Speaking on a panel at the British Specialist Lending Senate, Narinder Gill (pictured, left), senior associate at Coreco, said: “I think the sooner we understand the contamination within the market, at the borrower and broker level and funding, the better.
“It is worrying and it does cause concern. We are starting to see on a local level, particularly where we operate in Prime Central London, it is having a localised effect with those two principal lenders moving out of that space,” he noted.
Gill said lenders who “stand out amongst others as most competitive or nimble are not solely reliant on singular or lesser funding lines”.
“Those who have got more diverse funding lines behind them, or can maybe use private capital if or when needed, to take those cases that don’t quite fit funding lines’ criteria or any given credit policies at that point, those are the lenders that really stand out.
“Particularly in times like now, where we have some lenders exit the market and there’s going to be somewhat a small vacuum of other lenders absorbing that business,” he noted.
The growth of ‘just-off-high-street’ lending
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Chris Britto (pictured, right), founder and director of Bridgemore Capital, said that as a firm, it had always asked lenders about their different funding lines, but recent events mean there will be “closer attention… on a lender’s ability to pivot if a sudden funding line was to stop”.
He explained: “I’ve seen in the past where funding lines have pulled deals because they’ve become oversubscribed in any given month, and we’ve lost the deal because of it, and that is a worry in itself because it puts our reputation at risk with customers.
“I think doing more due diligence on funding lines, asking business development managers (BDMs) and lenders that come in to see us and asking them what you’re going to do if X, Y and Z happens, I think that’d be more of a topical conversation moving forward.”
Bridging sector has ‘grown dramatically’ in past few years
Looking at the bridging market more widely, Britto said the sector had “grown dramatically” over the past 12-24 months.
“I think you’re finding more term lenders moving into the bridging world and you’ve seen some term lenders acquire other bridging companies.
“I think the drop in the attractiveness of property investments, to just buy them as they are, has caused people to move towards a more value-add strategy, which requires bridging, whether it be lease extensions, title splits, auction purchases or refurbs,” he said.
Gill agreed, adding that bridging has been “organically growing in the last 5-6 years”, but there had been “real development in product offering within the market”.
He said a key area was investors looking at different areas of the market, so “repurposing, converting and renovating properties more than they might have historically”.
“That’s been shaped by the cost of capital within the investment term loan market. We have seen buy-to-let rates increase substantially to levels we have not seen in recent times with out of ordinary instances like the mini Budget and other black swan events – namely, geopolitical instability attributing to this.
“This results in those static and off-the-shelf investment purchases at higher gearing levels not washing their face and working in ways investors had been previously used to. As a consequence, we are seeing a lot of developers now look to repurpose, convert and the use of bridging, and those lenders, really take advantage of those types of properties and investor/developer demand,” Gill explained.
Brokers should not recommend deals solely on price and foster relationships with lenders
Gill said brokers could “do your client a disservice by recommending on price alone”.
“There are many lenders that stand out that might not be as well-priced as others, but with experience of working with that lender and understanding the actual transaction itself… they are better suited and better experienced.
“As a back-office function, it is very important to understand that you can speak to individuals beyond the BDM, like the underwriters and credit committee members, and understand, as a lender, how they work and operate in that space,” he noted.
Britto stated that it was important for brokers to “understand your client first and foremost”.
He said: “Whilst you get a lot of brokers that will receive a deal from a client, and they’ll go straight out to their client with the best loan to value and the best pricing, it doesn’t necessarily mean it’s best for that client in the situation.
“For me, I would always go out with that pricing model and that loan to value, but also from a commercial perspective: What [are] this lender’s specialties? What’s right for this particular client? Is this a client that needs speed in this deal?
“Because you get lenders who say they can complete in auction time frame of 28 days, but the question is can they actually? When it gets tough, it’s the relationships that then become important. I can pick up the phone to certain underwriters or BDMs that will push the case to the top of the pile, whereas with other lenders, it’s: ‘No, you’re in a queue. You wait where you are’. So relationships are incredibly important.”
More brokers exploring bridging but further education needed
Gill said bridging has “come to the forefront [for] a lot of residential brokers now who haven’t previously operated in that space”.
However, he said there was a “lack of education” and while there were certificates like the Certificate for Specialist Property Finance and educational assistance from lenders, there may need to be some requirement to advise on bridging,
“I think there must be at some point a requirement in the way that a broker would advise in a regulated capacity. There must be at some point a mechanism put in place to oversee permissions and authorities to advise on development and bridging, in the same way regulated brokers have a competent adviser status,” he noted.
Britto agreed, adding that the “ability to do bridging is open to every broker without the need for any kind of exam”.
“I feel that that can end up giving the bridging market a bad name, because it ultimately has a knock-on effect to customers. If a customer has been fed the wrong lender or the wrong information, that client then goes through their customer experience cycle in a really bad way.
“Then there’s a knock-on effect to how they then speak to other clients about it, and then it gives bridging that dirty word that it used to have, but not as much anymore,” he said.
Britto noted that “having some form of education and then scenarios that brokers need to go through to be able to pass… I think that kind of teaching and those kind[s] of exams would really be beneficial for not just brokers, but for consumers”.
