Giving landlords access to more options than the mainstream

Our specialist lending expert, Steve Sanderson, gives his view on the widening of lending options available to landlords….

Clever Lending are seeing a growth in enquiries whereby professional landlords are struggling to obtain buy-to-let finance from mainstream lenders.

Reasons for this include a tightening of criteria by High Street lenders, more stringent stress testing and an uncertainty in providing the best route depending on the client’s tax position, now and in the future.

As a specialist distributor, Clever Lending look at things differently. We consider the full position of the property professional, which means we can assess the possibility of using second charges as a finance route to acquire property as well as bridging finance or commercial buy-to-let mortgages.

Bridging finance, or short-term finance, was traditionally used to ‘bridge the gap’ between residential house purchases, usually when a chain was involved. However, things have moved on and bridging can now be used for many requirements, from buying property quickly at an auction or acquiring below market value properties on a time-dependant offer, or even for those properties that are unmortgageable with mainstream lenders.

Steve Sanderson, Bridging & Commercial Specialist at Clever Lending, said: “The traditional way of acquiring short term finance is changing, nowadays prospective property owners are more likely to purchase or renovate a property within a timeframe which best suits them. Bridging finance is a great way of getting hold of much needed funds, avoiding the risk of losing a highly desired property or slowing down renovations to an existing property.”

The need to deal with non-standard requirements is increasing, and specialist lending criteria has widened to include market leading rates, no exit fees and terms from one to eighteen months on a variety of property and client profiles. It should be noted the repayment of the loan needs to be determined upfront.

For landlords and property developers where a short-term loan isn’t a suitable route, an alternative is to look at longer-term mortgages specifically geared towards commercial property uses.

We have access to many lenders that will consider bespoke solutions on a wide variety of property investments, including residential investment property, buy-to-let, HMOs and mixed-use units.

Tax implications on buy-to-let properties are high on a landlord’s agenda at the moment, and it’s important to ensure you are getting the right advice for each individual case.

The property investment market is a complex one, and getting access to the right funding and the right advice is essential for property investment growth. Speak to the Clever team to make sure your clients are heading in the right direction.

First half of the year review for Clever from our Head of Sales, Ivan Vizor

So, it’s been a hectic few months here at Clever Lending. After a really busy Q1, April turned up like a juggernaut quickly followed by May as the convoy!

The big news for me is that I landed my golden job as Head of Sales with Clever, but that was ultimately swamped amongst some great business figures.

In early April I had the amazing news that Steve Sanderson, a genuine Commercial, Bridging and Buy-to-Let ‘guru’ was heading back to Clever. As Specialist Buy-to-Let proves to be even more ‘specialist’, Steve’s return helps reinforce our edge in the modern distribution industry which never seems to let up in its need for people and companies to constantly adapt.

On the subject of adapting, can there be a more successful sector of the industry when it comes to the art of acclimatising than the second charge sector. As an industry that has been around for over 40 years now it has had to fight off constant criticism (some fair, most very unfair), bad press, and borrower apathy, and most surprisingly it has for too long lived outside the core business of the vast majority of advisers.

But it’s still here and again has fantastically adjusted, this time to become as core to the holistic advice process as a client’s main mortgage. It also now comes with the support of the big guns, the FCA, undying in their pursuit of ensuring that second charge advice is given to every client wishing to capital raise. All we need now is for all advisers to jump on board! There are some very positive signs out there with advisers working out that second charge lending is very much a short-term fix with an improved understanding of how the product should be structured within their clients financial planning.

The message is slowly getting across and making impact. Lenders are making big strides in educating the reticence that still exists, there has been great growth in new innovative products, rates have tumbled, criteria has been relaxed and processes have been sharpened. You need to remember that second charge lenders have a far bigger appetite to lend than the first charge lender market.

So with Q2 not far away from drawing to a close I believe we may see some real re-emergence of second charges, maybe not to the levels of the previous few years just yet but certainly some markers will be laid down to ensure my promotion-celebrating glass of fizz stays ‘half-full’.

So bring on the rest of 2017, we’re ready for you, and if it’s even half as good as the first half, then it’s going to be a blast … and I didn’t even mention the election!

Delivering the right client outcome through our lender partners

The team at Clever Lending pride themselves on how closely they work with lenders on their panel and the case below indicates how having a strong relationship can be of benefit to all, particularly the client.

We had a client come to us via our partners, Reach Financial Services. The client had sold her property in June 2016 to a friend, and at the time it was agreed the client would continue to reside in the property until the sale on her new property was complete.

