What Can We Expect From 2021: The Omega Perspective
Whilst I would love to be writing an article confirming that we have returned to pre-pandemic borrowing levels, and access to debt, cashflow support and equity options is at an all-time high, the vaccine bringing not only light at the end of the lockdown tunnel but also dissipating all concerns within property and business finance markets – that article might have to wait.
2020 presented more than its fair share of challenges on both a personal and business front, one that you might be surprised to learn is that of maintaining service levels against a backdrop of record-equalling enquiry levels across the year. This is something I am happy we were able to do, to the extent that the efforts of all staff and team members have been recognised through being named as finalists for a 7th straight year in Business Moneyfacts Commercial Mortgage Introducer of the Year Award.
As many people will testify cashflow pressure and, importantly, access to funding proved a key obstacle throughout 2020 for most businesses, with the Government stepping in to assist through a number of measures, primarily that of CBILS and BBLS. These continue to be available to businesses and a good source of debt, with the initial 12 months essentially fee free and a guaranteed low rate of interest for the term. As I write, this has been tweaked further with an extended repayment period of up to 10 years now available.
This has however come with wider implications for the market some of which are still being felt and some also yet to be known. The requirement on the high-street lenders to offer these funding options meant an almost entire refocus of resources away from traditional business support and commercial mortgage avenues. This led to increased lead-in times, further lengthening of an already stretched out process and coincided with an expected and largely justified review of risk weighted appetite – something I believe we all accept was both expected and inevitable. This did however open opportunities to new perhaps non-traditional, transactional funders able to deliver debt options to clients which weren’t available through their existing relationship manager or bank. Something which has remained into 2021 and (in my humble opinion) will be a sustained feature of the market for the foreseeable.
These new or previously not fully utilised avenues of finance are able to deliver quicker turnaround times, looking at weeks rather than months given their flatter nature, bespoke and tailored structures and lack of legacy and client book to service? This does come with a price however and that is typically one of margin, whilst competitive and becoming more so, these aren’t quite at the 2% over Base Rate we still achieve with more mainstream funders. That said; 75% LTV and rates as low as 3.4% over Base Rate via some of these funders certainly are not to be dismissed and offer our clients a genuine alternative.
One concern I have as we look forward to the year ahead, notwithstanding the lifeline they have offered the many, is that of the legacy or negative impact of CBILS, given the recent appointment of PWC to undertake a full audit of lending under the scheme. This will of course lead to further resource being allocated and, with it, further time taken away from servicing the ongoing demands of the SME. This is before we consider any delinquencies or bad debts arising as the earlier CBILS and BBLS become payable and the knock-on impact that might have. We are also yet to fully realise the true cost of the impact of COVID on business whilst acknowledging the personal impact for everyone to date. Post furlough, government schemes becoming repayable, and perhaps further restrictions will all have an impact on business cashflow, success and perhaps further review of credit appetite within specific sectors.
This is certainly a change we’ve noticed across 2020, in that lenders have a far more granular credit matrix, incorporating every business sector you can imagine on a bespoke basis, above and below specific debt levels , impacting affordability requirements, term, LTV and also simply whether certain players are lending or not. We may previously have worked to, as an example, retail vs office approach, this has been replaced with analysing the specific business sector in addition to the asset class (although this may become less influential – see below). This includes property investment and owner occupied transactions; applying zero to restaurant income or not lending at all in the retail space are two examples of what for some lenders has been sweeping changes in credit appetite.
We do expect this to be constantly updated as we exit lockdown restrictions, many businesses become able to trade as before and importantly evidence how they have traded through what has been unprecedented times. A key part of any submission to a lender at present, whether trading, investment or other, is the impact of lockdown on the business and income streams, how has the applicant adapted or accommodated these restrictions and pressures, are all tenants still paying rent – what does the next 12 months look like. All good and entirely reasonable questions.
In summary therefore – we have seen far greater challenges in the last 12 months than I or even the very oldest members of our team(!) have ever experienced in the commercial and property finance sector – however thus far we have been able to work through and meet these challenges. There remain competitive debt options available for investors, developers and business alike, maybe not from the same lender as 12 months ago, but competitive options all the same. We’ve seen some sectors return to pre-pandemic levels, including development finance which has been a strong market throughout, particularly over the last six-months and even been able to place debt with new lenders which wouldn’t have previously been achievable even in pre-pandemic times.
Whilst obtaining tailored terms for our clients remains a significant challenge, it is one we continue to deliver.
Director – Omega Group
Increased demand continues to see new lenders enter the market, drive down pricing, lenders enter new sectors (including regulated transactions) and a spread of options allowing for genuine price vs timing delivery of terms.
The key area for the next two months will be that of meeting completion times ahead of the SDLT deadline. Many term lenders having stopped taking new enquiries with this demand, this will soon be the case across the bridging market as fewer lenders become able to achieve the turnaround times required.
Available across BTL and Residential properties. SLAs have been greatly improved over the last few months, and whilst some lenders remain nervous of cashflows in the year ahead, we’ve recently seen lenders increase LTVs across both BTLs and Residential properties, able to offer a genuine alternative to remortgaging or further advances.
95% loan to all costs available, 70% LTGDV New lenders continue to expand their offering across conversion, refurbishment and ground up development options. Recent terms structured include client cash stake requirement of just £60k against a GDV of £4M and total costs of £3.200M.
Point of Interest:
The recent planning use changes should allow a more-simplified switch between occupiers and sectors, perhaps easing concerns over ability to re-let vacant space and in keeping with the requirement for creation of more generic commercial spaces, which can be re-purposed to help future proof assets. This feeds into the recent focus from asset class risk to operating sector risk, and would suggest the further creation of generic commercial spaces may help ease some concerns or negative associations built into credit policies. It could also lead to further conversion of commercial property into residential or missed use space – something we continue to see high demand for, with funding support available.