The Surveyor Say: Short Term Lending in Today’s Market

By Frankie Longhurst MRICS, Valuations Manager at Copping Joyce Chartered Surveyors LLP,

The ongoing uncertainties and restricted finance certainly appears to be offering short-term lenders (STL) numerous ‘sensible’ deals; that is what we at Copping Joyce Chartered Surveyors are experiencing.  The days of STLs only lending on racy deals, or when deadlines are extremely tight seem to be a thing of the past.

Many of the large lenders will not entertain perfectly ‘acceptable’ property deals in the current climate.    Deals such as prime Central London residential, where yields can fall to 3% and lower, or indeed, the dreaded ‘D’ word - Development!  Bank Managers at many of these larger banks are simply hamstrung by Credit Policy and are unable to offer commercially viable terms, if at all.  This is where we are seeing smaller lenders coming into their own, able to “think outside the box”, assess any particular deal on its own merits and are not necessarily constrained by debt servicing models.  Two lenders who are currently active in these two sectors are Close Brothers and Handelsbanken, both smaller lenders who can tailor terms to the deal in question.

Present conditions are presenting STLs with good opportunities.   Clearly, the nature of the business often dictates that acting quickly is paramount, which is where valuers such as Copping Joyce become part of the jigsaw to advise on loan security.  In the year ended March 2011 Copping Joyce undertook c.700 valuations, predominantly for loan security but also for funds, private individuals, tax purposes, accounts and so on.

As a firm of Surveyors on the Valuation Panel with the majority of High Street Banks and numerous smaller lenders, our Recoveries Department has seen a significant upturn in work, and are getting busier.   It seems that the big lenders have possibly taken some time to get their house in order, perhaps adopting a cautious approach, or hiding behind Government pressure to support, rather than cull, borrowers.   Nonetheless, banks now seem more aware of their debt position and strategy is filtering through to more LPA disposals for our Recoveries Department - we currently have c.50 cases on our books across the south east.  This is where  knowledge of investment and development comes into its own, when advice might be to asset manage, build out, but generally liaise with the lender and agree an appropriate way forward.

In respect of distressed lending and property in general, London is a microcosm compared to the regions, particularly so for the residential sector but also in commercial.  The south east has generally fared well overall compared to national averages, although one only has to experience some of the ‘local’ secondary retail areas in the Home Counties to know how important location really is.  The commercial investment market is largely driven by tenant quality, re-letting potential and unexpired lease terms.  For example a property investment let to Tesco for 15 years sell for c.5%, whilst secondary industrial let to a small independent may be 10% plus.

With regard to the residential sector, yes, the south east has largely held its own, but it is only the ‘Prime’ and ‘Super Prime’ that has shown strong growth.    This has been a result of many factors, but mainly overseas money and the view that London is a safe haven.

However, in respect of the wider domestic residential sector, it has been reported that high street banks recouped more in repayments than was borrowed in April and the inability of people to obtain mortgages is impacting upon the residential sector, with vendors outnumbering purchasers.     There is much speculation in the industry surrounding the expected rise in interest rates and we wait to see the impact this will have, if any at all.  Notwithstanding this, most recently financial commentators have indicated that mortgage rates are set to fall, but for how long?  One cannot lose sight of the fact that lending rates are historically low and we unlikely to again see the unsustainable rates of 2007.

Against the backdrop of continuing economic uncertainty and restricted finance, mainstream lenders are likely to be lacking appetite for anything other than the safest deals and we see this is as advantageous to STLs.  Consequently we look forward to working more with short-term lenders for the foreseeable future.

Contacxt Copping Joyce on 020 7749 1040 for further details or visit www.cjllp.co.uk.