What does the future hold for bridging?

On Friday, September 14, the newspapers trumpeted Mark Carney’s warning to the Cabinet the day before that UK house prices would fall by 35% over three years if there was a no-deal Brexit. Later, he sought to clarify this, saying that this is a worst-case scenario which also envisaged unemployment rising to 9.5% and interest rates jumping to 4%.

Whatever the reasons behind the warning, to say the least this was not helpful to a skittish property market, as evidenced by the Nationwide Price Index, which saw a monthly change of minus 0.5% in August, cancelling out most of the rise of 0.7% in July. It is very likely to dissuade buyers from purchasing property until the shape of Brexit becomes clearer. What one also needs to consider is that rising inflation will assist in keeping Sterling prices steady, even though they will be falling in real terms.

How will this affect the short-term property finance market?

Although the general situation is not like 2007-8, this is no time for complacency. Sub 2% interest rates look like being here for a long time, barring crises which may require higher rates to protect the Pound. Many long-term lenders are now offering high LTV loans at competitive rates, reducing the problem of the need for high deposits. Interest rate fixes give comfort to those who are able to meet monthly payments, but could be in difficulty if rates increase.

In a Sentiment Survey of members of the Association of Short Term Lenders in September, 34% said that the main impact on their business over the past decade was the continued reticence of the banking sector to lend where all the boxes weren’t ticked. The next highest issue was property prices (21%). Only 7% chose Brexit.

Looking forward to the next decade, the main issue, chosen by 28% of respondents, was Brexit, with property prices and knowledge of bridging becoming more widespread tied at 21% each. 18% of respondents are very positive about the future of the bridging sector and 75% are fairly positive. 7% are neutral and no-one is negative.

The short-term property lending sector is attracting new entries at an ever-increasing pace, as investors chase returns which are not easily available elsewhere. Existing firms are seeking to expand. Competition is affecting pricing, which sometimes is market-based, rather than risk-based. There is a shortage of good, experienced staff, with lenders tempting people away with sweet offers. There is a need for education – bigger firms are able to do this in-house, but smaller ones are often dependent on outside suppliers, which may not be attuned to the specific needs of short-term lending, especially in the importance of exit routes, which are possibly the most important factor in this sector.

The ASTL will next year be launching a series of seminars for members to cover various aspects. It already has regular seminars on fraud detection and prevention and has hosted meetings with intermediaries. Associate members have also provided seminars to cover subjects such as development funding.

No doubt there will be casualties in this sector, as there have been in past years. Property finance is not risk-free and lenders should be mindful of changes in the market. All I can do is to echo the words of Sergeant Phil Esterhaus, in the TV show Hill Street Blues (1981-1987). ... As he finished up his roll call for the day, he would bid his officers farewell with the advice—"Let's be careful out there."

 

Benson Hersch, CEO of the ASTL

A version of this article appeared in the October edition of Bridging Introducer

When the 2008 credit crisis hit the UK property market; it was important for alternative finance to fill the gap left by the mainstream mortgage sector. The ASTL was set up in March 2008, initially with 19 members, with the objective of providing a voice for bridging lenders. Our members are typically bridging and secured loan companies who provide loans and mortgages for terms of between six months and two years.

What are the benefits of ASTL membership?

The ASTL promotes responsible lending, transparency and professionalism in the bridging finance sector. Members subscribe to the ASTL’s code of conduct, membership rules and value charter and, in return, the ATSL protects the interests of its members. ASTL membership offers credibility – consumers and companies who transact with ASTL members can be confident they’re dealing with a reputable company.

We provide regular articles to several trade publications, as well as providing a magazine page on our website for our associate members to contribute articles of interest. Our meetings include updates on compliance and speakers who provide information on a wide variety of subjects of interest. Regular lunches provoke interesting discussions and insight for members and associate members.

What has the ASTL achieved in the past 10 years?

The ASTL has achieved a lot over the past decade. We’ve grown to 35 members and 28 associate members. I was appointed CEO in July 2012. After I was appointed I visited all our members to ascertain their views on how we could help them. Out of these discussions grew the current rules and ethos of the ASTL, which continues to strive for improved professionalism in the sector.

I’m proud of the regular dialogue we have with various bodies including the Financial Conduct Authority (FCA), the National Association of Commercial Finance Brokers (NACFB), Association of Bridging Finance Professionals (AOBP), and HM Treasury.

We have held successful conferences, providing members with presentations on the political, legal, economic and regulatory environments in the UK.