But circumstances changed and before the new sale could complete, the property owner came into financial difficulty and so needed to move into the property very quickly. Our client was given a deadline of 5 days to move out, and as a result it was likely she was going to become homeless if the property she was buying did not complete within the time frame. The lending solution was being provided by Magellan.

As the case was unfolding the Clever team had a visit from Magellan BDM, Pam Oliver, who was in the office delivering product updates. Pam heard of the situation and the fact the client was at risk of being made homeless and immediately made contact with the Magellan head office. Various discussions took place and Pam was very supportive in helping the case move forward to release funds in time for completion on deadline day. The Clever Lending team helped ensure the packaging of the product was done swiftly in order to support the timescales.

It was a full team effort from all involved and helps indicate how solid working relationships can deliver the right client outcome.

Pam Oliver, Regional Sales Manager at Magellan, said: “The key to a lender being able to respond quickly to these types of situations is having a well packaged case to deal with. Clever Lending were able to provide Magellan with everything we needed and were willing to work closely with us so that we could push this deal through to completion as quickly as possible.

“It’s very satisfying when the whole operation goes smoothly and underwriters, brokers, packagers and administrators are able to generate a positive outcome for a client in need.”

Sam Kirtikar, Managing Director at Clever Lending, said: “This was a very challenging case, not least because it was vital we worked very quickly to help avoid a customer potentially becoming homeless, the case itself was complicated further by the customer having a poor credit record. However, we managed to fast track the application and put the client’s mind at ease, by ensuring we would complete in a prompt and efficient manner.

“It was a pleasure working with Magellan Homeloans, a specialist lender with vast experience and expertise in understanding this type of case. They were able to provide finance for the customer who didn’t fit standard lending criteria and needed a more flexible approach to their lending needs.”

How we worked with Equifinance on a non-standard case

We worked closely with specialist second charge lender Equifinance to provide a customer with a £50,000 loan to carry out much needed home improvements.

However, the case wasn’t straightforward. The customer’s first charge lender wouldn’t grant further borrowing and a re-mortgage wasn’t an option as the customer was on a preferential rate and favourable terms. The customer also had a CCJ, although it was satisfied twelve months previously, and their house was of non-standard construction with a timber frame and pitch glass fibre roof, ruling many lenders out as this sort of security isn’t often catered for. On top of this the first charge lender would not grant consent to a second charge mortgage.

However, our expert team liaised with our extensive lender panel, and it was through Equifinance that the solution was found. They assessed the case and helped provide the client with a no consent product from their new range of second charge products.

Equifinance were able to provide a solution that was affordable and enabled the completion of the much needed home improvements. The loan also delivered a reduction in the customer’s monthly outgoings, along with an improvement in their lifestyle and an increase in the value of their home once the improvements were carried out. The net loan was for £50,000 over 120 months.

Sam Kirtikar, managing director of Clever Lending, commented: “We know some clients can be in a very tricky and complex situation, but at Clever we don’t turn such cases away. We work closely with the broker and our lender panel to search out an appropriate client outcome. In this case Equifinance delivered a solution by expertly considering the case from every angle and quickly moving the case forward despite some unusual circumstances and non-standard security. An excellent example of a master broker and a specialist lender working together to deliver a positive solution for the customer. So no matter how complex a case may seem, just pass it through to our team and we’ll work hard to find the best solution available.”

Tony Marshall, managing director of Equifinance, said: “We manually underwrite each application and as such we review each and every case on its own merits. This in turn enables us to provide the best possible outcome for the customer even when their circumstances are complex. Working alongside Clever Lending, who have the same ethos of providing the best customer outcome, helped provide a smooth and efficient process for everyone involved.”

Regulated bridging finance on the rise

We have observed a significant rise in regulated bridging finance in terms of both applications and completions in the second half of 2016, which is continuing into 2017.

The reasons for the increase are several, and all concern the problems faced with the house buying process, supply shortages and rising house prices. Despite mortgage rates staying low, many are finding themselves in a race to complete on a house or risk losing it, leaving a regulated bridging contract as one way to secure their dream house.

There’s also another type of borrower becoming increasingly active in the bridging market and they are empty nesters, desperate to downsize to smaller houses but getting caught up in the lengthy buying process with delays or competition from other buyers, often meaning losing the house they want to buy.

