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  • 06/07/2020 | Intermediaries News

    Cutting through the noise with clarity

    As with many lenders, Castle Trust Bank took the decision to manage its risk appetite during lockdown, but now as restrictions are being lifted, we are re-introducing criteria to meet the demand from brokers.

    At Castle Trust Bank we recently launched new criteria to reflect that the Government’s COVID Alert Level has been reduced to Level 3.

    As with many lenders, Castle Trust Bank took the decision to manage its risk appetite during lockdown, but now as restrictions are being lifted, we are re-introducing criteria to meet the demand from brokers.

    A key part of this process is acknowledging that, in the current uncertain environment, as the country is still tentatively emerging from lockdown, we have an appetite to lend, but not quite such an expansive appetite as we did prior to the pandemic.

    It’s only sensible that any lender, or any business for that matter, takes a more vigilant approach to risk at the moment – we are in unprecedented times and we need to tread carefully. But it’s rare that lenders actually acknowledge this.

    There’s still an awful lot of noise being made about lenders being open for business and the deals they are writing – but I haven’t seen much to actually help brokers place their cases.

    At a time when so much is changing, so frequently, brokers and their clients don’t need more noise, they need more clarity. Which is why we have taken the decision to be very clear and open about our lending appetite so that brokers know exactly where they stand.

    We will continue to investigate new opportunities to expand our offering as and when the COVID Alert Level falls in the future and in response to how the economy reacts.

    These changes are unlikely to be accompanied by big bang launches and bluster in the trade press, but they will be clearly communicated so that brokers understand exactly what we will, and what we will not, lend on at the time.

    Unfortunately, we can’t provide a prediction of exactly what will happen in the future, but we can provide some clarity about what options brokers will have as and when things change. We think that this provides a sensible approach to communicating and lending, not more noise. And that’s what brokers need to navigate this difficult situation.

     

     

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  • 19/06/2020 | Group News

    Castle Trust rebrands as Castle Trust Bank

    Following the receipt of a full banking licence and the successful conversion of all of its existing investments into savings accounts, Castle Trust is pleased to launch its new brand identity.

    Following the receipt of a full banking licence and the successful conversion of all of its existing investments into savings accounts, Castle Trust is pleased to launch its new brand identity.

    The firm will now operate as ‘Castle Trust Bank’, with a new logo and revamped website to showcase the new offering.

    The company will initially offer savings products to existing customers reinvesting maturing funds and expects to launch new savings products for new customers in late July.  The existing specialist property lending and Omni Capital Retail Finance arms will continue to offer the same services, with enhanced offerings to come later this year. The business expects to grow its specialist lending arm significantly as the market emerges from Covid19, working with brokers to respond to borrower needs and reaching more brokers through clubs and networks.  There are also plans to expand the Omni Capital Retail Finance offering later in the year.

    Martin Bischoff, Chief Executive Officer said: “This was a natural next step for us.  Castle Trust has come a long way since the company was founded, growing to serve 200,000 borrowers and savers so we already benefit from a loyal customer base, who have indicated that they would like to do more business with us as we enhance our product range.  As we step into the banking world, it seemed fitting that our brand would evolve to reflect that change too. Becoming ‘Castle Trust Bank’ sets out our stall as a fixture within the banking industry and gives us a platform from which to launch our new propositions.“

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  • 15/06/2020 | Group News

    Castle Trust granted full banking licence

    Following a period of authorisation with restrictions, Castle Trust Capital plc (Castle Trust) has been granted full authorisation as a bank by the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA).

    Following a period of authorisation with restrictions, Castle Trust Capital plc (Castle Trust) has been granted full authorisation as a bank by the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA).

    After being authorised with restrictions in March 2020, Castle Trust undertook extensive testing of its new savings system and asked its customers to vote on proposals to convert their existing investments into bank deposits. Castle Trust’s customers voted in favour with an overwhelming majority and the conversion will take place later this month.

    Martin Bischoff, Chief Executive Officer said: “Being granted a full banking licence signals the start of the next phase of Castle Trust’s growth.  Our first priority is to convert our 30,000 existing investment accounts into savings accounts, after which we look forward to launching our exciting new range of savings products in late July.

    “The full banking licence opens up many new opportunities for the business, which we expect to benefit our specialist property finance and retail finance offerings. We already have 200,000 customers and look forward to helping even more in the future. 

    “We’ll be revealing details of our enhanced specialist property lending proposition shortly, which will build upon our existing offering to meet the needs of Buy to Let landlords and High Net Worth Individuals.  Our new status enables us to work with a wider range of property brokers. 

    “The banking licence also offers great potential for growth within Omni Capital Retail Finance, which will help more retailers and small & medium sized businesses to provide their products and services to more consumers.”

    Tim Hanford, Managing Director of J.C. Flowers & Co., Castle Trust’s majority shareholder said “Castle Trust’s achievement of a full banking licence is the culmination of a great deal of work over an extended period of time. The licence is the endorsement of the quality of this business at many levels. We have a terrific board and an exceptional team of people who deliver innovative products to our customers supported by a technologically advanced infrastructure with robust processes and controls. We look forward to continuing to be part of Castle Trust’s development and success, and remain excited by the opportunities for a nimble competitor in the UK banking market.”


    Following full authorisation on Monday 15 June 2020, all existing investments were converted into savings accounts at 7am on Monday 22 June 2020. This is known as the 'Effective Time'. as required under the scheme documents, this is a notification to all scheme creditors that the Effective Time has now occurred. All customers will receive a letter by the end of June confirming their investments have been converted.

     

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  • 21/03/2020 | Group News

    Castle Trust receives banking licence and appoints new Chair

    Following its application for a banking licence at the end of 2019, Castle Trust Capital plc (Castle Trust) was advised on 20 March 2020 that its application for a banking licence has been successful and has been approved by the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA).

    Following its application for a banking licence at the end of 2019, Castle Trust Capital plc (Castle Trust) was advised on 20 March 2020 that its application for a banking licence has been successful and has been approved by the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA).

    Castle Trust is now authorised with restrictions as a bank and enters into a mobilisation period.  During this period it will be required to undertake a number of actions (including the ‘Friends and Family’ testing of its new savings system) which have been agreed with the PRA and the FCA and are aimed at protecting both Castle Trust and its customers. Castle Trust is well advanced with the process and is aiming to apply for the restrictions on its deposit taking to be lifted in time for it to start to take deposits from the public later this Summer. Castle Trust has also now commenced three Schemes of Arrangement pursuant to which it intends to convert its existing Fortress Bond and Housa customers into deposit holders following the lifting of its restrictions.

    Martin Bischoff, Chief Executive Officer said: “The granting of authorisation with restrictions marks an important moment in Castle Trust’s story.   

    “Our customers are at the heart of our drive to become a bank.  We already have 200,000 customers and by making the transition, we expect to be able to extend an enhanced offering to both them and future customers for whom we’ll be the bank of choice.”

    Tim Hanford, Managing Director of J.C. Flowers & Co. Europe, Castle Trust’s majority shareholder said “We have seen Castle Trust develop from its inception in 2012, building its customer base and product propositions to the point where a banking licence became the obvious next step.  The company’s strong performance and robust management have been demonstrated throughout, establishing a strong foundation for continuing its success as Castle Trust Bank.”

     

    The company also announced the appointment of Richard Pym CBE as Chair.  Richard is an experienced financial services Chair, whose most recent role was with AIB Group plc, where he chaired the company through the initial public offering in 2017 and led the board through the recovery from financial crisis.

    Richard said: “I’m delighted to join Castle Trust.  The company is growing at pace and the granting of authorisation with restrictions heralds the start of great opportunities for the business to flourish.”

    Speaking of Richard’s appointment, Martin Bischoff said: “Opportunities to recruit someone of Richard’s calibre are rare.  His extensive experience as Chair of some of our most recognised financial institutions makes him the ideal person to lead Castle Trust into the banking world and we are thrilled that he has agreed to join us.”

    Tim Hanford praised Richard’s appointment: “At J.C. Flowers & Co. we have known Richard for many years and have always admired his leadership. I am confident that Richard is an excellent complement to the Castle Trust management team and I look forward to working with Richard to deliver the business’ plan and continuing its success as a bank.”

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  • 21/03/2020 | Group News

    Castle Trust makes key new appointments

    Castle Trust has appointed two new Non-Executive Directors.

    To support the next stage of its development as it becomes a bank, Castle Trust Capital plc (Castle Trust) has appointed two new independent Non-Executive Directors, one of whom will take up the role of Audit Committee Chair.

    The new Senior Independent Director and Chair of the Audit Committee has been confirmed as Eric Anstee FCA.  Eric has extensive experience across the financial services industry and has chaired Audit Committees for the likes of OneSavings Bank plc, Sun Life Financial of Canada Limited and Paypoint plc.

    Eric said “Castle Trust’s credentials are very strong with a proven track record.  I look forward to being part of the business as it goes through such a significant period of development.”

    Richard Pym, Castle Trust’s Chair added: “Eric brings a wealth of Audit Committee experience to the role and was a natural choice.  We’re confident that the Committee is in safe hands with Eric as Chair.”

    The firm has also appointed Melba Montague as Non-Executive Director. Melba, the European Banking and Financial Markets leader at IBM Global Business Services, brings a wealth of financial technological experience to help drive Castle Trust’s change agenda.

    Speaking of her new role, Melba said: “The company has big plans and being part of the team taking Castle Trust through the launch process and into the next phase of its development is particularly exciting.”

    Richard Pym also welcomed the appointment: “As a recognised leader in the world of IT, Melba brings a unique set of skills to the Castle Trust board.  Her expertise within the technology field will support our drive to optimise our customer journeys.” 

    Martin Bischoff, Chief Executive Officer said of the appointments: “This is a pivotal moment in Castle Trust’s story and making such prestigious appointments really sets the direction of travel into the banking world. 

    “This is an exciting time for the business and with such solid support, I look forward to seeing Castle Trust become a leading force within the banking community.”

    Tim Hanford, Managing Director of J.C. Flowers & Co. Europe, Castle Trust’s majority shareholder said “We are pleased to welcome these new directors to the Castle Trust board.  With the support of such high calibre members and their respective skills and experience, we are confident that Castle Trust will continue to develop as a successful specialist bank providing an array of sophisticated financial products to its customers.”

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  • 24/02/2020 | Intermediaries News

    A changing market requires a different type of product

    The property investment market is changing, we explore how new products are needed to meet the growing demand for flexibility.

    As originally published in Bridging & Commercial.

