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

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

“The sun was shining on the sea, shining with all his might…..and this was odd, because it was the middle of the night” (to paraphrase Rev. Charles Dodgson).

PM Theresa May has officially served the Brexit divorce papers and we are now in the “phoney war” stage.   Despite posturing to the contrary, there is goodwill on both sides.   By and large, economic news has been positive, but is confidence justified?  The calling of the general election indicates that Theresa May wants us to demonstrate our confidence in her and her party more tangibly, obviously feeling that it will strengthen her hand in Europe when the negotiations get underway.

One might expect lenders to be nervous, but the opposite seems to be true.  In the latest sentiment survey of ASTL members, positivity continues to climb.  The proportion of those lenders who either expect the bridging market volume of business to remain the same or to increase has grown from a low of 48pc in June 2016 to 100pc in March this year.  

As far as their own businesses are concerned, the number of bridging lenders who expect their volume of business to grow over the next six months have grown from 31pc following the referendum last year to 85pc now. 

Is this confidence misplaced, especially since it was announced by Nationwide that house prices declined by a monthly 0.3pc in March, compared with a rise of 0.6pc in February? This was the first month-on-month dip since June 2015, when prices fell by 0.1pc.  This follows the report earlier this year by Halifax that the average price of a home fell by 0.9pc to £220,260 between December and January, however it does look like it has recovered a bit since then to remain almost identical compared to last year, up by 0.1pc.   

It is really too soon to tell, as statistics can be misleading, and at this time of flux, as the Halifax figures prove, what rises one month can drop the next and vice versa.  This is especially as the biggest weakness seems to be in high-priced property, which can drag down the national average.  Amongst ASTL members while 42pc expected a small amount of growth, more than 50pc are expecting property prices to stay the same while a couple of lenders even expected a drop in values.

There are other issues as well – in a recent article by Hugh Graham in The Sunday Times he highlighted the fact that in certain areas property sales are taking longer to complete.   For example, more than 25pc of properties in Liverpool, Wolverhampton and Bradford have been on the market for longer than six months.   This has led to an increase in chain blocking.   I can’t put it better than was put in the article “you’re not only relying on your buyer but possibly on your buyer’s, buyer’s, buyer’s, buyer – it takes only one case of the jitters to break the chain…and put everyone’s lives on hold.”

This is a classic opportunity for bridging lenders – chain unblocking is their meat and drink, which is perhaps why bridging lenders are currently feeling so positive.  A bridging loan gives a seller breathing space to sell their property as advantageously as possible and get the whole chain moving.   For someone desperate to move and not miss out on their dream home, this is the solution.   But (and there’s always a “but”) this requires knowledgeable brokers and skilled underwriters to ensure that the loan is both appropriate and advantageous.  It also requires solicitors that understand bridging and the urgency associated with many bridging loan applications.

The bridging market is becoming more and more competitive and 56pc of respondents to the ASTL survey expect this to increase, as an increasing number of new lenders enter the bridging loan space.   This affords customers both more choice and lower cost, but it’s up to intermediaries to select the right lender.

On balance, I remain positive, but, as ever, overconfidence is to be avoided at a time where uncertainty is the only thing that is certain.   Bridging performance in Q4 of 2016 was excellent.  Let’s see what the rest of 2017 and beyond will bring.

 

By Benson Hersch, CEO of the ASTL

A version of this article was published in the May 2017 edition of Mortgage Strategy

Affirmative Group has re-joined the Association of Short Term Lenders (ASTL) after a period of almost five years.

The Manchester-based lender has been in business since 2004. It provides short-term financing for residential and commercial borrowers, specifically in development finance and structured finance situations in both regulated and unregulated spheres. It also welcomes complex transactions in bridging for private individuals, as well as property developers and investors.  The firm has a wealth of experience in its underwriting and sales teams, and its founders Eugene Esterkin and Gary Lederberg have operated as solicitors and financiers for decades.

