Hi, I'm Joe Aston. I'm the Sales and Commercial Director at Aria Finance and I'm joined today by my colleague and a team leader within our business of our second charge division, Adam Lord.
Hi Adam. So we're going to talk a little bit around the second charge market.
It's a market that was north of 20 % up year on year from a total lending perspective and it's still an untapped opportunity for many brokers in the market and in the space where their borrowers may be asking for more money out of their property.
Hi Joe.
but it's inappropriate or the wrong move or they're unable to take more money out from a first charge basis. And there are other options in the background. So I'm keen to discuss with a legitimate expert in the market, sort of how that looks, what opportunities there are. And you've been with us a long time as well. Talk to us a little bit about your experience with our business.
Sure, okay, so just giving you bit of historical context, joined the company when we were formerly Enterprise back in 2017. Coming up to a decade in the industry prior to that, I was more so specialising in first charge mortgages. So, sort of seeing things both sides of the fence here and yeah, grown as the company's grown, learnt more, taken on more. So, keen to share and impart some knowledge today.
Yeah, good. And you know, it's funny because actually the product has evolved so much in that time. You've probably grown with the product, but how different does it feel as someone who, as much as you're in a team leader role, you're also running your own pipeline and one of our senior advisors in that business. How does it feel running second charge mortgages now compared to back in 2017 when you started?
So yeah, the landscape has completely changed. It was back in 2016, you saw the mortgage credit directive come in place where these products became regulated products, and it did the same stresses and same disciplines as your conventional mortgage products.
The process of which has evolved over the last 10 years is very compliant, more efficient. We're seeing this from our lenders as well in their standpoint, in the way that they assess cases, the way that cases are keyed into their systems as well, their decision choices. So the whole process has evolved. It's become more compliant, more strict, more mainstream and more conform.
And it's funny because the market now is massive, know, over £2 billion worth of second-charge lending last year. And actually within what is still a tight-knit lending sort of environment in terms of lending options, there have been a couple of new disruptors in the space in the last two years who have taken big market share and are growing as well. How have lenders and their processes changed? Is this a complicated loan? Is it efficient? How are you finding actually the delivery of these facilities now?
I in the last two years, the process in itself has evolved to such a degree where things are more efficient, more streamlined. Yes, there's still the manual decision making, which is the fantastic element of the second charge mortgage, and that runs to a certain degree completely different to your residential mortgages, where it might be the case that the computer says no, the second charge, there is that manual input, there is that human decision making being placed. However, on the operating system front, these systems are more efficient.
You're seeing the increased use of automated valuations, so taking that out of the mix as well. As opposed to a physical valuation, it's further speeding up the process. Our lender's portals are more efficient in making quick decision making initially as well. A lot of our lenders also dynamically price their products as well, they can adapt to the marketplace and really capture business where they feel there might be a particular feel.
It needs to capture its business in specific product ranges, but it allows them to react to external market impacts as well.
Yeah, and I think that's a really key point because, know, I do a lot of, as you know, I write unregulated business, I do commercial and bridging finance and buy to let's but one of the big selling points for our industry and our sector and our business is that we live and operate in the grey and regulated arm of mortgage lending has always been a little bit more rigid but second charge is a bit of a hybrid. Like you say that there's a human being at the other end, you can have a conversation and if there's a common sense approach to be taken there are lenders that will go down that path right?
Yeah which is great and you touched on something really interesting there which is efficiency and speed which again is a major reason and motivation for some borrowers to look to this product where actually it's just an immediate requirement and the equity they have happens to sit within the residential home right? We're turning deals around I think on average it's something like 10 working days from application to completion but how quickly can a second charge be done?
Correct.
If everything aligns and in the perfect store it can happen within the same day. We've had cases complete within five, six hours. Now I'm not saying that is going to be the norm but most certainly the efficiencies and the processes there with our lenders that we have to allow that to occur.
Yeah, it's the right caveat to say I think those are the unicorn cases, but the fact it can be done is great and highlights with a motivated borrower and the perfect storm of circumstance it can happen, right? inevitably, there'll be a wave of inquiries now looking for five-hour turnarounds, so hopefully not. Just if we take a step back, look there are still a lot of...
Certainly borrowers and consumers, but also a lot of brokers in the market, competent, experienced and expert mortgage brokers in their own right, who maybe don't fully understand or are aware of what is a second charge mortgage. Can you give a high level summary of what is a second charge mortgage?
Yeah, the name suggests exactly as to what the product is. It is a second charge against the home. It is a secondary mortgage payment that is made in conjunction with your first payment each and every month. Now the need for that product might arise for multiple reasons. The most widely recognised reason as to why somebody may wish to take out a second charge mortgage very likely is either they're adversely impacted
So they've gone to their mortgage broker, they've gone either for a further advance or further borrowing on their current mortgage facility. They've looked at a potential re-mortgage. They've taken their existing mortgage and going with a new provider and potentially looking at additional borrowing there. And it could be to what we alluded to earlier, very simply, where it is the computer says no. The second charge comes into fray where the clients want to try and maximise their borrowing capacity, their credit score.
