INTERVIEW: Paul Munford on the birth of buy-to-let and the property finance revolution

One of London’s most influential and innovative prime residential financiers

Paul Munford is one of London’s most influential and innovative prime residential financiers, responsible for many of the capital’s most high-value private deals. The founder of specialist mortgage broker and lender MCIFA talks to William Cash about his rise to the top of the property finance industry, the birth of buy-to-let, and  some of the problems facing today’s oligarchs.

PAULMUNFORDAlthough the mood at MIPIM in Cannes this year was relatively low-key, one sector of the London property world that was certainly not hiding behind closed doors was the “alternative property financing” space.

With many ultra-high net worth clients and developers finding wary banks unwilling to take any sort of risk, a new wave of alternative lenders have stepped forward to offer bridging finance to those in need of cash.

Such is the demand for this new wave of alternative funding that there has been re-branding and re-positioning going on within the property bridging finance world – some of it moving so fast that it is almost confusing. Large bridging firm Lancashire Mortgage Corporation recently changed its name to Together Money, while in Cannes, despite the spitting rain on the second afternoon, the great and the good of prime London’s development and investment circles attended a party for the launch of Fortwell Capital (the re-branded name for Omni Capital) at the Radisson Hotel. The next day, Fortwell – still using its former “Omni” identity – hosted an even more select VIP gathering at the chic ‘Ecrin restaurant in the port.

Somebody who has stepped back from all such re-branding, property financing musical chairs and brash jockeying for position on the developer bridging grid is Paul Munford. Munford has long been part of the inner sanctum of HNW and developer lending – with re-mortgages being a speciality, but he doesn’t throw lavish parties on yachts in the old port in Cannes; his style is much more low-key, old-school and discreet.

[pullquote align=”right” cite=”” link=”” color=”” class=”” size=””]Old-fashioned, direct and blue eyed, Munford has carved out a niche as ‘London’s leading specialist in large value property and luxury asset finance’[/pullquote]

Having worked with some of the biggest investor and developer names in prime resi, Munford is one of the most established and best known figures in London’s re-financing world. Old-fashioned, direct and blue eyed, Munford has carved out a niche as “London’s leading specialist in large value property and luxury asset finance”. He knows the HNW and property finance world better than most, having spent time with HNWs and truly understanding their need for discretion, flexibility, and patience when dealing with the maze-like complications of on and offshore financing.

With 30 years experience in arranging finance with an impressive private network of “global lenders” and clients, including many Rich Listers, his current niche is as CEO of MCIFA Property Finance, one of the most experienced and respected boutique players in the super-prime bridging and short term mortgage business.

Munford believes that the re-mortgage opportunities for HNWs have never been more attractive and has been getting interest rates of 0.74% above Bank of England rate for clients. For many HNWs, Paul is high up on the speed dial as they utilise their assets to take advantages of other asset opportunities as interest rated remain low for the 79th month running.

We met not in a flash hotel suite in MIPIM, but for breakfast at 5 Hertford Street members club in Mayfair, just a short walk from his offices on Albermarle Street. He has worked around the St James’s Street area for much of his career, and begins by telling me a revealing anecdote about how he got his first career break in the property financing world….

Munford’s career began when, as a 21 year old broker – with a degree in business – for Norwich Union, he realised that he had chosen to work on the wrong side of the property world fence. In week two of his job he happened to be working in the department where they paid intermediaries, and he started seeing the large commission cheques they were getting – often much larger than his entire salary.

“I used to send these cheques out and the average was from £5,000 to £10,000,” says Munford. “I said to my boss ‘what on earth do they do for this huge sum of money?’ He replied that ‘they simply sit down with a client, get them to fill out a form and we then process it’. And I asked well how long does that take? And he said ‘about ten minutes, half an hour. They just tell the client to invest with us’. And at that moment I thought: what am I doing here? Plainly the wrong side of the fence.”

The property world was a very different place then – back in the early 1980s. The Norwich Union office had one computer for 300 people, and two hour lunches with two bottles of wine was the norm. Yes there were private members clubs in St James – but very different from the refined elegance of the Birley club style of today; they were more like drinking clubs.

