“Retail investors were basically telling us their job here was done and we acted immediately on the information given to us”
The lender’s CEO Stuart Law and managing director Andrew Charnley discuss how the business evolved and share some cautious optimism for the year ahead.
When Assetz Capital announced its decision to close its retail investment platform, it’s fair to say this made some waves within the specialist finance market. While this might have seemed like an abrupt decision, Stuart tells me that, in reality, it was one that had to be prepared for over several years under regulations. In the end, the plan was triggered by very recent market factors and a continued shift in the business’ funding structure. “Other investment alternatives presented themselves to retail investors and the volume of funding coming from them compared to the very large appetites of our institutional partners meant that it had become quite a minority part of our funding of new lending for the past two or three years. Together with the sharp interest rate rises towards the end of that period as well, there wasn’t really new net funding coming in from the P2P part of the platform. “Retail investors were basically telling us our job here was done in creating them income in a low interest rate world and, as such, we acted immediately on the information given to us. We’d obviously had to make sure we were prepared for it over the years.” According to Stuart, the shift in funding structure became more apparent after the lender hit its first £1bn of lending just before the Covid-19 outbreak. “The first billion was more than 90% retail funded but, as soon as the pandemic started, it went to nearly 100% institutional funded. It was quite a big switch, which was pandemic-driven—it wasn’t our business model.” While there was a limited period of time when retail investment started to pick up once again, this was short lived, as the continuous Bank of England rate rises brought net P2P investment back down, thus leading to Assetz Capital’s decision to shut down its retail platform.
Despite the recent change, both Stuart and Andrew emphasise this is not reflective of any kind of pause in lending activity or a reduction in planned future lending or appetite. Quite the opposite, as the two confirmed that Assetz Capital will continue to lend as normal through its institutional capital and carry on with its ambition to achieve its second billion pounds of lending over the next three years. In fact, at the time of writing, Assetz Capital is about to complete on its single largest transaction in excess of £13m.
“Our plans haven’t changed. We’re still going for growth across our chosen markets, and everything else we previously discussed,” states Stuart, adding that the finance provider is targeting higher average facilities compared to its retail lending days. According to Stuart, Assetz Capital is now actively offering from around £1m up to £50m per loan, where appropriate, on property development and commercial mortgage lending. And it seems like the team is ambitious for the near future, as Andrew tells me he is aiming to lend a minimum of £300m in 2023 alone via institutional partners, and increasing that to at least £450m-500m in 2024. “We definitely want to double the lending done via institutional funding, but we also want to do it in a way where we are safely managing our back book and our existing portfolio,” he elaborates. “Retail investors were basically telling us their job here was done and we acted immediately on the information given to us” “We will continue to work closely with our clients, help them overcome market challenges and get their sites finished. One of the things that my career has taught me is that the customers you help out through hardship don’t forget the support you’ve given them and the relationship you build with them. They are the ones that stay with you for the next 10 to 20 years, and this is something we value.”
Of course, hitting the £300m target is not possible without a key element: institutional funding lines. This is why Assetz Capital is talking to its existing partners to increase the amount of capital it can deploy. Not only that, the lender is working on bringing on board additional institutional investors to boost and diversify its overall lending resources and continue to provide specialist finance to clients across the UK. While the business has not set any specific goals in stone for this, Andrew shares his personal aspiration to secure two new funding lines this year: “What’s really important for us is to find partners that match our ambition. We’re looking for institutional investors that share our philosophy and values, that understand the real estate and other target sectors like we do, and that want to empower us to do the day-to-day lending. This trusted relationship is absolutely key to me, and our track record deserves that,” he explains. Assetz Capital is also well advanced on its technology roadmap to ensure the business is running off its existing retail loan book in an orderly way over the next three to five years, as well as substantially enhancing the efficiency and speed of its lending journey.
Optimism amid uncertainty
With the specialist finance industry adjusting to the everrising Bank of England base rate, as well as dealing with the effects of the infamous mini-Budget, uncertainty still lingers in the sector. While Andrew believes interest rate pressure may continue a little further this year, he is hopeful that the political instability will dissipate. As for the state of funding, he anticipates we will continue to see an influx of overseas capital (mainly from North America and Europe), pension funds and further investment from family offices and UHNW individuals entering the specialist finance market. Andrew’s cautious optimism extends to the development finance sector. He tells me he is hopeful that the sector will see some downward movement in material costs through 2023, particularly for timber, steel and other imported goods—although the struggles with labour will likely continue, with demand outstripping supply in some regions. In addition, he believes land prices could fall over the next 18 months, allowing some SME
developers to acquire feasible sites which otherwise may have been beyond them. “I also think you could see some of the larger national housebuilders offload some of their land banks if liquidity issues come to light and/or demand softens,” he comments. Nonetheless, both Stuart and Andrew warn that there is still a long way to go before these expectations could become reality. “We’ve been talking for a long time about the difficulties of build costs and inflation squeezing margins for housebuilders—and this is a substantial squeeze,” says Stuart. “At the same time, we’ve got all these additional costs for making homes energy efficient. So, overall, it is going to be a difficult period for the next few years, as the industry adapts to these changes, but we expect new property prices to continue to accelerate upwards above older property prices as a partial mitigant.” Andrew agrees with him, adding that the pressure on profits, as well as difficulties with the planning process, may potentially lead to some developers and funders exiting the market. Regardless of what the future may hold, Assetz Capital is focused and determined to forge ahead with what it does best: continuing to support players in the real estate sector with the funding they need—particularly in the residential, student and care development sectors, where the lender sees great potential. It will also continue to provide commercial mortgages to a wide spectrum of sectors throughout the UK. “We’re not perfect and we don’t profess to be, but we’re certainly working very hard to improve our business, as well as meet those goals to help SME housebuilders, commercial developers, and support key sectors,” concludes Andrew.
“The customers you help out through hardship don’t forget the support you’ve given them. They are the ones that stay with you for the next 10 or 20 years”