7 predictions that will change bridging in 2021
By Laura Miller -
Prediction 1: 2021 will be a year for expansion
From lawyers to lenders, everyone is eager beaver to grow in 2021.
“Unexpectedly, the start of the year has seen a period of substantial growth, in previous years January would be a quieter month, and the ability to sustain this will be a key challenge in the months ahead,” says Raazia Ibrahim, head of commercial property at law firm Linder Myers.
Jodie Murray, consultant at Boxtree Recruitment, sees “huge growth” in bridging, development and buy-to-let this year. Already its general insurance team is “incredibly busy” with construction, general commercial and hospitality insurance. The firm hired three staff from trainee to consultant level between August and January, and is about to take on a fourth.
Lenders are especially keen to roll over record 2020s (which by their own accounts they all seem to have had) into similarly expansive 2021s.
Lendhub “saw significant expansion in 2020”, according to Wesley Hawthorne, business development manager, and for 2021 the lender is looking to grow its underwriting team “to handle the increase in application numbers we are seeing”.
It’s a similar story over at Roma Finance. Nick Jones, commercial director, says the lender doubled its business last year and in 2021 plans to grow lending, distribution, product range and staff numbers “to stay ahead of the curve”.
Avamore managed to write more business in 2020, in terms of the number of transactions completed, than in 2019, according to Philip Gould, principal, and at the start of 2021 hit £250m of total lending. “This year is about growth for us,” says Gould, “we have ambitious targets”.
Likewise Colin Sanders CEO of Tuscan Capital: “I’m looking forward to 2021 as a year of expansion. We deliberately shifted Tuscan into ‘cruise control’ in 2020, but now I’m happy to see us apply a bit more foot to the pedal,” he says.
That said, talking up your own book is a common affliction in the business and investment spheres, and perhaps even more so in property, and as bridging lending combines all three, bullish predictions are to be expected.
Kim McGinley, director at broker VIBE Finance, is more pragmatically circumspect. While business volumes at the firm are “at an all time high”, and she is looking to grow her team, including into regulated property finance, McGinley says, “we have to take each day, week, month as it comes, there is still so much uncertainty, and 2020 has taught us anything can happen”.
Prediction 2: Brexit will create problems for developers
The big B has been displaced by coronavirus in the national consciousness but businesses lack the luxury of choosing either or and must deal with both, now Britain has formally left the European Union. Developers are already experiencing problems that could continue throughout 2021.
“Some of our borrowers have begun to report delays in the delivery of materials arriving from the EU,” says Avamore’s Gould. Though many developers worked throughout lockdown, a reduced workforce due to illness, social distancing, and restrictions on material movement, means some projects have already fallen behind. “The delay to materials is a further challenge which could see an increasing number of borrowers running over term, putting pressure on cash liquidity,” he says.
Avi Barr, secured lending and property partner at BBS Law, agrees. “We are starting to see in real time the impact of Brexit on many businesses as the delays in moving goods across Europe, which could cause sustained underlying issues for some of our clients,” he says.
Roma Finance’s Jones is also expecting Brexit “turbulence”. Definitely one to watch.
Prediction 3: It’ll be a rocky end to government support
If you want to know where the real problems are coming down the road, ask the receivers. Daniel Richardson, partner and property receiver at CG&Co, has his eye on April. By current timescales, at the start of that month government-backed loan schemes for struggling firms end, likewise the moratorium on commercial tenant evictions, the deadline to apply for a mortgage or loan payment holiday, and the business rates holiday, and by the end of the month so too will furlough, which is paying 80% of millions of workers’ wages.
“Although there’s a distinct possibility they could be extended, with so many now reliant on these funds, there will undoubtedly be an impact on both businesses and property owners,” Richardson says.
Lendhub’s Hawthorne agrees. “When the many levels of forbearance to support businesses and homeowners comes to an end, and with the implications of this yet to be apparent to the long-term mortgage market, there could be a negative impact on the residential property market,” he says.
Potentially not bad for everyone though. Ultimate Finance’s Levy is optimistic for the prospects of his Invoice Finance and Asset Finance products in 2021, “as specialist SME lenders like us fill the void where high street lenders feel they have reached maximum exposure levels through the government’s lending schemes”.