    Increased cost and regulation have lessened the appeal of traditional BTL in favour of alternative types of investment, such as holiday lets, HMOs and refurbishment. At the same time, a flat property market and uninspiring house price inflation leave little to excite short-term speculators.

    The definitive result of the general election may prove to be a shot in the arm for the property sector, but even factoring in a Conservative majority government, Savills has forecast national house price growth over the next five years to be just over 15%.

    There remains significant opportunity for those investors who are prepared to adapt their approach to the changing market, and, at the moment, those opportunities appear to be for alternative types of property investment for landlords who are prepared to take a longer-term view.

    At Castle Trust, we have seen increasing demand from property investors for loans that can deliver the flexibility and lending appetite of traditional bridging, but with longer terms that can provide them with peace of mind. The market is shifting and, as lenders, we need to adapt to provide the products that best fit the requirements of clients.

    This is why we have launched TermTen, a 10-year term loan that is fixed for five years, after which time customers are able to refinance penalty-free. This might be an unusual concept for some brokers, but it is one borne out of customer requirement, and the longer term enables rates to be competitive. We believe that this approach will prove popular among borrowers and be adopted by more lenders that realise a moving industry requires a different type of product.

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  • 03/02/2020 | Group News

    Our latest financial statements - September 2019

    Castle Trust has published its latest financial statement, as at 30 September 2019.

    Castle Trust has published its latest financial statement, as at 30 September 2019. The full detail of the statement can be found in the Financial Statements to 19 09 30 and you can also download a copy of this summary here: Castle Trust's Financial Strength - September 2019.

    The summary is as follows:

    Castle Trust is a financial organisation that continues to go from strength to strength. We are a provider of investment, mortgage and consumer lending products, employing 220 people across our executive headquarters in the City of London, and an administration centre in Basingstoke, Hampshire. Launched in October 2012, Castle Trust’s principal shareholder is the leading private equity firm J.C. Flowers & Co., which currently manages circa $6 billion in assets. In the financial year to September 2019, Castle Trust made a profit before tax of £1.6m.

    Investments
    As at 30 September 2019, customers had £711 million invested into our Fortress Bonds, a product we launched in July 2014. In the last 12 months alone, interest payments of more than £19 million had been made to customers, with all payments (including capital repayments) being paid to those customers when due. Customer satisfaction was such that retention rates exceeded 70% with Castle Trust when their existing investment reached maturity.

    Lending
    As at 30 September 2019, Castle Trust’s total loan book stood at over £616 million. This included £487 million of mortgages secured on UK based, predominantly residential, property with the remainder of the book being unsecured consumer and wholesale lending. The business also had over £140 million of cash and cash equivalents that were held in reserve to meet short term funding requirements.

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  • 26/11/2019 | Group News

    Is Castle Trust affected by the FCA's announcement on mini-bonds?

    Castle Trust welcomes the FCA’s announcement today regarding its intervention on mini-bonds. These rules do not apply to our Fortress Bonds and there is no change to our customers being eligible for FSCS protection. We provide more information on the FCA's announcement in this article.

    Castle Trust welcomes the FCA’s announcement today regarding its intervention on mini-bonds. These rules do not apply to our Fortress Bonds and there is no change to our customers being eligible for FSCS protection. Castle Trust will continue to sell Fortress Bonds beyond 1 January 2020, when the FCA’s intervention takes effect. Castle Trust remains on course to become a bank in early 2020 and we will continue to provide you with updates as our application progresses.

    What is the FCA’s decision?
    The FCA has today announced it is introducing temporary rules to prevent consumer harm, by banning the promotion of high risk speculative mini-bonds to most retail consumers. The rules will apply from 1 January to 31 December 2020.

    How does this affect Castle Trust’s Fortress Bonds?
    These rules do not apply to Castle Trust’s Fortress Bonds and there is no action required by either Castle Trust or its customers. Because they are listed on the Irish Stock Exchange, Fortress Bonds are not considered to be ‘illiquid speculative securities’ and are therefore exempt from the FCA’s intervention.

    Why has the FCA taken this decision?
    The FCA has used its temporary product intervention powers because it is concerned about the widespread marketing of speculative illiquid securities, particularly online. They are high risk and difficult for most retail investors to understand. The FCA is concerned that retail customers may receive misleading information suggesting these products are more secure or less risky than is the case.

    Could this affect Fortress Bonds in the future?
    We do not expect the action taken by the FCA to affect Fortress Bonds in the future. In September 2019, we wrote to all Fortress Bond holders explaining that Castle Trust had been invited by our regulators to apply to become a bank. When we become a bank, we will consult with customers on the opportunity to have Fortress Bonds converted to bank deposits, still paying the same interest rate and still maturing on the same date. We will explain the process for doing this closer to the time we become a bank.

    Are Housa Bonds affected by these rules?
    No. Castle Trust no longer offers Housa Bonds and they do not fall within the scope of this intervention.

    How is Castle Trust performing at the moment?
    We are pleased with the performance of the business to date, which is why we believe that this is a good time for us to move towards becoming a bank. You can find information about our latest financial performance on our website. In the six months to March 2019, we made a profit after tax of £1.2m. Our next financial statements will be published in January 2020.

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  • 29/10/2019 | Intermediaries News

    The rise of longer-term short-term products

    We look at why short-term products are getting longer...
    As originally published in Development Finance Today.

    The average time taken to sell a home increased by nearly two weeks in 2018 compared with 2017, according to the latest City Rate of Sale Research report that has been produced by the Centre for Economics and Business Research (CEBR) and Post Office Money.

    The research found that the average time to sell a property in the UK was nearly four months (114 days), while homes in Oxford took the longest to sell, staying on the market for an average of five months (152 days). London dropped down the list having topped it the previous year, but the average time to sell still increased by a week from 131 days to 138 days.

    It’s little wonder then that demand for longer-term, short-term lending is increasing, as property investors are realising from the outset that they may need more time to secure an attractive exit.                                    

    This is why, at Castle Trust, we launched development exit products that are available on a three-year term with a two-year early repayment charge (ERC). These products provide developers with the extra time they need to properly market their scheme and achieve the best possible price, without the inconvenience and cost of having to refinance after 12 or 18 months. Developers are also able to repay the loan without penalty any time after two years if they are able to do so and the products can even include the flexibility to sell an agreed percentage of the properties during the ERC period, giving the client a product that works on their terms.

    But three years is not the limit when it comes to longer-term, short-term funding. After all, the distinguishing characteristic of most bridging products is not necessarily the term, but the flexibility they can deliver in funding an acquisition, project or investment ahead of an exit in the future.

    So, with this in mind, short-term products don’t always have to have a short term. In the right circumstances and for the right clients, there could be times when a longer term of five, or even 10 years, provides a client with the space and time they need to secure the most opportune exit. As with most decisions, timing is everything and so providing investors with more freedom about when they dispose of an asset gives them greater control over the value they can achieve.

    There are obviously considerations here about how long a client may be tied into a loan with ERCs before they can exit without cost, but in the current environment and the foreseeable future when house price activity continues to look subdued, longer-term, short-term products could become a very useful tool for brokers and their clients.

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  • 21/10/2019 | Intermediaries News

    Revamped Development Finance

    Our Development Finance proposition has been revamped. Find out more about what's changed...

    Castle Trust has revamped its Development Finance offering with the recruitment of Simon Whitfield to head up the proposition.

    Whitfield, who joins Castle Trust after holding senior roles at Wellesley Group and The Co-operative Bank, will lead the lender’s renewed focus on growing its share of the development market, increasing its lending to experienced developers who want to maximise their returns through the efficient use of capital.

    The new Development Finance proposition from Castle Trust is available to individuals, SPVs and limited companies that require up to 70% Gross Development Value (GDV) on day one. Loan sizes are available from £1m to £10m and terms are available between nine months and 30 months. Every case will be supported by a dedicated team for the full term of the loan, with Castle Trust on hand to provide expertise throughout the build.

    Barry Searle, Managing Director of Property at Castle Trust, says: “There continue to be huge opportunities for developers to meet the increasing demand for housing through the provision of new schemes and conversions. We believe this market is set for long-term growth, which is why we have taken our foot off of the gas in recent months to restructure out team and deliver intermediaries with a proposition that we can commit to for the long term. As part of this commitment we want to build long-term partnerships with brokers and their clients to provide reliable and sustainable finance to experienced developers. I’m really pleased that Simon has joined the team to help us achieve this. He has great experience and I know that he can’t wait to get started.”

    Simon Whitfield, Head of Development Finance at Castle Trust, says:  “It’s fair to say that it’s a difficult environment for developers at the moment as political and economic uncertainty are impacting on both the property market and the provision of affordable, reliable finance. But at Castle Trust we have a real appetite to lend now and build long term partnerships with our intermediaries.

    “On every case we will ask three simple questions. Has the developer completed at least two similar schemes in the past? Does the developer have cash in the deal? And is buy-to-let a realistic exit for the development? If the answer to all three of these is yes, then pick up the phone to Castle Trust. We are able to offer keen pricing and we want to have a conversation about how we could help.”

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  • 07/10/2019 | Intermediaries News

    Major enhancements to our broker portal

    On 26th September, we launched some major enhancements to our broker portal. Take a look to see what's changed...

    On 26th September, we launched some major enhancements to our broker portal, including full online case management, secure messages and automatic certification of uploaded documents.

    The new upgraded case manager area provides brokers with everything they need to manage all of the business they write with Castle Trust, with instant access to the status of their cases available 24 hours a day, seven days a week. A key feature of this area is an up-to-date listing of any outstanding information required to advance an application, so that brokers can clearly see at a glance how their case is progressing.

    Another feature of the enhanced portal is the secure messaging platform, which enables direct communications between brokers and the underwriting team. This system enables brokers to keep all of their case correspondence in one place, making it easier to manage and all messages are time and date stamped and grouped in conversations, just like on a smartphone. In addition to this, there is no longer any requirement for brokers to certify documents that are uploaded onto the portal, as these will be automatically verified using the broker’s unique login details.

    Barry Searle, Managing Director of Mortgages at Castle Trust, says:

    “These technological enhancements to our broker portal represent a huge step forward in the experience we are able to offer brokers who work with Castle Trust. We offer bespoke loans to match client requirements, and so we understood that we couldn’t settle for an out-of-the-box technology solution. Instead, we worked with a dedicated team of in-house developers to ensure that our technology takes the same tailored approach as our lending. I’m delighted with the outcome, and I’m confident that brokers will be blown away with the experience when they next work with Castle Trust.”

