We are delighted to welcome Derek De Gruchy to the Reto Board as Non-Executive Director.
With over 20 years of experience as Managing Director of a local specialist lender and expertise in commercial and consumer finance across the Channel Islands and Isle of Man, Derek is a fantastic addition to our team and we look forward to the significant contributions he will undoubtedly bring to RETO.
In an uncertain market with high street mortgage providers becoming more stringent in their underwriting (removal of 95% LTV mortgages being one example) – homeowners, movers, buy-to-let landlords and first time buyers are starting to seek alternative finance solutions to traditional mortgages.
With underwriting criteria being tightened (and stress testing forever being increased), getting a mortgage is seemingly a lot more difficult than it was 12 months ago. Of course this was to be expected given the rapid rise in interest rates seen over the past nine months, but it doesn’t help potential buyers, sellers, or professional landlords who no longer have a clear idea of what product best suits them.
Ultimately high street mortgage providers drive the housing market prices with their lending criteria. In good times, it wasn’t unheard of that people were borrowing 7 x their salaries up to 95% LTV and driving prices of more ‘ordinary’ houses up.
Contrast that with them now typically offering 5 x income multiples at a max of 90% LTV and you can quickly see how swiftly that can impact the market. And this is before we’ve even taken into account the interest rate on a typical fixed rate product going from somewhere close to 3% to closer to 6% and meaning that even if the LTV is within policy, the affordability is a long way from where it would have been 12 months ago.
This has meant that people looking to sell are facing the reality of getting much less than they would have previously, and people looking to buy being severely restricted in terms of what money they have to buy with. With sellers being reluctant to take too much of a hit on value, buyers have access to less property stock than they would have done previously.
I’ll give you two examples of impact the current market conditions can have:
The Property Owner Looking To Move
If one year ago, you had a property worth £1m and an existing mortgage of £500k – you had a 50% LTV mortgage and £500k of equity. Most buy-to-let mortgages would offer you up to 75% LTV and so you have around £250k of equity you would have been able to access by retaining your existing house, moving it to a buy-to-let mortgage and you would have also had £250k of ‘cash’ back to use as a deposit for a new house.
If the new house you were looking at was £2m – you had £250k available as a ‘deposit’ you would then need a mortgage of £1.75m which is 87.5% LTV and within all bank policies.
I must make the point that the above is of course subject to affordability checks etc and is just being used to illustrate the point.
In that same scenario now and assume the house value remains at £1m.
With buy-to-let mortgages now being stress tested at >9% (with rental yields closer to 4.5%) which usually produces a Buy-to-let mortgage average LTV at around 55% – means that repeating the exact same transaction as above would now give you access to around only £50k of equity (at a much increased cost) and in the scheme of things contributes almost nothing towards the new purchase.
So whilst a year ago you may have been able to retain one property, buy a new one (all whilst collecting a rental income and building a property portfolio) you could now only have one, you’d be looking at the realistic chance of taking less for what you’re selling than you had anticipated and your new mortgage would have significantly increased from a monthly cost perspective.
The First Time Buyer With Deposit Paid Off-Plan
There are a lot of people who have paid off-plan deposits for new build apartments across the Island.
This typically looks something like 5% deposit paid over the build period (say 3 years) and the remaining 95% to be paid at completion, presumably by a high-street mortgage.
If the property was valued at £300k – your deposit would need to be £15,000 (£5k a year or less than £500 pm throughout the build contract).
Your mortgage would have then been £285k – which if we used 6 x income multiples (prudent given that has been widespread market norm for > 5 years) would mean you would need a salary of £47.5k as a single person looking to buy that property. You could go into that transaction with your eyes open and making some fairly conservative assumptions in that you would be able to complete on that deal when the time comes.
If we put that into the ‘current’ environment, the 95% LTV is no longer accessible with any local mortgage providers – with 90% being the maximum. You’re also only able to borrow 5 x income multiples. So unless you had a salary increase to £54k and you had saved an additional £15k to use as a larger deposit, you would be unable to complete the transaction. More than ever it is the LTV that drives the mortgage options available and the £15k needs to be a cash deposit as mortgage providers take the purchase price as the value.
