Former ASTL CEO Benson Hersch passes away
A statement from the trade body confirmed the news. Hersh (pictured) retired from his position last year after seven years at its helm.
Current CEO Vic Jannels paid tribute to Hersch’s efforts with the trade body and the wider lending industry.
“On behalf of the board, I can say that Benson is the reason why the ASTL is where it is today,” Jannels said.
“He took the reins of the membership and transformed it into an association that was more representative of the industry, with a clear purpose to improve standards and encourage sustainable growth of the sector.
“Even after his retirement at the end of last year, he maintained a close interest in the sector and has been of amazing support to me during my tenure. To say that he will be sorely missed is an understatement.”
Jannels added that Hersch was an “incredibly warm and insightful man” who had played a significant role in the careers of many people within the industry.
“Our thoughts and prayers go out to his wife, Phileshia, and children,” Jannels continued.
“Let us all take a moment to mourn the loss of a good friend and outstanding colleague – and celebrate the life of a man who was such a positive influence on the lending industry.”
Alex Hammond, managing director of Also Communications, worked with Hersch on public relations for the trade body over the last two years, and said it was very sad news.
“He was one of my favourite people in the industry – a genuinely good man who worked tirelessly on behalf of the sector, and the ASTL, right up until the end,” he said.
The ASTL noted that under Hersch’s tenure completions grew from £885m to more than £4bn and membership of the association more than doubled.
It added that the reputation of the bridging industry vastly improved and representation with the Financial Conduct Authority (FCA), HM Treasury and other regulatory bodies also increased.
“Aside from these achievements, Benson was hugely respected and well liked throughout the industry and he will be sorely missed,” it added.
Bridging applications soar to record Q3 levels
Applications totalled £7.6bn in the third quarter, representing a 25.7 per cent rise on the same period in 2019 and an increase of 39.1 per cent over the previous quarter.
Completions in Q3 2020 were £680m, an increase of 44.8 per cent on Q2, although still down by 27.6 per cent on the same period last year – as the market bounced back from the impact of the first lockdown.
Loan books increased 0.6 per cent on the previous quarter and five per cent on the same period last year – remaining at around £4.5bn. Average loan to values (LTVs) rose slightly since Q2, but continue to remain sub-60 per cent.
The value of loans in default showed a small increase of 3.3 per cent over Q2 2020 but were 23.1 per cent higher than the same period last year, as borrowers continued to feel the financial impact of the pandemic.
The figures were compiled by auditors from data provided by members of the trade body.
Speaking to Mortgage Solutions, Vic Jannels, chief executive of the ASTL, said: “The increase in demand for bridging is down to the versatility and speed that short term finance can offer in an uncertain environment.
“We know that many term lenders are running at long delays currently and so, for people who want to move quickly – perhaps to beat the deadline for the stamp duty holiday – bridging can prove a very useful product. There has been huge demand for bridging in recent months, and we expect this to continue.
“As always, the value of advice is crucial and we anticipate that any short term lending will be recommended only where it is absolutely the right option for a customer.”
Vic Jannels, added: “This has been a hugely busy period for bridging lending.
“If the recent positive news about vaccines comes to fruition and lenders continue to underwrite loans sensibly, while taking a proactive and collaborative approach to customers in default, then there is no reason why this quarter’s figures should not prove a strong foundation for a robust and sustainable recovery.”
A vital tool to save transactions and meet deadlines – Jannels
But what are those needs? And why is bridging such an important tool for brokers to have to hand?
To begin with, it makes sense to start with one of the original uses of bridging finance, to help progress transactions when there are delays in securing longer term finance or completing the sale of an asset.
This is particularly pertinent at the moment as buyers flock to complete purchases before the end of the stamp duty holiday.
Research from MFS earlier this year found that 52 per cent of current homeowners want to take advantage of the stamp duty holiday to purchase a new property but are concerned about their ability to get a mortgage.
It also found that, following the introduction of the stamp duty holiday, 43 per cent of people who have bought or tried to buy a property in 2020 have encountered significant delays or complications when applying for a mortgage from a bank.
The Conveyancing Association recently warned that turnaround times are a “massive problem” as it is currently taking sellers an average of 77 days from listing a property to getting a viable mortgage offer and a further 123 days from offer to exchange.
One way to expedite the funding process is through bridging finance.
According to MFS, securing a term mortgage can in many cases take up to 130 days.
Whereas the Bridging Trends research from MT Finance shows that the average completion time on a bridging loan in Q3 2020 was 52 days.
There have also been reports of cases where a term lender has pulled back on criteria during the application process, leaving a purchaser in a position where they may need to start the mortgage application again, which takes time and could potentially risk them losing the property they are buying.
Again, in this situation a chain break bridge could salvage the transaction, helping the purchaser to secure the property while longer term funding is sourced.
