Bridging Finance News

Buy-to-let: A legal minefield

February 8th, 2011

With all the indicators suggesting that the buy-to-let market is set to either boom or buoy, legal minds advise intermediaries and lenders alike to watch their step before jumping into this potentially hazardous market.

2010’s mortgage market ended on a positive note, with activity surpassing 2009 figures. According to research by Connells Survey and Valuation, increased demand in the buy-to-let market contributed to the promising figures.

Paul Staley, Corporate Services Director of Connells Survey and Valuation, said: “The valuations market has been bolstered by continued growth in buy-to-let investment. More attractive buy-to-let products are entering the mortgage market, and one in seven of our valuations now are for prospective landlords looking to take advantage of improving yields and fast rising rents in the private rental sector.”

The Increased demand and interest that we are seeing in the buy-to-let arena has been, to some extent, caused by the effects of the recession. Most notably we have seen an increase in the number of one-person households, a smaller social housing sector and more problems for first-time buyers. All of these factors mean that there are more people choosing to rent rather than buy.

But surprisingly, lenders are not too keen to offer their funds to this market. Nationwide Building Society subsidiary, The Mortgage Works (TMW), and BM Solutions are the dominant players in the market and all are experiencing a distinct lack of competition.

A smaller lender specializing in buy-to-let, Paragon Mortgages (Paragon), continues to note a significant increase in demand from borrowers and intermediaries, which is not matched by any rapid increase in the number of lenders.

Michael Clark, PR manager of Paragon, said: “Although the number of lenders competing in the buy-to-let market has improved over the past 12 months, there are still significantly fewer lenders than at the market’s peak in 2007.”

The wariness of lenders may be due to the legal difficulties involved at almost every step of the buy-to-let process.

Fraser Sinclair, Partner at Pure Law LLP, explained that incorrectly drafted tenancy agreements and failure to register homes in multiple occupancy (HMO), are the most common sources of legal issues for the inexperienced borrower because different registration procedures and forms apply to different types of properties.

In addition, “Lenders approach the financial calculations slightly differently with buy to let mortgages and their main assessment is whether the rental income adequately covers the anticipated mortgage repayments. Many lenders work on a rental coverage of at least 115- 125% of the mortgage payments,” he said.

From the broker’s point of view, buy-to-let is not particularly hazardous legally, “provided the broker has a sound understanding of residential tenancies and the extra financial information required by lenders.”

However, these ‘extra financial requirements’ are often difficult to meet in the current market, and can leave the investor with a deal that is not what they had hoped for.

Lucy Barrett, Director of Buckinghamshire packager W&B mortgage solutions, said: “The generous lending terms offered historically- such as same day remortgaging- leaves investors with a certain expectation which has been hard to manage. This has led to an increase in activities of property clubs which, in turn, have caused legal headaches with no money down, sale and rentback and general below market value deals becoming more and more exposed to the lenders.”

It seems that lawyers, lenders and intermediaries in the field agree: the increased demand from potential investors in the buy-to-let market is no cause for over-excitement. There are many legal issues associated in the lending process and extra financial requirements which means there is less scope for profit. Consequently, any real buy-to-let ‘boom’ will probably not surface until the UK pulls itself firmly out of the economic dip.

“Key problems in the BTL market are reflective of current lean times and lack of originations, but exaggerated by the need for investors to frequently service their existing portfolios by buying and borrowing further to remedy voids in their stock. This is seen keenly in some of the high profile failures in the last 36 months but to a lesser degree amongst those landlords holding 2-5 properties,” said Lucy Barrett.

“The demand for BTL products is there, and as competition increases again the market will begin to expand, but I think it will be a slow process.”

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Non status bridging loans

February 1st, 2011

Non status bridging loans not take the status of the borrower into account, so credit history or details of income are not as relevant. It is not the same as sub-prime or “self-cert” lending, where adverse credit is considered or the borrower is free to state their own income without proving its authenticity. A genuine non status lender will not require any confirmation on the borrower’s financial background because it doesn’t matter. The loan in non status cases is secured against the borrower’s property and therefore that security negates the need for financial assessment. In addition to this some funders are able to take an associated 2nd charge over an additional property if necessary. Many lenders in this sector are, like Masthaven, regulated by the Financial Services Authority.

Borrowers who require commercial finance but have a poor credit history, or are unwilling to provide proof of income or business accounts may find non status bridging loans a good solution.

What type of security is required?
Non status bridging loans are secured against the value of the property used as security. The value of the property will need to support the value of the loan.

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Masthaven becomes FSA regulated

February 1st, 2011

Masthaven Bridging Finance, a principle lender for nearly 30 years has become FSA regulated.