How does the ATSL help shape policy and the regulatory regime?

The ASTL helps HM Treasury, regulators and various trade bodies understand the short-term lending sector. We’ve taken part in discussions about the mortgage market review, loans regulated under the Consumer Credit Act, affordability requirements for buy-to-let mortgages, and the implementation of the EU Mortgage Directive, among other things.

How does the ASTL help tackle fraud in the short-term lending sector?

The ASTL has done a lot to reduce fraud in the sector. ASTL members now have access to HMRC’s Mortgage Verification Scheme (a joint initiative between HMRC and mortgage lenders) which allows lenders to check income information submitted by first time buyers on a mortgage application form against HMRC records, using a secure electronic platform.

The ASTL also has group membership of the SIRA anti-fraud software which provides a highly developed solution to fraud prevention. ASTL members pay an annual fee of £5,000 plus VAT for SIRA – the usual start-up cost is £10,000 plus VAT.

We also have an arrangement with National Hunter which is a not-for-profit company primarily concerned with the prevention of application fraud within the banking, finance and insurance industries.

In addition, we provide regular discussion meetings at which members’ staff can discuss matters of concern. Our solicitor associate members also give guidance and the benefit of their experience.

Does the ASTL offer networking opportunities?

Yes, members have access to meetings set up jointly with broker trade bodies as well as fraud prevention and underwriting discussion meetings. There are also regular formal meetings and informal lunches, as well as our annual conference.

What are the most important issues on the ASTL’s agenda?

Continued improvement of the sector is our main concern. Fraud prevention remains a high priority. Consultation and dialogue with various trade and regulatory bodies is also very important.

What does the ASTL hope to achieve in the next 10 years?

The next ten years will be interesting. We look forward to the opportunities and challenges that lie ahead.

Our plan is to continue supporting members and representing their interests when talking to government and regulatory bodies. We will continue to keep members up to date with what’s happening via quarterly industry statistics, sentiment surveys, and legal and regulatory updates.

I also intend to find new ways to improve our education services for both members and intermediaries, both with other trade associations; and by providing seminars.

Benson Hersch, CEO of the ASTL

A version of this article appeared in the October edition of Mortgage Solutions (web)

Anderson, Wilde & Harris, a leading firm of chartered surveyors, has become the latest Professional Organisation to become an Associate Member of The Association of Short Term Lenders (ASTL).

Anderson, Wilde & Harris is a multi-disciplinary firm of chartered surveyors and valuers incorporated in 1995 as a “niche“ firm providing valuation and building surveying services.

Since than they have branched out and now cover London and the Home Counties - from the London Office, and Cambridgeshire and Suffolk - from Bury St Edmunds. They provide a comprehensive service including: valuation, project management & monitoring, landlord & tenant rent reviews and lease extensions, rights of light and daylight sunlight reports, building surveying services and expert witness reports.

Jamie Chamberlain, Business Development Manager, Anderson, Wilde & Harris comments: “The lending landscape has changed significantly over the last decade, with short-term lending at the forefront of many development, property investment and corporate strategies. Joining the ASTL increases our involvement in this sector and we look forward to working alongside the members and fellow associate members to help push the sector forward.”

Benson Hersch, Chief Executive of the ASTL added: “As we gear up to celebrate our tenth anniversary this year, we are proud that we continue to grow our membership, and Anderson, Wilde & Harris’ excellent property industry insight and knowledge make them a valuable addition to the ASTL.”

Press Release: 8th October 2018

There’s just six months or so to go until the UK is supposed to officially leave the European Union. As negotiations rumble on, we’re yet to see what kind of deal, if any, Britain will leave with. There may well be further delays and uncertainty if the proposed transition period from 29 March 2019 to 31 December 2020 does come into force.

Our departure from the EU may or may not present a threat to house prices, but it goes without saying that rising interest rates may prick the house price bubble. We have already seen one rise – the base rate rose to 0.75% in August – but the Bank of England was not expected to raise rates again until next year at the earliest. The path outlined at the August rise was gradual and slow, and concerns over the economy are likely to mean Britain does not deviate from that approach.

However, one concern is that, if Britain crashes out of the EU without a deal, the Bank of England will be forced to raise rates to defend the pound. We have already seen sterling fluctuate against major currencies in the two years or so since the referendum, so this is a legitimate worry.

Mortgage borrowers already go through “stress-testing” to assess ongoing affordability in the event of a rate rise. Whether this stress testing is sufficient remains to be seen.

