Adrian Bloomfield, the former astl CEO, was the Chairman on a day which hosted over 100 delegates from the bridging community at Butcher’s Hall, London. He introduced the current CEO, Benson Hersch, to kick the day off with the first presentation at the Bridging Today and Tomorrow conference.
The astl message
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Benson explained how when the idea of an event was first raised last year it was met with intrepidation, but he was delighted with the level of support received from the industry and the response was overwhelming. The event was completely sold out and many had to be turned away due to limited places.Alternative finance meets the needs of SMEs where traditional sources have dried up and the astl’s membership is experiencing steady growth:
"Bridging finance is not lending of the last resort and is a viable solution today."
Benson emphasised that astl’s purpose and its value charter, and said that they were looking to work closer with the NACFB and AOBP; a position and collaborative plan agreed later on in the day with both Associations moving forward.
The FCA
The next speaker was Lorna O’Brien, Mortgage Policy Adviser at the FCA, who spoke about the MMR, the FCA’s approach to supervision, and the Mortgage Credit Directive and second charges.
She explained how the transfer of OFT regulation is positive for bridging lenders but while there are many legitimate reasons for bridging finance, Lorna said that the FCA has expressed some conduct in some areas of the bridging market; aspects such as credit repair mortgages: “It’s a good option if a refinance is in place but with sole borrowers in credit difficulties, when it’s clear their financial position won’t improve, it delays the inevitable as equity is eaten up by interest fees and charges. This has been looked at with the MMR.”
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Non-regulated bridging continues to be an area of concern for the FCA.OFT regulated bridging lenders will have to apply for their interim permission before the transfer to the FCA in April 2014. If a lender applies before 30th November then it will receive a discount on its application.
Lorna admitted that bridging lenders and brokers have requested further clarification on MMR, in particular referencing the term extension rules and how they will actually work, which is coming into effect from April next year.
The FCA’s online readiness survey also revealed that non-banks and niche lenders were lagging behind their mainstream counterparts when it came to their preparations for more robust affordability assessments.
The Mortgage Credit Directive - “the next big thing the for the mortgage market in terms of regulation” - will see the transfer of second charges under the same rules as first charges: “There will be no distinction between first and second charge.” It will take two years and 20 days to implement.
In regards to rolled-up interest products, rolling loans over without discussion over the equity position of the borrower is wrong and the choice must be a positively elected decision by the borrower.
Majority of firms are on track but the FCA’s readiness trending survey highlighted that further help is needed with implementation plans, in particular with bridging term extension rules. Therefore the Regulator will host workshops and surgeries, which will be limited, in February, to help shape the future of the bridging landscape.
The message was clear though that if bridging lenders who haven’t implemented plans yet that they “need to act now”. There are planning tools available on the FCA website.
Lorna said that the FCA has been a “reactive backward regulator” but it now wants to become a “proactive and pre-emptive Regulator to head off activity before they happen”. But Lorna did say that: “Europe will play a big factor on us… We’ve got no options when it comes to EU laws.”
The Regulator will pursue criminal prosecutions with malpractice amongst non-regulated bridging lenders.
Lorna deflected a question from Mark Posniak of Dragonfly as to whether the FCA was worried about implementing interim permission quickly and some firms being accepted that shouldn’t by responding: “There will always going to be logistical challenges when changing regulation; all we can do is plan ahead.”
April 26th will finally see the efforts of the industry and Regulator working together to support the industry.
A view from the bench
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High Court Judge Stephen Gerlis depicted an inside look at how the courts see bridging lenders.He said that there are two questions of concern when it comes to short term bridging terms in the courts: Does Section 36 [looking at the typical reasonable period to repay a mortgage] apply to bridging loans and what is meant by a reasonable period?
There has been difficulty within the courts with mortgage and arrears cases, when looking at the term “reasonable period”, that was until 1996 in the Chelteham & Gloucester BS vs. Norgan court case about “the lifetime of a mortgage”. Judges now use it as their starting point, when looking at suspending a housing possession.
However, it still wasn’t clear cut that the ruling under the Administration of Justice Act 1970 section 36 would apply to bridging finance.
Stephen highlighted a number of scenarios, including a Cheval Bridging Finance vs. Bhasin case, which showed that a reasonable period in this particular instance was three to six months for a nine-month loan term. It was this case that showed that if there is no reasonable prospect of a mortgage debt being discharged within a reasonable time, the court can refuse to adjourn possession proceedings.
Judge training has raised another big problem within the system. One clear problem was that many District Judges have numerous mortgage, including bridging, cases on the same day, typically lasting 10 minutes each. Unless they are informed prior to hearings that it involves bridging finance and not a longer term mortgage product, cases can be seen and potentially dealt with in the same manner as a mortgage case.
How to build a customer-centric business
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Next up was a talk by Antony Thomson, a co-Founder of Metro Bank, who explained how business should be centred around the customer and service.He explained the foundations and ethos of Metro Bank, including services such as Money Magic Machines and treats for dogs.
Antony highlighted “three rules” about exceptional companies and that it doesn’t have to centre around profit; good product and service will lead to profits.
