The Bank of England, in the shape of the PRA, has warned that there will be no wholesale scrapping of red tape following Brexit.   Sam Woods, Chief Executive of the Prudential Regulation Authority, stated that “… whilst the UK’s withdrawal from the EU will change many things, it does not change the PRA’s statutory objectives. With that strongly in mind, supervisors will maintain the normal supervisory approach and focus on the biggest risks at each firm. For some businesses, Brexit will be a key risk and will, justifiably, warrant supervisory attention – we must not lose sight of risks as structures and business models change, or as activities move around or adapt.”*

For those who expected a different approach, this may have come as an unwelcome surprise, but it shouldn’t have.   As a colleague of mine once remarked, the UK does not only embrace EU regulation, it often “gold plates” it.

Originally, the FSA (as it then was) focussed on “risk and impact” following the failure of the regulatory authorities to comprehend the dangers inherent in the lending free-for-all which culminated in the run on Northern Rock and the 2008 credit crisis.

Change, along with death and taxes, is certain, but in recent years the pace of change has increased enormously.   From March 17, 2017, the rules regarding regulatory references for Senior Managers and staff in the Certification Regime came into force. The Certification Regime applies to staff in roles that can cause ‘significant harm’ to either the firm or its customers. This includes, for example, mortgage advisers. It makes sense, as was noted at a recent event put on by one of the ASTL’s associate members, Simply Biz, “firms don’t do wrong, it’s the individuals within a firm that do so”.

The EU General Data Protection Regulation (GDPR) goes into effect on May 25, 2018. With its emphasis on privacy and consumer rights, GDPR will require changes in the way many companies manage, store, transfer, and delete customer data.

The growing awareness of the problems building up in the consumer credit sector, most recently in the motor vehicle finance area, will inevitably lead to additional regulation as regulatory authorities seek to avoid another crisis.   This may well be closing the stable door after the horses have bolted, but there is no doubt in my mind that consumer credit regulation has only just started to get serious and that the FCA has the same agenda for the financial services sector as a whole.

Businesses need to be aware of this and not drag their heels in the vain hope that, come the day the UK leaves the EU, regulation will suddenly disappear.

*Remarks prepared for the May 2017 Building Society Association (BSA) Annual Conference (www.bankofengland.co.uk/speeches)

 

Benson Hersch, CEO of the ASTL

 

A version of this article appeared in the July 2017 edition of Specialist Lending Solutions Alert

 

BrightOffice has joined the Association of Short Term Lenders (ASTL) as its newest associate member.

Founded in 2004, the Software as a Service (SaaS) company provides a range of cloud-based software solutions to its clients. It offers support, functionality and effectiveness in customer relationship management and is backed up by a trusted supplier with more than 20 years’ experience in CRM software.

BrightOffice’s dedicated team of developers work closely with commercial brokers and other industry influencers. Its Broker Lender CRM solution for the lending sector assists in the sales process and referrer network management, as well as flexible payment structures, auto-statement creation and crowd funding and investor functionality. The modern solution has full audit and wrap-around CRM capacity and can be accessed from anywhere, provided an internet connection is available.

Benson Hersch, CEO of the ASTL says, “The ASTL plays a pivotal role in promoting best practice and is continuing to represent members and service providers at every level. BrightOffice’s associate membership will once again add to the diversity of the ASTL, and we trust that it will support the association as it continues to raise the standards in the short term lending market.”

Michael Fairhurst, Sales Director at BrightOffice says, “We were invited to apply to become an associate member by an existing lender member who we worked with at the end of last year, providing them with an alternative lender cloud CRM. Our associate membership will not only give us the chance to share and broaden our knowledge and learn and share best practices, but will also enhance our network as we engage in more conversations with other industry experts.

“At BrightOffice we are serious about the alternative and commercial lending market and we fully support the ASTL’s mission of raising standards. Therefore, becoming an associate member was the obvious next step for us. We now look forward to helping current and new lender members with specialist software related areas of the industry.”

 

Press release Tuesday, July 18, 2017

On holiday recently, I noticed an article in the New York Times.  The average rate on 30-year fixed-rate home loans rose to 4.05 percent. The rate stood at 3.57 percent a year ago, the lowest level since1971.  It seems that the long slide in mortgage rates in the US is over now, and people will need to react to the “new normal”.

The financial disaster of 2007-8 in the US left more scars than here, with many people, who would never have passed any affordability stress tests, either losing their homes or facing financial hardship.   This has tended to make them more cautious and fearful of their economic futures.   The Trump presidential campaign benefitted from their votes.

Homeowners are moving less and this has in turn created a supply shortage, affecting the first-time buyers’ market.  The renovation and extension industry has benefitted.  Interest rates have gone up and, the likelihood is that they will go up further. This has put pressure on rentals.

How does this compare to the UK?  Firstly, here the high cost of moving, including not least the hike in LDST, has inhibited many people from downsizing  particularly now that the gap between higher and lower price properties has narrowed, leaving them with much less of a cash injection.  This in turn has reduced the availability of homes for those wishing to upsize.

There is no doubt that, despite the fact that rising interest rates are politically toxic, they will need to rise soon.   Inflation is gathering pace and Brexit negotiations and political uncertainty are having an effect on the exchange rate between Sterling and the Euro.   There seems recently to have been something of a revival in the fortunes of the major EU countries, which has steadied the Euro.   This will in turn increase the price of EU imports into the UK, especially if consumer confidence returns on the Continent.

