Risk is something that is always present in all of our lives – you take a risk every time you cross the road, for example. But, at a time of a global pandemic, we are all much more acutely aware of risk.
For lenders, the same is true of credit risk. In an environment of uncertainty, lenders are more watchful regarding the risk they take on and tend to be more cautious, and this is before you start to consider the dramatic impact of the pandemic on business and personal finances.
Mainstream banks are built to deliver lending at high volumes, with largely automated systems and process. However, in an environment of heightened risk this approach can lack the flexibility required to assist borrowers with increasingly complex needs.
In recent years we have seen a rise in self-employed workers, and people with irregular income or multiple income streams. There has been an increase in later life borrowers for whom traditional maximum age criteria is no longer appropriate, and there is a growing number of people with poor credit history and increasing debt. Set against the current backdrop, it can be increasingly difficult for customers in these segments to secure borrowing as, although they may not necessarily consider themselves to be high risk, they often fall outside the mainstream lending criteria.
So, what does this mean for the future of the lending landscape?
Fortunately, there continues to be a growing specialist lending market, with lenders that are able to take a diverse and considered approach to risk to deliver lending to customers who fall outside of the requirements of the mainstream. Throughout Covid-19, lenders in this part of the market have remained proactive, flexible and willing to find solutions for brokers and their clients. Much like the global financial crash, when many lenders were able to take market share and develop a loyal client base, these lenders have continued to work with consistency and clarity throughout a very difficult period.
One thing that is certain is that access to capital is hugely important for people now and will continue to be so as we move into next year. There continues to be significant demand for finance on HMOs and student lets, portfolio lending and expat lending. Yet, with so much on their plates currently, the rate at which mainstream lenders are entering niche markets such as bridging is relatively slow. So, there are plenty of unsaturated markets where challengers can grow, and we are still seeing expansion of existing lenders into new sectors and the launch of new entrants. This creates a more competitive market and eventually better product choice, increased flexibility, and more favourable terms – which are all good news for borrowers.
One of the challenges to the growth of the specialist market is that very few of the lenders in this sector are household names and so there is a job to be done in raising awareness of the options and opportunities, and also instilling confidence amongst customers.
I spend a lot of my time raising awareness amongst my network of developers, investors, and property professionals about the benefits of turning to specialist options. At Sirius Property Finance, we see our role as advisors as pivotal in this growth of the specialist market. We work in trusted relationships with our clients and so our recommendations can give them greater confidence to utilise other products aside from the offerings of the big household names. This is not to say that we don’t place deals with the high street banks – for more straight-forward deals they certainly still have their place, but there are alternative options when cases are more interesting.
We take great pride in helping customers to realise their property goals and achieve the seemingly unachievable – and are often able to place borrowers with lenders where they had lost hope after having had their applications refused by several others before. Often the key to a successful application is ensuring that a client has a robust and reasonable exit strategy and so we work hard to get under the skin of a deal, which can often require a more artistic approach to structuring and may include multiple lenders or mezzanine finance to provide a bespoke package that is best suited to the client’s needs.
Relationships are key in the specialist sector. This is human element is arguably lacking in the more automated mainstream lending world, but in a market where lenders have the capacity to make a judgement call on an application, good lines of communication and trust are vital. As Head of Strategic Partnerships for Sirius, I see daily the trust imparted between professional parties along the entire chain of a property transaction to get deals across the line.
The specialist sector was growing before Covid, and the disruption caused by the pandemic is likely to serve as a catalyst for further growth. This is good news for customers who have previously been excluded from the mortgage market as it leads to a more inclusive environment. Responsible lending remains crucial to the sustainable growth of the market and expert debt advisors, with strong experience and relationships in the sector are the key to ensuring that customers are placed with the right lending solutions.
AUTHOR: Kimberley Gates, Head of Strategic Partnerships
Group CEO Rob Jupp wins the 2020 British Mortgage Award for ‘Business Leader: Specialist Distribution. Rob has continued to be a beacon of positivity, reason & inspiration for the entire team this year. He works tirelessly to raise industry standards, educate & deliver for our clients so could not be more deserving of this award.
Senior Associate Craig Hardiman-Scott, with the expert assistance of Luke Casey & Ben Hall, guided another property developer through to a successful completion on their 44 unit development exit.
The client came to Sirius with their development scheme already underway, a new build site in Kent comprising 20 apartments and 22 houses convert the existing facility of £4.8m Senior and £1.7m Mezzanine into a longer term loan in order to hold the asset as an investment.
They required a development exit plan to coincide with the development being signed off by building control, the existing lender’s repayment deadline and ensuring the site was complete and lettings agreed. Sirius co-ordinated the process, liaising with all parties and ultimately ensuring the new lender’s expectations were met and the funds of £6.85m were secured within the tight time frames. The successful transaction released equity for the developer that they were able to invest in further development sites, all of which Sirius are arranging further funds for.
Sirius’ Kimberly Gates wins at the 2020 British Specialist Lending Awards. With Kimberly Gates winning ‘Rising Star – Distributor’ it’s the 3rd consecutive year one of our incredible @BrightstarHUB have won the award. We take pride in our team’s ongoing achievements & our extensive people development programme
Sirius Director of People Development, Clare Jupp, picks up the Financial Reporter Woman’s Recognition Award for 2020. Clare’s proactive support for the Women in Finance Charter has seen her scoop ‘Spokesperson of the Year’ trophy. Clare’s positive impact for the gender equality movement within the property finance industry is momentous and most importantly, she isn’t done yet!
Never has it been more true that cash is king. Those businesses that had cash reserves or access to finance throughout the lockdown were most ably equipped to see out the period of limited, or no, trading. And with the economy set on an uncertain course to recovery, the demand for finance to see businesses through a difficult period or fund investment and change programmes will continue. The longer the economy operates at a lower pace before hitting full speed the more businesses will exhaust their own cash reserves and look to commercial lending. So, how has the market changed as a result of COVID-19 and what opportunities are there for business borrowing?