What are the risks and considerations?
First, it’s important to communicate that while bridging finance can expedite the process, it does not guarantee that a transaction will complete within a particular timeframe.
As with all applications for finance, the way the case is packaged and presented has significant influence on the speed of processing, so you will give your clients a better chance of a quick completion by providing as much information as is required upfront.
The client’s exit strategy is crucially important. In this scenario it may well be sale of the property, but what if the property takes longer than expected to sell, or at a lower price?
When it comes to choosing a lender, make sure it is clear and transparent about all fees and charges, including those which may apply if the loan is not repaid within the term.
This is where it helps to choose a lender that has signed up to the ASTL’s Code of Conduct, which includes a commitment to transparency and fairness on fees.
Bridging can be a transaction-saving tool for clients who need to complete within a particular time and it’s a product that all brokers should be ready to access.
But it’s important to understand the risks, communicate those risks to your clients, and work with a lender that you can rely on to deliver the highest possible standards of service and transparency.
Engaging with regulators brought progress – Vic Jannels
The stimulus for this engagement was the enforcement moratorium, which we believe disproportionately and negatively impacted a large number of short-term lenders and customers, as it disregarded the unique characteristics of the short-term mortgage lending market, compared to the term market.
It’s fair to say that to date we have made greater progress in our dialogue with Treasury than with the FCA, but I am positive about the lines of communication that we have established with both.
Now that we have opened the door, I believe it is imperative we continue to maintain this dialogue and it is important that we do not do so in isolation.
At the ASTL Annual Conference, I spoke about the importance of liaison with our peer groups at FIBA, the NACFB and AMI.
I firmly believe that the closer we are, the better our ability to be recognised and engaged with by the Treasury and the FCA.
I can’t see any point in ploughing our own furrows independently of each other. We have nothing to fear from either the Treasury or the FCA while we are in concert together.
Continue to engage
The fear I have is that unless we are in regular and meaningful dialogue with the regulators and that we speak the same story, further far reaching decisions will be made by them and the potential issue of unintended consequences will remain real.
With the end of the enforcement moratorium and FCA guidance transitioning back towards working with customers on an individual basis, our initial purpose for engagement with the regulators is receding.
However, I am determined this will not mark the end of our dialogue, but rather just the end of a first chapter of a more meaningful, consistent and collaborative period of communication.
The moratorium may be abating, but its impact may be with us for some time yet. Even more important therefore that we co-operate and engage.
Bridging lenders fear over future funding capacity if repossession ban extended
Experts say the enforcement has already started to take its toll on bridging.
Jonathan Newman, senior partner at Brightstone Law, said the current ban had already created “disproportionate funding problem for short-term lenders”.
According to guidance from the regulator, the repossession of homes will not be allowed before 31 October to help homeowners who have been financially impacted by the coronavirus pandemic.
But seven in ten bridging lenders said they were concerned about the capacity of the courts to deal with the backlog of repossession claims when the government ban is lifted.
Before Covid-19, the lowest amount of cases the courts typically dealt with, including High Court claims and all possession case types, was around 38,000, figures from HM Courts & Tribunals Service show.
This decreased to 12,250 during the week ending 5 April, and then fell again to 6,656 the following week.
The lowest number of receipts was 4,626, during the week ending 10 May.
Newman, senior partner at Brightstone Law, said: “It’s no wonder that bridging lenders are concerned about the capacity of the courts to cope.
“A system that is used to processing more than 38,000 cases each week has dropped to fewer than 5,000 during some weeks, which indicates the scale of the logjam that is waiting to hit the courts system.”
Newman said this backlog, combined with the reduced capacity of the courts as they implement social distancing procedures means delays will only get worse.
“It’s not that bridging lenders are hungry to commence enforcement action, but the combination of payment deferrals and the government moratorium has created a disproportionate funding problem for short-term lenders and it’s important for them to exercise their rights to begin a process of recovery.
“Kicking the can down the road is ultimately worse for existing customers who may see their equity eroded, and potential new customers who may have their access to borrowing limited as a result.”
ASTL chief executive Vic Jannels said the trade body has made progress with its talks with the Treasury over the impact of the ban.
“We think it is important that we work together on an effective and diverse financial response to the current situation so that we are able to follow a balanced approach that best supports the UK’s economic recovery,” said Jannels.
Bridging competition to fall as lenders split on market future – ASTL
Results from a survey by the Association of Short Term Lenders (ASTL) shows that uncertainty is very much in control for the bridging market.
And there is an expectation that lenders are likely to leave the market – 57 per cent of respondents said market competition was likely to decrease over the second half of 2020, and just five per cent expected to see a rise in competitors.
