Except, it is increasingly clear that we are not all in it together – since the ‘credit crunch’ the majority of people have been facing job losses, stagnant wage growth and uncertain prospects. On the other hand, if you look at the very wealthy, their asset positions seem to go from strength to strength and corporations are sitting on pots of cash. They don’t really know what to do with all this cash, but giving it to the taxman isn’t high on their list of priorities.

The various schemes used by the corporations normally only feature in the financial pages, but it is mainstream news now along with ‘outing’ celebrities using tax avoidance schemes. There is no suggestion that anything illegal is happening, but there is moral outrage that people aren’t paying their full share. However, there is a degree of hypocrisy here as no-one likes paying tax and I am sure everyone knows someone that has paid or taken cash for a job. So, it seems like everyone paying more tax is a good idea as long as it isn’t me.

There is a link to Europe here as there is apparently no end to the downward spiral of tax hikes, spending cuts and contracting economic activity across Club Med. Where is this all going to end? A slow drag back to growth, an implosion in the euro-zone and a split between north and south or violent revolution as disaffected youth take matters into their own hands?

With this backdrop and complaints about sponging EU immigrants, overreaching euro-politicians and issues with the European Court of Human Rights, UKIP has had its best ever election night and Conservative MPs push for a referendum on the UK’s membership of the EU. My view, for what it is worth, is that the EU should be a fantastic economic entity, but it has been ruined by politicians with a view to their place in history and a United States of Europe.

Meanwhile, I have been doing a lot of bridging and commercial deals and the Bank of England think we are seeing the beginnings of a recovery (cue that Churchill quote that no-one can quite remember about the beginning of the end).

Take Care

As featured on http://www.bridgingandcommercialdistributor.co.uk/kits_blog?id=138&title=The inequities of the tax system

This week, I have chosen to focus on peer-to-peer lending, which also includes peer-to-business lending. For those not familiar with the term, let me explain: this is where individuals (investors) lend money to other individuals (peer to peer lending) or to small businesses (peer to business lending). It is a rapidly growing area of the UK finance market that has arisen largely as a result of the lack of appetite of High Street banks to lend – especially to small businesses.

It was first described to me as a kind of cross-between ‘Dragon’s Den’ and ebay (thank you to Laura at Funding Circle). Via an online market-place or portal, investors get to ‘bid’ on which individuals or business they wish to lend to, how much they wish to invest (or lend) and at what rate of return. Each loan is funded by several individuals (hence the term ‘crowd funding’) who spread their risk by pooling their combined investments across multiple loans. There are no banks involved.

In the UK (especially in the post-Credit Crunch world), there is increasing recognition that individuals have an appetite for lending money to UK businesses. Enabled by the internet, this source of finance has helped businesses across the UK access growth capital that simply isn’t available on the High Street.

Asset finance has seen a revival, particularly after ING exited the UK market, and invoice discounting, once seen as a last resort, has been repurposed to give businesses greater flexibility and the opportunity to free up cash a lot earlier on in the process. But where the real growth is expected to take place is the peer-to-peer lending market. You may have heard of Funding Circle, rebuildingsociety.com, Funding Knight or ThinCats.com who are all in the peer-to-business lending space.

Operators in the market are lean technology businesses designed to match lenders with a suitable risk appetite with borrowers willing to pay the going rate. The higher the perceived risk, the higher the rate of interest that will be charged and the greater return on the investment for the individuals funding the loan. Price for risk as it should be.

As commercial sectors such as pubs and restaurants continue to attract unhelpful headlines, getting finance for those businesses from traditional sources is proving tricky for brokers and business owners. However, a good business can make money in any market and individuals realise this. It might not be for everyone, but if enough people want to make a deal happen, it will happen.

Those prepared to look over a balance sheet and buy in to the director’s vision will offer to lend money and the business can move forward, where otherwise it would not.