In reality, the true value isn’t the purchase price, it’s the value compared to other properties of its type sold and market comparables (size, amount of rooms, amenities etc) – but the purchase price is the lower of the two and so a bank would take a conservative approach to base their LTV calculations on.
So there is a real possibility that in this scenario, people will be unable to fulfil their contractual obligations upon completion and will need to sell the option for the property back to the developer, often losing their deposit along the way.
The above are two examples of scenarios where change in market appetite and increasing rates have had an impact. Both on a first time buyer and on a home mover – and different scales of the normal mortgage market.
The specialist lending market is different…..
At Reto Finance we are seeing an increase from consumers and professional property investors who are seeking real estate secured products for a number of reasons:
The above are three examples, all very different, of the type of flexible solutions specialist lenders such as Reto Finance can provide as an alternative to more traditional mortgage providers. Our policies are bespoke in nature and we believe that they add value in both the good and bad times; we remain consistent in our approach, we understand the dynamics of moving markets, and our key fundamentals don’t change. This creates consistency in an ever changing Jersey real estate and mortgage market.
Whilst some rates are starting to reduce on the High street, they are still ‘high’ compared to what we’ve known in recent times. This means that specialist lenders are no longer as far away in terms of pricing as you may think. Add to this the flexibility of specialist providers; higher LTV than traditional buy-to-let products and ability to roll interest being two examples – mean that as an alternative, we can be a viable option for a lot of scenarios.
The high street mortgage market will bounce back – it always does – the rates will stabilise and the lenders will undoubtedly relax their approach which will result in the return to the previous types of product which have helped the Islands housing market remain buoyant and allowed people the ability to own a home of their own. In the meantime, thinking outside of the box is crucial whilst volatility exists and consistency is rare.
Mike was a career Banker and latterly, Managing Director of RBS International, Corporate Division and Chairman of the Bank’s Funds business.
Mike has extensive lending and general management experience and is currently an Non-Executive Director on two FTSE 250 Companies as well as a Swedish and Japanese Private Equity Groups.
A resident of Jersey, Mike enjoys travel and an odd game of golf when time allows.
As we come towards the end of Q2 of 2022, we thought it a good idea to share some more about what we’ve been doing and concentrate specifically on our Real Estate product offering.
You may have seen our post on socials about the development of 25 New Street which we’ve recently funded, but this isn’t the only project we’re assisting with.
Since the start of the year (and the tail end of 2021) we’ve been supporting many developers in the Channel Islands with a view to doing our part in creating much needed housing stock.
The schemes we currently fund across the Islands will create in excess of 75 new homes for Islanders and these projects range in size and value – from 1 bed apartments through to 5 bed detached houses and everything in between.
Our Real Estate products include bridging finance (pre and post planning), development finance and some longer term secured funding. Our product is flexible and allows for a range of loan profiles including rolled interest and no minimum term. We can provide up to 100% of the total project costs and will provide loan terms to match the development timescale.
Where we differ from some of the more traditional lenders is that we don’t require a large capital input at the outset of a project. We will work with developers and investors and where we believe in the project will come on the journey, from acquisition, through the planning phase and ultimately fund the development through to completion. It’s a solution which allows our clients the knowledge from the outset that they can fund a project to completion and not have to worry about potential re-finance requirements which not only add cost, but also add complexity and avoids the need for constant repetition.
Historically developments on the Islands have been funded by High Street banks who in more recent times have completely closed the door to many people – regardless of track record or strength of the scheme. At Reto we are doing things differently. We underwrite in-house and so in the majority of cases can approve a deal within an hour or so of having received the relevant information. We want to support growth, not obstruct it, and to do this we need to remain true to our values which is to be agile, be able to react swiftly, and to work together with our clients to find suitable solutions for all.
We collaborate with a panel of experts ranging from lawyers, valuers, architects and monitoring surveyors and collaboratively we do our best to deliver the best solution that each deal requires. We can also add real value in all stages of the project and are happy to help where possible.
