THE GROWTH OF ALTERNATIVE LENDING IN THE UK

The significant growth of the UK alternative lending market over the past 15 years has been driven by a combination of evolving borrower needs and tighter regulations on traditional lending institutions, following the 2008 financial crisis and the pandemic. Borrowers have increasingly turned to the alternative lending space for quick, flexible loans that fill the gap left by mainstream lenders. In the UK, Novellus offer borrowers a range of short-term “bridging” finance options, usually secured against property and which our customers view as essential for their short-term funding solutions, often unavailable through traditional banks.

Originating the right type of business is always challenging and many alternative lenders are reliant on funding lines that pressure them to modify their criteria and increase their risk profile, simply to maintain lending activity.  At Novellus, our approach is different. Being privately funded, we remain in the enviable position that our unique and flexible capital stack coupled with our expertise and ability to transact quickly, means we can provide funding solutions that the market is clearly seeking, without ever wavering from our core principles of good, sensible lending. Consequently, Novellus has never had any interest or capital impairments – an industry anomaly, of which we are very proud. More commentary on our financial performance can be found in a recent post from our CEO, Billy McManus here.

Many of our borrowers are repeat customers. They are based across the UK and Ireland, and we work with brokers, introducers and borrowers in assisting with the refinances or purchases of all types of real estate assets including land (with or without planning), residential, commercial and semi commercial assets.

Case Studies:

Below are some case studies highlighting examples of loans Novellus have originated in the UK across the various property asset types:

1. Ground Up Development, £3.4m (gross) Development Bridge, Glebe Farm, Nottingham: 

Development of 14 unique, detached, new build properties at Glebe Farm in Nottingham, working closely with the developers from inception through to completion. Having supported the first phase of this scheme, Novellus then provided a development bridging loan to fund the second phase of the development on the 2.7 acre site, at a competitive rate.

Click on the link to see the spectacular project which is nearing completion!

https://youtu.be/v9XwzgG2Nsw

2. Purchase and Refinance of Shopping Centres, £8.443m (gross):

Supporting the refinance of an existing centre and acquisition of another. Whilst trading numbers for both centres remained solid, the sector is “unloved” with yields having significantly softened, and these centres presented asset management and development opportunities.  We conducted full due diligence, valuations and legals within a short timeframe, and the loans completed within 2 weeks.

Refinance: LTV: 62% / Rate: 1.03% pcm, serviced  / Term: 18 months

Purchase:   LTV: 65% / Rate: 0.96% pcm, serviced /  Term: 18 months

3. Development of Land with Planning (for industrial): £2.413m (gross) Development Bridge, Devon.

Novellus funded infrastructure works to the c22 acre site. Construction of an access road and associated groundworks.

LTGDV: 50.81% / Rate: 1% pcm / Initial Term: 12 months

4. Development Exit, SW London (Clapham), £4.752m (gross)

Refinance of a completed development of a high end, single residential home.  The borrower required a quick turnaround for the refinance of an existing development facility to provide time to market and sell the asset.

LTV: 70% / Rate: 0.8%pcm / Term 12 months

5. Second Charge, Cashflow for Business, £2,475m (gross)

Experienced entrepreneurs / founders with proven track record, required funds to assist with business growth. Second charge loan. Loan completed within short timelines required.

LTV: 54.91% / Rate: 0.99% pcm / Initial Term: 24 months

 

What next ?

2023 and 2024 saw the Novellus brand promoted onto the world stage, through our association with various high-profile sports people and events and our sponsorship of several up-and-coming athletes as they embark on their professional careers. We are excited to continue with strengthening our brand’s connection with excellence and performance in the sporting world.

Given the multitude and complexity of macroeconomic and geopolitical events, predicting market reactions is impossible. The forthcoming UK budget, inflation figures, potential further BOE interest rate movements and the US elections will all play a role in shaping how the market responds and adapts. Notwithstanding these, I do believe that the alternative lending space is ripe for change.  It needs professionalising and it needs lenders like Novellus, who can offer institutional capability with certainty of capital and speed of transaction.

We are investing heavily in data and systems. During 2022, in a search for a suitable CRM and Loan Management solution for alternative lending, we were left underwhelmed, so we chose to develop it internally. We are now nearing completion of our project to develop this proprietary technology to support our operational businesses. In the short term, our software will be for our own internal use, but we may in due course consider the much larger SAAS market opportunity for this vertical.

Finally, within our lending business, our “Special Operations” division will continue to transact.  This unit can sit anywhere in the capital stack, offering an unrivalled level of flexibility that I believe gives the Novellus group a unique competitive advantage.  This will continue to focus on growth equity cheques in stable technology businesses, larger operational debt (typically on Co-Invest terms alongside tier 1 private equity debt funds), M&A – larger vanilla loans that would otherwise distort our book as we grow (£30m+ ticket sizes) and even unsecured lending.  It’s the broadest range of criteria and much more akin to a traditional family office where all opportunities that make sense are reviewed and considered. We expect this business to be hugely valuable to us as a group as we continue to navigate through uncertain waters.

We remain committed to the UK lending space, as we do in Ireland, and we have scaled up our recruitment drive to ensure that we have the resources and appetite to support much higher volumes as the opportunities present themselves. We are also considering acquiring existing UK loan books to help accelerate our market share and we have assembled a talented team in the UK and Ireland, to provide a level of service and funding that has been missing from the alternative lending space to date. We intend to continue to do this, to grow market share, expand our product offerings and to help professionalise the industry.