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  • 04/09/2019 | Group News

    Castle Trust invited to apply for a banking licence

    Castle Trust has been working closely with the Prudential Regulation Authority and the Financial Conduct Authority on our banking licence application, which we submitted in early September 2019.

    September 2019

    In April 2018 we announced our intention to become a bank. Since then, we have been working closely with both UK regulators, the Prudential Regulation Authority and the Financial Conduct Authority, on our banking licence application. We were recently invited to submit our application, which we did this week.

    This is a natural next step in Castle Trust’s journey that started when we were founded in 2012 with a simple mission: to help both investors and borrowers achieve their financial goals. Becoming a bank is an exciting milestone but it won’t change our focus on doing what’s right for our customers. In fact, it means we’ll be able to offer a broader range of products in the future.

    This stage of the rigorous application process is expected to take until spring next year. There is nothing existing customers need to do now and we’ll keep customers updated on a regular basis.

    Speaking about the application, Martin Bischoff, Chief Executive Officer said:

    “Being invited to apply for a banking licence by the UK regulators is testament to the strength of the careful planning and preparations we have put in place. Castle Trust has always been proud of being different, and now we’re in the process of becoming a different kind of bank. We’re very excited about the opportunities that come with a banking licence to better help our customers achieve their financial goals.”

    You can find more information about our banking application on our Q&A page.

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  • 16/08/2019 | Intermediaries News

    Weak pound opens door to Ex-Pat investors

    We look at how the struggling pound is creating new opportunities for Ex-Pat investors...
    As originally published in Financial Reporter.

    If you have just returned home from a holiday overseas, you will know all too well about the impact of the struggling pound. But just as a weak pound has made it more expensive for you to buy dinner or hire a car, it has made UK property far more affordable to potential buyers who are remunerated in other countries.

    Expats looking to invest in UK property can benefit from the dual advantage of a stagnant property market stifling prices, and the increased buying power of their money. Here’s a closer look at what a difference a weak pound can actually make to overseas buyers.

    Euros

    On 22 June 2016, the day before the EU referendum, £1 was worth €1.30, according to the currency exchange website xe.com. This means that a property worth £750,000 would have cost an equivalent of €975,000.

    On 1 August this year, £1 was worth €1.10, which means that a property worth £750,000 could now cost an equivalent of €850,000. That’s a saving of €125,000.

    US Dollars

    On 22 June 2016, £1 was worth $1.47, which means that a property worth £750,000 would have cost an equivalent of $1,102,500

    On 1 August this year, £1 was worth $1.21, which means that a property worth £750,000 would cost an equivalent of $907,500 – a saving of $195,000 because of the exchange rate.

    We work with a number of brokers who have seen a considerable increase in enquiries from UK nationals living abroad who want to take advantage of current exchange rates to invest in property. At a time when the domestic property market is subdued, this increased activity from expat buyers is a welcome boost to business. So, think about how you could make the most of the weak pound to open the door to more expat clients.

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  • 15/08/2019 | Intermediaries News

    Default rates should only ever be a last resort

    We take a look at how default rates should only be a last resort...
    As originally published in Bridging and Commercial.

    There’s been a lot of talk of default rates in recent months, both in the trade press and on LinkedIn. The announcement by FIBA that it would start publishing lenders’ default rates put the spotlight on facility extension charges and the ASTL quickly followed up to confirm that its code of conduct for members was amended in 2017 to ensure that all members applying an alternative higher interest rate, such as the default of a loan, must make it clear and transparent in all of their documentation.

    Transparency on default rates is clearly important, but it’s really just the bare minimum that lenders should be doing. Default rates have come to the fore recently, not just because of announcements by trade bodies, but also because, in the current market, properties are taking longer to sell, and more borrowers face the potential need to extend their finance.

    If an extension, or refinance, is required it should not come as a surprise to the borrower, the broker or the lender. Most responsible lenders should start a dialogue about potential exit solutions many months before a default rate might be triggered. At Castle Trust, we start engaging with borrowers a full 12 months ahead of the maturity of the loan, and we do not charge default rates. Instead, we will look to work with the borrower to identify whether refinancing their loan might be an appropriate option if they do not expect to exit via sale of the asset.

    Much has been spoken about default rates, but if lenders work in the best interests of their borrowers and brokers, they should only ever be a last resort when all other avenues have been exhausted.

    Brokers have a role to play too. In an environment when a higher proportion of short-term loans are likely to extend beyond their redemption dates, brokers should consider the way a lender treats its customers at the end of a loan as well as at application when they choose the most suitable lender for their clients. It’s a very competitive lender market and there are plenty of options to place a case with lenders that will not charge clients expensive default rates.

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  • 12/08/2019 | Intermediaries News

    The compelling maths of holiday lets

    With staycations on the rise, more and more landlords are realising the potential of holiday lets...
    As originally published in Specialist Financial Introducer.

    There are many consequences to the ongoing uncertainty caused by the continued Brexit situation – one of which is the rise of the staycation. The current political situation has hit the value of the pound, making it increasingly expensive for holidaymakers to go abroad, which means that more people are looking to take their holidays in the UK.

    Visit England says the number of people booking self-catering holidays in England increased from 6.22 million in 2015 to 7.23 million in 2017 – and the value of the pound has fallen significantly since then.

    This growing demand, coupled with the popularity of sites like Airbnb, has presented an emerging opportunity for property investors who are looking at alternatives to a traditional buy-to-let investment.

    A furnished holiday let is a more involved investment than a standard buy-to-let and investors should be commercially prepared for periods of no occupancy, high turnover and increased costs, all of which make holiday lets much more like a trading business.

    An advantage of this, however, is that a furnished holiday let is therefore treated like a business rather than a passive investment when it comes to taxation. For example, investors in a furnished holiday let are able to continue to claim full relief on mortgage interest payments in addition to other benefits that are not afforded to buy-to let investors. They can also claim entrepreneur’s relief when they sell a property, for example, so could pay 10% rather than Capital Gains Tax at 28%. The detail of these tax consideration can be complicated, so it’s important that your clients speak to a specialist tax adviser to get accurate information about their tax liabilities when they are considering an investment in a holiday let.

    One area that is not complicated, however, is the potential to generate higher returns. For example, according to Rightmove, it is possible to purchase a 2-bedroom flat in good condition, overlooking the beach in Margate on the Kent coast, for £185,000. Let to tenants on an AST, this type of property could generate around £600 in rental income each month, or £7,200 a year – that’s an annual yield before costs of 3.89%.

    A similar type of property could be listed on Airbnb for around £140 per night. Let’s assume that the property is fully occupied in July and August and then let to holidaymakers a further 30 weekends throughout the year – this means that it would accommodate holiday makers for 122 nights in a year. At £140 a night, the property would therefore generate £17,080 in income, which is the equivalent yield of 9.23% before costs.

    Holiday lets are not for everyone, but for the right investor, the maths can be quite compelling, particularly in the current environment that is continuing to drive an increasing number of staycation holidaymakers.

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  • 12/08/2019 | Intermediaries News

    If I were Prime Minister...

    Reflecting on the recent change of Prime Minister, our Director of Sales, Marcus Dussard discusses what he would do in the top job...
    As originally published in Bridging and Commercial magazine.

    By Marcus Dussard, Director of Sales, Castle Trust.

    Housing is a massive issue in this country and the dynamic of demand exceeding supply doesn't look like it's changing any time soon.  The reality of our property market is that not everybody will be able to - or even want to - buy their own home, and the private rental sector plays a vital role in the provision of good quality housing.  So, I'd like to see a recognition of this and a less punitive approach to taxing landlords.  

    The current tax regime was originally introduced as part of the Cameron / Osborne government, neither of whom are still MPs.  You could also argue that they have already achieved what they set out to do: first-time buyer numbers have been boosted in recent years and a lot of casual 'dinner party landlords' have stepped away from Buy to Let.  Those that remain, in general, are more professional in their approach and committed to the sector for the long term, so let's give them some encouragement to incentivise the availability of competitively priced, good quality, privately rented homes.  I would like to see a government in place that is more representative and in touch with our population.  It seems that politicians are creating policy for lives they don't understand.  There is a saying in education that is 'know me, before you can teach me' and I think we need to have people in government why truly understand the lives that most people live.
    Read more
  • 01/08/2019 | Intermediaries News

    New Case Study library launched

    Our new Case Study Library is home to all of our case studies.
    Our new Case Study Library is home to our case studies and makes interesting reading for your tricky cases.

    Unlike a traditional library, we'll even let you bring in a cuppa, so get the kettle on and settle down for a quick read through.

    We'll be adding new cases to the library regularly, so keep popping in to see the latest cases.

    Read more
  • 30/07/2019 | Intermediaries News

    Deferred interest: looks can be deceiving

    How does deferred interest compare to rolled up interest and which is best for your clients?

    There are a range of options available to help landlords invest in properties that deliver a lower yield, including deferring interest or rolling some of it up. But which technique leads to a better outcome for your clients?

    First, it is important to understand the difference between both methods:

    Deferred interest

    With a product offering deferred interest, the all-in rate may be quoted at 6.99%, which includes 2% deferred interest and a serviced rate of 4.99%. Interest on the deferred element of the loan is compounded and then added back to the loan for payment of the total balance at redemption.

    Roll-up interest

    With a roll-up interest product there are no monthly payments required as interest is rolled up to redemption and, any interest which is capitalised is not subject to a stress test. Rolling up all of the interest can reduce the maximum LTV available and so a blended approach is popular. This is where a loan is structured so that some of the interest is serviced, but the interest on the remainder of the loan is rolled up. When the two are combined, the rates can be aggregated to give one set of loan terms.

    Both deferring interest and rolling up interest can provide a solution for landlords to invest in low yielding properties, but which is the better option for your clients? The simple truth is that every case is different and depending on the circumstances one approach may deliver the right cash flow model or be more cost effective for your client.

    At first sight, a loan with deferred interest might look like the cheaper option but remember that interest on the deferred element of the loan is compounded and this can result in a higher balance to pay off at redemption than you might expect.

    So, when it comes to structuring a deal for your buy to let clients, it is worth taking the time to consider in detail the available options and stacking up the figures to see which provides the best outcome, as the deferred choice may not always be the preferred choice.

     

     

     

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  • 18/07/2019 | Group News

    Our latest financial statement - March 2019

    Castle Trust has published its latest financial statement, as at 31 March 2019.

