Landlord confidence hits seven-year low
All the five key areas landlords were quizzed on were at their lowest levels in seven years.
The BVA BDRC Landlords Panel surveyed over 700 active landlords in Q2 2019 using five confidence indices – capital gains, rental yields, UK financial market, UK private sector and own letting business.
Confidence in capital gains fell to 23 per cent in the quarter, from 32 per cent in Q2 2018, and prospects for rental yields dropped 10 per cent from 49 per cent in the second quarter of 2018 to 39 per cent in the second quarter 2019, the lowest recorded in more than nine years.
More broadly, confidence in the sector and economy overall declined with just 15 per cent optimistic about the UK private rented sector, down from 21 per cent a year ago, and only 11 per cent optimistic about the UK financial market, down from 15 per cent in Q2 2019.
Damian Thompson, director of mortgages, Aldermore said: “The private rented sector plays a significantly important part of the UK housing market, so it is concerning many landlords have a bleak outlook at the moment. We however saw UK buy to let lending in 2018 increase four per cent on 2017, buoyed by remortgaging, and 2019 lending has been on par with these volumes.
“The rise in activity would suggest the market is not necessarily in decline but in a state of change as landlords diversify their needs away from a growth strategy and the sector adjusts to the gradual shift towards professionalisation.”
He continued to say that the increase in regulatory measures and “more complicated mortgage applications” meant specialist lenders would become “more vital” in easing the mortgage process.
Profitability stable, tenant demand up
The proportion of landlords making a profit fell by just one per cent in Q2 from Q1 2019 with only four per cent of landlords saying they were making a loss. Additionally, a third of landlords said they were able to make a full-time living off of their lettings, and 53 per cent were able to supplement their day job.
Tenant demand saw an increase, although there were variations between regions with over a third of landlords in Wales, East of England, Yorkshire and The Humber, West Midlands, East Midlands and the South West seeing an increase in demand.
London and the South East were the only regions where landlords were more likely to report decreases in demand, with Central London particularly affected as only 11 per cent of landlords with properties there cited an increase.
Overall, those perceiving a rise in tenant demand went up from 20 per cent to 23 per cent quarter-on-quarter, with families remaining the most common tenant types.
The data also indicated a shift toward professionalisation, with 55 per cent of potential buyers stating an intention to purchase within a limited company. The data showed that 26 per cent of landlords intended to sell at least one property in the next year, while one in seven landlords said they intended to purchase an additional property in that same time period.
BFS on course for £25m lending in 2019
The lender told Specialist Lending Solutions it was aiming for, and on target for, £25m of new loan completions in 2019.
Earlier this month it announced a 31 per cent increase in sales for the second quarter of 2019 compared to the same period last year, having completed four straight years of 25 per cent year-on-year growth.
As part of its plans the lender said it would continue to rely on retaining “personal and localised relationships” with its brokers.
The Merseyside-based firm will maintain its focus predominantly on the Northern market, sub £1m loans and the development finance sector.
BFS head of sales John Hardman said: “Our operation and external profile has undoubtedly been built around our people, and in a sector that can often appear faceless and centred around figures and interest rates, that is incredibly important to us.
“I recognise the importance of owning an identity as a lender, an approach or set of behaviours that set you aside from the rest.
“I firmly believe my team has that and our historic results show that to be true. The key is maintaining that high level of consistency and delivery to ensure we are a lender of choice for many brokers.”
Second charge mortgage volumes jump 20 per cent ‒ FLA
The latest data from the Finance and Leasing Association (FLA) showed around 6,849 new agreements were concluded in the quarter, while in the 12 months to June the 25,958 cases represented an increase of 17 per cent.
The value of new business has also risen sharply. In the quarter it was up by 19 per cent to £311m, while over the 12 months it was up by 14 per cent to £1.165bn.
Fiona Hoyle, head of consumer and mortgage finance at the FLA, noted that more than 13,300 agreements were reported in the first six months of the year, making it the strongest first half-year performance in more than a decade.
She added: “Consumers are finding second charge mortgages to be a useful product that supports the current trend of improving rather than moving.”
In contrast, credit cards and loan business were both down four per cent over the quarter, with 12,925 new agreements, while car finance also fell by one per cent, with a total of 9,503 agreements.
However, retail store and online credit agreements grew by three per cent in the three months to June, with a total of 2,090 agreements.
Equifinance upgrades broker origination system
The lender added that it should also make launching and developing products much easier and quicker.
It has worked with BEP Systems to build the system, using the Apprivo2 platform, which it has been testing with brokers.
Equifinance said broker feedback had been positive, with reports of saving time and being easy to use.
