Is COVID-19 bringing welcome change to bridging?
By Laura Miller -
Companies have been forced to adapt so fast to working through coronavirus there is collective muscle strain. But well-used muscles reform stronger, even if it takes a bit of pain. Bridging has a chance to emerge from Covid-19 fitter, and, with a looming recession, it will need to grab it.
Background prep work some bridging firms had been doing quietly to smooth office-based operations is suddenly business critical in the world’s biggest work from home experiment.
“We adopted cloud-based IT systems a few years ago so were fully operational on the morning following lockdown,” says Anthony Bodenstein, founder and managing Partner at lender Whitehall Capital.
Gregory Palos, partner at Lawrence Stephens solicitors, says a smart working programme introduced a year ago for qualifying associates and partners to work from home meant “extending this to our admin staff when the office was closed was much easier for us”.
Fast-tracking piecemeal practices into mainstream day-to-day business has emerged as a common theme, as companies find they must expand ideas of what is possible and desirable in bridging lending in the age of coronavirus, and beyond.
“We embraced technology relatively early in our life cycle so were strongly positioned to deal with the challenges lockdown presented,” says Joshua Elash, director of MT Finance, “however the disruption emphasised further how important technology has become, and will continue to be”.
MT Finance is now making permanent changes to how it works – though not working from home, it already has a significant percentage of its workforce back in the office – by automating “as many of our processes as we can”. It uses Salesforce as its operating and marketing platform, and is looking at other ways it can use the service to manage business.
In every part of the sector companies are grabbing opportunities unexpectedly created by the pandemic to shift gear and modernise away from traditional ways of working. “Without a doubt that is the use of technology to interact between broker, customer, lender, valuer and solicitor in a way not thought possible before March,” says Adam Tyler, chairman of the Financial Intermediary and Broker Association.
These improvements may have been on the horizon, but he says “Covid-19 accelerated the need to find a solution to non-face to face contact”.
Adapt and thrive has not been the only lesson of recent months. Less positive consequences of coronavirus have hit virtually every sector and bridging has not been immune.
“Covid-19 has had an impact on the speed of transactions,” says Amadeus Wilson, director of broker SPF Short Term Finance, “lenders are quite rightly taking more time to interrogate each deal to ensure they are maximising each pound they lend”.
There is slower, however, and then there is full stop. As Britain entered a period of stasis during lockdown some lenders also entered a deep freeze that meant choice for those seeking bridging finance dried up.
“Some lenders were largely rendered unable or unwilling to lend,” says Palos, from the perspective of a solicitor. “Some who have been working with existing clients and processing CBILS loans have been unable to take on any new ones. This has inevitably caused many borrower’s problems and we’ve been working hard to seek solutions in the interim.”
Larger lenders – backed typically by the big banks or by private equity – reduced new lending to near zero at the height of the pandemic, says Whitehall Capital’s Bodenstein, “midsize lenders, internally funded and independent of other parties, were the only ones willing and able to lend”.
FIBA, which has access to market-wide data, agrees. “The evidence we have says where the specialist property market has continued to operate, capacity is still very much below normal when we consider the number of providers to which our members have access,” says Tyler.
How long-term this less-than-welcome Covid-related change to the market will be will likely depend less on structural changes to the way bridging lending works, and more on confidence and government support.
“I do not think the consequences of lockdown on the bridging finance sector have yet been borne out,” cautions MT Finance’s Elash. “The government has injected so much liquidity into the private sector it has artificially prevented any initial disruption. As this liquidity eases off, and the real impact of the lockdown impacts the economy, we will see more stress in the market.”
One way bridging has already altered to deal with this stress is a reduction in risk appetite. Whitehall Capital reports rates for loan-to-value previously at 70-75pc now only being offered at 60-65pc. “We have always looked to secure quality loans, so would regard this as a positive development,” says the company’s Bodenstein.
MT Finance’s Elash wants this type of lending discipline to emerge as another permanent legacy of coronavirus for bridging, though he expects the excesses of the pre-crisis era may have to pass through (with some pain) first.
“I am concerned the economic consequences of lockdown are going to have a seriously adverse impact on certain parts of our sector where a race for market share saw some participants cut corners, or go up the LTV risk curve aggressively,” he says.
“Those lenders who focused on big loan sizes and offered what were considered market-leading LTVs will be vulnerable to a property market where values will be fragile and where the consequences of significant levels of unemployment will filter through to yields,” he adds.
As a broker at the mercy of the often archaic administrative demands of solicitors and lenders, SPF’s Wilson sees a sea of positives he wants the sector to maintain in the New Normal.
For example, signing securing documents and having ID certified remotely rather than having to go to a solicitor’s office. Likewise when requesting valuations, drivebys and desktop valuations are being seen as much more acceptable for a lowly-geared loan on a vanilla residential deal, he says.
“Being able to work remotely shows we can legitimately cut out some unnecessarily lengthy steps which were time-consuming and frankly look antiquated compared with how deals have been of late,” Wilson adds..
A new-found appreciation for the personal touch – and the value of your employees – may be the most long-lasting legacy of the pandemic, however. Like in companies up and down the country, and across the world, being unable to meet face-to-face has heightened commitments to encourage other forms of meaningful communication at law firm Lawrence Stephens.
“The lockdown has incentivised us to get to know our clients and the people we work with on a more personal level,” says the firm’s Palos. “In some cases we are seeing clients, contacts and colleagues more than ever as Zoom calls replace telephone conversations. We are working hard to acquire the skill sets to project our personality and culture via these media”.
MT Finance’s Elash agrees: “One of our concerns as a management team was how do you keep people motivated and focused and ambitious when they are all working from different locations, and justifiably concerned about more important matters such as the health and safety of their loved ones? But they all rose to the challenge.”
Perhaps the lesson bridging should take most to heart from the pandemic, and make permanent, is to invest in its people. “We always knew we had an amazing and loyal team,” says Elash, “but until such time as it’s tested, you never know where you stand.”