Underwriting Q&A

21 Aug Underwriting Q&A

Underwriting Q&A


We sat down with our Head of Underwriting, Philip Gould, to gain an insight into how underwriting processes and the property market have changed over the years, from the 2008 economic crash to the outbreak of COVID-19.


How have you seen underwriting processes evolve since you started working in the industry? 

Underwriting is still a relatively traditional process as its core methodologies remain unchanged. In order to complete on a transaction, we rely on the information provided by valuers and monitoring surveyors, and the legal work is completed by solicitors/conveyancers.

Whilst this collaborative process has not changed and is unlikely to do so in the near future, there is now a greater availability and wider use of technology which has meant that we can operate more efficiently. We now use Google Maps, Rightmove and online databases to help with internal analysis. Not only this, third party providers are helping to streamline processes; as an example, we have recently started to work with VAS Panel for outsourcing valuation instructions and monitoring and we are in the process of adopting a digital client on boarding system.


How have underwriting processes changed since UK lockdown started in March 2020? 

The basic processes are very similar to pre-lockdown, but we have had to embrace new methodologies where necessary – virtual site visits/borrower meetings to ensure social distancing and Mercury rules for virtual legal document completion.

As we phase-out into a post-COVID climate, it will be interesting to see how many of these changes will be kept long-term. For us, there is no real replacement for in-person ‘face time’ and so I suspect that site visits and borrower meetings will start to pick up again.


How has real estate finance changed since the 2008 market crash and what impact has this had on underwriting deals/the property development market? 

Real Estate finance changed dramatically as a result of the 2008 stock market crash where the FTSE 100 fell 31%. High street lenders pulled their offering from a large part of the market as it became complicated to lend to SME property investors developers due to regulatory changes. This opened up space in the market for challenger banks, private funders and smaller finance companies, such as Avamore, to emerge and provide unregulated finance to this under-served demographic. From an underwriting perspective, the emergence of unregulated lenders meant that there were different requirements and processes implemented for potential borrowers.


How has real estate finance changed since the outbreak of COVID-19?

While the demand for financing has remained relatively unchanged since the outbreak of COVID 19, the supply of funding has contracted as the level of uncertainty felt throughout the economy rose due the lockdown. The funding supply shock has inevitably led to an increase in rates and a reduction in risk appetite from the majority of the UK real estate lending market.


However, in recent months, we have also seen various industry professionals looking to improve their operational efficiency  in order to provide a better service to their clients during the crisis and in the long-term.


What practices are being put in place now for a post-COVID-19 climate? 

Technology is being embraced to help streamline processes – the most notable one being updates at the land registry to accept electronic signatures.


What do you predict the next year in the market will look like?

I think the rest of this year will be slow as individuals and financial institutions take a step back to see a clearer picture of what impact COVID-19 and the lockdown have had on the real estate sector.

Next year, I would expect to see demand for housing to continue to outstrip supply which, when combined with historically low interest rates, will support residential housing prices in the short term.

Where we are likely to see seismic shifts over the next 12 – 24 months is in the commercial real estate sector. As companies, large and small, question the requirement for office space and physical retail continues to struggle, I expect the sector to go through a period of price discovery which will have significant impacts on the market.


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