Very simply doesn't enable them to do that with high street lenders. So again, it could be that you have a client that is keeping all their items of credit up to date each and every month. But very simply, their credit utilisation has an impact on their credit score. They're not a bad borrower by any means. It's just very simply, they're not able to borrow through their high street lender because of the scoring algorithm to place with those lenders. that would prompt another reason as to why someone might look at a second charge mortgage. have the typical, don't want to currently disturb a historic rate of interest or they might fund on a very preferential rate. Those rates or clients that were locked into fixed rates prior to certainly 2022, it's not uncommon to still see and have discussions with clients that are sitting on interest rates between 1 and 3 % in some cases. So they may not want to.
And that's an interesting point because I think, you know, if I go back in time five years, we would see loans come in for, if I'm with a broad brushstroke, one of three reasons, right? Avoiding paying the ERC, stretching their income further, because income multipliers start at six times income, don't they? So you can factually raise more on a second charge. Or they were consolidating debt, but that protecting the legacy rate is a landscape shift and is a new trend in the last couple of years.
And you're quite right. At the time of us filming this, you know, you've got borrowers on those five-year fix and they are three years in to those rates still sub 3%. So the ERC becomes less the driver in taking second charge debt, it's protecting the original rate.
Exactly that.
Yeah, there's been a new trend as well of sort of newer rationale, newer reasons for people taking second charge borrowing and some of that. I'm keen to know some of the more nuances around these from your side. But one that I see in the market is there's a wave of borrowers taking PTs execution only, particularly in that year 23 that was really difficult when the first charge lenders, I think, were really proactive in reaching out. There were quite a lot of execution only product transfer, someone panicking, getting it done early for PTs.
Yeah.
of mind than realising they wanted to tap into debt. We can raise a second charge pretty much at day one behind a PT, right? Fantastic. And the second thing then is that in a tighter economy and with the cost of living crisis still bubbling away in the background.
Correct.
We see a lot of people who have gone from a lifetime of PAYE employed to self-employed, or people who were clean borrowers for many, many years who now have some credit blips, some defaults, something that's not aggressive but is a credit discrepancy. Actually, those borrowers are more likely to get preferential eyes on them from the second charge market, quicker to lend to self-employed, a little bit more lenient with some credit defaults than maybe the first charge market across their entire debt.
Is that fair?
Yes, yeah, it's very fair and a good comment to make there. And really, when you look at it, with a lot of homeowners, a lot of households will carry debt. Some of that may be legacy debt. Some of it might have occurred in the last five years as a result of COVID, a loss of earnings. And we still are seeing those enquiries come to us where clients are very simply skiing uphill with their debt, unfortunately. It's accumulated historically five years ago.
the payments they're making are very simply just servicing the interest. You you're just taking the ice off the tip there, know, the tip of the iceberg. And it's really trying to see how we can help and accommodate those clients in moving forward, getting them out of a debt cycle and really getting them debt free, saving them money each month. I mean, to put into context and just give you a very brief example here, if you had a couple who had accumulated
Mm.
£50,000 worth of debt. Most high street lenders and credit card providers, I'd expect a payment of around two and half percent on that month. Now that could accumulate to around just over 700 pounds a month, give and take. If you're condensing that into a second charge mortgage payment, and let's go for a default term of 25 years here, at an interest rate again, a default rate here of 7%.
That client would stand to save between £500 and £600 a month at least for that. So it is a significant saving here and it's a particular loan purpose which second charge mortgage market is probably most widely accommodated for and used for.
on the back.
Yeah, and it's a good point because actually we sort of touched on why, when do people take second charges, stretching income, avoiding ERCs, protecting the rate, those type of things. But the, what are they using the money for is a separate conversation entirely. And sometimes that's what rules out the first charge lender from lending. But debt consolidation is a great example. It's 60 % of the second charge lending market. And, you know, that's a huge, huge reason, you know, to, and not only that, it's because it's a regulated product, right?
And, you know, correct me I'm wrong, but actually a good reputable mortgage advisor doing the right job, doing the right due diligence is advising somebody here on something that puts them, product that puts them into a better financial position long term. So although the second charge debt can be a slightly increased rate from the first charge debt, that's a red herring right, because we're looking at the bigger picture and the blended rate and the impact on someone's finances as a whole.
Yes, yeah. And certainly we would go into this in quite a degree when we're talking to our clients. You know, we're assessing what are they currently paying? What does that interest rate look like? How does it impact to move them forward with the introduction of second charge mortgage? Very likely an interest rate reduction in most cases, certainly in comparison to a standard credit card APR to a second charge mortgage rate, there's going to be a significant reduction there. So we're not only looking at it terms of an initial reduction in terms of interest rate monthly cost, how does it impact our client and our consumer longer term as well? Yeah. And that's something that we look at, not just the short term impacts, but also the long term impacts of the clients.
Yeah, it's good. And it's a great, I mean, it's just a fantastic product and weapon in our armory to help put consumers into a better position, right, which in line with consumer duty, selling all brokers, I think should be thinking of for their borrowers, certainly when someone's in a maybe distressed position. And if I'll add one more thing onto debt consolidation before we move on. But I think one of the myths and misconceptions is that a debt consolidation product, particularly in second charge space, has to be a rescue product.
But we see people taking this proactively, right, to get ahead of problems that they can see coming.
