Page 10 - The Pulse Issue 9

on development is between £150,000 to £2m, so we pick up an anticipate that appetite for commercial finance is likely to remain in equity release, something the second charge market could improvement but I have no doubt the industry will react well
awful lot across the country, outside of London of course, due strong. capitalise on. again.
to the relatively small debt size. Our view is that there are some
great operators and projects to be funded at this “smaller” end At the same time, we have also seen some lenders withdraw,
and we remain extremely active in this area. either through choice or through a lack of success and longer-
term, only those lenders that can offer assurance, certainty and Summary
Alex Alexandrou, Octopus Property: Yes. This has been take an innovative approach to lending will be successful. The Regulator firmly has its
driven both by the returns available on property development Following the referendum result, investors have begun to tread
and investment outside of London and the South East, as well sights set on the second charge carefully, opting for secure and steady capital appreciation in
as high underlying land prices, rising build costs and a scarcity cities outside of the M25 where property yields are still performing
of labour facing developers in London. As professional property market, pushing for a cultural well. There has been a rise in Investors snapping up student lets
developers have broadened their geographical focus, so too have Let’s Talk Second Charge and HMOs, close to university campuses, where the potential
many specialist lenders, resulting in increasing choice for SME shift amongst both Lenders and returns are higher and the demand remains strong.
developers in all parts of the UK. Mortgages Specialist Distributors alike. Commercial developments are following a similar trend, with
many SMEs looking to move to brownfield sites that are being
heavily pushed by councils and specialist lenders hungry to
How do you expect this to influence With the number of CCJs continuing Do you feel enough is being facilitate these developments, there is now far greater activity
happening across the UK instead of being purely centred around
the commercial and development to rise, do you feel the second charge done across the industry as a London.
market over the next 3 years? sector will experience growth as a whole to bring second charge Second charges may be under scrutiny from the Regulator but
there is no doubt that borrowers will need these loans in the
result of more customers struggling coming years as the number of CCJs being issued everyday
Alex Alexandrou, Octopus Property: Already we are seeing a mortgages in-line with first
narrowing of the divide between London and the South East and to capital raise through mortgage continues to soar. Even with the flurry of new specialist mortgage
the rest of the UK. We expect to see this continuing as people charge mortgages? lenders entering the market, not every customer will fit their
and businesses start to seriously consider other parts of the UK, lenders? criteria or may be tied in with their current lender and therefore
and macro-factors such as infrastructure investment, political unable to capital raise without incurring hefty early repayment
changes and government backed proposals; such like the David Binney, Norton Finance: The industry as a whole has charges. Second charge lenders will have an important role to
Northern Powerhouse and Industrial Strategy, further encourage David Binney, Norton Finance: Absolutely, consumer credit reacted very well since the implementation of the Mortgage Credit play to help these customers to get back on track.
investment and development outside of the traditional markets. debt is very high at the moment with the average household Directive in March 2016 with many changes being implemented
owing just under £13,000 in unsecured lending, this will across the board whilst maintaining steady lending levels. The
In addition, there has been a steady increase in developers undoubtedly lead to more clients seeking debt solutions when two products although regulated the same will always have
looking at alternative types of development, from student circumstances change. This is also likely to make further their differences and the FCA’s recent review of second charges
accommodation through to Build-to-Rent and this is a trend that advances and remortgages more challenging. was bound to highlight some of the differences and areas for
we anticipate impacting the whole UK real estate sector over the
next three-to-five years. The second charge market has long catered for such difficult
criteria but the problem has often been highlighting it. With more
knowledge sharing than ever before and useful tools like the
criteria hub and knowledge bank, brokers should be able to see
Growing confidence in the commercial all the options for their clients who have entered into an IVA
going forward.
arena is attracting new lenders to the
marketplace which is consequently

driving increased competition and During the Specialist Lending
appetite from lenders. Senate 2018, later life lending was
ear-marked as an area that was

Do you feel this new found confidence expected to drive growth.
may be short lived with Brexit on the

horizon? Do you feel second charge products
currently meet the needs of an aging

Alex Alexandrou, Octopus Property: It’s difficult to say, but
given the size of the market, it would be naïve to think that this population?
trend won’t continue. For example, the most recent De Montfort
Commercial Lending Report suggested that the senior term David Binney, Norton Finance: I feel we are in a similar
lending market was worth £16bn annually, the biggest segment position to the first charge market in respect of later life lending.
and one in which specialist lenders are increasingly seeing an The maximum age for the majority of second charge lenders
opportunity to take market share, as traditional high street and is somewhere between 70-85 years old which is similar to the
private banks are increasingly unable or unwilling to both meet a majority of the first charge market.
borrower’s complex and bespoke requirements.
That’s not to say there isn’t room for product innovations and
On top of this, real estate remains an attractive long-term developments, last year saw record breaking lending activities
investment for many property professionals and whilst ongoing in equity release, something the second charge market could
regulatory and policy changes may see sector diversification, we capitalise on.

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