Duty of care needs to come from the broker community 'first and foremost'

Bridging & Commercial hosted its first virtual roundtable, in partnership with Ortus Secured Finance, on the topic of specialist property finance exit strategies and how the current trading environment is affecting these.

The live event was held on Thursday 28th January and 70 viewers tuned in to watch the panel discussion. 

Host Caron Schreuder, managing director at Medianett, was joined by Ortus Secured Finance’s Jon Salisbury, managing director; Colin Anderson, director of Scotland; and Richard King, head of sales.

The panel also included Darren Willoughby, managing director at 2XL Commercial Finance; Jo Sutton, managing director at Empire Finance; Brian Love, head of regional broking at Newable; and Mike Cass, head of secured and structured finance at Capitalise.com.

Assessing the long-term impact of a potential increase in re-bridging cases as a result of intended exits failing to materialise, Richard warned that, while some deals are suitable for this, others may be too over-leveraged.  

“There could be a situation where lenders have lent money and haven’t really thought about the Plan B and been happy with repossession as an exit strategy — that is something that we have never, ever wanted to do.” 

As pressure mounts and inexperienced brokers enter the specialist space, the panel hashed out the responsibility that exists to do what is right.  

Although there is no legal requirement to do so, Jon highlighted that Ortus has always felt a duty of care to its borrowers. 

He followed up by saying that it is up to brokers to question their counter party and ask, for example, what its rate of enforcement is; if things don’t go to plan, what will their approach be? 

According to Jon, clients have often come to Ortus too late, once the damage caused by rolled-up default interest has already eroded their business and structure, and making it challenging for them to help.  

“If we don’t have a defined exit from day one, then we don’t transact the business,” Darren stipulated.  

“The duty of care needs to come from the broker community first and foremost, so that when that deal goes into [a lender], they know we’ve already underwritten it and talked to the client about [the] exit and what might go wrong.” 

Mike commented that, in an ever-changing market, “it’s about keeping your ear to the ground.”  

He added that, when arranging a bridging deal, one of the best things to suggest to the client is requiring slightly less leverage than they would like, especially with the backdrop of cautious valuations, with a view to “making it a bit easier” in 12 months’ time.  

In addition to the ethical aspect, Brian pointed out that the fastest way to put your business prospects at risk would be to neglect this level of diligence. 

“If we are looking to still be brokers in 10 years’ time, putting deals into bridges with no exit is the easiest and fastest way to ruin your reputation within the community.” 

When discussing refinancing options, Richard reassuringly revealed that specialist finance loans were being repaid at present — by a variety of high street and challenger banks.  

“While we recognise that brokers are very frustrated and it’s probably taking people twice as long to achieve the same amount of work, the market is functioning,” he said. 

The panel agreed that rates and LTVs from specialist lenders were starting to stabilise, but there is still some way to go until conditions can be deemed ‘normal’.

“There is still nervousness around certain sectors, such as student property, anything in retail and hospitality . . . but we are getting funding through,” Jo commented, adding that brokers are having to be more “tenacious”  than usual, with cross-party communication vital to arrive at the right package for the repayment of bridging finance.

Darren considers “a large swathe” of the high street to have restricted appetite compared to 12 months ago, despite the ‘business as usual’ rhetoric. 

“There are certain lenders that [will now say that they have started] ‘rating’ or ‘grading’ deals and then, when it’s declined, they can’t actually tell you why,” he expanded.   

Standalone, single investment deals are currently challenging to place, he noted. 

“If you’re doing anything in [the] restaurant, hospitality, or even office [space] — it can be very difficult.”

He believes that the growth of specialist lenders has “helped rescue the market”.  

Darren went on to explain that, although pricing has hardened over the past 10 months, high street rates are now going up while specialist lenders’ have fallen, reducing the margin between them. 

Brian agreed that what is being claimed by mainstream lenders does not always correlate with the reality of the actual “boots on the ground”, and that challenger banks are stepping into the spaces where the high street providers are failing customers.  

When asked about how Ortus’s underwriting has adapted in the prevailing climate, Jon maintains that, as a lender, they have always been one to fully interrogate the deal — precisely in anticipation of an event like this, although not of this magnitude, of course. 

“We have seen that clients are needing more time to jump over hurdles or switch direction in their strategy . . . when we underwrite a deal, maybe we do ask more questions than [others might] and one of the reasons we do that is because we’re looking quite hard at client quality and experience —for the very reason [that] things like this happen.”  

A section of the lender’s analysis centres on the problems a borrower has overcome before,  although he acknowledges that “even the very best people need time”.  

As to whether it is feasible to assume that term lenders will return to market in the same way as they were in it before, Darren believes that the answer may rest on what happens in the crucial months ahead, when we start to see the end of the government-backed loan schemes. 

“I think we could see April, May and June being the real testing time for the economy, for businesses, and certainly for people in our industry,” he stated. 

“Depending on how well that goes, if lenders are starting to see that these loans are being paid back . . . then I do think that they will start coming back into the market.”  

The full roundtable recording can be viewed below.


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    Eugene Esterkin

    This issue has nothing to do with regulation and everything to do with ethics in business. The debate is key to the lender, the broker and the borrower in equal measure and from business, ethical and humanitarian viewpoints there should be no divergence. Each element of the chain must be committed to the commonsense of the transaction about to be entered into at the time of the loan. If there is no sensible, realistically achievable exit strategy, at that time then only madness remains, and it is an irresponsible lender who proceeds in the absence of the same. We as a lender, when faced with any party whom we feel is anything less than 100% frank, open and truthful in his or her expectation to achieve exit, will not proceed, until we are so confident. It should be that way - pure and simple, but I regret that it is not so on occasions and such lenders should be excluded from our business community. That sanction is, in my view, also applicable to brokers, and we do apply such sanctions where there is evidence of such malpractices. But ultimately, it is the lender with the money who can alter the course of a loan before compeltion and without that cash there is no transaction capable of being completed. I repeat that whether the loan is regulated or not is wholly irrelevant.

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