Bridge lending for residential property owners; competitive rates and quicker turnaround.
Vita Solvo Ltd (tradename Vitvo) originates and manages short term loans secured on residential property (aka bridge loans) made between institutional asset managers and property investors. Vitvo earns fees on each loan.
Vitvo’s management team includes extensive senior level experience in both institutional credit markets and the bridge lending market. Vitvo believes it is perfectly placed to position itself as a well-priced, quick and reliable facilitator of loans in a market with what we see as attractive risk-return metrics and where we believe we are one of the few with the ability to execute quickly.
Through technological innovation, Vitvo intends to disrupt the current means of originating and funding bridge loans that will lead to gaining significant market share and earning industry leading margins.
Vitvo also intends to bring a high standard of professionalism to a market that has been lacking in consistency along with forthright risk management processes that add institutional quality rigour to the best of current bridge lending practice.
Vitvo has the opportunity to:
• Substantially reduce the time it takes to execute a bridge loan by using end-to-end loan processing and management software. This, along with its market leading underwriting and risk mitigation procedures, means Vitvo can complete a bridge loan within 1 day; this contrasts with the average turnaround time in bridge loans of 50 days.
• Due to their past experience, the team have a good network of contacts we believe will allow us to attract institutional investment, thereby allowing us to lend competitively and acquire market share. As well as taking security over the property itself, Vitvo regularly does credit and House Price Index checks in order to properly mitigate risk, allowing us to trigger an early default if necessary.
• Capture a significant share of the bridge loan market by increasing loan participants’ satisfaction in the loan execution process through the development of an innovative web portal/ app.
• Cut costs by marketing direct to consumer, thereby by-passing expensive brokers.
Substantial accomplishments to date
Started Sept 2015 with 3 founding members:
• Kunal Patel, Chairman (private equity and property investment fund entrepreneur).
• Ian Wilson, CEO (former MD and global head of structured synthetic credit derivative marketing at JPMorgan).
• Ron Lin, COO (former MD and Head of European Insurance & Pensions Risk Group at Deutsche Bank).
Vitvo then hired:
• Ken Purchase as Director of Underwriting (formerly Director of Property at Assetz Capital Bridging and MD of Pure Bridging Ltd).
• Ben Wisden, Head of Sales & Investor Relations (formerly MD at J P Morgan).
• Satch Patel, Business Development Director (formerly Bridging Sales Manager at United Trust Bank).
• raised £975,000 between January 16 and January 17.
• set up Vitvo Funding 1 Ltd (“VF1”) an independent Jersey based company to serve as Vitvo’s principal lending vehicle. VF1 has completed two raises via a listed debt issuance, the first of £5.25m, the second of £6m.
• has to date achieved a running fee income on each loan written of 1.8% p.a. of loan notional in addition to upfront fees of 0.83%.
• is in multiple discussions with asset managers looking to deploy money into the bridge lending market through Vitvo.
Vitvo signed a mandate with a lead investor in September 2016 and generates fees by originating and servicing bridge loans for the likes of asset managers and financial institutions.
In addition, Vitvo generates around 0.83% of each loan notional as an upfront fee; we will look to increase this rate as Vitvo sources more loans directly from borrowers rather than through expensive brokers.
Brokers are generally dissatisfied by the bridge loan execution process given its current lack of transparency. So Vitvo plans to develop a web portal/app to allow all participants to see loan progression in real-time from initial inquiry through to completion. We expect that this will lead to increased loan origination per broker and more market share.
Use of proceeds
Vitvo expects to use the proceeds for four main purposes:
• First, to fund the development of a market-leading web portal/app to provide transparency to the bridge loan process, so increasing Vitvo's market share.
• Secondly, to fund the legal, development and technology costs of a platform to allow for an electronic offering of ‘ready for sale’ bridge loans to institutional investors. This platform should allow us to diversify our fee income and broaden our institutional investor base.
• Thirdly, to develop our online offering, fund a pay per click and organic search campaign and maintain our website.
• Fourthly, to fund working capital requirements and provide a prudent reserve for any unanticipated one off costs.
Please note that there are existing directors' loans of £30,000 in aggregate to the company. These do not bear interest and funds raised in this campaign will not be used to repay these.
Vitvo's target market is property investors and people looking to borrow money secured on residential property for business purposes.
Bridge loan completions are estimated to be c.£5 billion annually. The market is split between regulated and unregulated loans with the latter estimated to constitute c.80% of the total market according to the FCA. Currently, Vitvo offers only unregulated loans, so covering the vast majority of the market.
Loans on residential properties represent a significant percentage of the bridge loan market (the balance largely being loans on commercial and semi commercial properties). Further, we see two principal subsets of the market as loans for light refurbishment and loans for heavy refurbishment. To date, Vitvo’s offering has been unregulated, light refurbishment loans only.
