Whilst the M25 has long been seen as the most profitable area for bridging finance, some lenders are willing to branch out and do business in other parts of the county.
Terry Pritchard, of PWF Finance, explained: “Most companies are focused on London and the South-East, but there are plenty of opportunities outside the M25 if you get it right.”
This week Bridging & Commercial set out to discover who the main funders outside the M25 are, and what they need to see in order to commit to making a deal outside the London area.
In comparison to the rest of the UK, London’s housing market offers a safe-haven for investment. Consequently, bridging lenders perceive a much greater lever of security in lending to this region.
Mr Pritchard explained, however, that increasing competition among lenders in this area ran parallel to decreasing profit margins on deals. “Lenders are competing so heavily inside London that it is driving prices down,” he said.
Who are the main lenders?
The main lenders outside of the M25 have been identified as:
- - The Blemain Group
- - Masthaven Bridging Finance
- - Goldentree Financial Services Plc
- - Tiuta Plc
- - Bridging Finance Solutions
- - Precise Mortgages
- - Alternative Bridging Corporation
- - West One Loans
- - Lowry Capital
Gary Bailey, director at the Blemain Group, disagrees with prioritising London over the rest of the country. “Lending inside or outside the M25 essentially makes little difference.
“The demand is incredibly high outside of the M25, with great opportunities for all concerned,” he said.
Simon Ismail, of Goldentree Financial Services Plc, agreed. “There are good deals to be had, and we see it as a good opportunity. A lot of lenders aren’t comfortable outside their safety zone of the M25, but we don’t see it as a problem,” he explained.
Masthaven’s Northern Business Development Manager, Chris Parr, said: “The big problem with the bridging market is that it is very insular, but Masthaven identified opportunities outside the M25 a few years ago.”
Precise Mortgages also believe that there are good lending opportunities across England and Wales.
Alan Cleary, Managing Director of Precise Mortgages, said: “While the majority of high value loans are typically within the M25, it is considered that investment prospects for property developers and landlords are not limited geographically.
“From our experience so far the potential returns on capital are regularly more attractive outside of the capital.”
What are their criteria?
Are there separate criteria lenders apply when considering a deal outside the M25?
Chris Parr says not. “We look for the same thing in deals outside the M25 as within it. We want to know what the client’s rationale is and that there is a realistic exit strategy.
“Perhaps the deals may not be as high value, but get them right and they can still be as profitable.”
Mr Ismail added: “Goldentree doesn’t differentiate doing deals outside the M25 or in. We lend and operate on exactly the same basis regardless.”
Mr Bailey agreed that lending criteria should not be influenced by location. “We believe it’s vital to look beyond the geographic area as essentially it bears little influence on the fundamentals of an experienced and educated lending decision.
“An established and experienced lender will be able to draw on years of knowledge to consider the overall application, including client circumstances and aims, the property type, valuation, an appropriate LTV, and exit strategy. These make the biggest difference when making a lending decision,” he said.
What about Scotland?
Jonathan Caplan, of Lowry Capital Limited, explained that, for some, Scotland can be a very valuable area.
"We find Scotland a very buoyant market and have good relationships with Scottish brokers, packagers and property investors as we lend throughout the mainland and islands," he said.
Mr Caplan, who pinpointed Edinburgh as having a particularly strong market, added: "We find the brokers very professional and investors are aware of good value opportunities with strong rental returns."
Why aren’t lenders widening their scope?
Mr Pritchard explained why some companies might be less inclined to engage in higher risk deals taking place outside London. “There are good deals outside the M25, but a lot of lenders are funded by third parties who set the rules.
“Lenders should sell the idea of being adventurous to their funders,” he said.
Mr Bailey explained: “Some lenders will have their own reasons for focussing on geographical areas.
“It could be a caveat of their funding or they have restricted funding lines.
“They choose the geographic area they are most comfortable with, perhaps because they know and have first-hand experience of the area or there is a perceived stability in the value of property in that particular area, but that’s not the case with Blemain Group.”
The Funding Operation’s Managing Director, Terry Markham, explained that it was unlikely that the pool of funders would be able to remain exclusive to London in the future. “All lenders state they have both money and an appetite to lend.
“However, there are only a finite number of deals within the M25 and the number of funders is growing, so they will have to change their attitudes towards geography or not lend at all.
“My experience is that experienced lenders will lend outside the M25 if there is a good business reason to do so,” he said.
The Blemain Group explained that lending outside London ‘ensures diversity of portfolio risk as it is much lower than if there is a high concentration of lending in one particular area.’
Despite the opportunities for good deals in Scotland, some lenders remain reluctant to venture so far North. Mr Caplan explained lenders' reticence. "The legal process is different in Scotland. Many lenders like to focus on the South of England or are not aware of the opportunities to lend in Scotland," he said.
For brokers hoping to entice lenders to do deals elsewhere in the country, Mr Markham advised: “The way the deals are portrayed to the lender is the most important thing. Funders need to know the current open market value of the security, ideally checking on the Land Registry for comparable evidence.
“Brokers also need to be able to demonstrate what the applicant has to bring to the table, perhaps cash or extra security.
“The funder also needs to know what the applicant’s experience is with what is being offered – perhaps they are a professional landlord for buy to let, or have firm ideas on an exit strategy.”
By Miranda Atty
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