“It was the days before pub licensing so, at two o’clock all the old timers would go to these private clubs in St James,” recalls Munford. “There were little underground clubs and it was a weird environment. I’d read books about Wall Street and I thought London was a sort of go go place where everyone worked hard, got up, had breakfast. And when I got to London, I thought it was the oddest place ever. People used to strike but it was a land of opportunity.  So I  moved around and soon I was in the  mortgage broking department.

Once Munford had learnt the ropes of the mortgage broking game, he decided to branch out on his own. He approached somebody who owned a string of London estate agents and, aged 22, was asked to set up their new mortgage broking department. They didn’t pay Munford a salary but only a commission on the business he brought in.

Still, Munford took the chance to break out on his own. “I remember going to see the managing director of the insurance business who wore braces and was a member of White’s club, which was next door,” says Munford. “It was a really extraordinary thing and he said to me ‘please reconsider your decision to go. Have you thought about your non-contributory pension scheme that we offer here?’.  Well firstly I had no idea what that meant and secondly I was 22 years old. And the only thing they could keep me there with was a pension scheme… It kind of made me a bit cynical about the institutional world, where the sole aim is having an easy life and a good pension!”

Munford left the insurance world and set up the finance and mortgage business for Winkworth estate agents. This was just at the time when Salamon Brothers in America came up with the idea of selling off mortgages in bulk. “Big pots of mortgages and slicing it up so an investor could get a share of a mortgage, putting it into a bond. It doesn’t sound revolutionary now but it was very revolutionary at the time,” says Munford.

[pullquote align=”right” cite=”” link=”” color=”” class=”” size=””]Within six months of setting up Winkworth’s financing business, Munford had 70 people working for him[/pullquote]

Within six months of setting up Winkworth’s financing business, Munford had 70 people working for him. “Everyone wanted to be in the financial world. There were a lot of futures brokers, a lot of mortgage brokers, and there wasn’t the Goldman Sachs, Morgan Stanley culture that came later. People just wanted to get into finance.”

The American revolution in the way that mortgages were sold opened up the market, and injected new capital into the market. “So a whole range of American and UK lenders started issuing mortgages backed by these new bonds, which basically made it more accessible to get a mortgage,” explains Munford. “Before that date you basically had to know the building society manager. Or you used to have to bribe someone, or have a friend or a recommendation; it was a very tough market. You had to save for a deposit for years and it was very difficult. What this did was to democratise the mortgage market. And it coincided with Margaret Thatcher being the Prime Minister for 13 years. Margaret Thatcher famously said that there is no greater word in the English language than the word ‘Freeholder’”.

[pullquote align=”left” cite=”” link=”” color=”” class=”” size=””]Margaret Thatcher famously said that there is no greater word in the English language than the word ‘Freeholder'[/pullquote]

“Now it sounds like a bit of a cliché, but what a great thing to say. It was giving people hope, giving people aspiration. And people looked at that and thought ‘why don’t we buy a little place of our own?’ And it opened up the whole market.

“Home ownership went from sub-50% to 80% under Margaret’s duration. It went up massively. It virtually double home ownership. It gave people a future.”

Munford was quick to tap into the home ownership dream himself. He bought a flat in Willesden Green. “The minute I started work I bought my own home. In those days you could borrow 100% mortgages. It was the late eighties and I remember Wall Street was out. For a young guy, somebody who grew up in the country, starting to make it in London was a very ‘Wow’ period in my life’.

Why Willesden Green? “I couldn’t afford Chelsea or Notting Hill. It was very different then to today. The average salary when I bought my first flat was about £10,000 for a young guy; the average flat price was about £30,000. For £30,000 you could get a one or two bedroom flat anywhere. North London, Notting Hill. Maybe Chelsea might have been £50,000. But £30,000 was the benchmark for a flat and it wasn’t that long ago. I’m talking around 1988.”

Munford doesn’t reveal whether he ever bought a pair of red braces but was soon living the Thatcher go-go eighties trader dream. “I thought there’s a market here. There’s travel agencies on every high street. There’s lots of competition in banking. There’s no competition in mortgages and people don’t have a choice.”

Before long , Munford was turning entrepreneur and had set up a high street chain known as the Mortgage Centre. “A couple would come in and get a choice of mortgages rather than just going to Halifax or Abbey National” recalls Munford. “A bit like Money Supermarket although obviously the internet didn’t exist then.