I must admit though that it felt the most irrelevant out of the presentations on the day, in particular that a business shouldn’t put too much emphasis on profit. An interesting statement from someone who was a part of Metro Bank and a leaked report earlier this year by Sky stating that the Bank had made a pre-tax loss of £100 million. Profit, but at least sustainability must surely be in place, for a “start-up” bank?
It was however, a very interesting and motivational speech from an entrepreneurial stance.
UK Housing Market
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Lucian Cook, Residential Research Director at Savills, highlighted a graphic illustration of the state of the market and voiced his views that the Help-to-Buy scheme will not take the pressure off the private rental sector..png)
Strangely Lucian insinuated that because he believes that the money involved in the Help-to-Buy scheme will run out within the three-year timeframe this would somehow benefit bridging lenders, albeit that it involves first-time-buyers, borrowers which bridging lenders do not directly lend to.
Now, Lucian, a residential expert who mainly looks at the more mainstream landscape, was probably on mainstream autopilot due to his usual conference environments; the point he raised though did indeed raise a number of eyebrows within the room.
Lucian rubbished claims that there could be a housing bubble, “UK housing transactions should be at 120,000 a month but at the moment we are running at around 55 per cent or 65 per cent of that.”
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He added: “The market is no longer funded by mortgage debt; equity is the biggest funder of the market at present.”
Once again though, it was a great presentation from a true market expert.
Short Term Lending: A distributor’s view
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Despite being introduced as the CEO of the AOBP, Rob Jupp, the new Chairman of the AOBP took to the stage and quickly pointed out that there was a bigger giant in the room than he.The Brightstar Financial CEO gave a great all-round presentation on how gross bridging lending has risen since 2010. In the same timeframe, interest rates have gradually come down from 1.72 per cent to 1.18 per cent. According to the West One Bridging Index, the average bridging loan size is at £460,000.
Rob emphasised the good work that the AOBP is making and highlighted the new reports the Association is publishing, including more in-depth bridging trends looking at interest rates and average LTVs amongst different types of products.
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Figure 1: AOBP Average Interest Rate
Rob then looked at UK plc. in 2013: Small business lending increasing to a two-year high and unemployment, inflation and consumer confidence all improving.
He pointed out Lucian’s earlier comment about how Help to Buy was inaccurate and that it won’t help specialist lending sector, nor does FLS.
According to Shelter stats, the housing stock continues to be poor and that 7.4 million homes in England fail decent home standard. Rob also said that the Regulator continues to be concerned about balance sheet lenders in the bridging.
Brightstar commissioned some research amongst 10 lenders and 10 distributors asking them what makes a ‘good’ short term lender ‘great’? Both groups were asked to rank the following in order of importance: Service, speed, relationship, rate/product, certainty of decision and proc fee. This order was the order preference and view of the lenders. But, it was intriguing that the top three priorities were the bottom three priorities for distributors, and vice versa.
Industry reaction
Colin Sanders, CEO of Omni Capital, said: "The success of astl's inaugural conference is clear evidence of the significant progress made by the trade association in establishing itself as the recognised voice of short term lenders. Comprising an eclectic, informative and occasionally very amusing group of speakers, the conference did well to address so precisely and pertinently the principal points of interest to our sector.
"The stand-out presentations for me were those delivered by Lucian Cook of Savill's about the UK housing sector; and Rob Jupp's insightful and well-informed comments on the nature of lender-distributor-broker relationships.
"I award full marks to Benson, Adrian, their teams and all the speakers for pulling off what some cynics said would never happen."
Keith Robinson, Director of Capital & Equity PLC, said: "What a great event, well attended and organised, many topical issues discussed and it certainly demonstrates that the astl has an industry cohesive voice moving into a regulated environment."
Ben Tobin of Strettons, said: “I was impressed with the very wide range of lenders present. The speakers were a mixture of informative, entertaining and solid business advice givers. My suspicion is that there was potential for more questions – quite a lot of people asked me about receivership, valuation and fraud, in the breaks.
Mark Posniak, Head of Sales and Marketing, Dragonfly Property Finance, commented: "Hats off to the astl. The conference was informative, very well run and boasted some excellent speakers. Let's hope that it becomes an annual occurrence from now on."
The Future
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The bridging market has evolved rapidly and a far wider number of people from across the mainstream mortgage market and outside of it are now aware of bridging.As you can see from the astl member figures, bridging finance is being increasingly used as a viable option amongst lenders and intermediaries. Benson called for more lenders to join the Association and help to shape the industry.
The FCA is clearly starting to understand the bridging market and is on hand to support, even with workshops, the industry moving forwards. The astl is not only growing from strength-to-strength, it is open to work and collaboration with the other Associations within the industry.
The conference addressed the changing state of the market and looked at what the future is likely to hold for the bridging market. There was also a Q&A Panel discussion in the afternoon and the day was a huge success. It ultimately gave an insight of how to be better prepared for today’s and tomorrow’s property finance challenges.
Benson Hersch, CEO of the astl, told B&C: "The conference was a great success. Attendees enjoyed the speakers, who spoke on a wide variety of topics. We look forward to more lenders applying to join the astl.”
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