Banking on the difference

Banking on the difference

By Alan Margolis, Head of Bridging, United Trust Bank

For what is still fundamentally a relatively niche sector within the context of the wider mainstream mortgage market, mortgage brokers in 2015 enjoy a truly astonishing choice of lenders offering bridging loans.

The types of lender range from regulated banks, such as United Trust Bank (UTB), to small, low profile privately funded firms. Some lenders, like ourselves, operate a traditional banking model whilst others look to investor syndicates, hedge funds and even crowd funding as a source of capital.

Given the choice and variety of lenders available, brokers have to appraise the benefits each option may bring. You will not be surprised to learn that, in my view, using a bank to provide clients with short term bridging finance has many advantages which should put them high up on any bridging broker’s consideration list.

Certainty of funds

Perhaps the most profound characteristic of banks in the bridging sector is that the introducer should never need to worry about whether the lender bank has sufficient funds to lend.

Even today, one occasionally hears of instances where lenders do not actually have funds available when required at the time of draw down – the assumption is that they were relying on another loan redeeming in order to release funds. By way of contrast, the rules and regulations governing banks mean that they cannot issue a binding offer letter unless they are able to meet the commitments outlined in that offer letter, including having funds available.

Importantly, banks are not limited by the terms and conditions of a third party funding line, they can be flexible in their decision making – this is one of the key strengths of UTB, where we are able to tailor bespoke loans to a wide variety of borrowers.

So when a customer receives an offer letter from a bank, they can be certain that the money will be available when they need it.

Professionalism and high standards

By utilising a bank, a broker is working with a lending institution that is regulated at the highest level. It’s not just that banks today are highly supervised and subject to the jurisdiction of the FCA, and the PRA – it’s deeper than that. Running a bank is a complex affair requiring well qualified and highly competent individuals. I have absolutely no hesitation in stating that a broker and borrower dealing with UTB can expect to be dealt with professionally and with transparency.

The professionalism that goes into running a banking business is embodied in how we run our bridging department – we expect of ourselves nothing but the highest standards of integrity and professionalism. For a broker looking where to possibly place a deal, this is one of the key attractions of dealing with UTB.

The different types of banks offering bridging lending

There are broadly three types of bank offering short-term bridging facilities (i) High Street banks (ii) Merchant Banks (iii) Challenger and specialist lending banks.

(i) High Street Banks 

High street banks do not offer bridging loans targeted at the broker community and are relatively unknown as providers of such loans. It may, however, be possible for a customer to obtain such a facility directly from their bank. The key is knowing whom to approach. Almost every aspect of each bridging loan, such as the unique story and the need to tailor a bespoke facility, is the very antithesis of what large lenders are good at i.e. automated mass market products. This type of lending by its very nature does not fit easily with such institutions. If a high street bank does provide a short term facility, it is likely to be through their wealth management arm.

(ii) Merchant or private Banks

By these, I mean smaller banks that offer a range of customer services including wealth management. In our experience, such banks are able to offer competitive bridging finance, but usually with a quid pro quo that the borrower has to place assets under management with the lender.These banks will usually require a significant sum under management, so ruling out most bridging loan applicants. The bridging loan is essentially “the sprat to catch a mackerel”.So whilst these banks do fulfil a role in the sector, they are very much a niche within a niche.

(iii) Challenger and specialist lending banks

United trust Bank falls into this last category. Two other challenger banks, Aldermore and Shawbrook, have entered the bridging market in recent years offering competitive pricing against a clearly defined product criteria drawn from their experience of mainstream mortgage underwriting. Their participation is very much welcome as confirmation that short term bridging finance is now very much part of the wider mortgage market.

Our bridging department enjoys a high profile within UTB itself as well as the bridging sector. We are, and aim to be, a significant player in the quality end of the bridging market.

Bridging and the bank – an ideal combination

Certainty of funds and high levels of professionalism, whilst important, are not in themselves sufficient to make for a successful bridging business. In order to provide a truly outstanding proposition to brokers, these need to be combined with experience and a flexible approach in order to meet the unique requirements of each borrower.

I have been involved with the sector since 1996, and the UTB bridging team comprises a mixture of older hands (alas I fall into that category) and new blood – the right blend of youth and experience you might say. And whilst between us we have seen many things over the years, one thing experience does teach you is that you will never have seen everything! Even with all these combined decades of lending experience, we still come across unusual and novel situations. What separates us from the pack, is being able to use our experience, professionalism and flexibility to craft bespoke loans for unusual circumstances. The following case illustrates my point perfectly.

We were approached by a broker representing two experienced professional property developers who owned a significant portfolio of residential and commercial property and development sites. They required a short term facility for general business cash flow purposes, but essentially it was anticipated that monies were to be used towards two further site acquisitions.

The bridging loan was to be repaid from the proceeds of sales of units across various property projects. In such cases it is usual for the lender to take security over the property which is being sold to repay the loan. However, in this particular case, given the significant net worth of the borrowers and the uncertainty as to which assets would be sold, we took a different approach. The loan was secured by way of a second charge over an investment property which was a previous residence of one of the borrowers. In our experience, it is not uncommon for issues and challenges to arise during the course of underwriting a loan, but in this case, there were two!

Firstly, the security property was on a private estate and accessed via an unadopted road owned by a Residents Association, but over which it had no legal right of way. On the basis of a statutory declaration, provided by the borrower confirming unopposed use during their 10 years of ownership, and consultation with the valuer, we agreed to proceed on the basis that any risk of the use of the road being objected was considered low.

Secondly, the tenancy at the security property was a standard contractual tenancy rather than an AST. The tenancy was for an agreed 12 month period and contained an option for the tenant to give notice to renew for a further 12 month period at the same level of rent. There was no provision for the landlord to terminate the tenancy or to break the option to renew the tenancy other than for tenant default.

However, based on consultation with the valuer and the fact that the agreed level of rent covered 80% of the interest due on both the first charge and our second charge, we agreed to proceed. We pride ourselves on being able to deal with most obstacles that we come across, and in this case it meant taking a rounded view of our customers, the security and the exit and a pragmatic approach to the technical issues.

A more straightforward transaction involved a retired couple who were looking to sell their former farm in Cornwall in order to relocate and be closer to their family and grandchildren.

The couple had found a new home, had an offer accepted and had arranged a mortgage secured on the property being purchased. We provided the balance of purchase funds required, secured against the couple’s non-working farm.

This case is a great example of a classic bridging loan and our ability to apply flexibility in the right circumstances. Whilst the location of the security property, being rural, was outside of the area we would usually consider for lending, the consistent saleability of similar properties in the area, combined with the attraction of the property itself, provided us with sufficient assurance that the property could be sold within the loan term.

In summary, brokers and borrowers have a myriad of lenders to choose from when selecting the best one to approach for their bridging needs, and they will all be different. By choosing a bank, and more specifically a bank employing highly experienced and dedicated bridging professionals, you give yourself, and your client, the very best chance of a successful and stress-free outcome, whatever the circumstances.