    Castle Trust has published its latest financial statement, as at 31 March 2019. The full detail of the statement can be found in the Financial Statements to 19 03 31 and you can also download a copy of this summary here: Castle Trust's Financial Strength - March 2019.

    The summary is as follows:

    Castle Trust is a financial organisation that continues to go from strength to strength. We are a provider of investment, mortgage and consumer lending products, employing over 220 people across our executive headquarters in the City of London, and an administration centre in Basingstoke, Hampshire. Launched in October 2012, Castle Trust’s principal shareholder is the leading private equity firm J.C. Flowers & Co., which currently manages circa £6 billion in assets.

    Investments
    As at 31 March 2019, customers had £737 million invested into our Fortress Bonds, a product we launched in July 2014. In the last 12 months alone, interest payments of more than £16 million had been made to customers, with all payments (including capital repayments) being paid to those customers when due. Customer satisfaction was such that approximately 73% of customers reinvested with Castle Trust when their existing investment reached maturity.

    Lending
    As at 31 March 2019, Castle Trust’s total loan book stood at over £656 million. This included £497 million of mortgages secured on UK based, predominantly residential, property with the remainder of the book being unsecured consumer and wholesale lending. The business also had over £163 million of cash and cash equivalents that were held in reserve to meet short term funding requirements.

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  • 17/07/2019 | Intermediaries News

    Bridging Myths Dispelled

    Think you know bridging? We dispel some of the most common bridging myths...
    As originally published in Financial Reporter.

    Bridging lending grew by 15% last year alone, according to member data from Association of Short Term Lenders, and it was driven by increasing demand from borrowers for flexible short-term funding.

    How many other sectors of our market have experienced this type of growth in a relatively flat environment? And, if you don’t already advise your clients on bridging finance, what are you waiting for?

    Despite the growth in the popularity of bridging finance, some myths still prevail about the sector. So, what’s the truth behind some of the most common bridging myths?

    Myth: The main use of bridging finance is to save broken chains

    Truth: It is true that this is a use of a bridging loan. Bridging finance is a short-term mortgage secured against property or land that is used to ‘bridge’ the gap, until longer term finance can be arranged, or the underlying security is sold – and so one use is to bridge the gap between property transactions.

    But often the purpose of bridging finance is to bridge a criteria gap, providing flexible finance where longer-term lenders are unable to help because the process takes too long, or the security is unmortgageable. Three common examples include auction finance, property refurbishment and development exit loans. Another purpose is to for clients who are looking to release equity for cash flow purposes on a short-term basis, for business use for example.

    Bridging finance is available on a first or second charge basis on residential, commercial and semi-commercial property as well as land.

    Myth: A bridging loan is a last resort

    Truth: Bridging can be a useful tool when other avenues have failed, because it offers speed and flexibility, but these attributes are more commonly harnessed by savvy investors and business owners who recognise the benefits of fast access to flexible finance as a means of leveraging their capital. Bridging finance can also provide the option to roll-up some or all of the interest and this means it can be used to manage cash flow, which opens the door to a lot of other uses, including structuring loans that fit the ICR on buy to let properties.

    Myth: Bridging lending is expensive 

    Truth: Bridging is a tool that enables investors and business owners to leverage their capital and fund investments and, in doing this, it can help to create wealth. For example, a bridging loan to fund a refurbishment project may have a total cost of £50,000 for the borrower but could increase the capital value of the property by £100,000 and so the borrower benefits from a net gain. The thing to remember is that bridging is short-term funding and so can be inefficient when taken over a longer period.

    Myth: Bridging lending is complicated

    Truth: The bridging landscape may seem unfamiliar at first, but the market has evolved significantly in recent years to become more aligned with other areas of secured lending, with greater transparency and clarity. If you have any questions, about how a product works or what it can offer to your clients, speak to a lender BDM who will be able to help.

    The key for any bridging loan is to be clear about the exit strategy. This would usually be via a refinance onto a longer-term product, the sale of the property, or a possible combination of both if additional securities have been offered as part of the loan structure.



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  • 16/07/2019 | Intermediaries News

    When one lender isn't enough

    We take a look at how a strong lender relationship can save a case from failure...

    In the specialist lending world, it’s easy to see each lender as a standalone provider and finding a lender perfectly matched to your client’s circumstances can be painstaking.  But there are ways to make it easier.

    On most occasions, it’s a question of finding the right lender and from then onwards it’s a straightforward process.  However, there can be times where thinking creatively can help to provide a better option for your clients.

    We recently received an enquiry on the refinance of a complex £13m portfolio where the loan was outside of our appetite.  With most lenders, the case would have been declined instantly and the broker left to start his search again.  Our BDMs however, are used to thinking laterally with cases and helping the broker to find a solution, even if it doesn’t sit with us.  As a result, we were able to work together with the broker and another lender to structure the loan in such a way that we could provide the senior element of the funding within our appetite, and the other lender provided the remaining amount, fulfilling the borrower’s full funding requirement.

    This example really brought home how having a good relationship with a BDM (and a good BDM!) can mean the difference between helping your client and letting a case go.  BDMs see every type of case imaginable and are often able to call upon a precedent to advise on how to build a case.  Where they haven’t seen a similar case before, it’s an exciting challenge to find the right approach and achieve the ‘impossible’.

    Your BDMs are there to help you when the going gets tough as well as with the straightforward cases.  Their experience might be just what you need to help you place your next tricky case.

    Read more
  • 05/07/2019 | Intermediaries News

    New Bridging Guide launched

    Our new Bridging Guide takes a look at some traditional and up-and-coming uses of bridging across the industry, which may provide some food for thought in terms of growing your business.
    Bridging has evolved over the years, with smart lenders innovating and creating new products to better meet clients' needs.

    Our new Bridging Guide takes a look at some traditional and up-and-coming uses of bridging across the industry, which may provide some food for thought in terms of growing your business.
    Read more
  • 24/06/2019 | Intermediaries News

    Which property refurbishments do not require planning permission?

    Not all refurbishment projects require planning permission. How can your clients refurbish without taking on a huge project?
    As originally published in Mortgage Solutions.

    A growing number of investors are choosing to generate better returns by buying a run-down property and renovating it to achieve a higher re-sale price or increased rental income. Traditionally, property refurbishment falls into two main categories – light refurbishment, where no planning permission and building regulations are required, and heavy refurbishment, which requires planning permission or building regulations.

    Light refurbishment could typically include re-wiring a property, or fitting a new bathroom or kitchen, whereas heavy refurbishments are more involved and can include converting a property to residential use, creating multiple units from a single building or converting multiple units to a single building.

    Permitted development, however, provides a third option for property investors that is less involved than heavy refurbishment but provides more scope to add value than light refurbishment. As an example, at Castle Trust, we recently launched a bridging product that can be used for refurbishment where building regulations are required but planning permission is not.

    This combination provides investors with a wide scope of options, so what type of changes to a property require building regulations but not planning permission?

    Building regulations will probably apply for someone who wants to put up a new building, extend or alter an existing one, install washing and sanitary facilities, hot water cylinders, water drainage, replacement windows and fuel burning appliances of any type.

    In these circumstances, the work must meet the relevant technical requirements in the building regulations and they must not make any other part of the property less compliant or even dangerous.

    When it comes to planning permission, it is always worth checking with the local planning authority to check whether a project falls within permitted development of if planning permission is required. However, as a general rule, the following changes can be made without the need to apply for planning permission:

    Internal

    Nearly all internal works such as loft conversions, garage conversions, new staircases, bathrooms, kitchens, or rewiring, do not require planning permission. But always check if the property is listed or located in a Conservation area.

    Extensions

    Extensions are generally considered to be permitted developments, as long as:

    • The extension is no more than half the area of land around the original house
    • The extension is not forward of the principal elevation or side elevation onto a highway
    • The extension is not higher than the highest part of the roof
    • In the case of single storey extensions, it must not extend beyond the rear wall of the original house by more than three metres for an attached house or by four metres for a detached house
    • The maximum height of a single-storey rear extension is not higher than four metres
    • Extensions of more than one storey do not extend beyond the rear wall of the original house by more than three metres
    • Side extensions are single storey with maximum height of four metres and width no more than half that of the original house
    • Two-storey extensions are no closer than seven metres to rear boundary
    • The materials are similar in appearance to the existing house
    • The extension does not include verandas, balconies or raised platforms.

    Garages, sheds and other outbuildings

    Outbuildings such as sheds, garages and greenhouses are also usually considered to be permitted development, provided the building is no higher than 4 metres and outbuildings do not take up more than half of the land around the original property.

    So, before you start to search for the right refurbishment loan for your client, make sure you understand the exact nature of the work and the regulations and permissions that are required, as this will influence your choice of product.

    Read more
  • 28/05/2019 | Intermediaries News

    Is it time to buy your clients more time?

    With average time taken to sell a property increasing, more and more developers are looking for flexibility in development exit funding...
    As originally published in Financial Reporter.

    The average time taken to sell a property in the South East is approaching six months, according to RICS, which says that properties elsewhere in the country are taking up to five months – and these figures support the anecdotal evidence that the transaction market continues to be stagnant.

    This is bad news for developers with completed schemes and we’ve seen a significant increase in the demand for development exit loans to help investors bridge the gap between development finance and a longer-term exit, whether it’s refinancing or selling the asset.

    And it’s not just demand for development exit loans that has been increasing, the term of loans sought by developers is also on the rise. With the ongoing political squabbling doing little to create an environment of certainty, developers are adjusting their expectations and taking a more pragmatic approach.

    Many have accepted that they may be in this for the long haul and, rather than arranging short-term finance of 12 or 18 months only to potentially have to refinance again at the end of the term, more developers are buying extra time at the outset in the form of three year development exit loans.

    Three years is undoubtedly a long time for short-term finance and the risk associated with this more cautious approach is that a developer could find a suitable exit in less time and have to pay a fee to redeem the loan.

    This is why, at Castle Trust, our development exit products are available on a three- year term with a two-year ERC, enabling developers to repay the loan without penalty any time after two years if it suits them. The products can even include the flexibility to sell an agreed percentage of the properties during the ERC period, giving the client a product that works on their terms.

    We’re not the only lender offering more flexible development exit loans of course, and this area of the market is currently seeing a lot of innovation in response to growing demand.

    So, if your developer clients are looking to buy themselves more time, take another look at the options – they may be able to access a more flexible solution than you thought possible.

    Read more
  • 22/05/2019 | Intermediaries News

    Certainty of funds must be a key consideration

    In the current environment, certainty of funding is no longer a given, so how can you help to protect your clients?
    As originally published in Financial Reporter.