Alongside the benefits of fast loans for well-run businesses, there is added value to be gained for businesses through the exposure they get, not only to an audience of lenders who then have a vested interest in their success, but through media attention. The UK needs good news stories and ordinary businesses, the like of which brokers deal with on a daily basis, being funded in a different way gets attention.

So what are the downsides? At the moment the peer-to-business lending industry is unregulated, which is a barrier to entry for some would-be lenders. However, from April next year, the FCA will regulate such activity, allowing IFAs to include it as an investment product in their clients’ portfolios.

Crucially, this will encourage a new type of lender to emerge, but the risk for the industry’s reputation naturally increases.

Low default rates to date have helped providers in the peer-to-business lending space establish credibility for themselves and the market, but only by sustaining these, or allowing for marginal increases, can this be retained.

In order for this to happen, the quality of borrower is vital. So far, providers have restricted access to profitable businesses, typically with two years of filed accounts and in many cases a personal guarantee, asset security or debenture have been offered to assure lenders of the credibility of the borrower. However, as competition in the market grows, platforms will no doubt be tempted to move into more risky areas, so the role of the broker becomes more important in identifying the right businesses for this sort of finance.

Safeguarding the reputation of the industry is in everyone’s interest – it is already the fastest route to market (completions have been done in a couple of hours, with the longest taking about a month), and with platforms attempting to fund multi-million pound loans, it could be a solution for an even wider section of the commercial loans market. Well over £100m has been lent to businesses in the UK through peer-to-business lending and, when combined with the peer-to-peer sector, has funded almost £500m of loans to date.

If you’re not familiar with peer-to-business lending and you have a client that needs growth finance and doesn’t want to wait for a bank’s computer to give an answer, try a different route. It might be the best decision you make this year.

(Special thanks to Julian Wells and Nick Moules at rebuildingsociety.com for their invaluable input and assistance with this week’s blog)

As featured on http://www.bridgingandcommercialdistributor.co.uk/kits_blog?id=136&title=Focus on peer-to-peer lending

John James Carney, a former director of an asset management firm and a number of other investment-related companies, and Tracey Heyman appeared before Aberystwyth magistrates last week and will be held on conditional bail until May 10th. Neither have indicated which way they intend to plead, and are due to appear at Swansea Crown Court.

Carney, 55, is accused of four counts of perverting the course of justice and five fraud offences. He is charged with intending to pervert the course of justice by attempting to buy the clubhouse at the Celtic Lakes Resort, a carp and course fishing centre at Creuddyn Bridge, for £10,000 and concealed the purchase by making payments through a third-party bank account while all his income and assets were frozen by a crown court order. Another charge he faces is that he made false representations to secure a £357,000 loan.

Heyman, 48, is accused of 10 counts of fraud, some of which are related to the charges facing Carney. She is alleged to have obtained hundreds of thousands of pounds from various mortgage firms by falsely claiming she received a large income from Carney Asset Management Ltd based in Lampeter, a company John James Carney was a shareholder in. The charges date from 2004 to 2012.

Bryn Hurford was prosecuting and Alison Mathias represented Carney and Heyman, who were granted bail on condition they stay at their home address in Portsmouth.

By Jason McGee-Abe

As featured on http://www.bridgingandcommercialdistributor.co.uk/newsstory?id=585&type=newsfeature&title=director_charged_in_2m_commercial_mortgage_fraud

Alternatively, lenders will favour using preferred legal professionals to represent both parties to avoid the increasing risk of fraud within the market, in a time where fraudsters are becoming far more complex.

Eddie Goldsmith, Senior Partner at Goldsmith Williams, said: “Joint representation provides less exposure to fraud or identity theft, as the lender’s solicitor does not have to communicate three-fold – instead of going through the borrower’s solicitor then to the vendor’s legal team, dual representation means one set of lawyers are removed.”

However, dual representation can pose a significant risk to lenders, if a customer claims they did not receive independent legal advice, should the customer default on the loan. Though, in reality, the process is actually used to benefit the borrower, with significant legal costs being reduced, and critically – for both the lender and the borrower – a significant amount of time is saved.