When it comes to their own business affairs, 41 per cent of lenders believe turnover will increase over the next six months while the same proportion feel they will see a decline.
As for sentiments towards the wider sector, 41 per cent of bridging lenders expect total turnover to increase over the rest of the year and 36 per cent think it will shrink.
Furthermore, 43 per cent of lenders expect house prices to fall over the next six months, and 24 per cent predict they will see slight growth.
Encouragingly, in the survey conducted during the first two weeks of July, 64 per cent of bridging lenders said they were optimistic about the UK economy as a whole suggesting greater confidence than the 50 per cent who felt the same in June last year.
But overall the ASTL positivity index had almost fallen back to its recent low point in June 2019.
Vic Jannels (pictured), CEO at the ASTL, said: “This year has been a year like no other, but short-term mortgage lenders have demonstrated their resilience and ability to adapt in challenging circumstances.
“It is particularly encouraging that so many of our members are confident about the long-term prospects for the UK economy.
“And while we face much uncertainty and many challenges in the immediate future, those businesses that continue to maintain high standards of underwriting and customer focus will be well-positioned to benefit from economic recovery in the future.”
Bridging can help landlords move on from a mortgage payment holiday – Jannels
It was never a payment holiday – merely a deferral – but there are other downsides for borrowers who have taken up the offer, and these are now rapidly becoming apparent.
The current Mortgage Solutions poll indicates more than half of brokers have seen clients’ borrowing affected by having taken a mortgage payment holiday.
Given that payment holidays have been taken on more than 1.8m mortgages since March, there will be many clients whose finance options may be severely curtailed as a result.
Yet they will not know this until they commence investigations for a new mortgage.
It was widely accepted that this government initiative was both a positive and necessary step to support financial hardship brought about by Covid-19.
This mortgage payment holiday should not negatively impact a borrower’s credit report, but some lenders seem to have been registering them as a late or missed payment.
This may be rectified if the client complains, but this process takes time and, as the Financial Conduct Authority has pointed out, credit files are not the only source of information available to lenders.
Many have introduced supplementary questions as part of their application process and there seem to be particular issues for landlords who have taken a payment holiday in the last three months.
The lesson for brokers here is clear – check with your clients upfront regarding payment holidays.
As with any complication with an application, it is better to fully understand the situation from the outset than to find out only once a case has sat with a lender’s underwriters for a period of time.
If you are working with a landlord client who has taken a payment holiday in the last three months and is looking for a new mortgage where an urgent completion is required, it could be the case that short-term lending might offer the solution they are looking for.
This may not be the best approach for all clients, but in the right circumstances a bridging loan may help your client to achieve the fast completion they need.
It may also elongate the time since they took their payment holiday and encourage greater acceptance by lenders that this was not a choice by the borrower, but rather more one of need at the time of the pandemic.
Even if bridging is not the right route for your client, there is no harm in opening a realistic dialogue with them, so that their plans and motivations are clear in order that they can be provided with the right help and advice when the time comes to make similar decisions in the future.
Viability of bridging exits vital where relying on traditional mortgages – Jannels
As the lockdown restrictions slowly start to be relaxed, nobody knows what shape the economic recovery might take. But we can anticipate future trends based on some of the many changes that have happened during the lockdown.
I spoke to some members of the Association of Short Term Lenders (ASTL) executive committee to find out their thoughts on the impact of Covid-19 and some of the trends we might expect to see in the future.
The key themes were the resilience of the sector, the importance of technology and the opportunities for residential development in areas that have traditionally been dominated by commercial space.
Here’s what they had to say.
Adapt and innovate
Scott Marshall, managing director of Roma Finance, said: “The industry tone has been rapidly evolving since the pandemic began but the outlook is positive. A counter-cyclical market is developing and those focusing on adapting and innovation will be part of the new normal.
“The vibes are good in the market, finance searches and enquiries are up, however, there will likely be some fundamental changes.”
Marshall added: “A new work life balance has been introduced and working from home may become normal, meaning less requirement for commercial space and in turn, a creation of a brand new type of city centre. Commercial space will become residential, creating opportunities for property investors.
“This future will require investment in technology to allow for new ways to do business and communicate with customers. Those who plan ahead for this now will feature significantly going forwards.”
Stephen Barber, director at Bridging Finance Solutions, said: “Yes, we have some tough times in certain sectors ahead, but consumer sentiment will be the key factor in a V-shaped recovery.
“With a paradigm shift in working practices I expect a more significant impact on capital values of commercial property.”
Gavin Diamond, commercial director for bridging at United Trust Bank, said: “Technology has been vital in enabling UTB, and many other participants in the specialist finance industry, to continue to function during the pandemic.
“Our original rationale for investment was to use technology to strengthen our operational resilience and make it quicker, cheaper and easier for borrowers to transact with us.”