Occasionally there are delays in a customer selling their property as rising house prices have priced many younger buyers out of the market, or simply the time it takes for the vendor’s onward purchase to complete puts their new purchase at risk. Either way, a regulated bridge can help bridge the gap and unlock the properties to allow completion to take place.

This changing market also opens up another option for broker and financial intermediaries to offer a first charge bridge to their property purchasing clients. This is now being seen as a useful extension to their service offering and ability to resolve increasing problems in the market. We can help brokers throughout the process, ensuring there is a suitable exit to the bridge and ongoing longer term funding for the property.

A regulated bridge can help many different types of customer as, in this market, the speed at which they can complete is crucial to buying the house they have set their hearts on. Buying at auction, self-build, downsizing, or buying their dream home, they can all be made quicker and easier with a regulated bridge and these loan purposes have helped boost activity.

Bridging rates are low at the moment with high LTVs also being offered by many lenders and so this form of finance isn’t as expensive as it was a few years ago, opening up new opportunities for brokers to offer a different route to funding the initial property purchase.

How we arranged £110k for a customer to settle tax liabilities

We recently helped a customer to settle impending tax liabilities from the HMRC with a second charge mortgage, despite the customer being self-employed and requiring the loan as a sole applicant although they were married.

The case was referred to us by a broker who was authorised to provide advice, but the broker agreed that our expertise in second charge mortgages meant that it was quicker and more efficient for us to offer the advice required.

At the time of the approach, the broker couldn’t find a lender to provide a second charge loan as the customer circumstances were a little unusual. The customer’s husband was living abroad and had never appeared on the UK electoral roll, so we were able to determine he didn’t have an interest in the property. Also, the customer wanted to apply as a sole applicant for the loan despite being married, which lenders don’t normally provide for in their criteria. However, we found a lender, Step One Finance, who would look at the case on this basis.

As the month end deadline approached we had to move quickly to get all the required documents together which included a full valuation report, consent from the first charge lender, full accountant’s reference and other supporting documents.

The term of the second charge was 15 years on a 3 bed semi-detached property valued at £870,000.

This was a very complicated case and highlights a number of benefits of using a master broker for specialist cases. Not only did we offer expert advice, even though the broker was qualified to do so, we also sourced a lender from our extensive, specialist panel. Our expertise also stretched to looking closely at the customer’s circumstances and understanding that despite being married the loan was to be in sole name. This is an unusual situation but we found a way, much to the delight of the customer.

The lender, Step One Finance, praised the way the application was initially presented and subsequently packaged, commenting: “On being given the full facts of the case we were able to make a sensible decision in the knowledge that the application, despite being outside our normal guidelines, was a great solution for the customer.

“By working closely with Clever we were able to process a fairly complex application to completion in a relatively short period of time. The experience shows the benefits of using a master broker such as Clever, working together with a sensible and flexible lender such as Step One to offer second charge solutions to what are perceived to be problem cases.”

The broker who introduced the case commented: “Our client needed to raise funds urgently to pay her tax bill. We had recently raised the maximum possible mortgage on her new residence, so there was no option to borrow more. We therefore had to consider second charge borrowing. As we don’t arrange second charge loans, we turned to Clever Lending for help and assistance. This was one of the best decisions I have ever made! They took over the whole case and liaised directly with the client, but keeping me in the loop at all times. The whole case was handled very promptly and professionally, and the client’s deadline for the funds was easily met. I would definitely use them again and strongly recommend Clever Lending to all brokers.”

mortgage transfer

How second charges can help your clients with debt concerns

We’ve seen a sharp increase in broker enquiries on behalf of clients needing to get their credit profile back in shape at the start of 2017.

Latest figures show household debt has risen to its highest level since just after the financial crash of 2008, Bank of England data shows. Personal debt grew 10.8% in the year to 30th November 2016 to £192.2bn in the UK – the highest level since December 2008. And the Registry Trust report the continued rise of CCJs, making it more vital than ever that homeowners look to satisfy their CCJs and other debts.

Although consumers have loaded up on their credit cards, taken out personal loans and ran down their savings to fund the festive season and household bills, there are solutions and the second charge market may favour them due to an increasing number of low rate products.

It’s vital to understand that resolving the immediate debt concerns is often a priority, but it’s also important to look to the future and open up a better long term financial scenario for the client.

Most brokers are now aware of second charges to help clear long term debt and the speed at which they can be funded, however, not all are using them to their full potential. And if the client’s first charge mortgage still has early repayment charges or are have their first charge mortgage on a great rate, they can keep that product and use the second charge to consolidate other debts that have built up.

