In the period prior to the credit crunch there existed a vibrant economic environment with funding widely available and so often the primary role of the intermediary was to filter the myriad funding offers available to their client. However as the credit crunch began to bite and funding became more restricted there was increasing pressure on developers and their intermediary advisers to not only find the right funding deal, but in some cases, to find any funding at all.

During this period there have been casualties on all sides with lenders, developers and intermediaries all feeling the pinch. In our sector it became increasing obvious that we were one of the few active lenders remaining in the development finance sector.  The loss of many specialist lenders and lack of appetite from High Street banks drastically reduced the number of reliable sources of finance for mid range developers borrowing up to £5m in any sort of regular volume.

This increase in the difficulty to secure funding for a project put a pressure on intermediaries as their developer clients were eager to obtain new funds or to refinance an existing project, but perhaps did not fully understand the changes that had occurred in terms of available LTV and pricing.

As a result of this many developers convinced that funding on “traditional terms” was available somewhere, and so started shopping around numerous intermediaries for the one (or anyone) that could secure them the funding that they required on the terms they were used to.

One of the core facets of an intermediary’s relationship with a client is their ability to get a deal and so the relationship that an intermediary had with lenders became a crucial selling point. In a vibrant market, brokers theoretically had access to a wide number of lenders but in practice regularly did the bulk of their business with those lenders they found delivered best.  Therefore it was often the case that different brokers would produce different funding solutions, often bringing a new lender into the reckoning.

Fast forward to a post credit crunch world where just a few lenders remain active. All the active brokers will be in regular touch with the few lenders remaining.  In these circumstances it is unlikely that instructing multiple brokers will tease out a new lender to seal the deal.

To illustrate the point, over the past year we have experienced the same project being offered to us over a period of many months by a series of different brokers.  The terms we are prepared to offer does not change so at best the developer has merely delayed the start of his project.  At present there is no shortage of projects for development lenders to look at.  We are naturally inclined to focus our efforts on the new, fresh projects and not keep revisiting projects.  The professional broker will recognise this and check what other mandates have been offered and lenders approached.  He will also counsel the borrower on the terms that are realistically available.  In   2012 we all need to focus on the deals that can be done and avoid wasting our time on proposals that either cannot be financed or where the developers expectations are unrealistic.

We have a tremendous relationship with the intermediaries with whom we do business and this is primarily based on the fact that they use their knowledge and experience about the deals that they present to us. We welcome proposals for developments in areas where the market can be proven to be active and prices reasonably stable.  This attention to detail and appreciation of a local housing market is something that intermediaries can do incredibly well and makes the decision of the lender far easier as the ‘exit’ route is clearly visible and realistic.  In today’s market it is a sad reality that first time buyers and second stepper properties are difficult everywhere because of the mortgage deposit trap and a realisation from an intermediary that this will form part of a lenders’ decision process will impress both the developer and the lender.

Another change that we have noticed over recent years is the genuine partnership that exists between the lender, the developer and the intermediary. Successful intermediaries do not act as gatekeepers or create barriers between a lender or their client, instead recognising that a quality lender can benefit their customers by offering advice and helping them do the right deal not any deal. We personally visit every site with the potential borrowers which we hope demonstrates our commitment to the relationship we have with both our clients, the borrower and the intermediary.

The role of the intermediary will continue to be vital in the development finance market and the winners will be those that form the closest bonds with lenders, establishing a mandate to present cases based on knowledge, expertise and realism.

So, with a record year almost under our belts and our ongoing commitment to the property development sector why the mixed feelings? The success of any development project hangs on the ability for a developer to be able to sell their finished projects, not only in a reasonable timescale but also at a price that realises an acceptable profit.

In forming our own view of the market we read a number of reports and statistics. Savills provide one of the most interesting.  Their Q4 2011 Focus undertook the difficult task of forecasting the next five years of the housing market. Whether you agree with it or not it is a fascinating but sobering read. There is very little to be excited about in 2012 with negative house price growth predicted across all regions with an overall fall in house prices across the UK of 2%. The picture begins to look a little more encouraging from 2013 with some regions posting positive, albeit modest, growth figures.

