further from £35.8bn last year, to in the region of £32bn this year. However, the proportion of that which is specialist is doubling from last year and will do the same again next year.”
He added that any new lenders will bring market competition by adding some unique criteria and are also likely to impress on service, possibly through technology.
Criteria consistency tops buy-to-let brokers’ wishlist – Precise
According to research from Precise Mortgages, 51% of brokers believe the introduction of stricter rental cover requirements is the biggest issue facing their customers.
The respondents also highlighted a lack of clarity from buy-to-let (BTL) lenders (31%) with a similar number (29%) pointing out a lack of consistency from lenders.
These issues chime with those raised by brokers to Specialist Lending Solutions earlier this year.
They noted that BTL lenders were becoming increasingly flexible in accepting borderline portfolio landlord cases, however it was not always clear why.
Indeed, the survey of 104 BTL brokers by Precise found 43% calling for increased consistency on the criteria offered by lenders and the industry as a whole when assessing remortgage applications.
And half the brokers wanted to see more innovative product approaches.
Other key changes brokers wanted to see included the launch of online rental cover calculators (41%) and enhanced service standards (26%).
Precise Mortgages managing director Alan Cleary said: “Buy-to-let brokers and their customers face a number of possible issues when remortgaging following the regulatory and tax changes in the market.
“Specialist lenders need to respond to their concerns with solutions for borrowers that the high street will no longer service.”
Aldermore and Foundation shake-up buy-to-let rates
Aldermore is to cut rates for company landlords, aligning the deals with the lender’s buy-to-let range for private individuals, from 23 April.
The lender is also reducing its early repayment charges and offering new remortgage deals with no product, valuation or legal fees.
As part of the changes, rates for multi-unit freehold and houses in multiple occupation (HMO) are to start from 4.38% for a two-year fixed-rate purchase and remortgage up to 75% loan to value (LTV).
The lender is also now considering one year’s accounting information to suit self-employed landlords who have only been trading for a short period of time.
Charles McDowell, Aldermore’s mortgages commercial director (pictured), said: “The buy-to-let sector plays an important role in the housing market so we are delighted to announce these latest changes, which provide further support to landlords.
“The sector has experienced significant change recently, so we regularly review our products to ensure we continue to support a broad range of customers, no matter how big or small their portfolio is.
“We also aim to ensure we provide the highest level of service to our brokers, so we are launching a fully responsive broker portal, accessible from smart phones or tablets.”
From April 23, the new portal will enable brokers to complete an illustration and help get a quote or submit a decision in principle for their client using any device.
At the same time, Foundation Home Loans has launched a standard plus five-year fixed-rate deal across its buy-to-let range, available for a limited time.
The deal has a fixed-rate of 3.54% at 75% LTV and a 2% arrangement fee and an interest cover ratio (ICR) of 145% times pay rate for individuals and 125% times pay rate for limited companies.
Portfolio and non-portfolio landlords without any adverse credit within the last six years can apply for the product.
Andrew Ferguson, commercial director at Foundation Home Loans, said: “We are committed to providing competitive products and service to intermediaries, designed to offer them far more choice and ease the process of working with their landlord clients.
“With the rental assessment based on the pay rate, we are sure these new products will appeal to many portfolio and non-portfolio landlords.”
Challenger banks turning focus on service to grow development market – Mantra Capital
Founders of the broker attributed the growth in the development market to the sharp rise in small and medium-sized challenger developers, the higher risk tolerance of challenger banks and the increased value found outside London.
The broker also noted that this greater availability of capital had helped it achieve record volumes of business in March and over the first quarter of the year.
Mantra Capital managing director Nick Neophytou (pictured) noted that with the supply deficit so extreme, the development market was seeing unprecedented activity levels and the service provided by new lenders was backing this up.
“There is no shortage of experienced developers hungry to build, and equally a raft of lenders that are ready and willing to provide finance,” he said.
“At the current point in time the challenger banks and niche lenders are particularly active. We are seeing a definitive shift away from price and product towards speed and certainty of execution, which is where the challengers come into their own.”
Regional hotspots, record lending
Nimesh Sanghrajka, also a managing director at the brokerage, added that there was a greater interest to build outside London.
“The UK’s development map is changing fundamentally,” he said.
“Developers and investors are increasingly looking beyond the capital in search of better value, with current hotspots including Birmingham, Bristol, Edinburgh and Peterborough.
“While the high street banks certainly haven’t gone quiet, there is a growing synergy between challenger developers and challenger banks that could have a material impact on solving the UK’s housing crisis.”
The busy market saw Mantra Capital arrange £62m of loans for its clients in March, up 94% compared to £32m in the same month last year.
And this was also borne out over the first three months of the year with £87m of loans in total completed, compared to just £62m during the same three months last year, an increase of 40%.