    LinkedIn is a great way of keeping up to date with what is going on at the coalface of the market as brokers will often share their frustrations online long before any trends are picked up by more formal research.

    One recent trend I’ve noticed on LinkedIn and feedback from my team of business development managers is the growing number of brokers who are frustrated by lenders pulling out of deals once they have been agreed.

    It’s a worrying development that puts brokers in a difficult position and can leave clients frustrated and out of pocket, so how can you guard against being let down by a lender?

    In the current environment, the strength and certainty of funding should be amongst the top considerations when you are choosing the right product and lender for your clients.

    Your relationship with your BDM is key. A good BDM will answer any questions that you have about the certainty of a lender’s funding and give you the confidence that you need for your client’s deal.

    Good BDMs will also keep you informed as the case is progressing. For many BDMs, their work stops at the point of submission but for a good BDM, that’s just the beginning. They’ll help to keep your case progressing and give you advance warning of any hiccups that might be on the horizon, helping you to keep your clients up to date.

    The first thing is to ask your BDM whether they rely on a funding line from a third party. Many lenders in the specialist sector rely on third party funding, and this isn’t necessarily a bad thing, but if your lender does, you may want to ask whether the funding line is soon scheduled for renewal. Also check whether the lender has more than one funding line, with different institutions and renewal dates, to ensure continuity of service. At Castle Trust, our loans are funded by Fortress Bonds, investment products available to the public. That means that we are fully in control of our funding line and aren’t beholden to a third party funder.

    Another consideration is the commitment of the lender and its backers to the market. A number of new entrants have stepped forward in recent years, which is great for competition, but not every lender will have the same level of commitment from their shareholder and, if the going gets tough, there is a chance that some might take a step back.

    Also consider the lender’s experience of lending throughout different economic cycles. This applies to both the company and the individuals within the organisation. Lending in a stable environment is easy. The art is in continuing to provide consistent lending decisions when the landscape becomes more challenging. Our team have weathered the storms of many economic cycles and are well equipped to provide consistency regardless of the current environment.

    Certainty of funding is a key consideration in the current market and it’s a growing concern amongst brokers. Make sure that you ask your BDM the right questions, so that you can proceed with confidence.

    Read more
  • 21/05/2019 | Intermediaries News

    Three questions to ask your lender before placing a large loan

    What qualities should you look for in a lender to protect your clients' large loans?
    As originally published in Bridging and Commercial.

    Large loans can be extremely lucrative for brokers. On a loan of £5 million, for example, a proc fee of 1.5% would deliver an income of £75,000 for just one case.

    But while they present significant opportunity, they also pose a greater risk of falling through than more standard transactions. Some lenders can be more conservative when it comes to the concentrated risk of a large loan and, by nature, these types of enquiries are often quite complex.

    So, if you have a client who wants to borrow a large loan, you need to make sure you are doing all you can to facilitate a successful completion. Letting a large loan slip through your fingertips because you chose the wrong lender can prove costly for your client and very frustrating for you.

    With this in mind, what qualities should you look for in a lender? Here are three questions you should be asking your lender before attempting to place any large loan:

    1. What is your decision-making process for large loans?

    The problem many lenders have with large loans is that they have a hierarchical decision-making process. So, while they may be confident about a case at DIP when it is agreed with a junior mandate holder, the progression of the case through the hierarchy can be fraught with indecision.

    Often, it can be the case that the questions asked throughout this process do not enhance the credit decision but are necessary for the higher mandate holder to justify their position, and it all takes time.

    There are many lenders that claim to be able to underwrite large complex cases in a timely manner, but still have to put large loans through this cumbersome, multi-stage process.

    So, look for a lender that doesn’t just claim to be able to specialise in large loans, but is able to prove its commitment with a dedicated process for making large loan decisions. A hierarchical approach is rarely fit for purpose in this market, so opt for a lender with a flat decision-making structure and a daily focus on progressing complex cases.

    2. Do you have experience of successful large loan completions?

    Ask to see the lender’s credentials. How many large loans have they completed and how long did they take? More importantly perhaps, try to find out how many large loans they have declined once the application process has started.

    At Castle Trust, we recently completed a £12m loan in just 11 working days and were handed a tight deadline because the client had been let down by another lender and was left incurring penalties on an overdue development loan. Because of the situation, the valuation and some of the legal work had already been carried out, but it was a very complex loan, secured across multiple properties and the size of the deal required sign off at board level. But our efficient large loans process ensured we were able to secure a near-immediate decision and complete on the deal in just two weeks.

    3. How do you secure your funding?

    Certainty of funding is always a key consideration, but it is particularly important on large loans, where lenders with fragile funding lines can be easily spooked. So, ask about a lender’s funding, whether they lend their own funds or rely on funding lines from external institutions and, if so, how many funding lines do they have and when are they up for renewal?

    If your lender lets you down because it is unable to fund a deal, your relationship with your client is likely to be damaged, so do your homework and make sure you can be confident that your client’s application is in safe hands.

    Read more
  • 15/04/2019 | Intermediaries News

    New Bridging Loans

    Castle Trust has launched a new Bridging Loan with streamlined requirements for brokers who want a combination of transparent pricing, fast-track service and flexible underwriting.

    Castle Trust has launched a new Bridging Loan with streamlined requirements for brokers who want a combination of transparent pricing, fast-track service and flexible underwriting.

    Available for a flat rate of 0.67%pm, Castle Trust’s new Bridging Loan can be used for first charge Buy to Let cases up to £1 million. The product has a choice of a nine or twelve month term, with an ERC period of three months.

    The loan can be used for all types of refurbishment that do not require planning permission, including refurbishments that do include building regulations.

    Brokers will benefit from a streamlined application process, with online submissions and quick illustrations from a dedicated team of bridging specialists who are focused on progressing cases through to completion as fast as possible.

    Marcus Dussard, Director of Sales for Mortgages at Castle Trust, said: “At Castle Trust, we’ve developed a reputation for providing brokers with creative solutions for complex cases but, as the demand for short-term finance has grown, we’ve recognised that an increasing number of brokers are looking for more straightforward bridging loans for their clients, particularly on refurbishment projects, which are becoming more popular. So, we have developed a new product and service proposition that gives them just that – a quick, uncomplicated loan with simple pricing, supported by expert underwriters who understand the market. Our new Bridging Loan combines the insight and experience we have developed over the years with a new, more accessible format. It’s a combination we think will prove very popular for brokers and their clients.”

     

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  • 15/04/2019 | Intermediaries News

    Three questions you should ask every non-bank lender

    Here are three questions you should be asking every non-bank lender before you submit an application on behalf of your client...
    As originally published in Bridging and Commercial.

    The first quarter of 2019 has already delivered a year’s worth of drama and uncertainty as the political landscape has continued to deliver, usually unwelcome, surprises and a growing number of lenders have stepped away from the market.
     

    This presents a challenge for brokers. Not only do you have to help your clients to navigate the changing environment and make the right decisions for their circumstances, but you also need to choose lenders that you can be sure will remain committed to the market throughout the uncertainty and be able to fulfil on their agreements.

    For those lenders in this market that are not banks, the strength of funding lines is critical and could make the difference between a straightforward completion and a very disappointed client. 

    So, once you find a lender that can deliver the solution your client wants, how can you have confidence the deal will complete, even if the economic conditions take a turn for the worse?

    Here are three questions you should be asking every non-bank lender before you submit an application on behalf of your client:
     

    1. Do you rely on a funding line from a third party?

      Many lenders in this sector rely on third-party funding, and this isn’t necessarily a bad thing, but if your lender does, you may want to ask whether the funding line is soon scheduled for renewal. Also, check whether the lender has more than one funding line, with different institutions and renewal dates, to ensure continuity of service. At Castle Trust, we fund our own loans with fortress bonds, which are investment products backed by the Financial Services Compensation Scheme.
       
    2. Do you have committed backers?

      At Castle Trust, we share the same commitment to the market as our shareholder JC Flowers & Co, giving us a unique confidence in its continued support. Knowing that a lender has support from an established shareholder, which is not liable to retreat from the market or withdraw its support, is reassuring for both the broker and the client, so it’s important to check who is behind your chosen lenders.
       
    3. Do you have experience of lending throughout different economic cycles?

      This applies to both institutional experience and the experience of individuals within the organisation. Lending in a stable environment is easy. The art is in continuing to provide consistent lending decisions when the landscape becomes more challenging and previous experience can be helpful.


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  • 10/04/2019 | Group News

    The FSCS cover limit for investments has been increased to £85,000

    The maximum FSCS claim limit per person for investments is now the same as deposits, but other differences between the two products still remain…
    With effect from 1 April 2019, the Financial Services Compensation Scheme (FSCS) has increased the maximum level of protection available to individuals on investments to £85,000 (£170,000 on jointly-held investments), which is the same limit already provided on deposits.

    Whilst the maximum level of cover per individual is now the same, it should be noted that any other differences in the cover provided by the scheme for deposits and investments remain, and that claims will continue to be subject to eligibility. More information about the FSCS and eligibility criteria can be found on their website here www.fscs.org.uk.
    Read more
  • 19/03/2019 | Group News

    New Managing Director for Omni Capital Retail Finance

    On 18th March 2019, Castle Trust announced a new appointment within Omni Capital Retail Finance.

    Castle Trust Capital plc is pleased to announce the appointment of Ronnie Denholm as Managing Director of Omni Capital Retail Finance, its point of sale finance division.

    Following the acquisition of Omni Capital Retail Finance in 2016, Castle Trust has restructured the operations of the business and has ambitious plans for progress.

    Ronnie is an experienced financial services leader and joins the business from Barclays Bank Plc, where he held various Managing Director roles across the business, including most recently Barclays Partner Finance, one of the UK’s largest point of sale finance companies.  Prior to joining Barclays, Ronnie held several senior leadership roles across the American Express group, with a strong growth record across each of the business areas he led.

    Martin Bischoff, Chief Executive Officer of the Castle Trust Group said: “Opportunities to work with someone of Ronnie’s calibre are rare, so we are privileged to have him on board.  As he’s demonstrated in the past, he is a very capable pair of hands to lead the business as it looks to grow.   We have big ambitions for Omni Capital Retail Finance, which Ronnie is integral to helping us achieve.”