Look out for more discreet Reto signage and advertising boards on developments around the Islands soon!
Here at Reto Finance we’ve been busy in the first quarter of 2022 and have carried on where we left off 2021. Our aim has always been to try and do things differently to other lenders and the challenge is balancing between actively growing the business in a sensible way, whilst simultaneously looking to be creative in our product offering and helping customers where sometimes others can’t.
We’ve hit the ground running and now we can reflect on the first three months of the year, it’s clear that the demand for borrowing in the Islands is as strong as it has ever been. Whether that’s consumers, SME’s or Property Investors – in both Jersey and Guernsey, we’ve supported a range of clients and are actively looking to continue doing so. On the back of our strongest quarter to date and our best ever month in March, we wanted to share some of the things we’ve been involved in and give a flavour of what we can offer.
With products (both secured and unsecured) ranging in size from £1,000 to £250,000 – we’ve assisted a host of clients with varying degrees of financial support. Our ability to make credit decisions in house and to act quickly has meant that we have provided a significant amount of funding directly to consumers across the Islands to date in 2022.
Whether it be a debt consolidation loan, a home improvement loan, or an equity release for a new venture – we’ve done it all.
One example is a client who was in the middle of a house renovation project where the budget had over-run. This client had been provided with lots of smaller loans from local lenders at varying rates of interest and on the basis that their requirements were for longer term funding. We took time to sit with our client, discuss what had gone before, work out the final budget for the renovation and also assisted in shaping their ongoing mortgage requirements. A result of these conversations meant that we were able to provide a short-term funding solution, clear all existing loans which saved significant money each month. The exit route was a re-mortgage solution and the client has now finished the house, saved themselves £1,000’s in the process, and are now debt free save for their new mortgage.
Understanding not only the beginning of a process but also the middle and final outcome is important. We have a wealth of knowledge in our team which spans mortgages, property development, business funding and personal lending which means we are well placed to support you on your journey, whatever it may be. We can provide a tailored solution and will work with you to establish what is right for you – not what is the quickest thing to get approved.
Now that the Islands are relaxing their Covid restrictions and the economy starts to pick up, we’ve seen some interesting opportunities for clients wishing to accelerate growth plans – this is true for both existing businesses who have found new ways of working as well as new businesses looking to start from scratch.
Our business funding so far in 2022 has covered a wide range of things including financing of new equipment (cars, vans, kitchen equipment, IT hardware, Business premises acquisitions), business start-up funding and reimbursing funds spent on previous investments. We understand business finance and whilst a track record and proven history of success is important (and in terms of high street banking, is a pre-requisite and non-negotiable), we prefer to work on the basis that each story is different and that a one size fits all approach is prohibitive.
We’ve provided funding to some specialist sector businesses which fall outside of the traditional sectors and it is in areas like these that our ability to take a bespoke approach to each request really sets us apart.
If you’re thinking of growing your business or are looking to start something new, speak to us first. We will be able to support you through the process and give you an idea of what types of funding are available. Often people think they only have one option but with a versatile business and ability to look at things without shoe horning them into a certain ‘product’ we can often help where others can’t.
We continue to grow our Real Estate offering in both Jersey and Guernsey. To date we’ve committed in excess of £15m of funding across the Islands to support local property developers building much needed residential dwellings on both Jersey and Guernsey.
Our Jersey development finance product, whilst still in its relative infancy, has been popular with our clients and we have funded some schemes we’re really excited about. Our schemes funded to date range from 2 x units up to 18 x units. With completions due from August 2022 through to March 2024 – we are proud to be supporting our developers and enabling a constant stream of housing stock in the Island which is much needed.
In 2022 we have written our first Development Finance deal in Guernsey which is a landmark moment for us. Working with an established developer to acquire an existing mixed-use dwelling and build out to create much needed residential dwellings in the heart of St Peter Port. We were able to provide a fully funded solution and worked closely with the developer and their professional team to shape the deal into the most simple working solution which suited all parties. From initial consultation to acquisition the loan was completed within two weeks which allowed certainty for the borrower and ensured they were able to commit to the acquisition immediately.
