Don’t bash the banks

Don’t bash the banks

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Don’t bash the banks

Is Property Finance Available? This is the first of a series of articles looking at the availability of finance and how to access it in today’s market by Malcolm Jones and Cliff Verrill of Brooklands Commercial Finance.

Lenders have come in for a lot of criticism, some of it deservedly so. However, in realigning their strategies so that they don’t repeat earlier mistakes, they are undergoing a difficult balancing act. On the one hand they have learnt lessons in respect of riskier lending propositions and have rightly curbed activities in these areas and some have pulled out of them altogether. On the other hand, the regulators have imposed stricter controls on bank activities. While the government is saying that banks must lend more, the Basel III accord requires banks to hold more capital to support their lending activities. It also introduced new regulatory requirements on bank liquidity and bank leverage. As a consequence, there are fewer funds to lend as the banks manage their balance sheets to conform to the new regulation.

On top of this, the worsening Euro crises is likely to lead to a further tightening of the purse strings. A Greek exit from the single currency is likely to plunge the UK into a second recession. Already there are signs that investors are concerned as customers withdraw their money from Santander UK in the wake of the downgrading of the banks credit rating.

With this disruption to the banking and capital markets it will prove harder for banks to raise new debt and be significantly more expensive.

However, this is not to say that banks aren’t lending. It is vital for banks to lend across a range of securities as this is fundamental to their business. The banks have established specialist teams to target specific lending propositions which provide good security and outcomes. These teams are not available in many of the high street branches and quite often any enquiry more complicated than a straightforward residential home loan will not receive the attention it requires in branch.

The ability to identify the lender and their representatives most likely to understand and assist with an investor’s proposal is key to sourcing appropriate commercial, development and bridging finance. This is where a qualified and experienced broker with long standing lender contacts and relationships is vital.

The first stage is to understand a borrower’s requirements and assess the likelihood of getting lender support. High loan to values (above 70%), interest only loans and low interest rates enjoyed pre-2008 are not readily available in the current market. Therefore finding the best solutions and explaining what lending terms that can be realistically expected is important to help manage borrower’s expectations.

Once an appropriate lender has been chosen a robust proposition highlighting aspects a lender will want to understand, together with the required supporting information will need to be prepared for a borrower. This will have to be based on a good understanding of that particular lender’s policies and criteria along with how they asses risk for the best chance of a loan facility being agreed.

It is vital that any potential borrower carries out some basic due diligence before committing to a potential broker’s terms and conditions. Ensure they are a member of the National Association of Commercial Finance Brokers (NACFB), because members adopt a code of conduct which is underpinned by a nationwide trade association. Always ask for evidence of Professional Indemnity insurance, you will not offend a registered broker by asking this question.

Do not agree to pay any large upfront fees. If a relatively small engagement fee is requested understand precisely what the broker will deliver for the fee paid, and ensure that you understand when the fee becomes payable. A good broker will be more than happy to speak to you on an initial no obligation basis about your loan requirements.

If you would like some assistance yourself or just have a chat about a potential project, please click on the appropriate link below or call us on 01603 489118.

For Development finance please click here.

For Commercial mortgages please click here.

For Bridging finance please click here.



Comments

Jon Pipllman

3 years ago

Has anyone looked into the impact of Basel III and the associated changes to risk weighting for various different types of lending properly yet?

I have started to and it doesn't look pretty at first glance.

AIUI, the Basel III regs mean that the risk weighting of BTL lending could change from 35% to as much as 120%. That means that the lender would need to hold something like 3x as much capital against BTL mortgages than they do now.

In short summary, that means BTL lending has to get more expensive to the borrower. I have heard numbers of base + 7% + margin and base + 8% + margin bandied about by credible people that have looked further into this.

Even the CML notes in its response to the consultation that if the proposed changes occur, that a number of lenders would withdraw from the BTL market and interest rates on BTL mortgages would have to rise

(https://www.cml.org.uk/documents/cml-response-to-basel-committee-on-banking-supervision-s-cp-re/150309-cml-response-to-bis-revisions-to-standardised-risk-weights-v.1.pdf)

Likely coming in around the end of 2017.

I suppose other lenders, that are less influenced by the Basel III banking regs could come into the market more strongly, that would help offset this somewhat.

But it is another piece of uncertainty that BTL could do without just now isn't it?

Gemma Rose

3 years ago

I find it odd people are so concerned about the loss of tax relief and the effect of rising interest rates when Basel iii will have a much bigger impact on most landlords with interest only mortgages . Strange how the media (along with nearly everyone else) is either purposely ignoring or are totally unaware of its possible implications.

Jon Pipllman

3 years ago

I share your bafflement Gemma. I have, as I said in my earlier post, only started to look at the possible implications of Basel III recently and I do think it is a massive threat to the leveraged BTL model. It isn't that far away timewise either.

It might end up being a storm in a tea cup if, as some think, non bank lenders (i.e. lenders outside the scope of Basel III to some extent) come into the market to take the lending business. But I do foresee, at the very least, a turbulent time as the regs come into force.

If you have any leverage in your portfolio, Basel III is, imo, something you should get familiar with - and plan for - sooner rather than later.


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