It’s fair to say that the commercial lending market was very quiet post lockdown, with just a handful of lenders being open for business. This is not to say that businesses weren’t borrowing money – they were and in huge amounts, but most lending was happening through government schemes.
By early July, more than 53,000 businesses had accessed loans worth over £11.4bn through the Coronavirus Business Interruption Loans Scheme (CBILS) and more than one million small businesses had the accessed Bounce Back Loan Scheme (BBLS) taking loans worth nearly £31bn.
With government pressure to support its schemes and the opportunity to offer loans underwritten by the government, many lenders focused their resources on supporting CBILS and BBLS – severely limiting their ability and appetite to take on any new clients outside of these schemes. A total of 28 lenders now offer the BBLS.
For businesses too, the opportunity to access capital at zero charge for the first 12 months, with minimal underwriting and funds paid out within hours of application was far more attractive than traditional commercial borrowing.
So, post lockdown, the commercial lending landscape was a quiet one, but with CBILS due to be withdrawn on 30 September and BBLS being removed in November, demand for these schemes are tailing off.
There will, however, continue to be demand for finance from businesses. The latest SME Finance Monitor survey carried out by research company BVA BDRC reports that at the end of July, 87% of SMEs said they had been negatively impacted by COVID-19, with nearly half saying that their income was down by 50% or more – a trend that they expect to continue for the coming months.
According to the SME Finance Monitor, at the end of Q2 this year, 16% of businesses said they planned to apply for finance and 32% said they expected to be applying for finance at some point in the future.
So, can we expect lenders to meet this increased demand from businesses?
The picture is certainly looking brighter. In the last month or so a number of commercial lenders have returned to the market, providing more options for customers. As has been the case other areas of finance, these lenders have not immediately returned to the risk appetite they showed prior to COVID-19. They are taking a more cautious approach to underwriting and there has been a trend towards lower LTV lending right across the market.
This may be a reduced appetite to lend compared to pre-COVID levels, but it is still an appetite to lend and there are opportunities for businesses to raise the capital they need to take them into 2021.
There may also be other opportunities for business as a result of changes caused by the pandemic. A key theme of the lockdown and subsequent months has been the smooth transition to homeworking for millions of people across the country and this is driving speculation that when people do fully return to offices, they will not do so at the same scale as they did previously. It is unlikely that most businesses will do away with their offices entirely, but many will probably take a more conservative view on the amount of space they need and there have already been numerous stories of business giving up leases to reduce their office floorspace. With reduced demand for commercial space, this should put downward pressure on property values, and this presents an opportunity for businesses that currently rent their workspace.
Even before lockdown and the shift towards homeworking, it was generally considered that owning a commercial property was the cheaper option than renting one, and certainly one with more potential to contribute to the overall financial strength of the business. So, now with potential deals to be had, it’s an opportunity for businesses to take the leap and look at buying their office space, retail units, factory units or any commercial premises used by the business.
As a whole of market specialist debt advisor, we at Sirius Property Finance have had the benefit of dealing with the full range of lenders post lockdown, including a number of bespoke lenders. This has worked to our advantage and puts us in a great position to help clients source the finance they need to make the most of upcoming opportunities, or simply to navigate the next few months.
Going forward, I anticipate a return a more normal commercial lending environment in the next six month, although lenders will continue to operate with caution until the effects of COVID-19 diminish and specialist advice will continue to be hugely important to help businesses access the cash they need.
AUTHOR: Paul Debney, Senior Associate, Commercial Finance
Sirius has won the esteemed title of Development Broker of the Year at the Business Money Facts Awards. The BMF awards are among the UK finance industry’s largest and most respected awards with the ceremony being an annual highlight. Our development and structured finance team have been striving to achieve this award and are delighted that their relentless pursuit to secure the optimum funding packages for their property investment clients has been recognised in this way.
Sirius win Best Development Broker of the year at the Bridging & Commercial Awards for the second consecutive year. Whilst Covid-19 prevented the glitzy ceremony from going ahead, this week saw the industry’s finest join the virtual awards ceremony. Sirius are delighted to maintain this coveted title for another year, recognising our extemporary development finance expertise and services.
We understand many are in need of advice regarding their developments, mortgages & real estate/business loans. Sirius is keen to get the message across to all partners and clients that we are in this together & keen to contribute to easing any additional pressure.
Sirius MD, Nicholas Christofi, released the following statement;
“As with all businesses, the first priority for Sirius Property Finance has been the wellbeing of our team and to implement technology and processes to ensure that we are able to work remotely. With this in place, we are now well-positioned to focus on helping our clients through this uncertain period.
Our first responsibility is to assess the funding facilities of all existing clients to ensure they are fit for purpose in the current environment and, where necessary, to arrange more suitable finance. Our team are in continual communication with each other and other property professionals and we are happy to share as much information and impartial advice as possible with anyone who requires a real estate debt advisory service.
This is an uncertain time, but it is not the first difficult period that we have faced as a property industry, and it won’t be the last. We have seen out storms in the past and if we pull together as an industry, through each part of the property cycle, then I have no doubt that we will minimise the impact of the current situation and come through the other side in a strong position for continued growth in the future.”
Sirius, as part of the Bright Star Group, has won the coveted title of Sunday Times Best Small Company to work for the second consecutive year. This makes us the first ever company to ever achieve a second consecutive and also the highest score in the twenty year history of this prestigious award.
Our Director of People Development, Clare Jupp, who lead the initiative continues to strive to make Sirius and Brightstar a fantastic working environment for all. We could not be more proud of this achievement.