Within these figures is the view that the north and south divide will continue to be reflected in house prices.  At the end of 5 years Savills expect house prices in the North East, North West, Yorks & Humber and Scotland to be up to 3% below current levels.  On the other hand they forecast prices in the South East 15% above the current levels.  Of course these regional averages mask a whole range of local factors and no doubt there will be pockets all over the country where for various reasons the market will do better than anticipated.  The canny developer will be searching these out.

So with a challenging 2012 expected in terms of house prices and market activity what are the key issues facing developers and their professional advisers? There is little doubt that attention to the basic principles will be important.  Firstly, location, there must be a continuing focus on finding quality sites, ensuring that the location is not over-supplied by doing local research and producing the right product.  In order not to be caught out by falling prices, and remembering that forecasts can prove optimistic, appraisals need to be realistic and build in a good level of profit margin remembering that these days the risks are on the downside.

So, what of the coming year? Based on this year’s result we are entitled to have some optimism for 2013 but we should be mindful of predictions of low house price growth and so cautious optimism is probably the order of the day. Completing quickly and selling quickly will continue to be key as well as purchasing land at the right price.

Recipe for success in 2012

• Look for quality sites
• Factor in the expectation that prices will fall
• Ensure location is not over supplied
• Focus on appropriate quality of finishes
• Ensure you purchase land at the right price
• Develop a flexible marketing strategy

The Christmas period always used to be a busy time for specialist bridging lenders, but for the past few years the rush seemed to have been consigned to the historical scrap heap.

So why are we so busy and what is the reason for the upsurge in urgent cases requiring completion before the year’s end? The reasons for the general increase this year in activity in short term lending has been much discussed, being down principally to ever greater numbers of quality applicants being squeezed out of “mainstream” lending as the larger lenders retrench lending volumes.

However, I am more interested in why there is this rush to complete loans before the end of the year. On one analysis you would be forgiven for thinking that lending activity would decline at this time of year. Along with the short days and colder weather that saps most people’s energy, there is a general obsession with the Christmas holidays involving people taking time off, not working harder.

Although there are of course cases where loans need to be completed before the end of the year, because for instance it coincides with the financial year end, I think that the real reason behind the Christmas rush is psychological; there is a deep rooted sense of ending for ending’s sake, a feeling that somehow if a transaction is not completed before the end of the year then it never will be.

And although it can feel that way, the fact is that solicitors and valuers who are instrumental in all transactions, as well as the bridging lenders, will usually be back at their desk as early as 3^nd January. In fact there are always cases that fail for one reason or another to complete before the New Year deadline and we find that not only did the world not end on New Year’s Eve, but those transactions give a nice boost to January’s completion figures!

It is a marker for how bad things are or may be with regard to the global economy that I am now most mornings picking up a copy of City A.M. at East Finchley underground station on the way to work.

Up until recently it has been possible for those of us in the bridging sector to keep our noses firmly in the bridging bubble. Lots of activity, even if (keeping up the bubble theme) certain figures may be inflated, certainly many new lenders and undeniably an air of confidence reflected in the increasing membership of the astl; the formation of the AOBP; the attendance of so many bridging lenders at the summer NACFB exhibition and doubtless the over representation of bridging lenders at the forthcoming Mortgage EXPO in November to name just a few indicators.

So why the need to poke one’s nose above the bridging parapet and gaze at the rollercoaster stock market, Greek riots and endless European meetings on the Euro if everything in the bridging sector is so rosy?

A couple of main reasons really. I don’t know if the saying attributed to JP Morgan that he knew it was time to get out of the stock market after receiving tips from his shoe shine boy is true, but it springs to mind that given the number of new entrants into the sector. For a more literary analogy;”no man is an island”. Well, whatever one thinks, there is no way that the bridging sector will not be affected by what is going on in the wider economy. It already is.

In fact both the buoyancy of the sector in terms of activity and the inrush of new lenders are both a direct result of the problems in the wider economy. Many of the borrowers that we see at UTB are high quality, asset rich individuals seeking a short term bridging facility precisely because of the difficulty in accessing credit from the larger institutions. That’s not to say that most of our borrowers are financial refugees; far from it. Our department provides a personalised bespoke service that many larger institutions would struggle to replicate even in times of easier credit availability, but it is true that many of these people no longer have the option of the larger lenders.