Affirmative was a founder member of the ASTL, alongside 18 other firms, with the desire to help promote bridging and short term finance. The ASTL’s growing and diversifying membership has helped it to successfully navigate a changing landscape. In recent years it has hosted four annual conferences and has recently toughened its code of conduct to eliminate back charging of higher rates of interest in the case of default. Since the beginning of 2017 it has welcomed five new associate members. Affirmative feels that now is the right time to re-join the ASTL which continues to be at the very forefront of responsible bridging lending.

Benson Hersch, CEO of the ASTL says, “We continue to welcome lenders that are open to helping to progress and promote the positive reputation of bridging finance and it is great to see a founder member returning to the association. Affirmative has substantial experience in the short term finance market and well over 100 years of combined experience in lending and financial markets. I am confident that it will once again make a valuable contribution to the association and its members.”

Eugene Esterkin, MD at Affirmative says, “As a founder member and original director of the ASTL, both Affirmative and I am happy to see the progress that the ASTL has continued to make under Benson’s leadership. It is clear to see how far the association has come; even the way that it operates has changed. We hope that we can contribute to the good work. 

“The growing membership is allowing the association to continue raising the profile of short term finance while increasing the standards and professionalism in the industry. In addition, amid much political and economic change, it is good to see that the recent raising of standards has added to the appeal of becoming a member even further. This in itself is a reflection of the association’s standing and continued hard work.” 

ASTL Press Release Thursday 8th June 2017

All bridging finance firms, including those that do not provide regulated mortgage finance are required to register with the FCA under the Money Laundering Regulations However not all firms are aware of this, or have applied for registration.   

Some firms rely on their solicitors both for anti-money laundering checking and for general advice where there is a “whiff” of possible fraud.

This places a massive onus on solicitors and may backfire on the lender.  Much fraud in mortgages is due to identity theft.   What is especially worrying are recent cases, such as one involving a major City firm, Mishcon de Reya.  Deputy High Court judge David Railton QC accepted that both Mishcons and the purported seller’s solicitors, had acted honestly and innocently in carrying out their respective roles.  However, Judge Railton carried on to say that as Mishcons had insurance to cover the loss suffered in full, and was thus in a better position than the client to face the consequences., that the ‘only practical remedy’ open to the client was to target the City firm.

In another case last year, the High Court ruled that conveyancers on both sides of a fraudulent £470,000 transaction were liable.  The seller’s solicitors were found to have not made sufficient enquiries to link the seller to the property.   The buyer’s conveyancers were held to be responsible for not drawing attention to any concerns after asking whether the purported owner was entitled to sell the property.

So, does this let the lender off the hook?  And what part should the broker play?  Both broker and lender should not rely on the Mishcons case, which is subject to appeal.   Both should do the appropriate due diligence. I It does, however, mean that lenders’ instructions to solicitors should clearly state what they expect in respect of checking, if only to protect themselves.  

Firms should make their solicitors aware of their own underwriting basis and standards.   Also, if recovery involves litigation, firms should send representatives to assist their solicitors or barristers, to avoid prejudice due to misconceptions about the nature of bridging, especially in provincial Courts.

Lenders should also be aware that the requirements of the Fourth Money Laundering Directive (‘4MLD’) must come into effect through national law by 26 June 2017.  Requirements include checks on persons with significant control, independent verification of ownership, etc.

As with other EU regulatory measures, the Brexit referendum does not change anything.  As the FCA clearly states “Until exit negotiations are concluded, the UK remains a full member of the European Union and all the rights and obligations of EU membership remain in force. During this period the government will continue to negotiate, implement and apply EU legislation.”

Whatever else the coming election may bring, the above will continue to apply. 

Benson Hersch CEO of the ASTL

A version of this article was published by Specialist Lending Solutions on 18th May 2017

  1. The ASTL reveals a 123% year on year rise in bridging applications
  2. Reditum Capital joins the ranks of the ASTL
  3. Two new associate members add to the growing diversification of the ASTL
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