We also have more traditional bridging loan solutions, often for the acquisition of potential sites where there is no planning consent. In these examples we are happy to fund pre-planning acquisitions and at the same time agree a development finance package going forward and subject to plans being passed. This gives our clients the certainty of them being able to manage a scheme from start to finish and will give them the detail and costings they require to properly appraise a scheme at the outset. We work with various professionals across the industry including Valuers, Monitoring Surveyors and Lawyers who are all well placed to add value to any potential scheme and work towards delivering simple lending solutions in a timely fashion.
As many people start to become more aware of car finance, the variables involved in acquiring a car and that they can in fact have control of their finance package – we are starting to see more motor and vehicle finance requests than ever before.
Whether you’re buying from a garage or via a private sale, and whether you’re buying a new sports car or a small van for work (or perhaps something in between), we are happy to give you guidance in terms of what you can do, what the true valuation for your new car is, what the value of your part-exchange is, and give you details of how the different Motor Finance products work so you can make an informed choice. We have relationships with local car dealers and are happy to work with the garages or directly with our clients. If you want to take back control of your Motor Finance arrangements, you’d be well placed speaking with us first.
In Summary, we’re really pleased with how 2022 has started. Not only have we implemented new products (see Guernsey Real Estate above) but we’ve also worked with lots of repeat clients which to us is important because it shows the relationships we’ve built are valued by our clients as well as by us.
We think what sets us apart is our ability to be flexible, to look at the short, medium and long term and to be able to decipher information, understand forward plans and to work collaboratively without restrictions of ‘policy and computer says no’. The days of lenders acting like robots have long gone and ability to think outside of our box is crucial. As a relatively new business with an entrepreneurial spirit, we embrace the new ways of working and are here for any clients who want us to support them on their journey and are looking for longer term, relationship based support from a local business who understand the Islands and their differing requirements.
No two people are the same and we will make sure we don’t treat you like you are – but that we will work with you as individuals and come on the journey with you!
22nd September 2021
Channel Islands multi-product lender Reto Finance (the “Company”) has announced a £15 million investment from award winning listed alternative investment manager, Foresight Group.
Reto Finance was launched in 2019 following a buy-out from Shawbrook International by Quilam Capital and has since served hundreds of consumer and SME borrowers across the Channel Islands. Reto Finance is led by its CEO Adam Dawson who spent seven years building and managing a specialist lending business for an established bank, after working for ten years as a management consultant. Under Quilam Capital and Adam’s leadership, Reto Finance is increasingly becoming the “go to” specialist lender on the Channel Islands offering a wider breadth of products to SME’s and consumers than many of its rivals. The new investment will support the launch of a real estate development finance product and will allow the Company to offer increased flexibility on its existing real estate bridging product.
Foresight Group, fast becoming known as an alternative finance provider to lending businesses, structured a senior debt facility tailored to suit the flexibility required by the Company’s new product. Investment into lenders such as Reto Finance aligns with Foresight’s regional approach to investing, offering support to local economies and businesses that are unable to access traditional forms of financing. With this investment, Foresight has now committed over £165 million of capital to the alternative lending sector.
Oliver Bates, Foresight Private Debt Manager added;
“We are excited to support the growth of Reto Finance and, in turn, make an impact on the real estate market across the Channel Islands. With this partnership, we build on a previous investment from Quilam Capital who are celebrated investors in the alternative lending space.”
The property market in the Channel Islands has been well documented in recent months.
In June of this year, Jersey’s parliament voted against declaring a housing crisis on the island despite clear evidence of demand for real estate far-outweighing supply. Reports indicate there are six or seven parties on average seeking any one rental property, highlighting the need for a substantial increase in the supply of new housing.
Reto, Spanish for “challenge”, was keen to develop a new product to support local property developers and consequently help to address the housing shortage. Traditionally more focused upon bridging, Reto are thrilled to add a flexible development product to their offering.