There are also new systems to help brokers such as Clever Sourcing which can provide options in as little as a minute once the client details have been input.

We have an extensive panel of lenders and there are more low rate second charge products on the market than ever before, many at highly attractive rates, so there are real opportunities now for brokers to help their clients. Although we can quickly source lenders who can individually underwrite cases where the customer has debt worries, getting a client’s credit profile in order can help their longer term financial situation. So it’s not just about the here and now.

Secured loans should be considered as a viable debt solution offering products that are affordable and sustainable.

Clever Lending see enthusiasm for bridging finance beyond buy to let

Clever Lending, the master broker, has seen a steady increase in bridging finance applications for a variety of uses above and beyond buying property at auction, renovations and conversions.

Despite the stamp duty tax changes announced by George Osborne in the autumn statement for second homes and buy to let, Clever believe the variety of uses for bridging will mean it will continue to be a very popular form of finance.

There are a plenty of other uses for bridging finance which Clever Lending have processed and these have resulted in increased business levels. After all, as long as there is suitable security, a short term loan can be used by businesses or private individuals to cover almost any immediate finance need where there is a time delay between one transaction and another – tax demands, probate resolutions and cash flow glitches to name a few.

The increase in bridging seen by Clever Lending reflects these uses and are in line with recent figures by the Association of Short Term Lenders (ASTL), who reported bridging lending as a whole increased by over 30% in the last year.

So how will bridging fair after the stamp duty rises for second properties and rental property kicks in? We are likely to see lenders, who have plenty of funds to lend, focus their marketing on the other loan purposes too, as some would-be private landlords may no longer enter the market due to the higher costs involved.

However, there will still be a need for bridging when it comes to property acquisition or renovation. The speed and flexibility of bridging means that it’s still a very useful facility in circumstances such as simply bridging one property if there are delays in buying another – we all may have forgotten but this was the original use of bridging finance back in the day. It’s also a flexible way of buying at auction or arranging a quick purchase at a special price. During the bridging term, renovation works can also be completed. But the fear for tenants is that one way for landlords to minimise their extra costs is to increase rents, and with tenants already paying rents which are increasing faster than house prices, this could have a significant knock on effect.

Sonny Gosai, Sales and Operations Manager, said: “Buy to let is under the microscope as a result of the stamp duty tax changes coming in to force in 2016 for second homes and rental property.
Despite future tax concerns, the broker clients we are dealing with have retained optimism in the market for bridging finance and its many uses. We’ve already had discussions with brokers and lenders to widen the appeal of bridging and have had applications in for many other purposes this year, not just for property. This indicates there’ll still be a need for bridging finance, in all its forms.

“As for buy to let, we’ll see a stabilising of the market in the next year or so and landlords and property buyers will look for ways to minimise the tax implications, which landlords are already starting to do.”

Case Study

Secured loans help clients rescue their finances

Sonny Gosai, Sales & Operations Manager at Clever Lending, highlights how secured loans have a key role to play in resolving debt problems and even help clients retain their existing mortgage

Clever Lending, has recently helped many clients rescue their finances from high monthly payments and offered lower monthly cost solutions to their financial woes.

A secured loan can be used in many situations to help get a client get their finances back on the right track. When the client has a poor credit profile or CCJ(s) they often don’t want to go down the Debt Management Plan (DMP) route. Also, when they want to retain an existing mortgage deal, either because it’s got high early repayment charges or has a low rate the client doesn’t want to lose. A re-mortgage isn’t always the answer.

What Clever Lending are also seeing is secured loans being used to settle unsecured debt that has built up over several years. Anything from store cards, to credit cards and unsecured loans. When these are combined, the client can have a debt pool that they may ultimately sink in. But a secured loan can help them take back control of their household budget through one steady payment.

Sonny comments: “We find many clients do not want to go down the DMP route to get them out of these situations. Before they come to us many have looked at these options but decide that they want a solution that will leave them in a better position in years to come. Hardly anyone we’ve dealt with recently wants to take things further by applying for an IVA or bankruptcy.

“Many brokers and their clients are unaware that secured loans can cater for these situations and be the answer to their mounting problems. However, once explained, most take up the opportunity to have just one, lower monthly payment and a route to get their credit profile back on track.”

Below are three typical cases Clever Lending have worked on in the last few weeks that highlight the points raised above.