It has been a lengthy road that Masthaven have gone down, as they initially approached the regulatory body back in 2009. 12 months on, and hours of hard work and perseverance later, the award winning lender is ready to open the doors to first charge, owner occupied business.

It opens up a whole new world for the lender and their introducers, as they are now one of very few mainstream bridging finance providers who can truly say they are a one stop shop for all bridging finance requirements.

Andrew Bloom, Managing Director of the firm said “Due to the changing regulatory environment, this was an important strategic move for Masthaven. In recent years obtaining FSA regulation has become much more difficult and the success of Masthaven in achieving this is a credit to the company and its employees”

We will be offering First charge bridging loans from 1/2/2011

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Six solicitors charged for role in £50M mortgage fraud

January 28th, 2011

Six solicitors have been charged in relation to an alleged fraud that is set to be the UK’s largest ever mortgage scam.

Three lawyers from Patwa Solicitors, Birmingham, as well as three solicitors from various other companies pleaded not guilty when they appeared at Southwark Crown Court.

They have denied any involvement in the case of the £50 million commercial mortgage fraud. A chartered surveyor and former Dunlop Haywards head of valuations, Ian McGarry, and Birmingham property developer Saghir Afzal pleaded guilty for their part in the case.

It was revealed that six properties purchased between 2004 and 2006 for less than £6 million were used as security by the accused for loans of £49.28 million.

The solicitors allegedly used McGarry’s hugely over-inflated valuation reports to con banks and building societies into what Andrew Baillie estimated to be the equivalent of an 866 per cent mortgage.

Jonathon Newman, Brightstone Law LLP, said: “Lenders rely on the valuation advice and the integrity of the valuer when evaluating an application.”

David Freedman of Aubrey David LLP, added that any determined fraudster would require the services of an ‘unscrupulous professional’.

In this case, it seems that many unscrupulous professionals were involved in creating a complex web of corruption that has taken several years to uncover.

The first query levelled against any of the loans was made in as early as 2006 by The Cheshire Building Society. The Serious Fraud Office (SFO) began investigating soon after, yet the case is still ongoing.

David Freeman said: “The resources available to the police in fraud cases are limited. I am not surprised that it takes time to get to the bottom of a fraud case.”

Jonathon Newman explained that another difficulty with mortgage fraud cases is that it often takes a long time for the ultimate lender to realise that there is a problem, because the property may be re-mortgaged several times. There may then be both a civil and a criminal case involved.

The case is currently still ongoing and it is anticipated that it will take 12 weeks before a verdict is reached. By the end of this period Mcgarry and Afzal will be sentenced.

The six solicitors have been named as Hardeep Sodhi, 34, Fatema Patwa, 48, Mark Knight, 46, Laurence Fennigan, 49, Simon Lawrence, 39, and Kamram Malik, 31.

By Katie-Jill Rowland

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New Bribery Act: will it change the way we do business forever?

January 28th, 2011

With less than two months until the Bribery Act 2010 comes into force, brokers and lenders are beginning to ask: ‘Am I guilty?!’

For centuries, businessmen have been treating their favourite clients to corporate lunches, Christmas gifts and other tokens of their appreciation. However, when the Bribery Act 2010 comes into force this April, some of these ‘standard practices’ may well become criminal offences.

Much of the worry stems from the fact that the Act does not clearly define what a ‘bribe’ actually is. According to the legislation it could be a payment, a financial inducement or in fact “any other advantage”.

Jonathon Newman, Brightstone Law LLP, said: “The lines of acceptability are somewhat vague. Each case is fact sensitive and a degree of caution and good sense will need to be applied in each instance.

“So, in terms of corporate entertainment, hosting a small get-together at your office for a broker may be perfectly reasonable and acceptable, but treating an introducer to an all-expenses-paid trip to Monaco for two weeks for a single transaction may not be.”

To add to the severity of the Act, for the first time ever companies will be liable for the corrupt activities of third parties as well as their own staff.

The Financial Services Authority (FSA) has predicted that many broker firms will be liable under the new laws because “there is significant risk of illicit payments being made to, or on behalf of, third parties to win business.”

Yet despite these warnings, many brokers and lenders know very little about the Act. Some heard about it for the first time just few weeks ago.

Gavin Diamond, Head of Finance at Cheval, said: “I have not seen any recent press about the Bribery Act but was alerted to it by our compliance consultant.”

James Rainbird, MD of Pink Pig Loans, added: “I only heard about the Act in January during an Association meeting, but my ears were certainly pricked when I heard the news. I think it is inevitable that this will affect businesses within the financial sector. We have always declared our fees and the remunerations received from our lenders, but I am sure not all companies do the same.”