Additionally, bridging is attracting interest from funds and investors in many guises as it is seen as producing a higher return than many other fixed investments. This is combined with the reassurance that cases are individually underwritten and that the money is secured on a property. Furthermore, bridging loans do not carry the risks associated with investing in the stock market and so it is fair to assume that while wider economic turmoil and uncertainly exists and bridging lenders continue to focus on the quality of loans the sector will continue to thrive.

At United Trust Bank we are used to customers approaching us for bridging finance for a variety of uses and interestingly over recent months we have seen an increase in enquiries from business owners who are now looking at bridging loans to address a variety of circumstances relating to the business.

Examples of the types of the applications that we have received over recent months range from loans to support cash flow, loans to invest in the business and in one case to raise funds to buy out a business partner. So, why have businesses started considering bridging as a product? Perhaps one element is a restriction of the availability of funds from more traditional lenders. In past years business owners might have approached their high street bank for a business loan in the first instance, but in the current climate there is certainly restricted credit availability on the high street.

My belief is that it is the specialism of the lender as much as the product that has encouraged applications from new quarters. Bridging lending is bespoke lending and providers combine personal service with experience and an ability to structure more complex loans. This represents a seismic shift away from tick box lending which often resulted in a ‘computer says no’ response.

It could be argued that with loan applications considered on its own individual merits, with the decision being made by an individual with a genuine understanding of the case rather than the criteria, for all their innovation are actually signalling a return to ‘old fashioned’ lending. Many business owners will remember the days of branch based lending where the branch manager would know and understand you and your business. They would be aware of the local environment and the attitude, ambitions and plans of loan applicants. Perhaps, ironically, it is for the most old-fashioned of reasons that the most modern of products is gaining prominence for today’s businesspeople.

In a similar vein, and in keeping with responsible lending, is the paramount importance of the ‘exit route’. For each and every loan, prudent and responsible lending means understanding how the loan will be repaid. This protects both the lender and also ensures a duty of care is extended to the borrower. United Trust Bank actively encourages mortgage introducers to explore with us the opportunities that bridging loans have to offer their clients and their businesses.

Although since 2009 there has been something of a resurgence in the desire to borrow, adequate funding is still largely unavailable. However it is fair to say that over these last few years, United Trust Bank was one of the few banks both able and willing to lend to property developers.  In fact, our track record of helping intermediaries find funding for their clients’ residential property developments stretches over the past 10 years.

Our business has continued to grow mainly due to our flexibility to find funding solutions that match the realities of the current economic environment. There is little doubt that in specialist financing, a tick-box mentality will not assist intermediaries in securing for their clients not only the required funds, but most importantly, the correct structure and term of the loan.

Intermediaries are highly adept in recognising where innovation is required, and there is an increasing pressure on lenders to recognise and respond to changing needs.

At United Trust Bank we have recognised that property development finance does not sit in isolation from other products, and products such as our bridging loans are now being looked at to complement and facilitate a development opportunity.

Just as intermediaries are skilled at finding financial solutions, property developers are skilled at spotting development opportunities. Property developers are particularly adept at spotting an existing house development potential. Their experience and expertise can identify opportunities to perhaps develop additional plots in the garden or alternatively knock down the property and re-build to maximise the return from the land.

However, the first hurdle is often the acquisition of the property and this is where bridging and development finance can be natural bedfellows. Intermediaries can approach us to obtain a bridging loan in order to purchase the property. Our pragmatic approach to criteria allows for a bridging loan to be based upon the existing habitable property where the purchase price adequately reflects the current market value. An alternative exit is essential and may be refinancing through the Buy to Let market, should planning ultimately be refused. Whichever route is utilised, the property can be secured and permission for development sought.

Once planning consent has been obtained, we can look to assist the developer with development finance. This ‘bridge’ to enable a development to be funded is one of the many adaptations in the market arising from the desire of lenders and intermediaries to innovate and find the right funding for the right project. We have already helped intermediaries with similar schemes and have several others under consideration, demonstrating an ability to provide a complete ‘one stop’ offering.

Furthermore, our own experience has shown that even within distinct product types, there is a requirement for a product range sufficiently broad and flexible to provide solutions for the wide range of propositions presented by intermediaries and their developer clients.

It is our firm belief that as the current challenging market environment continues, there will be an increasing need for lenders to work closely with intermediaries to develop new and innovative funding solutions. These will include using different product types and structures over the course of a project. Our close working relationship with intermediaries sits at the heart of our ongoing product development and will continue to do so.