Tony Marshall, managing director of Equifinance, said: “With the growth we’ve seen in our business and the future plans we have, it was vital that we partnered with a software house that fully understands the niche lending concept and what is required to take that to market and launch new, innovative products.
“BEP’s system has already made a positive impact on our speed of delivery and will help us to grow our lending and enhance efficiencies as we do so.”
BEP Systems managing director Chris Little said he was delighted to be working with the lender.
“The Apprivo2 system also provides them the ability to configure certain parts of the process themselves, for example when new application forms are needed and to handle new product launches which require a different set of data to be captured,” he added.
Accelerating a bike dealership’s growth with a bridging loan – exclusive case study
Bridging Finance Solutions managing director Steve Barber reveals how the lender was able to help a start-up business get on the fast lane to success.
This was one of our most unusual deals to date, providing a short-term loan to a garage forecourt owner looking to acquire a number of imported motorbikes.
The private client was keen to expand his business and offer more motorbikes for sale, but needed a cash injection to facilitate this.
The business had only 12 months trading history and was unable to secure a stocking facility or overdraft with its own bank until two years’ accounts were available
Many high street lenders simply do not have the appetite to lend to smaller businesses or provide overdrafts which would ultimately provide an essential facility that will enable that business to grow.
BFS was able to provide £100,000 using the business owner’s property as a guarantee, securing funds within two weeks.
With a plan to pay the loan back within six months once the motorbikes were sold, the loan effectively remained in place, providing a revolving credit facility which enabled the business to continue to grow, increasing sales and profitability.
The client continued to use the bridge for eight months, purchasing and re-selling stock, building his business up until he no longer needed the bridge and had a financially sound and stable infrastructure in place.
Bridging is an incredibly flexible finance product and this recent deal reflects this.
This very savvy client needed cash quickly in order to move his business forward and understood that a bridge could essentially unlock his issues and provide him with the funds needed to make the necessary changes.
We see this as a niche area for us and more business owners are recognising this gap that bridging finance can fill.
Brightstar to run specialist lending webinar series for brokers
The series starts with Precise Mortgages highlighting 10 opportunities for brokers to contact landlords within the next year, on Wednesday 11 September.
Then on Thursday 12 September, United Trust Bank will present a webinar on the many uses of bridging finance.
The series is slated to continue throughout the autumn with webinars from Kensington, Masthaven, MTF, Pepper Money and Shawbrook. They are expected to cover topics such as specialist residential, short term lending, second charge mortgages, complex buy-to-let, unsecured business loans and later life lending.
Michelle Westley (pictured), Brightstar Financial’s head of marketing, said: “Borrowers increasingly have a diverse range of circumstances to which lenders are responding. But we still hear of brokers turning away clients with complex requirements believing that they don’t have the time or expertise to identify an appropriate solution.”
“Our autumn webinars series aims to demystify the sector and give brokers direct access to some of the industry’s leading experts. You don’t have to be an expert for you and your clients to benefit from the specialist market. You just need to partner with a business that has the right resource and expertise,” Westley added.
More information is available on the Brightstar website here.
Live WW2 bomb used as doorstop derails housing development
The contract for the project – which was brokered by Crystal Specialist Finance (CSF) and funded by Manchester-based lender Affirmative – required the removal of several dilapidated buildings prior to the construction of new residential houses.
The deal took more than two years to complete, with the 300mm long by 150mm diameter bomb just one of obstacles faced by KAD Developments.
CSF first became involved in June 2017 after the applicant was let down by another lender.
Due to initial limited funds, a deal was negotiated with the landowner to defer part of the payment until completion but after approaching a number of lenders, a lack of experience and upfront payment seemed to be a problem.
A few months later the client provided additional security and Affirmative agreed to offer the £240,000 balance of funds with the £60,000 build costs to be funded in arrears.
During the legal process the seller reneged on the deal which put it on hold once again but in November 2018 an equity partner agreed to make up the shortfall. Affirmative agreed to honour the original offer and use the existing valuation with the funds finally released in April 2019.
With the World War Two bomb safely removed, the development is now on track, with a local estate agency valuing the new houses above the initial £1.5m gross development value.
Michael Fisher, head of development finance at CSF, said: “This application encountered a minefield of issues, but by working together and continuing open dialogue we were able to assist the client through every setback to ensure he could complete the deal.”
Affirmative head of sales Ian Harrison added: “It’s not the type of loan you see every day, but we love it when quirky cases like this come across our desks. It was a pleasure working with Crystal to get the customer the deal they needed, and we look forward to working with them in the future to help other customers with a flexible lending solution.”