    Speaking of his appointment, Ronnie said: “I am delighted to join Omni Capital Retail Finance.  The company has undergone a lot of changes recently and the prospect of leading the next phase of the company’s growth is an exciting challenge.  I look forward to working together with the team to consolidate the business’ position within the market and expand its operations further. “

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  • 05/03/2019 | Intermediaries News

    Tackling ICR with rolled up or blended interest

    Rolled up or blended interest provides options for low yielding properties...
    As originally published in Mortgage Solutions.

    Not all landlords are obsessed by yield. If they were, there would be very few private rental properties available in London and an oversupply of HMOs in student towns around the country. For some landlords, purchasing a desirable asset in a sought-after location is a more important factor of their investment than achieving a high yield.

    For example, according to Which?, the NG1 postcode in Nottingham provides the best buy to let yields in the country, with an average yield of 11.99% and an average house price of £152,631. In Hampstead on the other hand, where the average house price is more than £1.6m, the average yield is just 4.20%. But this is still a popular area for investors because the location will always attract a good level of demand.

    The trouble with investing in properties that deliver a low yield is that it can be difficult to make the interest coverage ratio (ICR) stack up on a standard buy to let mortgage.

    One option to tackle ICR on low yielding properties is to roll up some or all of the interest. With a roll-up mortgage there are no monthly payments required as interest is rolled up to redemption and, any interest which is capitalised is not subject to a stress test, and so this can increase the client's borrowing capacity.

    Rolling up all of the interest on a loan can ultimately reduce the amount an investor is able to borrow however, as the payment of rolled up interest will need to be factored into the maximum LTV.

    So, for landlords with low rental yields, a blended product can be the ideal solution. This is effectively a loan that is structured so that some of the interest is serviced, but the interest on the remainder of the loan is rolled up. Because there are no monthly payments due on the rolled-up part of the loan, this element is not subject to a stress test. So, with a balance of serviced interest and rolled-up interest, it is possible to build a loan that fits the required stress test.

    The roll-up element offers the opportunity for a client to maximise their loan amount and the serviced element offers a lower rate than the roll-up element. When the two are combined, the rates can be aggregated to give one set of loan terms, keeping things simple for you and your client.

    So, if you have clients who choose to invest for long-term stability rather than yield, and need a flexible solution to tackle ICR, consider whether it would be appropriate for them to roll up some or all of the interest on the loan to achieve their lending objective.

     

     


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  • 27/02/2019 | Intermediaries News

    Breathing space for developers in a stagnant market

    Find out how development exit loans provide options for developers in the current market...

    As originally published in Financial Reporter.

    The ongoing uncertainty around the UK’s departure from the European Union is continuing to have a dampening effect on the property market, which is bad news for developers who might be struggling to sell properties or suffering from down valuations.

    The headline of the RICS December market survey was “housing market on hold for now” and the report said that the sales outlook for the next three months is the gloomiest it has been for 20 years.

    RICS said that activity indicators from surveyors continued to slip in December with sales volumes dwindling and a net balance of -28% representing the poorest reading since the series was formed in 1999. However, the 12-month outlook is a little more upbeat, which suggests that some of the near-term pessimism is directly linked to Brexit and, while there is no guarantee of greater clarity any time soon, there are indications that the property market could experience an uplift, when we enter a more stable political environment.

    So what options do developers have in the short-term if they have deadlines to pay off development finance but are also struggling to shift units at a desirable price?

    In this situation, a development exit loan could provide the breathing space they need to transition from a development at their own pace. It’s important to allow a reasonable timeframe to market and sell the properties and, at Castle Trust, our development exit products are available on a three-year term with a two-year ERC. There is also the flexibility to sell an agreed percentage of the properties during this ERC period without penalty, giving the client a product that works on their terms.

    So, don’t let your developer clients be suffocated by a stagnant property market. Consider their options with a development exit loan that can provide them with the flexibility and breathing space they need to successfully exit their current development and move onto their next project.

     

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  • 12/02/2019 | Intermediaries News

    Opportunity knocks for student lets

    Now is the time to look at student let opportunities...

    As originally published in Mortgage Solutions.

    More than 400,000 first year students will begin university in September and 80% of those students will start looking for their accommodation by March, according to research by the consumer watchdog, Which?.

    So, if your clients want to invest in student accommodation, now is the time they should be looking for the right property to ensure they are not too late to meet the demand from September’s starters.

    University hotspots are lucrative for landlords, with locations in areas with a high student population like Nottingham, Liverpool, Manchester, Leeds and the North East boasting some of the UK’s highest rental yields, according to Totally Money, which puts Nottingham at the top of the list with average yields of 11.99%.

    High yield doesn’t have to mean low quality and the standard of student accommodation has been shifting steadily upmarket, according to research by student housing charity Unipol and the National Union of Students. The survey found that average price of student accommodation in the UK has jumped by nearly a third in the last six years, with the average rental bill now taking up 73% of the maximum student loan, compared to 58% in 2012.

    This is partly caused by an increase at the top end of the market, with studio flats now accounting for 9% of student accommodation, up from just 4% six years ago. In fact, self-catered en-suite accommodation now accounts for the lion's share of student accommodation with 58% of total rooms and only 17% of students live in traditional HMOs with shared bathrooms and kitchens.

    The report says that private sector investment now provides half of all student bed spaces, up from 39% in 2012, as a growing number of landlords have identified the opportunity in the sector. Lenders have responded to meet this demand and there is now a range of flexible options to fund investment in a variety of student accommodation, from traditional HMOs to purpose built blocks.

    September may seem a long way in the future, but opportunity knocks now for investors in student accommodation.

     

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  • 08/01/2019 | Intermediaries News

    Buy to Let outlook for 2019

    How will 2019 look for the Buy to Let sector?

    As originally published in Bridging and Commercial

    If there is any sector of the lending market that is used to adapting to change, it’s buy to let. As we step into the political uncertainty of 2019 it’s worth looking back over the significant changes the buy to let market has already negotiated in recent years, to give a clue to the trends we might expect over the next 12 months.

    Over the last four years buy to let has experienced an unprecedented level of regulation and tax intervention. In 2015 it was announced that the Income Tax relief landlords are able to claim on residential property finance costs would be replaced by a basic rate relief tax reduction, with a phased introduction starting in 2017. Then in April 2016, HMRC added to the tax burden with the introduction of a 3% Stamp Duty Land Tax (SDLT) surcharge for purchases of rental property and second homes.

    In January 2017 extra regulation was layered upon these tax changes, with the PRA introducing new underwriting standards for buy to let mortgage contracts, including stricter rules on the affordability tests to be used as part of the assessment of a buy to let mortgage application. This was followed later in the year by the second part of the PRA’s new underwriting standards with the launch of additional checks for portfolio landlords, owning four or mortgage mortgaged buy to let properties.

    More recently we have seen new minimum energy efficiency standards for privately rented property, the extension of mandatory licensing for HMOs and the introduction of a minimum bedroom size for HMOs.

    It’s been a significant amount to deal with over a short period but, despite some negative speculation, buy to let has survived. Some landlords have decided to step away from the market and we have seen changes to the dynamics of the sector, but the majority of investors remain committed, demand for rental property remains strong and so does buy to let.

    Recent figures from UK Finance show that buy to let lending in the 12 months up to October 2018 was £35.4bn, which was actually £0.4bn more than the previous 12 months.

    Remortgage activity has dominated this lending and there has been a growing proportion of limited company buy to let as landlords have looked for a tax efficient vehicle for their investment. We’ve also seen increasing demand for less standard types of property investment that can deliver higher yields, such as HMOs, holiday lets, multi-unit blocks and refurbishment projects.

    So, what can we expect over the next 12 months?

    For the first time in a number of years buy to let landlords can look forward to a period without intervention and so amongst the political instability, there is at least a clear outlook for property investors. The market has demonstrated its resilience and landlords have developed an appetite to take a more creative approach to their investment. 

    Even if the macro-economic environment dampens the property market, demand for rental property will remain strong and this combined with a proven resilience and more committed and creative investors, should help to make it an exciting 12 months for buy to let.

     

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  • 04/01/2019 | Intermediaries News

    A blended alternative to top slicing

    We look at blended products as an alternative to top slicing...

    As originally published in Financial Reporter.

    Top slicing has become a popular way for affluent buy to let landlords to invest in property where the yield does not support the rental coverage. But it’s not the only way for sophisticated investors to purchase high value buy to let property.

    Blended rates offer an alternative to top slicing, allowing investors the flexibility to service a portion of their loan, whilst rolling up the interest on the rest, enabling you to structure a solution that fits the required rental coverage. Here's an example of how it works.

    We recently worked with a broker to help a landlord client with a portfolio of three properties valued at £1,050,000.  The client wanted to consolidate his existing borrowing into one loan, with a view to selling his portfolio in three years.  He also wanted to ensure that the monthly repayments would be no more than £3,500 per month.

    The problem was that the rental income alone would not support the full servicing of the loan, so the client was struggling to achieve his required loan amount without having to subsidise it from his personal income.

    To provide a solution, we created a blended rate product for the client, with part of the interest serviced and the remainder of the loan on rolled-up interest.

    £597,127 was offered on a serviced basis with an interest rate of 6.99%.  The remaining £135,180 required was offered on a rolled-up basis at 8.59%.  The two rates were combined to give an overall blended interest rate of 7.29%.

    The result was that the client was able to achieve his desired loan amount and continue with his plan to sell the portfolio in the next three years, using the proceeds of sale to fund the rolled-up interest without having to use his personal income.

    So, if you have affluent clients who want to invest in high value, low yielding buy to let property, consider a blended alternative to traditional top-slicing.

     

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  • 13/12/2018 | Intermediaries News

    More older renters provide opportunities for landlords and brokers

    Find out how older renters could provide new Buy to Let opportunities...

    As originally published in Mortgage Solutions.

    What age group do you think about when you consider Generation Rent?

    Perhaps surprisingly, one of the fastest growing areas of tenant demand is amongst people over the age of 60. According to a report by the Centre for Ageing Better (CfAB), the number of over-60s renting privately has increased by 200,000 in the last four years. And the CfAB predicts that about a third of people over 60 could enter the private rental sector by 2040 as a growing number of older homeowners choose to sell up and rent in retirement.

    This trend could have a significant impact on the target tenants for your landlord clients and it could present an opportunity for you. The primary factor impacting the success of a buy-to-let investment is the right property pitched to the right tenants in the right area. A shift in the demographic make-up of the tenant population could drive growth in new areas and on new types of property that have previously proven unpopular amongst buy-to-let investors.