All in all, the messages from within the sector seem very much to sway to the positive and this is encouraging.
Much will depend upon how the government is able to deal with the serious debt mountain it is accumulating throughout the crisis in order to provide the ability for businesses to stay alive while facing limited or no income during the shutdown.
It is also worth remembering that, while bullish about the future, the bridging sector will still rely on the viability of exit routes needed to repay the short-term borrowing, especially where these exits are dependent on the provision of traditional mortgage options.
Mortgage holiday extension could hinder lending capacity – industry reacts
Earlier this week, it was reported that the Financial Conduct Authority (FCA) was considering extending payment holidays to avoid borrowers falling into arrears and being at risk of repossession.
The FCA said it would be meeting with banks this week to discuss what support should be available once the payment freezes end, and said its plans will be confirmed in the coming weeks.
Paul Broadhead, BSA’s head of mortgages and housing said a blanket extension to payment holidays would not necessarily be in the interest of borrowers as it would mean lenders would not have an insight into their individual financial circumstances.
“If a borrower is likely to be affected for a longer period it is important that they speak to their mortgage lender. By speaking to their lender, they will receive tailored support appropriate for their circumstances,” he added.
Broadhead said: “Pausing mortgages for an extended period could also hinder lenders’ capacity for new lending just when it is needed to support the UK’s recovery from this crisis.”
Non-bank trade associations have already come together to ask the Treasury for support as they do not have the same access to funding banks have, limiting their ability to provide borrowers with mortgage holidays.
The representatives proposed schemes to the Bank of England and the Treasury to support them in offering payment holidays, but no action has been taken.
Vic Jannels, CEO at the Association of Short Term Lenders (ASTL), said: “We believe that our members will be an important part of the solution as and when we exit this pandemic and rebuild our economy.
“It is important that we work together on an effective and diverse financial response to the current situation in a way that protects consumers and supports businesses.”
Looking for the best solutions
UK Finance said it continued to work with the government and regulators to find a solution for borrowers during the crisis.
A spokesperson said: “All providers are ready and able to offer support to their customers who are impacted directly or indirectly by Covid-19.”
Trade bodies implore ‘urgent action’ to help non-bank lenders support recovery
In its latest statement, the Finance and Leasing Association (FLA) has emphasised that the sector will not be able to support the recovery without government or Bank of England help.
The non-bank sector has been especially hard hit during the coronavirus crisis as capital markets have almost completely closed down and lenders are denied access to the term funding support schemes, while also needing to grant payment holidays to their borrowers.
Last month a coalition of trade bodies, including the FLA, UK Finance and the Intermediary Mortgage Lenders Association (IMLA) presented a trio of schemes to Treasury and Bank of England officials.
The bodies said the schemes would be particularly targeted to support lenders offering payment holidays and other forbearance measures.
HM Treasury responded by saying it was continuing discussions with the sector and that it was “keen to understand the issues that non-bank lenders are experiencing”.
However, there has been no action yet.
In a statement issued today FLA director general Stephen Haddrill, highlighted that its lenders had been hit hard by the measures taken to deal with the coronavirus crisis.
There was a 20 per cent fall in new business in March while its members have received almost 1.2 million Covid-19 related requests for forbearance, with 75 granted.
“The industry is committed to supporting their customers during these exceptional times,” he said.
“Urgent action is needed – in days, not weeks – to deliver financial support to the non-bank lending sector to ensure that we maintain a financial services sector that is diverse, innovative and competitive.”
The FLA told Specialist Lending Solutions that without help they would not be able to support the economy as lockdown measures were eased.
“Non-bank lenders are supporting customers with unprecedented levels of forbearance, but with very little new business coming in due to the ongoing lockdown, these firms won’t be in a position to lend as we emerge from the current phase,” the spokesperson said.
“That is in no one’s interests. The industry needs a prompt decision on funding so that they can plan how to resume normal business.”
The Association of Short Term Lenders (ASTL) has also added its weight to the cause of specialist lenders.
In a letter to the Treasury, it highlighted that members would be needed to provide liquidity to fund the recovery and growth in the SME community as the economy is rebuilt.
“With this in mind, we would like to discuss with you how the broad approach to the current moratorium affects short-term mortgage lenders and, as we move forward, how provision can be made to re-enforce the ability of our members to advance new loans and provide SMEs with the liquidity they will need to rebuild their businesses,” it said.
Vic Jannels, CEO of the ASTL, added: “We have endeavoured to encourage HM Treasury that it really would help if we are able to engage in a collaborative approach, which would put public health first, protect homeowners and small businesses, and also acknowledge the vital role that the short-term mortgage lending community can play in the UK’s economic recovery.
“It is important that we work together on an effective and diverse financial response to the current situation in a way that protects consumers and supports businesses.”