  1. The client had a debt of £18,059. With contractual payments and a CCJ, they weren’t eligible for a DMP or a re-mortgage. A secured loan was arranged which cleared his unsecured debts, provided peace of mind and has the option to be reviewed when a re-mortgage becomes a possibility in the future. Previously they were paying £620 a month, but with a secured loan (over 108 months) this was reduced to £296, a saving of £324 per month.
  2. With an unsecured debt of £42,711, this client had high ERCs on their mortgage and didn’t wish to select a re-mortgage. With no defaults on their payments the clients chose a secured loan option. This enabled them to avoid defaults on any money owed and prevent further adverse credit – something they were very keen to do. They took a secured loan for £50,020 over 132 months and reduced their monthly payments from an eye-watering £1,104 to £505, a significant saving of £599.
  3. The client originally had a surplus of just £75 per month due to debts. They had previously been declined a loan from other lenders due to missed mortgage payments and they also had a fixed rate and a high ERC on their mortgage. Their unsecured debt was £23,163 and the client didn’t wish to go down the DMP route. A secured loan option was chosen for £23,200 over 192 months, which reduced their monthly payment from £833 to £249, a massive saving of £584. They also have the opportunity to review this in the future when a re-mortgage becomes an option.

Quick guide to secured loans

What is a secured loan?

Secured loans are also known as second charge or second mortgages. They are a second mortgage which sits below the first mortgage and is secured against the property. A secured loan can help fund a number of things, from home improvements, holidays or more commonly provide a debt consolidation source. The result is two separate loans secured against the value of the property, but the second loan will not affect the first.

Why a secured loan?

With changes imminent, it will soon be a regulatory requirement to consider secured loans as an option for your client. Whether it’s for home improvements, to help a family member or to consolidate any debt, secured loans are viable and increasingly popular options for a lot of property owners.

Who can apply for a secured loan?

A homeowner with an outstanding mortgage and with enough equity in their property to cover the amount to be borrowed can apply for a secured loan.
If your client owns their property with another person, are married or in a civil partnership then a joint application must be made.

Can my client apply for a secured loan if they do not live in the property?

Yes as long as your client has proof of a formal tenancy agreement.

How do secured loans work?

Quite simply your client will have a loan secured against the equity in their property, and will be required to make regular payments to pay the loan off along with the interest accrued over the repayment period.
There are no upfront fees and secured loans are generally more flexible in considering those who are on a pension or benefit only income or live in an ex-council house.

Why is a secured loan possibly the best option?

Your client is self-employed, without accounts
Affordability checks are now tougher than previously, with banks demanding up to three years of accounts as proof of income. But there are some secured lenders on the Clever Lending panel who will accept a tax return, accountant’s reference or a bank statement as proof of income.
Your client has a complex credit profile
Secured loans are very flexible in areas such as eligibility and can be an option for those who may have had previous problems with obtaining credit. Even with a history of missing payments, historic CCJs or defaults a secured loan through Clever Lending may be a solution.
Your client wishes to retain their mortgage deal
It may be that your client is on a low or fixed mortgage rate which they wish to retain. Taking out a secured loan is one way to keep their current rate in tact whilst enabling them to raise capital.
Your client has minimal equity for a remortgage
Your client may find they have limited LTV lending options, if your client does not have enough equity then a secured loan could be the preferred choice – Clever Lending are here to help identify possible options for such a scenario.

How will the forthcoming MCD affect secured loans?

The pending legislation changes will affect any one who operates within the first and/or second charge lending sector. The Mortgage Credit Directive will apply equally to first and second charge mortgages meaning there will be better client protection and more consistent standards across the industry. This is good news for you and your client – it means you can widen your product offering and provide a thorough service to your client, and they can benefit from knowing they will be offered the right solution for their requirements, all fully compliant and in a fair and transparent manner.

Being aware and prepared in advance will help put you at the forefront with your clients by having the capacity to offer them the most suitable product for them.

Why secured loans should be on your radar now

Regulation is happening and there is no avoiding it – to be prepared now will put you at the forefront of your peers.
Secured loans will be aligned with the first charge marketplace and everyone involved (including lenders and master brokers) will have to adhere to higher standards benefiting your clients.

Ultimately secured loans are a genuinely viable option that your client should have the option of considering – why wait until March 2016 when they could be benefiting now.

This is just a quick guide to secured loans – if you have any questions please contact the Clever Lending team on 0800 316 2224, or email enquiries@cleverlending.co.uk.