Exactly that, to sort of touch on that point a little bit earlier, you know, with most people servicing their debt at the moment, their payments are very simply servicing the interest, you know, they're not really reducing off the capital and it's just accumulating over time. So by practically looking at these products, they are making waves in taking these credit cards out of the equation, condensing it into one month repayment, making a significant saving each and every month with the aspiration to hopefully take that
Yeah, yeah,
second charge mortgage, within a period of one to five years, replacing it back into their primary mortgage. And that's something that we also look at and we encourage our brokers that refer to us to also have that eye on as well. It's we are here to provide that service and not a temporary relief, but a solution equally for our brokers and those introduced to us and may want to introduce to us in the future. Well, you know, the option of
Right. We've placed the facility in place for them in the next one to five years. Is it possible and is it viable that the client can re-mortgage and exit out the second charge mortgage? The ideal scenario is they don't keep the second charge mortgage for the full intended term, that's 25, 30 years, because yes, when you look at the accumulative cost, then they will be paying potentially more long term. But equally, we're looking to plan for both. So we're looking for a
efficient short-term solution explained to the clients long-term cost implications when we're clickable but equally try and give them that midterm solution and give them back to the broker to really refinance and exit out of that product.
Yeah, it's a great product and we encourage everybody that actually is dealing with clients, looking at remodelling, looking to tap into equity in the home, looking to consolidate some debts to consider this and to run it past a reputable broker to understand and ascertain whether it's the right move. But outside of debt consolidation, what else are people taking second charge monies for? What's the purposes of some of these funds?
So yeah, I mean, the most widely recognised is debt consolidation. Second to that is more so home improvements. You know, lot of people in the current marketplace, you know, they're looking at the cost of moving versus the cost of extensions, you know, and sometimes when they've done their due diligence and have done their cost comparisons for a lot of people, it might be a cheaper, quicker and more affordable solution to consider extending the home. So we are seeing an increase in clients looking at that.
You do have other niches. It might be aspirational purchases, whether they want to purchase a buy-to-let. You might find the bank of mum and dad. you have clients wanting to purchase properties, get on the ladder. Unfortunately, they don't have deposit there.
mum and dad might look at raising against the main residence it possible to really provide them with that deposit and start
Yeah, yeah.
It's a great point because also the bank of mum and dad is one of the biggest lenders in the UK still, right? Technically, there's a lot of it's gifted but the sentiment remains. you know, the market has changed that people aren't as liquid. So actually to tap into that money to give it in the first place, they're often taking it from their own home or from some assets or consolidating things that they have. So that's a great example as well. One reason that we see quite a lot of is, and it comes to us for a second charge because the first charge markets still don't like this rationale, but taking money out of your home to put into your business.
And that's something we can do that's widely accepted within the second charge space, isn't it?
Yeah.
Yes, yeah, there is going to be a sense check in that to the fact of what is the money being used to in conjunction with the business. If it's to grow the business, if it's an established business, is it to purchase additional equipment? Is it to hire extra resource? All these things, and I'll set in a blanket term, typically are subject to referral to lenders, but most certainly lenders in the single charge mortgage market space have that appetite to lend for that loan purpose.
As with anything, you know some questions may be asked there just to obtain further information which is pretty typical.
Yeah, think if those funds aren't saving a business where we think it's going to slip again, actually there's a broad brush stroke, there's ability to look at that market, which is great because the first charge market isn't there. So, you know, for brokers representing clients who are business owners as well, it's a really good thing to consider. And for me, I've seen a real trend and a lot of my conversations in the market centre on how can we be creative? And I hop back to two things, really, and one can be as unusual as it's going back a couple of years now funded around the world trip, right?
But actually the concept of taking money out of the home to send somebody away from the security for nine months, know, trusting that their passive income is going to remain is, for glorified cash flow for holidays, something that the first charge market just wouldn't be allowing, but we had a couple of options in the second charge space, so for the right borrower and the right creative reason, we can step in, can't we?
Yes, yes, and you know those funds could be also used for weddings, you know these once in a lifetime experiences and events, you know, that perhaps the first charge mortgage market space may not be comfortable in lending to, you know, our lenders would also have an appetite for reason to consider lending for those purposes.
Yeah, yeah, it's a great example. And the other one that I really wanted to touch on is the change in private school fees. So we see a lot of this. And actually, as I've done the rounds in the market, we've done a few loans for brokers that we've presented to talking about their clients where, you know,
Adults with children in the independent school structure, their costs have gone up because of the VAT changes. So there's an extra 20 % of spend on there. Generally costs rise year on year anyway. And you can have a saving by paying bulk upfront for a number of years or for the year ahead. And we're seeing a lot of people tap into the home to raise those funds, right? But that again, from the first charge market perspective, is kind of a cashflow thing. And it's not necessarily widely accepted within the first charge market, but we're really comfortable with that.
Yes.
scenario aren't we?
Totally agree.
Yeah. One to remember and I think it's a good market. I guess sort of to finish off really with a snapshot and an intro to second charges. What do you think is going to happen with the space? What are the opportunities that you see coming? And I guess, you know, not to bombard you with questions, but in a nutshell, if you had to give advice to brokers looking to find more second charge opportunity, engage with their borrowers, what should they be looking for and what can they do to generate more of this business?