Julian Harris adds Zephyr to lender panel
The move means Zephyr’s range of buy-to-let mortgages for individual, small portfolio, large portfolio and specialist investors will be available to Julian Harris’ members.
Zephyr, which is administered by Computershare Loan Services and backed by institutional investors, was launched in December and completed it’s first case in January.
In February Paul Fryers, senior manager at Computershare Loan Services, told Specialist Lending Solutions that the lender was under no illusion that it was entering a very competitive market.
On the tie-up with Julian Harris, Fryers said: “We aim to provide support to the market, offering proactive guidance and mortgage solutions to help you meet the needs of your clients.”
Helen Harris, director of Julian Harris Adviser Networks, (pictured) added: “We are delighted with the latest addition of Zephyr Homeloans to our extensive panel of lenders and to be considered a key partner for expanding their proposition.”
When conveyancing goes wrong: The £200k sent to a client instead of a lender – Syms
Many lenders are working hard to streamline their processes and take advantage of technology so that applications are smooth and proceed as quickly as possible to offer.
However, if it all slows down at the legal work stage, what’s the point?
Not all mortgage offers are issued with a six-month offer validity; some come with just three months.
This should be plenty of time; however, it is surprising the number of cases where we have to go back to the lender to ask for an offer extension.
Lack of skills
Some of the issues appear to be the lack of skills, particularly in the specialist sector.
Large firms use paralegals to process cases, and the lack of experience often results in requests to the client, or the client’s solicitor, that are not relevant or not clearly communicated.
The client can often instruct a solicitor based on price, but many of these offer conveyer belt processes.
After paying referral fees, the solicitor may be left with just £150 to cover the cost of the service, which may work if things run smoothly, but not if issues arise.
Not all solicitors are ‘broker friendly’ meaning they will not automatically communicate with the adviser, even though the broker could be instrumental in assisting with issues.
When it all goes wrong
Good solicitors get recommendations, but we have also seen these same solicitors get swamped and the service levels then nosedive.
One recent scenario went from a portfolio client singing the praises of a solicitor for the first few completions to refusing to work with them due to lack of communication and progress, resulting in offers expiring and new valuation costs.
Another case saw a catastrophic error by a solicitor. Not only did they take three months to process a BTL re-mortgage that involved the repayment of an existing first charge and second charge, but they also took 12 days to send the client the money he was expecting as surplus from the re-mortgage.
They then sent him £270,000 instead of the £70,000 he was expecting, they had failed to repay the first charge lender and had not even applied for a redemption statement from them.
Needless to say, the new first charge lender with compromised security was less than impressed, particularly as it was the only solicitor they would allow to act for them.
Lenders helping out
Normally these types of stories are few and far between, but they seem to be increasing.
Many brokerages like ours are now employing dedicated administrators to manage the process between offer and completion.
What can be done to improve this?
Lenders do not always make things easy by adding their complex requirements to the standard legal process often driven by their risk appetite and commercial reasons.
It is good to see lenders like UTB and West One launching first charge re-mortgage products where the legal work is swiftly managed in-house, similar to second charge completions, for clients who need the guarantee of a swift completion.
In other scenarios, brokers should look to manage their client’s expectations.
Particularly with specialist cases or from specialist lenders, the conveyancing process may not be as straightforward as the client’s perception and a range of queries will need to be answered.
Checking in advance a solicitor’s capacity and experience of the mortgage type proposed may also be useful in the long run.
Lendy investors to face anti-money laundering re-validation before return of funds
In the latest update to the peer-to-peer lender’s investors, administrators RSM noted that the check would be completed shortly after 30 August.
“Before the joint administrators release any funds to investors, they are required to ensure compliance with appropriate AML legislation,” they said.
“To ensure compliance with our AML obligations we will be undertaking a know your customer (KYC) and AML revalidation exercise for all investors with funds on account,” they added.
Investors are being asked to login to their accounts by 5pm on 30 August and reconfirm that personal details including address, postcode, telephone numbers, date of birth, preferred bank account and any company name are up-to-date.
The administrators noted that for some investors additional documentation may be required as part of this process, but they will be contacted after 16 September individually.
Serious questions raised
In June, it was revealed that the Financial Conduct Authority had been authorising all payments in and out of Lendy for several months.
Concerns around Lendy’s practices were further flagged by the administrators last month when they raised serious questions about AML, the transfer of ownership of the firm’s premises, and how the lender was remunerated for administering its platform and loans.
They also revealed that two thirds of the outstanding Lendy loans worth a combined £152m were in some type of formal insolvency process.
Investors are on average only expected to get around 50 per cent of their funds back, although for some, it may be as low as seven per cent.