The level of concern from brokers and lenders within bridging and commercial lending differs hugely, with some saying that they are not at all concerned and others doing all they can to learn more about the Act and protect themselves as a consequence.

In terms of corporate hospitality, the overall opinion seems to be that ‘reasonable’ practices, where there is no intention that improper business transactions are carried out, will remain acceptable after April.

Gavin Diamond said: “It must stand to reason that the Act is aimed at preventing the inducement to act improperly rather than rendering de minimus corporate gifts and entertainment to be illegal. I can only hope that guidance notes will be published to assist companies in putting practical procedures in place to prevent getting caught out by the new Act.”

James Rainbird added that the opinions of a company’s legal team will play a large part in the way a company changes its activities as a result of the act.

Some lenders though are actually welcoming the Act. Mark Posniak, Head of Marketing and Operations at Drawbridge Finance, said that there are “definitely some positives” to be gained from the Act because it will help to create a “level playing field”.

“We already disclose all our payments to brokers and we are not overly concerned by this latest Act. I don’t think that companies who offer a good product and have a good proposition have ever worried about bribery because there is no need for it,” he said.

Over the next few weeks we will continue to learn more about this Act and how it will be imposed upon financiers on a day-to-day basis. But the real consequences of the Act will not be known until after April, when it is likely that a company will only discover that it is guilty after the sentence has been made.

By Katie-Jill Rowland

Masthaven – for all your residential bridging loans

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NACFB Expo 2011: last few stands and comments

January 28th, 2011

The time is ticking for those who still want to be involved in this year’s NACFB Expo.

The National Association of Commercial Finance Brokers (NACFB) has announced the date of its 2011 Commercial Finance Expo, which will be held at Birmingham’s NEC on 29th June.

Following the success of last year’s Expo, where 850 brokers registered to meet 56 exhibitors, the announcement of the 2011 Expo – which was made just two weeks ago – has already roused significant interest.

So far there are at least 50 exhibitors signed up, and 30 of these signed up almost immediately after they witnessed the success of the 2010 event. One of these was Affirmative Finance, who secured their place for 2011 at the earliest opportunity.

Roger Morris, sales and marketing director at Affirmative Finance, said: “There was a very good atmosphere at the Expo last year because all of the brokers attended for good reasons and not just for the freebies. We also found that there was a good ambience among the lenders, as they were each explaining their own specialities rather than trying to outplay one another.”

Another exhibitor who was keen to return after last year was First Merchant Finance. Richard Hamlin, a Director at the company, said: “All of the brokers at the Expo last year were very keen to get into commercial finance or to learn more about it. We made a lot of new contacts at the event and we’re looking forward to this year as well.”

The Expo will also incorporate the NACFB Annual Conference which is due to take place in the seminar theatre on the day.

Chief Executive of the NACFB, Adam Tyler, said: “We brought together all aspects of the commercial finance industry for the first time last year with representatives from asset finance, commercial mortgages, buy-to-let, vehicle finance and factoring, all under one roof.”

He added: “We have enhanced the event this year, with a larger number of stands available, more sponsorship opportunities, a VIP area for members and a full seminar programme in the conference theatre.”

And within the current economic climate, there is an even greater need to bring together the key players in this industry.

Rob Lankey, MD of Aldermore Commercial Mortgages, who have also confirmed as exhibitors, said: “The current climate has made everyone highly aware of the need to be involved in expanding areas of commercial finance. Last year we had representatives from across all our SME business units (Commercial mortgages, Invoice Finance and Asset Finance) and the brokers expressed an interest in all of these areas.”

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NACFB appoints new chairman

January 21st, 2011

Kevin Jones of Omega Commercial Solutions has been appointed as the new chairman of the National Association of Commercial Finance Brokers (NACFB) and will hold the position until the end of 2012.

He has been a director of the association since 2005 and became deputy chairman in 2009. He was voted in as chairman last November at the NACFB’s AGM in Birmingham and was officially appointed at the first board meeting of 2011, which was held last week.

Kevin Jones said: “Having been involved with the NACFB since its inception and the last five years as a main board member, I am delighted to have been voted into the chair for the next two years. A great deal of progress has been made by the Association over the past few years and my aim whilst chairman is to ensure the momentum continues and the NACFB ensures the high profile it has enjoyed over the past couple of years is maintained.

Chief Executive, Adam Tyler, said: “I have worked alongside Kevin now since 2005 and am delighted that the board has decided to appoint him as chair. 2011 will no doubt be another challenging year for the NACFB and commercial finance brokers, so it is vital that the association has a strong board to guide its members through this difficult period.”

By Frank Burbage: Source: www.bridgingandcommercial.co.uk

Masthaven bridging finance are members of the NACFB

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Brokers optimistic about business ‘boom’

January 21st, 2011

Around 86% of brokers said they were expecting a rise in business this year.