At a recent AOBP forum event, Marc Goldberg, Director of Blemain Group, claimed that he “didn’t even know it was possible” within the specialist market, a testament perhaps, to those that raise concerns over a conflicting interests.
One lender, who spoke on the panel at the AOBP event, is one of few within the industry endorsing the use of the streamlined service. Alan Cleary, Director of Precise Mortgages, alongside his preferred conveyancer, Eddie Goldsmith, claimed that two out of every five deals with Precise is eligible for dual representation. Speaking on the matter at the AOBP event, Alan said: “Lawyers are conflicted all of the time, as are lenders; it is how you manage that conflict that’s important… If we’ve got it wrong, we’ll pay the price.”

There are those that agree with Precise, despite the potential conflict of interest, claiming that the risk is warranted, when one considers the complexity of specialist finance. Specialist finance conveyancers are used for their obvious expertise when it comes to the bridging market; many lenders are sceptical about using unspecialised legal professionals, as they are unable to adhere to the efficiency demands of the specialist finance arena.

Ray Cohen, Partner at Jackson Cohen, said: “Bridging is not a standard mortgage and is of a higher risk nature. It is, therefore, entirely appropriate for lenders to insist that the borrower uses his own solicitor for independent advice on the risks and detail of the transaction.”

For a long time, dual legal representation has been the norm across the mainstream mortgage market. In such standard transactions, it is common for the borrower and lender to receive joint legal advice from one law firm where the interests of these parties are largely aligned. Often mortgage lenders will offer this type of funding on the basis of ‘tick box’ requirements, and when doing so, the legal work involved is straightforward. Using the same legal team for mortgage purposes is considered beneficial for both the lender and borrower primarily because the deal is not slowed through ongoing communication with different firms and costs are saved by having all the paperwork in one place, essentially streamlining the legal and conveyancing process.

Jonathan Newman, Senior Partner at Brightstone Law LLP offered a different perspective: “I have acted for key bridging lenders for a number of years, all of whom, without exception, take the view that the terms of their facilities, are quite specific, and include many terms which would not be commonly found in long term high street mortgage deeds – conditions which the borrower might not be familiar with. “Further, these facilities are often put together and transacted at speed, when the borrower is under pressure to raise finance for a particular reason or purpose. For these reasons, it is in the borrowers’ best interest to be independently advised as to the nature, content and effect of the transaction they are entering into.

“From the lenders’ point of view, independent representation provides comfort that the borrower enters into the facility with full awareness, and without undue influence from them or their intermediary. Of course there is a cost to this, but that is minimal when set against the cost of default and dispute.”

By Ian Walker

As featured on http://www.bridgingandcommercialdistributor.co.uk/newsstory?id=583&type=newsfeature&title=dual_representation_right_or_wrong

Last week, I was lucky enough to be invited to attend the Intrinsic annual conference, at The Sofitel Hotel (located at Heathrow T5). The day and evening event celebrated the successes of the individuals and companies that added to the overall growth and success of the network and was followed by a black-tie Gala Dinner in the evening. The day event was hosted by the news-reader, TV presenter and journalist, Fiona Bruce, who did a fantastic job. Guest speakers included world famous hypnotist and self-help author, Paul McKenna, and the truly inspirational, six-times Olympic champion, Sir Chris Hoy.

The theme of the day was ‘inspiring success’ and I can certainly say that between them, the celebrity guest speakers, each did their own part in inspiring the 700-strong broker audience.

For me personally, the highlight of the day (and there were many), was listening to Sir Chris Hoy describe how as a six-year-old boy, he was first inspired to want to ride a BMX bike by Steven Spielberg’s 1982 movie E.T. (Extra Terrestrial). From this childhood dream to eventually fulfilling his ambition to become the most successful Olympic and world cycling champion of all time was incredible. I’m certain everyone in the room was inspired by his ‘story’ which focused on how he set himself goals that would push him and present a challenge, that would require hard work, training and dedication, but at the same time were still achievable and within reach. Each time a “stepping-stone” goal was achieved, another goal would be set, until that had been achieved and so on and so on. This path of small, achievable, stepping-stone goals was what took Chris from a boy with a dream to become one of the most successful Olympic and world champions of all-time.

