Monthly Archives

April 2020

ashley-ilsen

Opinion: Ashley Ilsen Discusses The Latest EY Report

By Blog, Development Finance, Opinion

It says a lot about the rapidly changing face of our market that the data produced by Ernst & Young,
changes significantly year on year. Now in its third year, the annual EY Bridging Market Study is one
of the widest data samples that we have for the short-term lending industry. It is also unfortunate
that the survey was conducted just before the Coronavirus pandemic started to hit the UK and I’d
implore the good people at EY to perform a follow-up study on their short-term findings later this
summer.

We have undoubtedly entered a period of short-term uncertainty and the true impact of
the Coronavirus on our market will not become completely apparent for some time. We can,
however, look at their long-term results with great interest and we can also look back at what
lenders and brokers have reported about 2019. Here are two key areas:

A crowded space

Interestingly, 67% of those surveyed reported that they have found competition increased in the
bridging market in 2019. Similarly, an increase in competition was cited by lenders as the biggest
challenge ahead for 2020. At Magnet Capital we have also seen a proliferation of lenders moving
into development finance, which I suspect is an overflow from what is now a very crowded bridging
sector.

From my own experience I’ve noticed from conversations I’ve had with other lenders that an
overcrowded space has been on everyone’s minds for some years now, and yet every year we seem
to be adding new entrants. A growing market should allow for more capital deployed (not
necessarily more lenders) but considering the effects of Coronavirus, surely we’ve now reached a
point where lenders will either need to exit or merge?

I did also spot a brave new face entering the bridging market just earlier in April 2020 and my hats off to them! Competition has historically pushed lenders to lower rates and higher up the risk curve. Respondents confirmed that average monthly interest rates were lower in 2019 than in the previous year, and LTVs were higher. Having reached the peak it will be interesting to see on what other battlefronts lenders will compete. For me there is one clear area that stands out.

Are we bit old fashioned?

One of the biggest trends seen from last year’s survey is the continued prominence of technology in
our sector. Some 39% of respondents now believe that open banking would significantly improve the
obtention of new business, and this is in addition to the use of AVMs and further automating of the
underwriting process. It’s somewhat apt that in the current crisis use of technology is now a
necessity rather than a luxury and I expect the pandemic to accelerate the need for lenders to invest
in their tech.

At Magnet Capital we focus heavily on our internal technology in order to streamline
the underwriting process and this has been a primary source of focus since our inception.
Conversely, I’ve always been a big champion of old fashioned lending practices and there is
ultimately no replacement for face-to-face to meetings with clients and a first-hand inspection of a
project or a property (no matter how much we’re all enjoying Zoom conference calls at this time).

This is also taking into account that 52% of lenders noted refurbishments as being the primary use
for bridging loans. This inherently raises the challenge of bridging lenders needing to be even more
hands on in a business environment that is still learning how to remain socially distant.

ashley-ilsen

Opinion: Why development finance might not be the same again

By Blog, Development Finance, Opinion

They say the construction industry is the first to enter a recession and the last to exit. I use the ‘R-word’ reticently in that we are nowhere near understanding the true implications of the current Covid-19 Crisis, on values and on the wider property market.  The last few weeks has seen various lenders pull product ranges, with development finance being one of the hardest hit sectors. However, as of today government guidelines do not prohibit construction or activity on construction sites, as long as public health guidance is being followed. In fact, across many of Magnet Capital’s development schemes that we are funding, progress is still excellent.

 

We are seeing a hard-nosed resilience that was perhaps born out of the destitution of what many builders and construction firms went through after the 2008 crash. In fact, just today I conducted a wonderful virtual inspection of a large site we are funding in Kent which was full of activity, with an appropriate number of tradesmen on site that are respecting the social distancing guidelines. Naturally, we do have a handful of clients that have closed their sites and in many cases this has predominantly been down to our clients need to protect vulnerable relatives at home. We have also seen many complaints about supply chain which the government is yet to sufficiently address and could cause further disruption beyond the Coronavirus crisis.

 

Beyond all the usual struggles for SME builders and developers, access to appropriate development finance will now become a serious issue. I say appropriate because for every quality development finance lender, there seems to be a handful trying to cut corners in our market. The landscape for development finance has changed dramatically in recent weeks but the one thing the development finance sector needs now more than ever is consistency. Having what I call a ‘Hokey Cokey’ approach to financing, where lenders decide to be in one minute and out the next, can be hugely detrimental to our sector and damaging to reputations. Consistency is key because it breeds confidence, which in turn trickles down from our brokers to the consumer.

 

The development finance sector has come a long way since the 2008 crash and indeed since I joined the market in 2012. It’s a small world and I really enjoy sharing thoughts with competing lenders and being able to speak candidly with our broker partners. One thing I think we can agree on is that this is very much a pull-up-your-socks moment for the development finance industry.

 

At Magnet Capital we have always been known as being a cautious lender and years of being conservative in our lending means that we are currently in a very strong position to serve our brokers and our clients. Having a sudden nose-dive in liquidity in the sector will undoubtedly cause serious problems for the wider property market far beyond the Coronavirus Crisis. Let’s keep doing what we’ve doing for years and continue to back the construction sector; they’re going to need it.