Lenders urged to find underserved niches, rather than drive down margins



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Last week, Bridging & Commercial teamed up with Together in a live event to discuss changing asset acquisition and loan purpose trends.

As part of its weekly virtual roundtable series, Medianett’s editor Beth Fisher – along with Together’s sales manager for the South, Tanya Elmaz, and regional key account manager for London, Lorenzo Satchell – hosted an hour-long discussion on which sectors have the biggest requirements for specialist funding, where the gaps are for certain loan purposes, and whether the recent delay with the lockdown easing has altered attitudes towards lending, risk and borrowing.

The panel also included Chris Oatway, owner and director of LDNfinance; Paul Elliott, managing director at Propp; Nicholas Christofi, managing director at Sirius Property Finance; and Miranda Khadr, CEO at Yellow Stone Finance.

On the subject of how borrower profiles and circumstances are evolving, Tanya believes they have “drastically changed” over the past year and expects we will continue to see a shift as government support comes to an end. 

She explained that credit profiles have been impacted for people who may have missed payments due to either a lack of income or unstable self-employed income.  

“The way people work is massively different, but that’s also filtered down to the way people are paid,” she highlighted, which could affect their ability to borrow money. For example, some may have been moved from a full-time position to multiple part-time roles or taken on contract work, while others have been made redundant.  

In addition to altered spending habits, she also thinks people might need to work longer. “You might have had a plan two years ago to retire at 65, [but that has] now changed. I’m not sure if the high street is the best answer to those types of changing needs.” 

Bespoke solutions are required for these customers, and she urged brokers to be aware of the depth and breadth of specialist lending options that are available so that “no client is turned away for a complex or new type of situation”.  

Paul divulged that not enough lenders were tailoring their criteria to keep up with borrowers’ new circumstances. “Something that lenders need to learn from is not to drive to the bottom in terms of margin, but actually find niches that they feel comfortable with that are underserved at the moment,” he said. 

“There’s a lot of work that lenders can be doing to prepare for some of the changes that I think we’re going to see over the next 12-18 months.” 

He referenced the end of the furlough scheme later this year and companies which have CBILS loans that they will need to start addressing in the near future. “Even before the pandemic hit, we were at a level of unsecured credit commitments that we hadn’t seen pre-2008, and that’s still there. It wouldn’t surprise me if that bubble is getting to a state where it’s going to be unsustainable when the furlough scheme ends.” 

Nicholas agreed that as soon as furlough finishes, we will see some fallout and, as an industry, we need to prepare for the changes. “Companies have now realised that they can consolidate their business and work with much lower overheads and have higher margins,” he explained, which could mean those currently on furlough will be converted into redundancies. “You’re then going to have unemployment go through the roof which will naturally have a domino effect on the housing market.”

He is of the opinion we are in a “false bubble” and that current high prices and demand are being propped up by government support. “It can’t sustain it — it’s absolutely impossible.” 

He claimed that some property investors and developers are currently “sitting on their hands” as land prices are “through the roof” . 

In terms of changes to transaction types, Lorenzo commented that pre-pandemic, a lot of bridging was for purchase and refurbishment. In Q1 this year, he estimates that around 20% of Together’s deals have been chain breaks.  

“We’re seeing a lot more developers acquire commercial assets for change of use due to relaxation in the planning laws, which will ultimately change what the high street looks like going forward,” he added. 

He has also witnessed a rise in purchases, homemovers and BTL investors. “We’ve had to adapt to those demands as well,” he stated, including launching lower BTL rates to support borrowers after the stamp duty holiday is phased out.  

Changing work patterns have also caused a surge in people buying out in the suburbs, which has caused an increase in loans for extensions, conversions and outbuildings, according to Lorenzo. 

Miranda has recently noticed a lot of refinance opportunities on commercial properties and more lenders willing to look at owner-occupied commercial term facilities — an area that was previously underserved. 

“We have seen a huge number of holiday let [borrowing] from people who have potentially never ventured into that space at all, and are really interested in buying holiday units in particular locations,” she stated.  

Chris added that, over the past year, student accommodation deals were “coming in thick and fast” and were easy to fund in the right locations. “Now, lenders are very cautious as they’re not sure what’s happening with the new term starting in September. I think we’re going to be pleasantly surprised, and we’re now seeing developers trying to target this market because it’s one of the only sectors where we’re seeing strong profits and not an over demand to acquire.” 

Huge storage centres outside of city centres are also needing to be built to deal with high levels of interest from online retailers. If we could have more lenders targeting sectors that others don’t, Chris stated, “rather than crowd the same space where everyone is trying to dip in and [compete] on rates to secure the business”, it would benefit all.

The full roundtable can be viewed below. 

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