Vitvo has to date been restricting work carried out on properties to light refurbishment, which does not allow for structural works. Moving forward, we intend to allow both light and heavy refurbishment, a market we estimate to be worth c.£3.45 billion.
Our experience suggests that the major uses of bridge loans are:
• Bridge to buy: the buyer is buying an investment property, they may have exchanged but need funds to complete, or may be looking for funds to exchange and complete, e.g. at auction.
• Bridge to refurbish: investment property is refurbished using the bridge loan proceeds, purchase costs having been paid from the borrower's existing funds.
• Bridge to sell: developer has completed new build property and is looking to pay off a development loan.
• Bridge for other purposes: the borrower wishes to use the loan proceeds for other business purposes other than to acquire or to refurbish the property securing the loan.
Characteristics of target market
The total bridge loan market is c.£5 bill p.a.
Our experience suggests that borrowers look for a lender with a number of characteristics:
• To not alter its loan terms capriciously or at the last minute.
• To complete a loan speedily (although average loan completion is some 50 days!).
• To charge a reasonable interest rate.
The interest rate charged is usually a function of the urgency of the borrower’s need for funds. Vitvo can complete a bridge loan in 4 days.
We see our competitors as:
• Bank deposits - challenger banks.
• Institutional funds - Vitvo's current source.
• High Net Worth (HNW) funds - expensive.
The cheapest source of funds is bank deposits but banks are weighed down by regulation and can therefore be slow to execute. Vitvo relies on the next cheapest source of funds: institutional funding. Our experience suggests that this is generally cheaper than HNW money, on which some lenders exclusively rely.
However, Vitvo’s funding level should drop still further in 2018 as we intend to gain access to bank finance but, being still free of the regulatory burden, should retain its ability to close loans quickly.
Speed of completion and interest rates and pricing were the most important factors considered when choosing a bridging lender, according to MT Finance (2016).
Bridge loan lenders typically access borrowers through loan brokers. Vitvo have extensive relationships with the broker community through our Business Development team. However, in our experience, brokers can be reluctant to expand lender relationships and are an expensive conduit for lenders to access potential loans.
Although Vitvo intends to grow its market share of broker-sourced loans, it also intends to develop access to borrowers directly. We hope that this will increase Vitvo’s market share and decrease the fees it pays on loan origination.
To develop the broker relationships further, Vitvo proposes to:
• continue being reliable and consistent in how it selects loans to fund and in the application of its underwriting procedures. In a market where consumers value transparency and speed, such service credentials are at a premium. Hence Vitvo’s brand strapline of “Standing By What We Say”. We believe that this stance will allow Vitvo to reap real rewards in the medium to long term particularly from brokers jaded by lenders over-promising and under-delivering.
• periodically run selective promotional campaigns with enhanced fees/ special offers to brokers.
• develop a portal/app to share the progress of each bridge loan execution process with brokers and borrowers (estimated release date of December 2017).
• We intend to join the ASTL (Association of Short Term Lenders), cementing the institutional quality of Vitvo.
• Increase Vitvo’s presence at trade shows.
To increase direct inquiry, Vitvo proposes to:
• improve Vitvo’s website to allow borrowers online access.
• increase social media presence.
• start Pay Per Click campaign.
• improve organic search position around keyword search terms.
• develop referral relationships with solicitors, estate agents, accountants.
• target adverts to reach property investors.
We believe that Vitvo's management team’s background from the structured and institutional credit markets will allow it to drive down lending rates over time further increasing its competitiveness.
We see several lender types in the bridge loan sector. The main ones are:
• Small lenders funded by High Net Worth money at high interest rates - largely looking for unconventional risks in order to complete loans at very high interest rates.
• Non-bank direct lenders funded by institutions - major competitors are Funding 365, West One, Precise, MT Finance and Together.
• Challenger banks - burdened with regulation so slow to execute, although there can be attractive interest rates for borrowers not in a hurry.
Vitvo's success will be determined by consistent growth in revenue along with early adoption of technology to lower lending risk and enhance productivity and speed of execution:
1. Increasing Revenue
• Increase loan volumes - grow broker driven market share through web portal and consistent service levels.
• Increase loan income - drive down lender interest rates by prudent underwriting and access to bank finance.
• We intend to increase share of upfront fees - reduce reliance on brokers by originating borrowers directly.
• Grow the market - Vitvo has a number of ideas to utilise bridge loans as part of other financial offerings, thus growing the market.
• We intend to increase Vitvo's productivity thereby lowering Vitvo’s cost base - electronic transfer of loan application data from website to end to end loan system, auto response based on application etc.
• Better visibility and service levels for borrowers and brokers - auto quotes, web portal etc. Along with Vitvo’s fast execution and competitive interest rates, we believe that this will provide a significant competitive advantage.
• Increase lender appetite for loans by lowering certain risks - in the future, we will look to implement blockchain to eliminate fraud risk, device intelligence in web portal to lower possibility of identity fraud etc.