What is my point and what is the relevance to the bridging and commercial finance industry? Well, I think we can all take a lesson away from his experience and apply it to our own everyday lives – whether it is home-life, work-life, sports, leisure or whatever the motivation for success and to achieve is for each of us individually. To set the ultimate goal of being the world’s best cyclist, at such a young age, when he had only just started riding a bike for fun, would not have been a realistic or achievable goal in one single step. But a clearly defined path, with small, achievable stepping stone goals, is what led Sir Chris Hoy to his ‘ultimate’ goal. Chris is living proof that with hard work and dedication, each and everyone one of us can achieve our dreams.

This experience helped inspire me and to re-focus me on the things I want to achieve in my life and sometimes we all need to take stock and re-assess where it is we want to be and what we want to achieve. I wanted to share this with you, in the hope that by reading my rather poor re-hash of his remarkable success story, it would go some way to make you feel inspired and to re-focus on the things you want to achieve from life.

With a long Bank Holiday weekend ahead of us, I’m personally looking forward to a trip down to Brighton to visit friends, with Mrs Thompson and our youngest son, Ollie. Whatever you do this weekend, make the most of it, enjoy it and succeed at it!

As featured on http://www.bridgingandcommercialdistributor.co.uk/kits_blog?id=134&title=Inspiring Success

More brokers are recognising the secured loan opportunties but we must continue to bang the drum and raise consumer awareness.

To say it has been a crazy few months since my last Securedloanwatch is a bit of an understatement. Over the last three months I’ve had three stag dos and my own wedding on 6 of April. Having just returned from my Honeymoon in Mexico I’ve recharged my batteries and am back enjoying my day job, writing secured loan business and of course enjoying married life, (which should hopefully earn me some points with the wife).

The whirlwind that has been my life over the last few months has thankfully been mirrored by the ever-growing secured loan market.It would seem that more and more of our broker partners are recognising the opportunities for both them as an additional income generator but also the options available to their clients to satisfy their capital raising requirements.

This is backed up by the latest Secured Loans Index which shows an increase of 17 per cent per cent from £30.9m in February to £36m in March and an overall lending figure of over £100m in the first quarter of 2013, the highest Q1 figure since 2009.
A major success story in the first quarter was the re-launch of Prestige Finance. We have worked with Prestige’s director Simon Stern and his team for a couple of years now and the changes made to Prestige’s offering have been nothing short of spectacular. With it part of OneSavings Bank, which is backed by backed by US private equity firm JC Flowers, its strong existing team and online system, all the ingredients are in place for it to help us to grow the market further.

Shawbrook has added to their proposition with a 9.95 per cent buy-to-let second charge product available up to 65 per cent LTV. This is a great move for the industry especially for clients who have large buy-to-let portfolios and coupled with the product’s lower rate should enable more deals to be done.

In Mortgage Strategy’s recent cover interview with Shawbrook managing director Philip George he spoke about the fact that there are now the products available in the secured loans sector to allow it to grow substantially. But he argued there is still a lack of consumer awareness. I agree with this statement and also take responsibility for it to some degree as it is down to us, the lenders’ partners, to keep banging the secured loan drum and educating our broker partners so that they in turn can feel confident that the advice they are giving their clients is accurate and is best advice.

I was also excited to read in the article that Shawbrook is looking to broaden its offering which ultimately builds the opportunities out there for everyone.

To think that the market reached annual figures of £7bn in 2007/2008 and this year is unlikely to reach half a billion certainly puts things into perspective. But the fact of the matter is, this will be a significant increase on recent years so we need to see it as a positive and keep working hard to get the message out there that there are better, faster and more flexible options available for clients than perhaps they or their advisers realize.

