I’m writing this following the hosting of our inaugural Mortgage & Specialist Finance Expo, an event which proved to be a big hit with our existing ARs and some potential new ones. The aim of the day was to present an opportunity for advisers to have face-to-face engagement with a variety of lenders and gain a better understanding of their products, criteria, policy and underwriting capabilities in what is becoming an increasingly complex economic and lending landscape.
Meeting a new lender from a certain sector is always a useful experience from an insight and educational perspective, but it is not meant to be a tick box exercise or a catch all information grab to make any adviser an expert within that marketplace.
What some advisers – who haven’t had much experience dealing with cases in areas such as bridging, development finance or even commercial loans – don’t always realise is the variety of solutions on offer from lender to lender and/or the levels of dispersion when it comes to policy and criteria within any given sector across the specialist lending community. Then there are the differences in how individual lenders demand applications to be packaged, unique underwriting requirements, service standards, I could go on and on.
Here at the Envelop Network, we are relatively unique in the fact that we have an internal specialist packaging arm that can cater for all kind of specialist lending needs including bridging loans, commercial loans, development loans and secured second charge loans. And when discussing a variety of areas throughout the day, a common theme seemed to emerge around growing demand across these sectors, especially from a commercial and semi-commercial finance perspective.
With that in mind, it came as a little surprise to see a headline emerge a few days later which highlighted that broker-arranged loans for small business hit £45bn in 2022.
The data from the National Association of Commercial Finance Brokers (NACFB) survey suggested that 48 per cent of respondents said the total value they introduced was higher than in 2021. Only 17 per cent of respondents said value was lower and 35 per cent said it was broadly the same. The average loan size was pegged at £563,000, a 23 per cent rise on the previous year’s figure.
The report added that most member firms maintained a “multi-disciplinary practice”, with over a third of firms’ primary business coming from commercial mortgages. Over a quarter of firms’ primary business was leasing and asset finance then buy-to-let mortgages. Around 20 per cent said that commercial mortgages was their secondary area of business activity, followed by property and development finance at 17 per cent and short-term and bridging finance at 16 per cent.
The largest tertiary area of business was short-term and bridging finance at 28 per cent, then commercial mortgages at 19 per cent and property development finance at 15 per cent. The report continued that 62 per cent maintained the same offering as the year before, but a third of member firms diversified their offering in 2022.
It was also interesting to see that the top three reasons from brokers for applications being declined were a valuation mismatch and reduced sectoral appetite at 14 per cent apiece, followed by poor credit history at 13 per cent and lack of strong cashflow at 12 per cent. Lenders said that the main reason for an application decline was that it was outside of lending criteria at 33 per cent, 14 per cent pointed to a valuation mismatch and 12 per cent said it was due to poor credit history.
The commercial finance market remains an interesting one as a string of differing challenges remain for a variety of businesses across the UK. These challenges outline the rising importance attached to the support of a good, professional advice process in helping businesses to source the right size and structure of financing, whether this be for cash flow, term loans, acquisition or mortgage purposes. This is also an ongoing theme across all the specialist sectors as the value of this advice, and the value attached to the support of trusted packaging partners in delivering these solutions, is also rising.
As a network, and in tandem with our in-house packaging partner, we work with many commercial finance specialists. And it’s prudent to point out that, even in the midst of an uncertain economic outlook, many alternative forms of finance remain available through intermediary channels. Provided that the strength of relationships are in place with experts in their field who are able to find ways to tap into the right specialist lending boxes.
Donna Wells, Director at Envelop