Okay, So answering the first part of that question, where do I see the market going? I only think it's only going to become more competitive as the year flies by. Not only are we seeing lenders being more reactive with their pricing, as I mentioned earlier, a lot of lenders are now switching to their dynamic pricing of products, so allowing them to really sort of adjust the ebbs and flows of the external market influences very quickly, so we can see price reductions at a whim.
Really can be the case of one week to another, a very quick rate reduction there. To give context and broadly speaking terms of rates, I'd expect really for the low loan to value deals at the moment, interest rates are likely to sit and start around 5.5%.
Which is competitive, right? mean, the gap between the first and second charge market is just not that big anymore. No, it's closing. Yeah. Month by month it really is. I can only see that going down as the year progresses and becoming more and more.
Closer and more aligned to perhaps historic market conditions, know, those that might have echoed a sentiment of five years ago, six years ago. that is really, really good for the market space. Lower rates, cheaper monthly payments, better savings, bigger savings for clients. I certainly think so.
So a growth year again you think. So to sort of wrap up, what advice would you have then for these brokers that we deal with across the country who are looking to tap into the second charge market and start these conversations with their borrowers?
That's a very good question again. So the first thing I would say is, any no's you've had on your desk. you know, if you've looked at any recent re-mortgages, any recent transfers, further advances, know, a no for you may certainly be a yes for us. Yeah, absolutely. That's the first place to start looking. For those brokers that certainly find themselves fortunate to have a, you know, a back book of clients, really is exploring the opportunities those clients have purchased, you know, certainly all re-mortgaged in the last five years. So those that are holding on to those preferential good historic rates, know, they don't still want to disturb, you know, somebody five years ago might find themselves three years into their fixed rate, can they look to borrow those additional funds certainly at a cheaper cost than what it would be as opposed to redeeming their current mortgage you know, and place everything on a higher rate of interest. So that might be, you know, something that would.
Yeah
It's a ready-made client pool, We deal with experienced, competent, expert residential mortgage brokers across the country who are sat on a black book of great borrowers, hopefully with appreciating assets, that might want to tap into those funds. So if those conversations are something that a broker has time to do, you know, we'd encourage them to do it, right? And see if there's some opportunity there to support and to help. And finally, for a lot of brokers, whether they're part of a network or they're DA themselves, a lot of them are worried about the advice process, but we're happy to own the regulatory responsibility, right?
Exactly that, know, and in some cases, in most cases, we recommend you do that, you know, really let us do the heavy lifting. You know, can be very simply, give us name and number, a very brief backbone, you know, backstory to the case. We'll take it off your hands, you know, it's our job, it's our bread and butter, you know, alleviate the stress and the workload. You concentrate on what you are the expert at and let us do what we're best at.
Yeah.
Yeah, quite right. Well, I'm really grateful for you taking some time out to come and do this as a true expert as well.
Thank you to everyone that's either watched via our emails or online. Really appreciate it. If you have any questions about getting into the second charge market, any second charge cases or borrowers that you think could do with the conversation, do get in touch with our team and we'll try and help.
My name is Joe Aston. I'm the sales and commercial director at Arya Finance. We're one of the largest specialist brokerages in the UK.
Uh we transacted last year just over half a billion pounds worth specialist lending and we operate across all sorts of product ranges and with a wide variety of lenders, specialist lenders, high street banks, challenger banks, privates, etc.
And I'm delighted to be joined today by one of our sort of strategic partners, um, MT Finance and the senior EDM for the London in the Southeast region, Joe Grace.
So, hi to Joe.
The way this is going to work is we're going to have a little bit of information from Joe around MT Finance, their product offering, um, what's going on in the market right now from their side and how they're diversifying moving forwards. And then hopefully we'll get into the last Q&A. I have a number of questions present in prior to the webinar which is great. Some really good stuff to get our teeth into but obviously there is a Q&A box um enabled as well a chat room so please do feel free to ask any questions at any point and we will get to them at the end.
In the meantime I'm going to hand over to Joe um to tell us a bit more about MT Finance. Joe take it away.
Thank you Joe. Morning everyone. So um as Joe said my name is Joe Grace. I'm a CD senior BDM um at MT Finance. Uh a little bit about myself. So I've been there six and a half years. Um which is quite a long quite a long uh journey for myself. Um you don't see many BDMs having having stayed in the same place. Um yeah, I've kind of worked my way worked my way up through the ranks. Started as kind of a a um new business exe executive. So pretty pretty um fresh in that sense.
I didn't even know what Bridging Land was kind of when I started. Um but yeah, kind of worked my way through it. Um kind of mastered my craft and here I am and now I sell I sell uh bridging finance. So so it's a it's a nice journey for me. Um but yeah, a bit about us. So NC Finance, so we are a leading property finance uh lender. Um so we specialize in bridging loans um and auction finance I suppose in short. So for us we've we've been around since 2008. Um we're very proud to kind of have assisted numerous property professionals, um business owners, uh portfolio landlords, and kind of just individuals with their kind of financial requirements over the years. Um for us and our big thing, our reputation is kind of delivering fit for purpose short-term loans. Um we're very good at what we do.