Things have changed and I feel that lenders have learnt from the dizzy heights of 07/08 and actually are making more informed decisions, money was lent that perhaps in hindsight should not have been and we all know that this cannot continue for too long before there is a problem. Brokers were earning some serious commissions and payment protection was also being tagged onto the loans.

Having only entered the secured loan market at a time when things were a little bit more subdued it has been great being able to work with lenders closely and to do our part to get the market moving again and I feel that we are now getting the results that we have all worked so hard for as activity increases and loan completion numbers improve month on month.

The second quarter of 2013 is already looking positive and we have seen more and more flexibility from all of the lenders we work with and the general common sense approach seems to be becoming much more common that it had been in recent years. With this in mind I can only see things continuing to improve and further innovation to come from lenders as they look to grow their own business levels.

As featured on http://www.mortgagestrategy.co.uk/analysis/securedloanwatch/1070419.article

The Secured Loan market continues to grow and we are now able to offer a new 2nd Charge BTL product.
• 9.95% Variable Rate
• Up to 65% Loan to Value
• Loans to £75,000
• Available to employed and self employed applicants
• Simple 110% rental coverage on mortgage and new loan
• England, Scotland and Wales

If you have clients looking to Capital raise on investment properties without disturbing their 1st charge rate, this product could be the answer.

Call the Team today on 01277 725166 (option 2) or email us at secured@brightstarfinancial.net
 

It was about two weeks ago and I haven’t really seen any mainstream news coverage since then… Obviously, the news editors must figure that we have a limited attention span (even when the topic is Armageddon) and the headlines moved on to cover the Thatcher funeral, the Boston bombings and the JLS break-up. I don’t know if we are still facing potential conflict in Korea and whether it could spiral out of control, but here in the UK we have continued to walk the tightrope of our own economic Armageddon.

The growth figures today were better than expected and, at 0.3 per cent, we have avoided the triple dip recession even though the economy continues to struggle to kick into gear. A second ratings agency has downgraded the UK to AA+ and the IMF is questioning the economic strategy of austerity (though when you look at the figures there doesn’t seem to be much actual cutting of expenditure). In response to this, there has been an extension to the funding for lending scheme in an effort to turn on the credit lines to SMEs and to get the economy moving. For every pound lent in this way the lender can access five pounds of cheap money. Additionally, for every pound lent in this way until the end of the year the lender can access ten pounds of cheap money.

The other major amendment is that the scheme will also open up to non-bank lenders, such as asset and invoice finance houses. The effects of this scheme to date have been limited at best and it will be interesting to see if these changes make any difference. Though the proof will be in the pudding, the extension to non-banks may well encourage more lending as, hopefully, they will not be carrying quite so much baggage as the banks.

On a more microeconomic level, I have been asked to raise a topic in my blog as a reminder that no matter how big the deal, you should never lose sight of the small details. You may well have read that Brightstar was involved in closing a near-£17 million bridging loan from Precise last week; obviously there was a lot of work involved in getting the case across the line. The stress levels were, however, going through the roof when the solicitors announced that the completion was being delayed because the property insurance documents were not in place. It is a recurring theme, especially on urgent cases, that the insurance gets overlooked or the lenders insist on paperwork from the insurer rather than a cover note from the broker.

We may not be able to affect the direction of the overall economy or do more than look on at world events, but let’s all do our bit to keep our own stress levels down and to get more deals across the line by picking up the little things like insurances.

Take care!

As featured on http://www.bridgingandcommercialdistributor.co.uk/kits_blog?id=133&title=Facing the economic Armageddon

In order for a property to be deemed suitable for mortgage purposes, it needs to be habitable. That is, to be wind and water-tight and to have a fully functional kitchen and bathroom. This rules out conventional mortgage funding for property investors or home-movers looking to purchase properties in need of refurbishment. Furthermore, the absence of things like modern u-PVC double-glazing, modern wiring and plumbing, and gas central heating are all likely to result in a mortgage lender holding what is known as a ‘retention’ – that is the lender withholding funds (either entirely or in part), until certain essential repairs, upgrades or improvements have been carried out.  Unless the purchaser has sufficient cash to purchase the property outright, plus the funds to do the work, then serious refurbishment projects are likely to be off-limits to the average home-mover.