“Thanks to Margaret Thatcher and Nigel Lawson, tax relief was given for a mortgage for up to four  people. So if four people on a regular salary could club together and get a big mortgage. The Tory party of those years seemed to see property as a way of getting people on the ladder and giving people a stake in their future. Which isn’t their aspiration now. The average age of a home buyer came down to something like 18 or 19. It was quite extraordinary. People would meet in a pub the night before, the next day go and buy a flat. It was easy to get debt, easy to get a mortgage, easy to buy a property. A lot of supply, a lot of choice.”

That houses only cost three times salary meant that even central London was affordable. “So anyone could buy. It was crazy not to” says Munford. “You had tax relief. But obviously people weren’t buying for this big capital growth story we’ve had in the last 20 years, they were simply buying because of wanting their own home. They didn’t want to rent. The rental market was a lot different then, when you got absolute rubbish when you rented. I remember when I first rented a flat, it was absolute rubbish. You had to put money in a meter to get heat.”

Munford’s breakthrough was to have the vision to see that all the new international banking lenders needed new distribution channels in the UK. There were all these Canadian banks, American banks wanting to muscle in. “So they would use people like me to distribute their product. It’s an instant way to market because you can use a mortgage distributor like we were, Mortgage Centres. They could throw us a line of product and we would distribute. They didn’t have to set up offices, they didn’t have to do extensive advertising. This whole new thing were mortgage brokers who would distribute their money. They would give the broker a fee but they had no fixed costs. They could run it from a very small base in the UK. All the money came out of America and it was a great business for them.”

Then came buy-to-let, which was something that people just hadn’t thought of as an investment before. “It began in the early nineties” says Munford, “and I remember a few of us got together – a few lenders and a few brokers – and we had lunch for about 50 people in the RAC. I remember it very well, and the term ‘buy to let’ was determined at that meeting, at the RAC club in the early nineties.”

The next big change came with the arrival of the oligarchs and the big foreign money. Munford witnessed Russian wealth flowing into London in the 1990s as London was seen as a “safe haven”. It was a place they wanted to come to for the best health care, for education and for culture.

Munford soon made himself well known within the highest international financial circles. What made London especially attractive to Russians and other foreign investors is that you could invest in property through offshore companies via “bearer shares”.  This meant that whoever holds the piece of paper is the person who owns the company. You could own a company, pass the share certificate to me and I would become the owner. “Ownership was not registered in offshore companies, particularly the BVI. So it was very easy.”

The culture today could hardly be more different. Today, banks want to know the source of all funding. It may look easy to wire $300m via an eye-scan in The Night Manager, but the reality is very different. In India, for example, Munford has seen banks closing down accounts on a regular basis if due diligence cannot verify that all funds have been declared

“It’s a different world now. Unless you’ve paid your taxes, a bank won’t want to hold your money” says Munford.  “I know one case in which a guy had $85m on deposit and the bank said, ‘unless you find another bank by the end of the month we’ll send you a bank draft’. They would just send him a cheque. Go where you want with it. But they know he can’t open another account. Its very much the same in Switzerland. Obviously numbered accounts are long gone. It’s just a new regime which came about after 9/11; it’s not just about tax it’s about the flow of money.”

This has all had a knock on effect on property financing in the UK. The fact that the banks are finding it so much more difficult to lend has meant a new world of opportunity for the likes of Munford.

A year ago, Spear’s Magazine ran an article about why so many HNWs, or even UHNWs (assets over £15m) had challenging credit scores and were often regarded as “risky” borrowers by the mainstream banks. The article began with an amusing anecdote told by Alexander Hoare, chairman of his family bank, about how he had been refused a mobile phone when he walked into a shop. The reason was that his credit report came up blank.

The main reason for being shunned by the banks is that HNWs, especially the entrepreneurial and internationally mobile types, don’t tend to have PAYE slips to satisfy the new box-ticking, one-size fits-all mentality that has been implemented by banks following the sub-prime mortgage scandal.