You'll note that kind of most bridging lenders are required um in the sense of speed or they've got a fast approaching deadline. Um and we've kind of just been consistently I suppose recognized for for delivering uh kind of in the financial services industry. Um so like I said it started as a as a kind of short-term um gap in the sense of obviously our bridging our bridging offering mainly auctions. Um and then as time goes on we've kind of introduced uh regulated bridging finance um which has been very successful. We now offer buy to let mortgages. Um and we are and recently really recently we've just launched commercial mortgages. Um so we're doing very well. Um it's going it's going very good. Um and the offering is just getting greater and greater. Um and we we're very proud. We're very proud of kind of where we've come from. Um and I suppose for us as we're kind of an asset based lender, uh we don't really judge a loan application on credit history. you find most um if you were go to go to a bank, you may well be declined if you've got a CCJ or you've missed a payment or you might have a small default or a credit blip.
Um essentially with bridging, we we really aren't as bothered as such with with credit issues. Um for us, like I said, we're asset based lenders, so we focus purely on the asset, lend on that basis. Um and obviously concentrate on on a borrower's kind of future plans. Um and and in doing so that that allows us to offer a greater range of flexibility um to our clients. It kind of goes hand in hand in that in that respect. Um I kind of touched on I suppose speed um there is always an element of speed in bridging. um when when a client needs kind of fast, flexible, uh stressfree, if you like, um requirements, obviously we're here we're here to do so and offer that. And we we kind of pride ourselves on that deliverability. Um and yeah, just getting just getting the finance require requirements, sorry, um completed.
Uh whether that's in a matter of days, um we have been as quick as that. Um especially recently that we had a couple of deals but that kind of flew through. Um but it's yeah it's just finding ways to kind of cut through any delays that that a bank may well have kind of a challenge with. Um and it's what we can do to kind of take a view on that as such. Um and a big thing for us as well is is kind of transparency. There's no there's no hidden costs.
Um we don't charge any early repayment charges. There's no exit fees with us. Um and obviously we provide all your kind of pricing and information at the outset on our indicted terms. Um a lot of the time now we are kind of doing a bridging loan um for whatever reason whether that's business purposes um if someone's buying an additional buy tolet property or an investment if someone needs help to inject funds or or capital into a business. Um the beauty now now that we have B tolet mortgages and even commercial mortgages we can actually exit ourselves in that sense. So we can kind of pre-underwrite at the bridge to know that we will exit um onto a mortgage thereafter. So, it's it's been great. It all goes hand in hand and it's just that really great kind of journey for the client and that synergy from bridge bridge to refinance. Um, but yeah, like I said, we're very good at what we do.
Um, and yeah, I'm kind of excited to tell you a bit more about ourselves with the specific questions. Brilliant. Okay, thanks J. And look from me, I mean you as a firm um MT Finance are one of the biggest and longer established bridging lenders in the space. Why is it that people continue to use you? Do you think if you if you were pressed on it, what is it that makes you stand out that people like to to deal with empty finance? I suppose um for me it's going to sound quite cliche, but we we are very good at what we do. Um, I think the property market has kind of, as you probably have seen, it's changed substantially over the last few years. Um, certainly in the in the six years that I've been in the bridging market and the bridging world.
Um, obviously we've kind of seen significant growth in terms of new lenders out there, especially unregulated lenders. Um, seems to be a new lender kind of every week. It seems that someone's heard of or someone's kind of got maybe family money or a certain funding line. Um but for me and like I touched on it briefly just then I think the main thing for us is and why people come back to us is firstly our deliverability. So we want both well for us and the client to kind of maximize on any deal um that they have and ultimately we want to deliver on what we've proposed. Right?
So, I think for us, and you hear time and time again that perhaps a lender's changed the goalpost at the last minute or something's cropped up that they're not happy about and they've kind of just declined the deal. I think for us it's it's not in our DNA to do that and we're very we're very good at taking a common sense approach. Um, yes, there's an element of risk that may occur. Something may might have come up on a valuation that we're not aware of, but it's right, how do we what can we do to to make that deal work? Um, I'll be comfortable to maybe take a view. Is there something we can maybe indemnify to to progress the case? Um, and yeah, I think that's one of the main things. Um, and deliverability, it's it's just so it's just so necessary now because there's a lot you'd think, oh, a lender a lender just needs what the lender is there for a reason, right? And there's so many that don't um kind of finish a loan or complete on a loan for whatever. I think you're right.
Yeah, I think that moving gold post piece is a really accurate one and and you're right again that the bridging lending market is incredibly saturated and I'm conscious that there might be some brokers who have joined us who haven't done much bridging or maybe haven't worked empty finance before but that market is so saturated there are a handful of really established larger bridging vendors where deliverability you have a lot more um buy in and you can have a lot more confidence in getting those loans through as they were quoted at day one as they were agreed at day one fighting to find a solution rather than a problem and you know you guys are very much a part of that market. So credit to you that you mentioned what you were talking about how you see quite a lot of auction purchase business.
Now for me as a broker one of the things that we've seen as a firm and and as a business we did within our sort of makeup last year we did just over 200 million of bridging. So this is a big area for us as well and a huge amount of that and one of the entries into bridging for consumers and borrowers who haven't borrowed before is auction finance and auction purchase because a lot of people are now chasing yield where the buying market is tougher so that they're buying down properties doing them up or trying to find a bargain.