    A landlord targeting older tenants may, for example, may consider purchasing a bungalow in a rural location, which would otherwise prove an unlikely choice of investment if they were targeting young professionals.

    Another element to consider is the styling and finish of the property. Older tenants may choose to sell their home to downsize but having established a level of wealth and comfort throughout their working life, they won’t want to sacrifice the quality of their accommodation. Renovating run-down properties could provide landlords with an opportunity to deliver the high standards their potential tenants are expecting and could provide you with an opportunity to finance those renovations.

    The most straight-forward approach to property refurbishment is light refurbishment, which doesn’t require planning permission or building regulations and so avoids some of the risks of more speculative property development. Light refurbishment renovations commonly include new bathroom, new kitchen, redecoration, rewiring, or new windows and a newly renovated property can increase the capital and rental value.

    A refurbished property could help landlords to attract this new generation of tenants, and a fresh look at the idea of Generation Rent could help you to boost your buy-to-let business.

     

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  • 11/12/2018 | Intermediaries News

    The growing opportunity in multi-unit lets

    We take a look at how multi-unit lets might create an opportunity for your landlord clients...

    As originally published in Bridging and Commercial.

    The recent legislation changes for HMOs have triggered a wave of coverage about the higher yields that can be earned with a multiple occupancy property investment over standard buy to let. But HMOs aren’t the only choice for this type of investment and a multi-unit freehold block is another option that can deliver similar returns.

    A multi-unit block differs from an HMO in that it contains separate, independent residential units, each with their own AST agreement. Each household will have its own entrance and private areas into which no one else has right of access, and there are also likely to be common parts, such as a hallway or garden, that all households have the right to use. Examples of multi-unit blocks include:

    • Purpose built blocks of flats
    • Houses converted into flats
    • A number of houses all held under one freehold title

    Multiple-unit flats are lucrative for investors because they provide economies of scale and so, by their nature, they tend to be larger deals. They also provide opportunity for investors to realise greater capital gains as they can increase the value of each unit by separating the title and selling them off individually.

    According to the Mortgages for Business Buy to Let Mortgage Index, multi-unit blocks delivered the biggest uplift in yield this quarter compared to any other category of investment.

    The average yield achieved by a multi-unit block in Q3 of this year was 8.4%, compared to 7.5% in Q2. The yields achieved by HMOs remained consistent at 8.6% in Q2 and Q3. The yield on a vanilla buy to let during this period was just 5.4%.

    We recently worked with a broker to help a 61-year old self-employed director who had successfully developed two adjacent four-bedroom detached houses on a plot of land in Oxfordshire.  Both properties were listed on the same title and both were tenanted.  The total value of the houses was £1.73 million.

    The client wanted to raise £1.07 million to clear the development loan, pay off existing debts and fund a new project.  We structured a solution to meet the client's requirements, with a product that allowed him to roll up some of the interest and service the remainder.

    Many lenders are able to lend on multiple units on a single title but there are often more restrictions imposed when this is the case. For example, some lenders will not lend on new build properties and some may apply a stricter rental calculation. There are also often limits on the number of units held on the single title. So, look for a lender that takes a flexible and commercial approach, reviewing each application on its own merits and delivering bespoke solutions to meet the needs of the individual customer.

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  • 07/12/2018 | Intermediaries News

    Refurbishment finance for first time investors

    We take a look at how light refurbishment could be an attractive option for first time investors...

    As originally published in Financial Reporter.

    Your Buy to Let clients will soon start to feel the financial impact of recent tax changes, as they submit their tax returns for 2017-2018 and this could trigger a conversation about how they can maximise the returns on their investment to counter the extra cost.

    One way many landlords choose to increase their returns is buying a run-down property and renovating it to achieve a higher re-sale price or retaining the property and benefitting from increased rental income.

    For first time investors in property refurbishment, the most straight forward approach is light refurbishment that doesn’t require planning permission or building regulations and so avoids some of the risks of more speculative property development. Light refurbishment renovations commonly include new bathroom, new kitchen, redecoration, rewiring, or new windows and a newly renovated property can increase the capital and rental value. A refurbished property can also help landlords to attract higher quality tenants and reduce long-term maintenance costs.

    Often, the properties that provide the best opportunity for refurbishment, even light refurbishment, are in a condition that makes them effectively unmortgageable, and there is a growing number of lenders that offer flexible short-term lending options to fund property renovation.

    A common concern amongst landlords investing in property refurbishment is whether they will be able to refinance to a longer-term solution at the end of their refurb loan. But some lenders are able to offer both the short-term finance and a longer-term solution once the renovations have been completed.

    This can provide your clients with the peace of mind in knowing that they have fully prepared their finance at the outset, which can benefit experienced refurb landlords as well as first-time investors.

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  • 04/12/2018 | Intermediaries News

    Investing in student property occupied by a family member

    We look at options for parents looking to buy student properties...

    As originally published in Mortgage Solutions

    The number of students studying at UK higher education institutions is now more than 2.3 million and this presents a significant opportunity for landlords who want to invest in HMO property.

    There are a number of benefits to investing in student lets. For the right properties in the right area, there is almost guaranteed demand year after year and student lets are often arranged early – up to six months in advance – which can minimise the risk of void periods.

    The average yields on HMOs are also currently higher than any other property investment. According to the Mortgages for Business Buy to Let Mortgage Index, in Q2 of this year, HMOs delivered an average yield of 8.6%, compared to a yield of just 5.5% on standard Buy to Let property, while multi-unit freehold blocks delivered an average yield of 7.5% and the average yield on semi-commercial property investments was 7.8%.

    For these reasons, we often work with brokers whose clients have children who are going to university and want to invest in an HMO that can be used by their children and rented to other students to cover the costs.

    This is a very practical idea, but it does carry some complications. Letting a property to a relative is considered as regulated Buy to Let and this can restrict the number of options. However, most lender definitions state that Buy to Let mortgages are considered to be regulated if at least 40% of the property is used by a family member. So, if your client were to buy an HMO in which their child was to occupy one bedroom out of, say, five on a separate tenancy agreement to the other occupants, then it would not qualify as a regulated Buy to Let contract and you would have more options.

    In these circumstances, you should ensure that the rental income achieved by letting rooms to non-family members is sufficient to cover the stress test as this will provide the lender with comfort that the investment is sustainable. However, in most cases, this is unlikely to prove a problem as the yield achieved on HMOs means that there should usually be excess rental income to cover the stress test.

    If you are working with clients who would like to invest in student property that will be occupied by a family member, speak to a lender that specialises in HMO investments and can help you to structure the right deal to best meet their requirements.

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  • 23/10/2018 | Intermediaries News

    A flexible solution to bridge the uncertainty

    We discuss the slowing in the mortgage market...
    As originally published in Bridging and Commercial

    In case you hadn’t heard, the UK is scheduled to leave the European Union next March. 

    The uncertainty surrounding the outcome of Brexit negotiations has, temporarily at least, put the brakes on an already faltering property market and transaction activity is suffering.

    The September 2018 RICS UK Residential Market Survey has shown a continued weakening in national new buyer demand, citing a mixture of affordability constraints, a lack of stock, economic uncertainty and interest rate rises.

    RICS says that new buyer demand was down by 11% in September on the same month last year and, at the same time, new sales instructions have also deteriorated, leaving average stock levels on estate agents’ books close to record low levels.

    The combined effect of constraint on both supply and demand has resulted in house price resilience, but with little fluidity in the market, properties are taking longer to sell. According to RICS, the time taken to complete a sale, from initial listing, has increased to approximately 19 weeks, which represents the longest duration since the measure was introduced at the beginning of last year.

    For home-movers, this period can be frustrating, but for developers it can also prove very costly and any delay in selling the property and redeeming the development loan can significantly impact the profit they achieve on a scheme.

    This provides an opportunity for you, as a stagnant property market leads to increased demand for development exit loans, that can benefit developers in a number of ways.

    A development exit loan allows a developer to refinance their completed development at a lower rate than most development finance, while giving them more time to achieve the best sales price and even release equity from the scheme to use towards future projects.

    When it comes to development exit loans, flexibility is key, particularly if your client is actively marketing their development for sale. A loan with a lower rate may ultimately prove more expensive for your client if it also comes with restrictive early repayment charges.

    A stagnant property market doesn’t have to put the brakes on your business and there are always options to deliver your clients appropriate solutions, whatever the stage of the economic cycle. In the current environment, development exit loans provide a great opportunity for you to provide your clients with the flexibility they need to bridge the current uncertainty and continue to grow their portfolio.

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  • 18/09/2018 | Group News

    Senior management changes

    On 2nd May 2018, Castle Trust announced two further management changes.
    2nd May 2018

    Castle Trust announces two further management changes. 

    Barry Searle, the company’s current Chief Operating Officer will become the company’s new Managing Director (Mortgages).  Barry has been with Castle Trust since 2014, he has been instrumental in the growth of the company, especially within the mortgage division. He held the largest underwriting mandate and had overall responsibility for operations.  During Barry’s financial services career he has held senior roles at various institutions including Legal and General’s mortgage division and GMAC RFC.

    Stuart Sykes will be joining the company as Operations Director from MyJar, where he has been Group Customer Operations Director for the last four years.  He has previously held roles at ICICI Bank, RBS and Lloyds Banking Group.

    Speaking of the appointments, Martin Bischoff, Chief Executive Officer said:

    “As the company’s COO, Barry is already very familiar with both the industry and the aims of the business and was a natural choice to fill the role.  He has contributed enormously to the success of the business so far and will be a pivotal part of our transition to become a bank.

    “Stuart has extensive experience in the lending environment, particularly in consumer finance.  We are delighted that he has chosen to join us as we move into Castle Trust’s next phase.”

    Read more
  • 18/09/2018 | Intermediaries News

    New Telephone BDM

    We have appointed Steve Gregory as our new Telephone Business Development Manager for the Midlands.
    26th July 2018

    Castle Trust has appointed Steve Gregory to become its new Telephone Business Development Manager for the Midlands.

    Steve, who was previously a Business Development Executive at Castle Trust, will work with brokers across the region to help identify appropriate solutions for their High Net Worth clients, buy to let investors and entrepreneurs in need of business funding.

    In addition to this appointment, Castle Trust is further strengthening its sales team with the recruitment of new Business Development Executives.

    Marcus Dussard, Sales Director at Castle Trust, said: “Steve has worked at Castle Trust for two years now and developed a strong reputation amongst brokers as someone they can call if they are struggling with a complex case. He has a great understanding of our proposition and the challenges faced by brokers, and this makes him a huge asset to have on the team. In addition to the appointment of Steve, we are further strengthening our support for brokers and recruiting for new Business Development Executives.”