Commenting on the investment, Reto CEO Adam Dawson said;
“This additional line of liquidity allows us to broaden our Real Estate offering meaning that we can continue to support local property developers across the Channel Islands with tailored funding solutions. This deal allows us to further expand our real estate offering with a market leading development finance product.
We look forward to playing a part in supporting the growth of the property markets in both Jersey and Guernsey.
During the dire depths of blanket Covid lockdown, it was observed that most businesses quickly divided into three broad categories.
Those that did nothing. Head down, shut up shop, wait and hope it will all just blow over.
Those that adapted. Faced with barriers to normal market channels, they resiliently found ways of reaching customers via alternative distribution methods.
Those that changed. Blocked from any meaningful trading options, they dug deep, innovated and reinvented themselves through new products and services.
Which worked best? It’s a bit early to say. Back in those uncertain days of lockdown, however, all three options were rational responses to very irrational situations. Short-term fixes to see business through until normality returns.
Now, a more important issue is that short-term expediency is becoming a longer-term necessity. The pandemic has accelerated already evolving customer trends and habits, or changed them altogether. As a result, businesses need to change too.
The issue is that doing so may require potentially significant investment. Or at least a cashflow injection while trading recovers. The challenge, as Robbie Lander of local lending specialist Reto Finance sets-out, could be accessing funds in the face of a looming credit crunch.
‘We’ve already seen steps banks are taking as a result of the pandemic. Removing 95% loan-to-value mortgages, for example. And tightening other elements of their mortgage criteria to make releasing equity difficult when people need to do so. It’s about the banks’ attitude to risk, and less about meeting individual customer needs. If the computer says no, then no it is. And no ifs or buts – they simply won’t have the flexibility needed to lend you the money.’
The concern is that access to credit becomes a particular issue for small and medium sized Channel Islands’ businesses. Lending policies established with the UK market in mind may not suit local circumstances. And six month’s pandemic-affected trading figures won’t help the situation. Fundamentally, access to traditional sources of finance may be restricted at exactly the time it’s most needed.
Are there alternatives? Aside from raiding personal funds or selling the family silver? Local lenders such as Reto are one option. With a more flexible approach than the traditional banks, their smaller size, local market understanding and keenness to acquire new business places them as a very viable alternative.
‘We’re not pretending to be a bank, nor directly compete with them,’ Robbie elaborates. ‘But Reto already provides specialist loans and finance to a wide range of businesses. And is very happy to discuss lending requirements with any company or individual needing access to finance in these challenging times. It could be covering an investment in new IT infrastructure, for example, or making premises covid-secure. Or a means of releasing equity to cover day-to-day operations. We’ll ultimately take a locally-made decision based on what we see in front of us, not what the computer says.’
Advantageously, the application process is straightforward, decisions taken quickly and funds made available more or less immediately. Loans can be paid back over an extended period, or used to cover an interim bridging demand.
‘We can offer a short-term fix,’ Robbie concludes, ‘or long-term support. It doesn’t matter whether your business is coming back to life, exploiting new opportunities or becoming something different. Local lenders like Reto are there to help local businesses turn the new normal into a fully funded reality.’
To find out more about business finance options in Jersey and Guernsey, visit www.retofinance.com, email info@retofinance.com or call 01534 886 900 / 01481 886 900.
The platform has led to significant improvements in new loan applications processing and underwriting quality and speed and has enabled Reto Finance to quickly launch new introducing partners, and products.
Rob Evans, Product Director at SamePage commented that “it has been a great team effort and working in collaboration with the Reto business users ensured we delivered a far more efficient and streamlined business model and solution to meet the future growth targets of the business”. The project required the platform to support the incumbent loan products such as asset finance and secured loans and related process as well as provide support for new consumer and commercial loan products which would help increase market share and opportunities.
Colin Brown , Aryza Chief Executive Officer commented “We are delighted that they are already achieving significant benefits, Reto Finance is able to process new business quicker, make faster decisions and collect all relevant data required to support better lending”
The platform has been delivered on a cloud-based infrastructure which, during the recent COVID-19 crisis, enabled the entire Reto team to re-deploy to a home-working model with no business interruption.