When someone goes to auction they need a bridging loan for speed. How do you guys how are you winning that business? What can you do that can help speed these transactions up? because you mentioned speed before as well.
Yeah. Yeah. So um certainly towards the end of last year we've introduced um AVMs. So for those that don't know, so an AVM is an automated valuation model. Um that means essentially you would put the postcode and the address into a system um and it immediately gives you a valuation and a confidence level of that valuation. Um for us as a lender um if we're happy with that valuation and that confidence essentially that you can rely on that valuation. So that you go straight to legals at that point. to you wouldn't be looking for a valuation report or anything like that. It just that's passed straight to legals and then we've got a 21 point checklist. Um once all that's satisfied, we hit the button and complete.
So it just helps again with that speed element. Um another point as well which is quite a good one. We towards the start of last year we introduced that if there had been any works to a property as long as it was over a year we could indemnify on searches. Obviously, you know, Joe's experienced it, searches can take decade to get back. Um, ages, and they kind of just put a halt to any kind of deal. Um, so yeah, if you're doing an ADM and you've got search unity, um, they just kind of fly through. So, it certainly helps with that speed and that kind of auction deadline. Yeah. And you you mentioned that there, you know, some things are happening in as little as days rather than weeks, and we're seeing that, too. And a number of the established bridging lenders are getting better at that. And you know again you guys I've seen your proposition enhance on that basis too. So it's great to be a part of you we'll come back to bridging I think but you're not just a bridging lender anymore.
You back in 22 you diversified and launched by to let that was an awful market to launch um with the back in Q4 the mini budget sort of starting and the mortgage crisis but what makes you stand out for brokers to work with you on the buy to let side today's market. Sure. Um so like you said, yeah, 2022 was wild to release a B to mortgage uh and essentially become a provider for that. So obviously list trust didn't didn't help.
Um obviously mortgage rates soared, products become unavailable. Uh products weren't feasible as such. Obviously we released with a with a rate u whatever it was back then and then we had to we had to increase it thereafter and it just wasn't we wasn't seeing business because it was just simply too expensive. Um I think the good news for that for that period we didn't withdraw any products we we kind of stuck to our guns.
Um and to be honest we have seen some kind of fantastic originations uh during that time and truthfully we've been kind of going from strength to strength and I think the main thing for us there's a lot of lenders now that are kind of um doing product transfers and they're rewriting their loans for product transfers. I think the important thing to think about us we've not had that period yet. We haven't had a loan book long enough to do any product transfers. So, the business we're writing is all fresh originations. Um, and again, like we we're quite proud of that.
Um, but yeah, I think for us where we step in as a as a specialist lender. Um, just everything like we see it day in and day out. Just nothing's black and white anymore. It's not just oh, there's a buy opportunity for a house or a bate opportunity for a flat. You've got HMOs, you've got multi-unit free hole blocks, you've got student accommodation, you've got um semicommercial, you've got complex income structures from borrowers. They've you've got people trying to be clever around their tax. So, they're creating all these um different companies and these layers of structures um which banks aren't particularly happy to look at. And that's where that's where the specialist kind of lenders come in in that in that respect.
Um, I think for us, we do first time uh, sorry, first-time buyers and first-time landlords. So, we quite see quite a lot of that business. Um, we look at properties above an adjacent commercial, which others don't really look at. In theory, subject to value as comments, we could really look at anything. Um, we just want to see kind of positive comments around um, scalability and marketability. Um, but look, that's where a specialist comes in. you've had to adapt and amend our offering to just help with these kind of clients and and these landlords that are looking for those kind of avenues um to move forward and a lot of landlords the market I mean we've gone through as a country a cost of living crisis and some economic downturn there's a alongside that sort of run in parallel with a market and a consumer retail space where you can take finance on anything right you split the cost of a Chinese now over 3 months which is insanity but it creates more opportunity for good borrowers to have blips in their credit profile.
How you guys look at sort of mild adverse all the way up to sort of more serious adverse is that a market you guys still like on the side too.
Um so bridging we've always been very open in terms of credit profile. Uh it's always been like I said based on assets. So regardless of if they've had a CCJ, they've got a default, they've missed a um uh parking ticket for example or something like that, the the strength has been in the asset. So you can take a view especially kind of the exit is say or the exit um strategy to repay our loan is sale of an asset or sale of security. Um we've I mentioned DNA earlier. So we've tried to take that DNA onto Berlet which we've done very well.
Obviously, mortgages are a bit more stringent around criteria and pulsing, but we are very flexible in that in that respect. So, in terms of credit, we're not looking for like a I don't know 500 and above score for us. as long as um as long as the credit profile isn't uh tarnished with like mis payments of kind of like three and above. If they've got a score of say 300 um but that's because they might have had one mis payment over a number of times which would bring that score down when we're comfortable with that.
Um so specifically with us we're happy up to kind of 5,000 as a as a max on the CCJ and free mis free mis payments. Um we now have a tiered system in terms of credit. So we have a tier one which again we can look at blips in credit that goes up to kind of 500 on CCJs and defaults and up to a status two as a missed payment. And then we have tier 2 which is like I said the 5k CCJ default and um free mis payments. And I think truthfully free mis payments in this market I think people are quite conscious um of their credit in into in today's kind of world. Um, so I think that's a really good offering uh to kind of support that market. And I think there's do you know for to throw my thoughts in on on the specialist lending space as well. The thing with credit and with anybody who has a blip in their profile, whether it's credit or something else, the beauty of a good specialist lender and generally it takes it to be well packaged and understood at broker level as well.