    Steve Gregory, Telephone BDM for the Midlands, at Castle Trust, said: “Castle Trust has a unique offering for brokers in that we can genuinely structure bespoke loans to help their clients fund a property investment or business venture. I am looking forward to the opportunity to work more closely with our intermediaries in the Midlands to help identify the best solutions for their clients.”

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  • 18/09/2018 | Intermediaries News

    Take a long-term view on short-term lets

    Last year, there were 179,034 London properties listed for rental on Airbnb...
    As originally published in Bridging and Commercial

    Last year, there were 179,034 London properties listed for rental on Airbnb.
     

    This was a 54% increase on 2016 and, so far, this year the number of listed properties has already exceeded 197,000, according to Airdna, a useful website that drills into the data of every Airbnb listing in the world. 

    Airbnb is just one marketing platform, but it’s clear that an increasing number of investors are turning to shorter lets as a way of generating better returns.

    For example, a new two-bedroom flat in Canada Water, south London, would typically be available to rent for around £1,800 a month on an assured shorthold tenancy (AST) which means that, at full occupancy, it could generate £21,600 in revenue over the course of a year. 

    A similar property in the same area could achieve around £150 a night by being let on a short-term basis. Assuming a 70% occupancy rate – which is the London average according to Airdna – that property could generate £38,325 over the course of the year, which is a 77% increase on the amount it could achieve on a standard AST. 

    It is important to note that this figure is before expenses and that the costs of running a short-term let are considerably higher than a standard buy-to-let given that the high turnover of occupants means larger cleaning, maintenance and marketing fees. But, even accounting for these, the comparable returns on a short-term let are still impressive. 

    With so many investors drawn to these returns, you need to ensure that your clients have the appropriate product for the way they intend to let the property, as short-term lets and standard buy-to-let are two distinct categories.

    The PRA’s supervisory statement on underwriting standards in buy-to-let states that an agreement to dwell in a property for less than one month is not occupation on the basis of a rental agreement, which means that mortgages for short-term lets are not restricted by the same rules that govern buy-to-let.

    Short-term lets also have different tax considerations to buy-to-let as they are treated as a trading business, although stamp duty land tax on both still carries a 3% surcharge.

    And, perhaps most importantly, a standard buy-to-let mortgage will generally require that the property is let on an AST, which effectively excludes it from being used for short-term rentals through Airbnb or similar platforms. Borrowers with a standard buy-to-let mortgage who choose to rent their property on short-term lets could, therefore, be in breach of the conditions of their mortgage and, as such, committing fraud. 

    Needless to say, this is not a position that you want to be in with one of your clients so, with the growing popularity of short-term lets, it is worth taking the time to understand how they intend to rent the property and making sure you recommend a suitable product. Taking a long-term view to short-term lets will protect both you and your client.

    Read more
  • 18/09/2018 | Intermediaries News

    Top slicing is not the only way to tackle low yields

    A lot of commentary about the buy-to-let market focuses on yield – the annual return an investor can expect to earn based on the value of the asset...
    As originally published in Bridging and Commercial

    A lot of commentary about the buy-to-let market focuses on yield – the annual return an investor can expect to earn based on the value of the asset.
     

    This is why areas with cheaper house prices – particularly university towns – are heralded as the next buy-to-let hotspots. 

    But landlords don’t always focus on yield. Often an investor will want a reliable property in an area with strong and sustained demand that can provide dependable long-term growth. These properties tend to be found in more expensive areas so rarely deliver particularly attractive yields.

    According to the latest buy-to-let yield map by Totally Money, Liverpool boasts the highest buy-to-let yield of 11.79%, while there are parts of London that only achieve a yield of 1.5%. Despite this huge gap in the yield that could be achieved, there are still many investors who would rather buy in those areas of London. In fact, in monetary terms, a 1.5% yield in London could still deliver more profit than a 12% yield in Liverpool.

    We know there is significant demand from landlords for solutions that help them to buy low-yielding properties because of the number of lenders that have started to offer top slicing, where they use the landlord’s income to supplement the interest coverage ratio (ICR). A lot of big names have recently entered this previously niche market and it goes to show that standard ICRs are not sufficient for the requirements of many landlords.

    Top slicing is one way for landlords to purchase low-yielding properties within mandatory minimum stress tests, but it is not the only option. 

    Another approach is to structure a loan where some of the interest is serviced, but the interest on the remainder of the loan is rolled up. Because there are no monthly payments due on the rolled-up part of the loan, this element is not subject to a stress test. So, with a balance of serviced interest and rolled-up interest, it is possible to build a loan that fits the required stress test. This is something we are able to do at Castle Trust, and here’s an example of how it works.

    We worked with a broker to help their client – a portfolio landlord – to buy a desirable three-bedroom maisonette in Fulham for £1,050,000. The client wanted to borrow £755,000, but the rental value was only £2,625 per month and the yield did not support this loan amount. Based on PRA stress testing, the client would only have been able to borrow £395,000 from a traditional lender, or £458,000 if the property was purchased by a limited company. This would mean the landlord would have to evidence up to £2,400 additional monthly income.

    As the client was an experienced landlord, we were able to structure a solution by splitting the balance and enabling the client to service interest of £365,000 and roll up the interest on £390,000. This meant the client was able to invest in a sought-after property with robust potential for capital gains even though it delivered a low rental yield.

    Top slicing may be flavour of the month with many lenders, but it is not the only way to meet demand from landlords for low-yielding property. With the right lender, you can structure a deal for your client that blends serviced and rolled-up interest to enable them to invest in the property of their choice.

    Read more
  • 18/09/2018 | Intermediaries News

    Quality over quantity signals a bright future for BTL brokers

    Here’s something that people don’t talk about any more: GDPR...
    As originally published in Bridging and Commercial

    Here’s something that people don’t talk about any more: GDPR.

    There was a time – just a couple of months ago – when you couldn’t open a newspaper or read a website without being bombarded with scare stories about the impact and fallout of the new data regulation. But now that implementation has been and gone, little seems to have changed, except I receive fewer emails than I used to and we have a slightly smaller marketing database at Castle Trust.

    It’s a smaller database, but it’s also a stronger database. We may have lost a number of contacts, but they were the brokers who never really engaged with our marketing messages and were even less likely to engage with our business. Now, following consolidation, we can be sure that even though we are communicating with a smaller group, they are more engaged and we can concentrate more of our energy on working with these more productive brokers. 

    There seems to be a lot of similarities here with the buy-to-let market. The dual impact of tax changes and regulation have triggered many scare stories about an exodus of landlords from the market and research from the National Landlords Association (NLA) states that up to 380,000 landlords – nearly a fifth of the market – expect to offload properties in the next year.

    But, at the moment, this anticipated exodus of landlords isn’t being translated into business volumes. According to UK Finance, there were more buy-to-let mortgages completed – and for greater value – in May this year than the same month a year ago. Conversations with some of our distributors that focus on specialist buy-to-let also indicate that they have never been busier and it seems that more landlords are taking a holistic view of their portfolios and diversifying into properties such as HMOs, multi-unit blocks and holiday lets for the first time.

    So, while changes to buy-to-let may lead to some consolidation in the overall number of landlords, those that remain have the appetite to become more engaged with the market and drive more value from their investment. Like GDPR, the focus is on quality over quantity and this is good news for brokers who can add real value by advising committed landlords on a whole set of new strategies to help them to grow and diversify their portfolios.

    It can be easy to take comfort in a large portfolio of buy-to-let clients and any reduction to these numbers can be daunting, but consolidation provides you with an opportunity to get closer to those clients that really matter and make sure that you are an integral part of their future plans.

    Read more
  • 18/09/2018 | Intermediaries News

    1.6 million opportunities for more imaginative solutions

    It’s nearly a year since the PRA introduced its requirements for the specialist underwriting of portfolio landlords and, while the past 11 months have brought inconvenience for brokers who have had to change the way they work, they have also delivered opportunity...
    As originally published in Bridging and Commercial

    It’s nearly a year since the PRA introduced its requirements for the specialist underwriting of portfolio landlords and, while the past 11 months have brought inconvenience for brokers who have had to change the way they work, they have also delivered opportunity.
     

    The way that brokers have traditionally placed BTL cases is no longer appropriate for portfolio landlords. Whereas a BTL transaction was previously driven primarily by the rental calculation, now criteria plays a much more significant role in choosing the right solution for your clients.

    Lenders have all introduced their own interpretation of the guidelines and have applied stress tests in different ways, with different documentation requirements. This means that a BTL transaction is now a much more involved process and sourcing systems are rarely equipped to provide the full picture.

    Brokers who have adapted best to the changes are those who have taken a considered approach to portfolio landlord business – obtaining a portfolio document upfront that details the properties in the portfolio, mortgage and repayment information and rental income. 

    Taking this upfront approach also presents more imaginative opportunities for raising finance, with a loan secured across multiple properties in the portfolio. Often, for example, a client might want to borrow up to 85% LTV, which is not likely to be possible with current stress test requirements. But, by reviewing the portfolio as a whole, you could identify opportunity to raise finance elsewhere on multiple properties at lower LTVs.

    According to last year’s housing white paper, more than four million households rent their home from a private landlord and UK Finance said that while only 7% of landlords own five or more properties, these larger landlords account for nearly 40% of rented dwellings.

    This means that there could be 1.6 million rental properties held within portfolios that could be used as security to structure more imaginative solutions for brokers’ landlord clients, providing them with opportunity to access larger loans and greater leverage to grow their portfolios.

    PRA regulations have changed the way brokers work with their portfolio landlord clients, putting greater emphasis in developing a more thorough understanding of their investment portfolio and this knowledge gives brokers a great opportunity to identify new ways of meeting their lending requirements.

    Read more

Mortgages
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Castle Trust is the trading name of both Castle Trust Capital plc (company number 07454474) and Castle Trust Capital Management Limited (company number 07504954) both registered in England and Wales with registered offices at 10 Norwich Street, London, EC4A 1BD. Castle Trust Capital plc is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority, under reference number 541910. Castle Trust Capital Management Limited is authorised and regulated by the Financial Conduct Authority, under reference number 541893. Buy to Let is not regulated by the Financial Conduct Authority or the Prudential Regulation Authority

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This website is for authorised intermediaries only. This information has not been approved for use with customers and is not intended for public or customer use. Please confirm that you are an intermediary before accessing information on this website.

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