He predicts, however, for areas of the commercial market in particular, the combination of rental arrears and a resumption of business rates will be “a crushing blow for many at a time when optimism is unfortunately in short order”.
Prediction 4: Stamp duty’s return will be a blessing and a curse
Technically this also fits into the government support section, but it’s been such a big driver of sales since it was introduced in July 2020, and there is so much speculation about whether it will actually finish as planned at the end March, it deserves its own section.
“Almost inevitably it’s going to cause a downturn in residential property values which may impact on future investment and create some distress situations,” BBS Law’s Barr says of the end of the stamp duty holiday. Tuscan’s Sanders agrees.
Sarah Bennett, business development manager at The Bridging Group, sees a great opportunity for attracting customers who need to complete by 31 March. “A few term lenders are no longer accepting applications for clients needing to complete by the deadline, and mortgage processors, valuers and solicitors are busier than ever,” she points out.
She adds: “This is a fantastic opportunity for a client to use bridging finance to purchase, then have the time to consider a term loan further down the line”. The Bridging Group, she says, managed a case that took just nine working days from enquiry to completion just before Christmas.
Ultimate Finance’s Levy hopes for “a pragmatic approach from policymakers to retain the resilience of the residential market,” pointing out housing market transactions have a material multiplier effect for construction, furnishing and other industries, “so trying to avoid a sudden collapse in transaction volumes should be the objective”. Him and the rest of the property market.
Prediction 5: 2021 looks good for development
Lendhub’s Hawthorne expects “clients will be presented with many property opportunities across the country with changes to land reform and permitted development being an area that is likely to gather significant momentum”.
Roma Finance’s Jones agrees. “Investors have moved into the development sector because it still offers the potential of profits, alongside arguably fewer risks than the commercial sector over the next 12 months,” he says.
Ultimate Finance is “particularly excited” about the development exit market, according to Levy. The lender has added an equity release option on its development finish and exit product for clients seeking to move onto the next project; site closures and delays in sourcing materials have knocked developers off schedule, he says, and “many development finance lenders continue to pull up the drawbridge, show reluctance in providing additional drawdown tranches and seek to stick to the original redemption timeline”.
Chris Duckworth of Optimum Elite sees permitted development schemes increasing “as demand for city centre office space decreases”. Barr of law firm BBS agrees: “We already for example see a number of new instructions within the development and buy to let sectors,” he says.
Prediction 6: Commercial property will be a headache (or converted to residential)
The Bridging Groups’s Bennet has more questions than answers about commercial property in 2021, but then who doesn’t? “Will there be even more job losses in hospitality, travel, retail and beauty after furlough? Will businesses continue with a working from home model, saving on the cost of offices and devaluing commercial property? Until we are a lot further on in the vaccine programme and people have the confidence to go back to more of a ‘normal’ life we won’t understand the full impact or get up to pre-Covid confidence levels,” she says.
However Tuscan’s Sanders sees opportunities in the commercial-to-residential sector. “Covid is likely to take a heavy toll on the high street and office-space market,” he points out. “Given a sensible approach to planning regulations, this could provide a further boost to investors and developers, not to mention much-needed city and town-centre accommodation for private use.”
Prediction 7: Colleagues will need employers to back them all the way
Last year was as we reeled from the bracing newness of the pandemic. But, despite hope an end is in sight with vaccines, 2021 has brought a sense of fatigue at lockdowns and restrictions that can be just as crushing. In their rush to help kick start the post-Covid economy, employers, especially in sectors like bridging that have barely stopped for breath, will need to keep in mind the human frailties of their staff in 2021.
“My first concern first is the impact of the pandemic on my 150 Ultimate Finance colleagues – whether it’s not enough company (isolation) or too much company (home schooling), the mental burden and fatigue is substantial for everyone,” says CEO Levy.
He is mindful of the balancing act of “ensuring we can continue to provide the highest standards of service to our clients and introducers, whilst ensuring we are not placing unrealistic demands on our staff”. Ultimate, he says, will be as flexible as possible to achieve this.
It introduced a new initiative to coincide with Children’s Mental Health Week in February, ‘The Ultimate Kids club.’ “We believe great client service starts with the way we look after our staff and help them juggle the competing demands on time and attention at the present time,” Levy says. Let’s predict other employers follow suit.