But I hop on a lot whenever I sort of do public speaking about the fact that we all live and operate in the gray and you know you guys are a great lender for that where actually you might have a criteria checklist that has we need XY Z to do good deal but if high net worth or a great asset great borrower who happens to have a a large CCJ because they're contesting it so it's acrewing but they have the money in their account and it's not a it's not an affordability problem it's a principal problem actually can we take a view on that side of scenario.
You know, maybe those the beauty of a good specialist lender and the specialist challenger banks as well is that you know you can present a borrower and a deal correctly and you know good broking as advice to anybody as well watching is getting ahead of those problems and taking them to the lender. Don't let the lender find them finding the issue first. Try and find a risk mitigant so that you can present your solution already and they can go from there. And I think that's always a really good and and again you guys are very good for that. So I think there's a reason why that term product is working in a competitive landscape as well, right?
Yeah. Exactly. And I think like you said, if you if you package it well, make it make sense to us. Um tell us the risks, tell us the positives. Um if we can get comfortable as a lender, then yeah, why not? Why would we not do the deal as such? Agreed. Yeah, it's a good attitude towards lending. Common sense lending there I say is the sort of name of the game.
Um we've got a question but I'm going to just very quick you because we talked about your diversification into buy to let term lending. You have very recently very very recently um launched into commercial lending as well. So what was the driver behind that and where have you guys positioned yourself in the market for commercial term lending? Yeah. Um so the guys have been I think for a while have kind of looked and saw a gap in um in that commercial lending market. Um especially between kind of like your challenger banks and you have kind of your overly expensive lenders that like are a last resort.
Um and truthfully there wasn't there wasn't really a provider in between. Um and that's where we think we're going to strive. So you've got kind of challenger banks here um the most expensive that will do anything and we're going to sit right here right in the middle of that. Um and yeah, I think as for and what we see as well is like kind of the high streets uh remain kind of strict and the responsibility often falls um kind of out of line with that strictness is for us like specialist lenders to kind of pick that up.
Um and yeah, we're kind of taking where we've been on vital and we're doing very well in that space and still our bridging um and just take that service and just push that into commercial mortgages. So the product is fantastic. Um in terms of what we would look at in terms of asset is really good. So it's quite a wide range. So we're now offering like a standard um commercial mortgage range which would be kind of offices, retail, um industrial um even nurseries falls under that um which is quite cool.
And then you've got like kind of your super specialist product which would be I don't know nightclubs um bars um energy. you could have like a wind turbine farm essentially that we could look at which which is just um crazy really in terms of in terms of uh blended but I think again the main the main differentiators on for that product and where we're going to stand out is we're looking at first-time investor uh on a commercial mortgage which is really quite cool so and are you looking for them to have a residential investment background to get it in there?
Not necessarily. Again, that that's something we could look at. So you essentially you could look at first-time landlord, first time investor um which is very strong obviously. Yeah, dependent on the strength of the lease obviously I know with most deals and commercial mortgages the strength is in the lease um and who's going to be obviously in there as a tenant. Um but yeah, we'd be looking at that. Um we're also doing um yeah homes as well which is which is quite cool. Good a lot of the moment. A lot of good business to be done there. you with having a commercial and a residential term bollocks. Obviously the middle ground is semicommercial.
Um what are you know and a lot of banks and lenders treat sort of semi commercial differently and how they define that. What do what's your definition of when it ticks into commercial versus semicommercial? Yeah.
So for us and our semi commercial is residential element um and commercial property below. The good thing about us and where we stand out from other lenders is typically uh you'd want kind of a 60/40 split. Um in terms of well most look at in the favour of residential. So 60 residential 40 commercial for us because we have the commercial pot to bid. We're actually looking at 60 in favour of commercial. So you can look at a semicommercial product if it is 60% commercial assets. Great.
Yeah. Great. Yeah. Yeah. Good. That's really good to know and good for people to understand because that is fairly unique. Yeah. And even if it's um like I said if it was a 60 put in scenario we can actually look at a maximum of 80% as resi. So even if it was like an 80/20 um again that would still be fine. So for us as well so previously when we did launch in 2022 u the semi commercial was on its own kind of product. sorry it wasn't just semicommercial was on a product with all the buy to let um it's now on its own product so and in doing so we've actually launched a fully full semi-commercial offering annoyingly previously we could only look at the residential elements um which was good if you say had a HMO above a shop something that would have a high yield obviously it's just the rents but now we're actually looking at the commercial um and it's on its own product so that's really good um and um yeah the rates are pretty good for for the five year on that.
So, it's quite competitive in that sense as I was but yeah that's I think that's for me the the initial kind of main USP that's been released on that is that 60/40 favourite commercial. Yeah. Okay, that makes sense. And there's a question around X1 that I can answer quite easily actually. There's a question that's come in that says what's your referral process for HMO? Well, the good news is that actually after the webinar, everybody that's here and signed up will be getting an email from myself with both mine and Joe's contact details on and a really clear defined process for referring cases over if you have anything that you want empty finance to look at as well.