What might happen in the bridging sector in a post-Brexit world? Personally, I think the upwards turn in bridging lending is likely to continue – and here’s why.

The ongoing uncertainty around Britain’s exit from the EU leaves borrowers, banks and other lenders without a clear picture of the next few years. However, the fundamentals underpinning the UK property market remain the same.

Supply-side shortages and high demand have pushed up house prices over the past 20 years or so. However, this time period can be split into two distinct parts: From 1997 to 2007/8, and the subsequent decade leading us to where we are today. The 11 years to Q2 2008 saw house price inflation of 199% across the UK and 220% in London. Since Q2 2007 prices have held steady – rising just 18% across the UK and falling 5% in London.

The past few years have seen Government efforts to make housing more affordable for first-time buyers. Measures have included the introduction of Help to Buy (to encourage first-time buyers to buy), disincentives for foreign buyers and changes to the tax regime (to encourage buy-to-let landlords to sell).

Help to Buy has helped thousands of buyers, but the main beneficiaries have been the large construction companies. Problems with the quality of new housing from the big players have been well-documented, leading to opportunities for small builders and property developers to get ahead. Often overlooked by mainstream finance providers, these smaller players have been turning to the specialist lending sector. Bridging and other specialist lenders can offer them quick capital and swift decisions required to get purchases completed and projects underway.

However, it’s vital that bridging lenders don’t rush the underwriting process in their bid to sign up new business. A realistic exit strategy is possibly the most important part of assessing the viability of a short-term loan and underwriters must take cognisance of changes in the property market as well as refinance options.

The bridging sector’s focus also needs to be on educating mortgage advisors who are either unaware of specialist lending products or shy away from them perhaps due to insufficient awareness of current pricing and criteria. Brokers could be encouraged to place more specialist business by being informed about the products available and how these can be used to solve problems. In turn, brokers need to ensure their clients fully understand how bridging products work.

In short, bridging finance is no longer seen as a last resort, but as a useful financial tool. And this approach will continue in a post-Brexit world.

Benson Hersch, CEO of the ASTL

A version of this article appeared in the October edition of Business Moneyfacts

It’s almost 11 years since the unthinkable happened in the UK banking sector. September 2007 saw a “run” on Northern Rock with queues forming outside the branches of the former building society. People wanted their money – but the bank was running out of cash, as well as sources of funding. The subsequent collapse of Northern Rock was the first signal to the British public that the credit crunch had arrived in the UK.

People panicked. Consumers stopped spending. High street shops started closing down. High street funding rapidly dried up as mainstream lenders tightened up their lending criteria. This presented an opportunity for specialist lenders to establish themselves and grab an increased market share.

Some high-profile bridging lenders who thought the good times would roll forever were caught out. As property prices started falling and housing market activity slowed to a crawl; the impact of so-called “liar loans” and irresponsible lending practises started to show.

In this challenging environment, bridging lenders felt the need for a platform where they could learn from each other, and improve the professionalism of the sector. In March 2018 the Association of Short Term Lenders (ASTL) was established, initially with 17 lenders. Andrew Bloom, CEO of Masthaven, says: “In doing so, the ASTL should rightly be credited with moving the short-term finance sector from a cottage industry right into the mainstream – where it truly belongs.”

The ASTL sets high standards which members need to meet. It also helped HM Treasury, the Financial Conduct Authority and the Financial Ombudsman Service understand the short-term lending sector better. Membership of the ASTL has grown to 35 members and 28 associate members.

The big question for ASTL members is: should we be preparing for another crash? These are undoubtedly uncertain times. The Royal Institute of Chartered Surveyors (RICS) says tax and stamp duty reforms have impeded the growth of the private rented sector. Meanwhile the housing market as a whole is slowing and properties are taking longer to sell. Should we be worried?

Personally I think that we could see an economic downturn in the short-term. This will mean that, as in 2008, there will be opportunities for the bridging sector, but also dangers we need to be aware of. There will inevitably be casualties and lenders need to embrace technology to meet the demands of a changing world.

This quote from Alex Massie in The Times – about cricket – can also be applied to the bridging sector.

“Savour it while you can, for it will not be with us very much longer. Cricket can just about afford this rosy melancholy; as a society, politically and economically, we cannot.

Cricket’s struggle is only a small part of this much greater and eternal, quandary: how to manage change so things may remain the same but slightly better? Hard enough at the best of times but daunting when you sense a great storm is brewing.”

Benson Hersch, CEO of the ASTL

A version of this article appeared in the September edition of Specialist Lending Solutions

 

 

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