None of the brokers surveyed by The Mortgage Alliance (TMA) expect business to decrease this year and only 14 per cent expect things to remain steady rather than increasing.

Over 60 per cent of the brokers asked believe that protection will be the biggest area of growth, while 28 per cent think it will be buy-to-let and 20% think it will be commercial.

Phil Whitehouse, head of TMA, said: “Despite predictions of intermediary numbers falling, the results of this survey indicate that directly authorised (DA) brokers are looking to 2011 with a good level of optimism.”

The brokers were also optimistic about the levels of lending in the housing market. Less than 5 per cent of respondents think that the figure at the end of 2011 will be lower than that of December 2010 and 38 per cent actually expect an increase.

Christian Faes, Managing Director of Montello Finance, said:  “We are very optimistic about 2011. It seems to us that the residential property market has definitely stabilised, and that the volume of transactions settling across the board, is increasing. Also, I believe that we will see a continuation of the trend seen last year, where bridging finance in the UK is increasingly becoming a mainstream product. Brokers that understand bridging as an integral part of their client offering, are definitely able to do more business.”

Mr Faes added that he expects the biggest area of growth to be the ‘medium term’ product.

“Many bridging finance companies seem frustrated with the constant grind of keeping funds out on a rotating short-term basis, so those with the weight of money upon them seem to be moving more towards providing medium terms products. This is positive as this should provide more choice to brokers and ultimately borrowers. However, bridging finance will continue to be the growth space for this year. As borrowers (and lenders) become more confident of being able to refinance a bridging loan, and as the product becomes generally more mainstream, borrowers will be more likely to complete on a deal,” he said.

By Katie-Jill Rowland

Source: www.bridgingandcommercial.co.uk

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Property hungry couple owe £670M

January 21st, 2011

A lawyer from Dublin has ended up owing £670 million to banks all over the world having purchased a portfolio of high-end properties using readily available credit during the property market’s boom.

The extent of Brian O’Donnell’s debts have been laid bare because the Bank of Ireland has taken him to court in an attempt to force him to sell one of his prime London assets – Sanctuary Buildings, an office block just a few metres from the Houses of Parliament – as the bank tries to recover the £58 million he owes them.

During the bubble, O’Donnell audaciously developed an international property portfolio that includes two buildings in London’s Canary Wharf – 17 Columbus Yard, purchased for £125 million, and 15 Westferry Circus, purchased for £140 million – as well as Stockholm’s largest office block and an office building on Pennsylvania Avenue, Washington D.C., situated just a few hundred metres from the White House.

O’Donnells’ rise in the property sector mirrors that of a number of other investors who caught the property bug when credit was cheap and capital yields – profit on buildings – meant that millions could potentially be made in a matter of weeks. His case is the latest in a series of court actions being instigated against property developers now bearing the brunt of the financial collapse.

Masthaven: for property development loans

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Solicitors request postponing trial of jailed financier for ‘medical’ reasons

January 7th, 2011

The lawyers of a financier suspected of defrauding clients of £4.25 billion have requested a two year delay in the start of his court case, due to begin on the 24th January.

Sir Allen Stanford’s lawyers, Ali Fazel and Robert Scardino, made the request, citing health issues.

“Mr Stanford’s mental, emotional and physical health is drastically deteriorating,’’ Fazel said yesterday in federal court papers seeking Stanford’s release.

The Texan billionaire, who is charged with 21 counts of fraud relating to a $7 billion Ponzi scheme allegedly run through his Antiguan bank, has been repeatedly denied bail by U.S. District Judge David Hittner due to fears that he is a flight risk.

Stanford has been heavily medicated since September 2009 following an attack by a fellow inmate that left him with numerous broken facial bones, and Fazel said that “these medications have left Mr Stanford in an unfocused and numbed state of mind, caused tremors of the limbs, diminished range of facial expression and slowness of speech” and have “created a condition where the accused can no longer assist counsel or invoke basic constitutional rights.”

Fazel and his partner, Robert Scardino, both of Houston, were appointed Stanford’s lawyers in October after the financier lost a lawsuit over access to $100 million in legal defence insurance funds.

Sir Allen Stanford was in the news as recently as 20th December 2010 following the publication of a US cable by Wikileaks, dated 3rd May 2006, in which American Ambassador Mary E. Kramer described how Stanford had “made significant investments in offshore finance, aviation and property development in Antigua” and how “his companies are rumoured to engage in bribery, money laundering and political manipulation.”

Stanford has been in jail since June 2009, after he was charged with the huge fraud. It is thought that he used Ponzi-style schemes similar to those of notorious Wall Street fraudster, Bernard Madoff.

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