However, there are many specialist lenders and bridging lenders, who are not as concerned about the absence of working kitchens, bathrooms and properties in need of repair or upgrade. Therefore, a short term bridging loan is often the funding solution.

There are two types of property refurbishment, which can be classified as either ‘light refurb’ or ‘heavy refurb’.

Light Refurb

This would typically involve internal works, such as fitting kitchens, bathrooms, re-plastering, decorating, electrics and plumbing etc. To be deemed as ‘light refurb’ the project cannot involve any change of use or require planning consent.
Light refurb loans are available on standard bridging rates, starting at 0.85 per cent per month, up to 50 per cent LTV, from 0.95 per cent per month up to 60 per cent LTV and from 1.15 per cent per month, up to 75 per cent LTV (all LTVs stated are maximum gross loan, to include retained or rolled-up interest and fees).

Heavy Refurb

By contrast, any works that involve change of use (e.g. conversion of offices to flats or a public house to an HMO), and/or any works that require planning permission from the local authority, would be deemed as ‘heavy refurb’.
Heavy refurb loans are available usually up to a maximum of 65 per cent LTV (although higher LTVs are achievable if additional security can be offered). Rates are typically higher, with lenders charging anywhere up to 1.45 per cent per month on such deals.

This short term funding enables experienced property developers and investors to not only fund the purchase of the property requiring works, but also to fund the renovation and refurbishment costs – again with funding being made available for up to 100 per cent of the refurbishment works as well – all subject to available equity in the security property or additional security property.

Where significant works are required, the lender will almost certainly want to see a detailed schedule of works, with a list of the break-down of costs for the proposed works. The surveyor will also comment on whether the intended spend is realistic and also whether the time-scales are realistic as well. They will often comment on the day one value (pre-works value) and then the GDV or post-refurbishment works value. As per development loans for new-build construction, experience is vital. The lender will look for evidence of past experience, a proven track record and ability to get the job done within budget, on-time and get the loan repaid, by either sale of the property or refinance to a conventional buy to let or residential mortgage.

Exit route is key

The intended method of repaying the development or refurbishment loan must be clearly evidences from outset. The short term funder will insist on this as a pre-requisite when considering their own loan. Exit is usually via sale or refinance. If sale, then they will consider whether the estimated sale price, demand and time-scales are realistic, to ensure the loan is repaid before the end of the bridging term. If the exit is refinance, then the borrower’s ability to obtain the mortgage finance will need to be evidenced, before the short-term loan is taken out. This is usually by way of an agreement in principle from a ‘traditional’ lender. If the exit is a buy-to-let mortgage, then the likely rental achieved from the property will need to be taken in to account to make sure the deal stacks up on the exit lender’s rental coverage calculations (usually 125 per cent of interest only mortgage payment).

As per development finance loans (discussed in last week’s blog), refurbishment or renovation loans can be set-up so that that funds can be drawn-down in stage payments. Usually a facility fee will be charged on the whole loan facility (typically 2 per cent added to the advance on completion) and then interest paid on the funds only once they are drawn-down. In most cases, there are no exit penalties or ERCs, which means as soon as the property is finished and ready to be either sold or refinanced on to a residential or buy-to-let mortgage, the refurbishment loan can be repaid without penalty.

Despite the perceived higher interest rates and costs associated with bridging loans, when compared to traditional mortgage lending, these features combined make it a very powerful tool and one that serious property investors and developers are utilising to make money from property renovation, refurbishment and development.

As featured on http://www.bridgingandcommercialdistributor.co.uk/kits_blog?id=132&title=Refurbishment finance secrets