The agility and speed of change of the platform allowed SamePage to quickly enhance and re-configure its products, enabling Reto to offer a combination of Payment Holiday and Concessionary Repayment arrangements, to help their clients through the current crisis.
On the success of the new online platform, Reto Finance Chief Executive Officer Adam Dawson said the new system has transformed their business.
He commented “the SamePage system and team have been very adaptable and open to new requirements – the answer has been ‘yes’ to our requests. We have had a tremendous response and enhanced perception from our key third parties when viewing and using the system. The team at SamePage have taken ownership of the entire project, allowing Reto to focus on the business, and not be drawn into and distracted by IT and technology issues. The migration of the loan portfolio is a huge undertaking for any lender. The SamePage team took ownership of the process and delivered a successful outcome
“I have been delighted with the new system, it is so easy to use, very intuitive and it couldn’t be more straightforward.”
The project was split over two phases with the first phase involving originating and managing new business under the newly branded Reto Finance. The second phase involved a comprehensive migration of the legacy portfolio to the SamePage platform. Both phases were delivered on time and budget over the period of September 2019 to May 2020, despite the unprecedented challenges that were presented as part of the recent pandemic.
Let’s be straight. The idea of home working is nothing new. Bosses and staff have been toying with the concept for years – it just never really became mainstream. Until now.
This pandemic is responsible for resetting so many expectations and outlooks. And it has certainly proved the concept of home working, as a necessary expedient at first, but now as a realistic and attractive choice for many.
Little wonder a recent CIPD survey found nearly 40 percent of UK employees plan to continue regularly working from home once things have gone back to ‘normal’. No doubt. Home working is here to stay.
Leading local lender Reto Finance is starting to see the trend. While home finance applications initially slowed as lockdown started, enquiries are on the way up once more. One driver, CEO Adam Dawson is certain, are plans to create more adaptable living spaces – for both work and play.
‘Makeshift home office arrangements were all well and good when first going into lockdown,’ he explains. ‘But seconded dining tables, edge of worktop perches and occupied spare bedrooms are hardly ideal. Effective home working needs space, facilities and privacy. And it’s not just about productivity. We need to consider our health and wellbeing too. So, our clients thinking about working from home permanently are starting to think about the best permanent arrangements to allow this.’
Adam outlines three popular approaches. First is creating a dedicated workstation within an existing room. Second is converting a spare bedroom or similar space into a study. Last – and outside space permitting – is adding a purpose-built ‘garden room’, a choice that may suit other uses too.
‘The pandemic hasn’t just driven working from home,’ Adam continues, ‘but forced other normally face-to-face activities online too. Spaces created for work also make great exercise workout studios. Or perhaps for use as art and craft workshops. Online classes will continue being offered in the future – they may even become the ‘new norm’. So, people should think about creating some dedicated space allowing personal activities to take place without affecting the home use of everyone else.’
Ultimately, the choice of permanent homeworking arrangements will depend on individual requirements, the space available and affordability. Whatever the final choice, however, Adam hopes that people will commit to the best possible quality rather than short term expediency.
‘Being seriously committed to home working means making a serious commitment to home office facilities,’ he impresses. ‘It’s got to aid work and wellbeing. And potentially add long term property value too. Given the trend, future buyers will be drawn to houses with home working facilities. So, it makes sense to aim for the best arrangements you can afford.’
To help, Reto offers several home improvement finance packages starting with unsecured loans up to £50K and secured options for higher amounts. And, as Adam points out, the pandemic has underlined reasons for choosing an independent finance provider.
‘Our approach to lending has always been informal, flexible and timely,’ he explains, ‘meaning a straightforward application process and swift decision. With all the present unpredictability, people need certainty now more than ever. And Reto offers that to anyone thinking about investing in their property. Whether it’s for improved home working, more enjoyable home living, or replacing a kitchen, bathroom or bedroom. We’re all likely to spend more time at home for the foreseeable future – why not make the most of what we’ve got.’
To find out more about home working or home living improvement finance packages in Jersey and Guernsey – email info@retofinance.com or call 01534 886 900 / 01481 886 900.