 

What’s also clear is that, despite stress-testing, many mortgagees are not in a good position to deal with higher payments.   The other issue is that, rather than a generalised increase in housing, what is really the issue is the unaffordability of housing for many.   This is despite the fact that, outside London and South-East England, the ratio of average house price to average income has remained in a ratio of three to four times for many years while London’s is seven or more times income.

Mortgage costs as a percentage of income is at record lows outside the capital.   The problem in many cases is how to raise a deposit, when the Bank of Mom and Dad can’t come to the rescue.

We need to accept that, for many people, ownership of a home is just an impossible dream and private rentals are simply unaffordable.   The state cannot afford to continue paying higher and higher housing benefits.  According to an article by David Stephenson in Money Week, in 2003 social-rent new starts totalled 24,670 (a very low figure).   Affordable housing for more “intermediate” citizens amounted to 18,430.   In 2015/16, the comparable figures were only 6,550 and 3,430.   If you include the fact that much of the lower-end housing stock is in poor conditions, it’s clear where the real housing problem is.

What about the rest of the population?   Well, they are simply going to have to deal with the situation and adjust to higher borrowing costs.  Bridging finance will play a role in ensuring that home-owners are able to pay for improvements before seeking maximum long-term funding.  It will also continue to assist small builders to get projects up and running sooner rather than later.  

As Bob Dylan sang “For the times they are a-changin’”.   The mortgage industry needs to change with them.

Benson Hersch, CEO of the ASTL

 

A version of this article appeared in the June 2017 edition of Bridging Introducer

This was the catch phrase of Oliver Hardy and Stan Laurel (anyone else out there old enough to remember them?).   The phrase was used by PM Theresa May when she faced the 1922 Committee of Conservative backbenchers – “I got us into this mess and I’m going to get us out of it”.  Unlike Hardy, she has accepted blame.

The political landscape certainly has changed, with confusion and uncertainty all around.   The UK’s hand in the forthcoming Brexit negotiations has certainly been weakened.  Our negotiators are even more likely to be met with intransigence, especially as the EU’s approach has been approved by the 27 other member nations.  This was always going to be a problem, as there would be a great reluctance to go back to them to get agreement.  A case in point was the Canadian trade agreement, a lot simpler situation than Brexit.

As in the 2008 credit crunch crisis, the situation represents both a challenge and an opportunity for the bridging sector.   Traditional lenders are already very cautious and the current situation is almost certainly going to make them more so.   Bridging lenders, with a flexible, innovative and entrepreneurial approach to lending, will seize the opportunity and provide the products that borrowers need.

A recent cover of Private Eye magazine headlined “May finally unites Brexit Britain” showed her behind a lectern in front of 10 Downing Street with word bubbles saying “Leave” from all directions, but, although her ultimate fate is clearly sealed, there are more important issues to be resolved.

Politicians seem to have forgotten that the main issue is “the economy, stupid”.  This is one area where the electorate still seems to trust the Tories rather than Labour.   But, despite the fact that there is no magic money tree, the divisions of opinion in many key areas need to be healed.   In my personal opinion, a brave move would be to remove three key divisive footballs from the political arena and hand them over to commissions representing all the parties.   These are Brexit negotiations, education and the NHS.   All are vital to our country’s future and should be dealt with by consensus, rather than by parties trying to score points by rejecting proposals without providing viable alternatives.

This approach might ensure PM May’s survival in the medium term, prevent the Conservative Party from tearing itself apart and save the country from yet another trip to the polls, to the relief of Brenda from Bristol and many others.   It will also enable all the parties to act in the nation’s interest, rather than increase the divisions in our society.

Yes, we are definitely in a mess, but rather than hold our head in our hands, let’s get on with the task in hand.   If we fail, we will have let down future generations and they won’t thank us for it.

Benson Hersch, CEO of the ASTL

A version of this article appeared in the July 2017 edition of Mortgage Solutions

FRP Advisory is the fifth associate member to join the Association of Short Term Lenders (ASTL) since the start of the year. The membership now consists of 37 members and 28 associate members.

Founded in 2010, FRP Advisory is a national business advisory firm specialising in corporate finance, debt advisory and restructuring services. The firm works with national clearing banks, alternative lenders and a number of short-term lenders. The partnership provides advice to directors, shareholders and other investors through periods of strategic change and those who may require debt restructuring advice, or are recovering their outstanding indebtedness from defaulting borrowers.

Benson Hersch, CEO of the ASTL says, “FRP Advisory is well established across a number of major regional business hubs and, with its experience in a diverse set of specialist industries and markets, it is a very welcome addition to our membership.”

Steve Williams, Partner at FRP Advisory based in its Preston office adds, “The desire to always do the right thing is a shared value that binds FRP Advisory with the ASTL and our fellow members. The ASTL has proved to be a safe port amid any perceived turmoil within the wider lending market and offers a focal point for best practice within the short term lending industry. This includes the promotion of ethical business practices that underpin the stability and prosperity of this crucial market.

“With an established standing in the short term lending market and a growing membership, the association's importance for the sector is set to grow yet further over the years to come. The ability to create a sense of community is vital for the establishment of a sustainable trading environment which has integrity at the heart of its value system. We look forward to contributing to that ongoing process through our membership of the ASTL.”

Press release Thursday, June 15, 2017

  1. Founder member rejoins the ranks of the ASTL
  2. Are we looking at the future with rose coloured glasses?
  3. Fraud and your solicitors
  4. The ASTL reveals a 123% year on year rise in bridging applications