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LENDER UPDATE

Dear Introducer

We start March on Monday and the last 2 months have flown by. Within weeks we will be looking back at the first quarter wondering where it has gone and what’s changed since the dark days of December.

Banks continue to be cautious and recent results from RBS and Lloyds in the last 2 days do not necessarily point the way to more appetite for commercial lending. Barclays had good results albeit bolstered by the sale of assets.

We have seen an increase in the number of clients seeking help in negotiating / exiting from existing loans and we sense that’s where the lenders priorities are currently – rather than new loans. This trend may slacken as the year goes on but we do not see any real change this year. (i.e. no real positive changes from a brokers perspective.)

Lenders that are willing to lend are very busy and service standards have fallen drastically. Whereas we used to get 24 - 48 hour turn around on new money – it's now 5 - 7 working days with some lenders. And then they might ask for more information….

We are seeing more development deals being proposed and whilst the mainstream lenders remain unimpressed with this sector other lenders are willing to support the right deals – especially in London and there seems to be a two track economy here – London and South East vs. the rest of the country. One lender told me he had no problem on any London sites and problems on all his sites not in London - an off the cuff comment but contains an element of truth.

We are seeing more cases where residential lenders are reluctant to help and where there is some blurring of distinction between whether its business premises or not – e.g. we have looked at a Cottage with outbuildings and ‘small holding land’ even if being used for own purposes and no business element and Property with Kennels attached. These might be more ‘unusual‘ properties but applicants are still looking for lifestyle changes and thinking now is a good time to move with prices lower than they would have been for some time.

Banks still want businesses trading from or buying their own business premises – investment property less attractive generally. We have had much success with the following product which does work on investment and I recommend you talk to your clients about it – either to purchase more properties or refinance existing ones and raise capital.

FOR PROFESSIONAL LANDLORDS ONLY

•    Up to 70% LTV
•    Capital and interest. Can obtain up to 2 years interest only – up to 60% LTV  if requested
( and lender happy with all of the application ) and then 18 years capital and interest
•    Lender arrangement fee of 1.75% – deducted or paid separately
•    Interest rate generally  4.5% above Base ( or Libor, if preferred by applicant )
•    Rent Stress Test; 130% cover on INTEREST ONLY up to 20 years, at stress test rate of 7.5% interest rate ( repayment of course is at pay rate )
•    Early repayment penalties apply; 3% in the first 3 years, then 2% in years 4 and 5, and then 1% thereafter
•    Up to 10% of the loan can be repaid in any 12 months without E.R.P.s.
•    Directors’ guarantees required if borrowing in company name
•    20 year term ( better than High Street by up to 5 years generally )
•    Will consider HMO properties
•    Will lend on true investment properties let as restaurants ( i.e. with no connection to applicant )
•    May consider additional income if rent stress is not 100% achieved
•    No leisure sector borrowing
•    No land only loans
•    No Trusts
•    Will lend on properties let out on short term commercial leases ( which is far better than all High Street Lenders currently who generally require a minimum of 10 years remaining on a lease – if not longer ).
•    Generous commissions

A Professional Landlord is defined as having held at least 3 investment properties within the last 2 years ( for non professional landlords a stress test based on capital and interest at 7.5% pa / 130% cover remains ).

For non professional landlords

•    We can offer essentially the same product but the stress test is worked on 130% cover based on capital and interest at 7.5%.

For owner occupied businesses- trading from their own premises-  60-70% would be the norm although all depends on affordability – as per trading accounts and more could be available for the right sectors/applicants.

Recommendations;

1.    keep in regular contact with business clients re how they are being looked after by their bank; many personnel changes being made and linked with increased margins being requested / new security requested and opportunity exists to help clients / look for alternatives
2.    Bank of Scotland seem to be running their book down; Clydesdale also are looking to exit some past loans and HSBC remains cautious on any new debt. – look for clients with relationships here and see if they want to look elsewhere
3.    Talk to your property investors – anyone looking to capital raise or buy additional units could be a client you can assist – especially if they have semi commercial / commercial where property let out on a short lease (say under 6 years remaining)
4.    talk to your business clients – they may need help – or they may need help later in the year – either with tax / paye / other bills or working capital or new money to help the business cope with demand / new orders. Businesses can only delay replacing vehicles / equipment for so long.
Our underwriters are happy to discuss any case- remember commercial finance is more about finding solutions than ‘ products’ – and currently I imagine some of your clients need solutions…

Regards

Mike