In 2019, we had the opportunity to run our first interview with Billy McManus, the founder-director of Novellus. He has shared with us his vision, goals, and his predictions for the finance industry.
Just one year later, the world has changed. The global markets are now “playing” under different rules. It’s hard to predict what the future holds for the bridging finance industry.
That’s why we’ve decided to meet again with Billy to understand the challenges and opportunities the bridging finance industry will face in the coming months.
- What do you think the future holds for the bridging finance industry?
- What tips can you give someone looking for a bridging finance loan right now?
- What property opportunities do you seeing being sound investment at the moment?
- What do you think sets Novellus apart from your competitors?
- What impact do you think Covid 19 has had or will have on the financial lending sector moving forward?
I think there are a lot of challenges ahead within the sector. I would expect the wider challenges within the US debt markets to have a profound impact on a lot of the institutional capital that funds many lenders and I would expect to see some businesses fail due to the re-bridge market contracting considerably.
Overall, I think the demand for short term lending will increase but I think there will be pressure points. The bounce back loans will inevitably bring considerable defaults, this will in turn take away a lot of the resources at the banks, where they will be trying to unravel a lot of those loans that had been written. This will also have a negative impact on many borrower’s ability to refinance away from their current bridging loan.
Be disciplined in your diligence – this is a market where there are buying opportunities but day 1 is invariably the defining day on how profitable a scheme may or may not be. Ask more of where the capital is coming from to fund your loan. Challenge the overall cost of the loan and consider all aspects: if the lender uses a credit line – understand where they may fall over based on criteria for example. Select a lender as you would select a partner. It is now more than ever, that establishing trust and relationships will be key to navigating through the next 24 – 36 months. Just making a decision solely on rate may cause more pain in the future in the event the funding dries up.
We are seeing a lot of investment into the HMO space. Personally, I would be slightly nervous in this sector. Assuming a yield-based valuation has proven to be risky (think small student housing assets). I think the current market presents opportunities to buy things that might not otherwise have been for sale. It’s not that the market has come off, but you now have choice and if you select assets that you want to own in 5 to 10 years time, there is some solid long term opportunity.
There is also a chance for those prepared to think outside the box if they can solve the retail use case. The high street remains in a very precarious position and those willing to buy off attractive £psf with any vision or ideas as to how this sector will evolve may identify some considerable potential upside.
We have our own capital which enables us to lend when it makes sense. We can perform swiftly and by using our own capital it also allows us flexibility to pivot in a fast moving, changing environment, such as the current one.
Prior to the pandemic, the fact we could complete a lot quicker than our competitors and having our own capital that guaranteed performance did not hold as much weight as it does currently. Removing execution risk is a key aspect of what a lot of our applicants and introducers are drawn to during these uncertain times.
5. What impact do you think Covid 19 has had or will have on the financial lending sector moving forward?
I would expect it to have a profound impact over the short to medium term. In my view, the world continues to heavily underestimate the impact this virus will have. The social and economic ramifications are unthinkable, and I expect there to be many years before the adjustments start to repair themselves.
This is a very difficult question. On one hand, the data and economic outlook should all point to a softening in house prices but there remains very strong Government support and that, coupled with huge supply issues currently are balancing the scales and even tipping the balance towards price increases.
If I was put on the spot, my gut feel would expect house price corrections in the region of 15 – 20%. However liquidity in the lending market and Government policy combined certainly have the potential to neutralise that view.