David: Good morning everyone and welcome. This morning we're recording a podcast with Jimmy Bailey who is from debt finance specialists Arc and Co who are based in Mayfair in London and we've got a few questions today, talking about current state of Prime Residential lending market, about bridging, a whole range of different things, arranging finance for non resident clients. So we'll hope to have an interesting conversation today, good morning Jimmy.
Jimmy: Morning David.
David: So first to kick off, everyone always wants to know about the state of Prime Residential property in London, and from your perspective on the lending side can you give us an overview on the current state the market in London?
Jimmy: It's no secret that obviously this sort of high end residential market in London is a bit flat at the moment, so obviously that does reflect in how the banks look at these transactions. In terms of the finance market, there's definitely less on the purchase side, but there's a lot on the refinance side and the equity release side. Rates are still low, bank lending rates are still low so it is business as usual and these banks are very keen to lend.
Jimmy: One of the most important things we're finding with these transactions is to make sure that any sort of down valuations in properties don't really hurt the deal from the start, so I think it's very important you have a good relationship with valuers and some of the top valuers in London. You can quite often get a comment on the value of the property in the way that they see it going before you actually instruct the valuation or even get the deal going, so that does help clients a lot.
These properties are all bespoke in nature, non standard, so where the banks are currently pulling back on loan to value slightly because of the liquidity issues on that end of the market at around 60 to 65 percent loan to value. Good lending rates are available, as long as you get all your ducks in a row, you make sure you're firm on the value of the property at the start, you know it really does solve a lot of issues moving forward.
David: And how to best approach the financing of new build properties. I mean a lot of Asian investors would look at properties in London, for example in Docklands, how would you approach that from financing side?
Jimmy: Yeah, obviously the trick there is that they've got the old assignable contracts situation there, so quite often with lenders nowadays, especially with these new build properties, it's the trick of balancing the actual current market value with the purchase price. Especially with these types of deals you get an Asian buyer, and the contracts have been flipped the once, twice, maybe three times and then they've got the offer accepted and they come to you at a late stage to arrange finance. So once again the valuation is very important here. We have relationships with a couple of very good private banks who will actually look at the current market value even though the contracts have been assigned a couple of times.
Jimmy: It's important to look at the profile of the client there too. But navigating that is quite important, or once again working closely with the valuers, the relationships we have in London is very important in trying to sidestep those issues. Most high street banks will require you to hold the property for at least six months, so that's quite a restrictive issue, but as long as you do select the right banks and you do make sure you have the valuers lined up before the time, it usually is a problem that we can solve. And we do quite a lot of those at the moment, as you can imagine.
David: So on the broader point of just dealing with non resident investors, as someone who might live in Dubai or Hong Kong buying property in London, are there broader things that you tend to pick up and work with on these clients?
Jimmy: Yeah, we see quite a lot of that. The majority of our clients are all based offshore. The most important thing there is really aligning the clients expectations with that of the reality and the market at the moment. I mean, things change quite a lot in London, so you need to obviously make sure your client is prepared and they understand that.
Jimmy: When you go into some of the local private banks or even the Middle Eastern private banks, with the London branches is, as opposed to the high street banks where they would be more looking at your income and expenditure, with these types of clients we can move it to specialist private banks. They will look at the client as a whole and they will be less focused on your bog standard income and expenditure analysis and they want to look at the whole story, so it creates a lot more flexibility for clients with complex income streams. They really help and it's important to make sure you go to the right bank for clients like these.
David: I know I can go have a lot of expertise around bridging, I mean how are you seeing the innovation for clients looking at short term financing for their property investments?
Jimmy: Well, this is obviously quite a hot topic at the moment. I mean, the short term bridging market has really has exploded in the last couple of years. I mean, there's so many new entrants into the market you struggle to keep up sometimes. Every month there seems to be a new lender. But, there's a lot of opportunity, and a lot of flexibility and there seems to be a lot of liquidity and a lot of cash in the market looking for good deals. So whereas previously people thought of bridging as a bad name, it's important to know that there are a group of private banks out there who do look at the bridging and who do offer bridging at very good rates.
Jimmy: We've got a couple of private banks who will actually look at bridging for the right client around three percent, three and a half percent all in, something along those lines. It's, for example, you've got banks like HSBC and Barclays pulling out of Russia, some of the Eastern European countries, so you've got clients who've had facilities with private banks like HSBC and Barclays, they've come in off those facilities, they're looking to refinance and their client, for example it could be a Russian client, he's found out, "Oh no, I can't refinance anymore. What do I need to do?" So quite often these cheaper, short term facilities are very useful and this can give the client enough time to either sell the property or refinance elsewhere. So this is obviously quite a useful tool and I think we're seeing more and more people come into this market, especially as it just seems to be more and more competitive as time goes by. And that naturally drives prices down.
Jimmy: So you're seeing private banks coming into that market and they seem to be changing things quite a bit for on the positive side.
David: Great, well thanks Jimmy. If you have clients who are looking at investing in property in London, either new builds or super prime or they're looking at refinancing options, please do reach out. Jimmy, I'm sure, would be delighted to hear from you. So thanks a lot this morning and I appreciate your time.