So, that'll be with you not long after the webinar. Um, there's another question that was sent in beforehand. Uh, and it was a question about what's a perfect case finance.
So, what documents or information should we as brokers always provide up front to give place best chance of a fast turnaround? Well, what stands out to you as a as a golden case?
Um, I think I think the main things literally for for anyone who's kind of put in a case, just get as much info as possible up front. That doesn't necessarily all have to come to us, but at least for you guys, it gives you a whole clear understanding of the case up front. And then if there is anything that kind of you think oh that I might need to mention that at least we know from the get-go um and if it is something we can take a view on um then by all means I think especially with the term stuff um if it is credit or if there is like possible you think something's wrong with the income possibly um obviously let us know but we're kind of looking for DDMs and declarations um income evidence in the form of kind of tax returns and pay slips um deposit if applicable uh a again if applicable.
If there isn't an a in place again we can proceed. It will just be we lend on the basis of what the value it confirms the rental to be. Um I don't know memo of sale buy portfolios listers details all that kind of stuff. This this is kind of specifically for specifically for mortgages. Um for bridging like I said it's just anything that you think we need to understand um from the get- go.
It just it just really really helps. So um that's what I'd say to be honest. Yeah. Okay. That's Yeah. Great answer and good to know sort of what what good looks like. There's another question that I think is a brilliant one and it's really good for brokers who are looking to get into specialist lending and actually who are borrowers asking for these type of products if you haven't engaged with them before. But with property investors becoming more cautious in the market and and obviously I sort of referenced earlier chasing greater yield. What type of transactions are you seeing that you're picking up that might show any emerging niches brokers could be aware of?
Um I think right now I personally seem to quote a lot on regulated. So I think chain breaks become more apparent more so. Uh I and we're very good at that. We we do a fair bit of kind of regulated transactions. And if I can just jump in there that actually for a good residential mortgage broker is a great opportunity because if you've spent two three months lining up a residential mortgage for a family moving home and someone further down their chain from the author of their own falls through or their seller pulls out this uh my view as well as for those watching in light of consumer duty a great customer outcome is being able to offer them a short-term product that can still save that transaction for them and whether they take it or not sort of buy the by, but you know, residential home movers, there's a sentimental value to that where they've often walked around the house several times.
Their kids have picked their bedrooms. Once you're attached to a property, you're attached. And chain break bridging where the loan is leveraged against your property you're selling and the property you're purchasing can be a great short-term option to see that purchase through whilst your sale then continues. So, it's interesting to hear that you're seeing more and more of that, Joe. Is that is that taking up a lot of your work at the net? I feel like yeah, probably 60/40 I'm quoting on regulated transactions. Um but yeah, you just find I feel like you find the borrowers more motivated as you say, they found their dream home.
Um they have to buy it. Um and I think some yeah, for brokers that aren't really aware of bridging or or just do the resi stuff. I think for them it's just like oh the chain broke. That's it. Sorry that I can't help you. But there's always a solution. Um and yeah, that's where Bridging especially on the regulated side steps in in that front. um for that I'd say more on bridging but um yeah still everyone's kind of looking at HMO still I still think it's very good people are looking at obviously the yields in that respect um and I think like even like the UK you're kind of like born and taught that property is a good investment I don't know about you I just feel like yeah between my friends and family when you're at school it's just like oh buy property as soon as you can buy buy property so I feel like always people want to get on the ladder and whether
Let's see if uh I don't know mom and dad are trying to get um uh son or daughter on a property ladder or even a investment and I think that's another kind of standout point for us actually we can look at um first-time buyers first time landlords as I mentioned but we can actually do that in scenarios for HMO and semi-commercial so we just want one of the applicants to have a year's experience in property um which is very good so we have done we have done I suppose first- time buyer first- time lander on a HMO where dad come on the product because he or the application sorry because he had the experience. Um and yeah it's just getting people on that ladder sooner and especially with the with securities that aren't kind of vanilla as such. Um so it's a great it's a great offering in that respect. Yeah that's good. And look actually it's a great sort of note to end on because I agree with you.
People are still buying properties. It's seen as a good career and a good income stream still. And what is happening is accidental landlords are exiting the market and the rise of the professional landlord is happening in the background. People who are ambitious and taking it seriously. And what that leads to is greater lending options. There's appetite in the market. There's liquidity. People want to support those borrowers. And if you as a broker are looking to diversify into specialist funds and support your existing back book and and new borrowers coming to you, new clients in their onward acquisitions and their sort of journey through property, you know, do talk to a business like ours in the specialist space who can help you place those deals and see them through.
And you will be talking to lenders like empty finance and big established specialist lenders who you know have deep pockets and the right attitude and longevity and space to support those borrowers. So it's a great market for the pat.
Thank you so much for joining us Joe and telling us a bit more about MT and some of the business that you're seeing.
Appreciate everyone coming on as well. We'll be sharing clips of this in the coming weeks and as I say we will get an email out to everybody with contact details to follow up. But thank you again.
Enjoy the rest of your uh your Tuesday and enjoy the heat that's still knocking around in the coming weeks and hopefully we'll hear from you all soon.
Thanks again, Joe. Thanks, guys. Thank you. Yeah, thank you. Time, guys.