A combination of larger balance-sheet requirements, retail-bank ring fencing, and tighter regulation has meant a new, post-crunch lending culture in which the two tribes at opposite ends of the financial spectrum – the short-term, cash-needy, asset-rich and the asset poor – are now both looking towards the “alternative” financing space. Call it The Big Lend.

[pullquote align=”right” cite=”” link=”” color=”” class=”” size=””]There is a whole new ‘alternative financing’ universe for HNWs and property developers who need money fast[/pullquote]

There is a whole new “alternative financing” universe for HNWs and property developers who need money fast, led by such dynamic characters as Paul Munford and his rivals such as Hugh Wade-Jones at Enness Private, Mark Posniak at Dragonfly, the dynamic young Harries brothers at Imperial Blue and Paul Welch at – and don’t forget Christian Faes at LendInvest and other peer to peer lending outfits.

One of the interesting aspects of this newly landscaped property financing world is that banks hate losing their clients. So even if they cant lend themselves they often now build up a strong alliance with brokers like Munford who they can refer their own clients to. Thus Munford has excellent relationships with many private banks across Europe and further abroad.

The rise in demand for “shadow banking” – operating behind the financial curtains – has been another revolution that has changed the landscape of property financing. The Financial Stability Board (FSB) estimates that shadow banking now accounts for a quarter of the world’s financial system, with assets of $80tr, up from $26tr just over a decade ago.

The Economist has said the shadow banking sector could be the saviour of the global economy, filling the void as banks have largely closed up their shutters to commercial and HNW entrepreneurial lending, especially in the property world. Others are more wary, however, seeing the sector as largely unregulated.

Shadow banking is defined as any form of financial services or lending that is outside the mainstream of banking regulation; anything from, say, a Singaporean private property fund to P2P lending. In the Middle East and Far East, the industry has contributed heavily to the growth of such cities as Dubai, Hong Kong, Singapore, and Shanghai.

According to the Economist, shadow banking in China grew by 42% in 2012 alone. But what has this got to do with your London HNW?

Well, maybe everything if his private bank isn’t willing to lend him the £3m bridge he needs to complete on a £6.5m Chelsea townhouse – or risk losing his £650,000 deposit. A typical scenario would be that the buyer lined up to buy his £3m Knightsbridge mews house pulled out after the new rates of stamp duty were introduced. With 12% to pay over £2m, the super-prime London market has started to cool like a Siberian ice-cream.

To save his deposit, an HNW might approach a top-flight “alternative financing” broker – such as Munford’s MCIFA Property Finance.

Does Munford ever worry about mega London property deals being used as a cover for money laundering? Has his reputation as such a leading figure in the UK super-prime mortgage world meant that he has been a target because of his experience and reputation?

“No. I’m sure that a lot of that happened. You hear of stories of people with impounded properties that they just bought on a whim, but we were never like that. I’ve never had people with suitcases of cash show up to my office”, Munford says.

The problem with many banks today, Munford claims, is that they are now more “compliancy driven” than ever. This is as much to so with the clients they deal with as the intermediaries they deal with. Banks are obviously very worried about regulation, about reputation and about compliance generally. And the last thing banks need is any reputational issues. So “it’s easier for them not to write a deal these days”, says Munford.

Munford points to the difficulty that some Russian clients have in simply opening bank accounts now in the UK recently. “First is the credit check” he says. “Which is basically checking that the asset they’re buying is worth it. And that they can afford it. So that’s the credit side of it, that they’re good for the money. Secondly it’s  ‘know your customer’. And it’s not just about who they are, but where they’ve made their money; the source of funds. They will track back, even someone who’s 50 years old. They may track him back to when he first left school. In Russia you have a thing called a “Work Book” which you have to maintain, which sets out your pays slips since you left school. Some banks do things like that”.

When Munford first started the mortgage world was quite a small club. Now there’s quite a lot of product. What is his guiding philosophy to keep yourself ahead of the competition?

“Discretion, exclusivity and I suppose access to the right relationships,” Munford says. With over 20,000 such relationships built up over 30 years, Munford certainly is not lacking any choice in the “private client” relationship department.

Paul Munford is CEO of MCIFA

William Cash is an author, HNW commentator, and Editor-in-Chief of Spear’s Magazine

This feature originally appeared in the Spring 2016 PrimeResi Quarterly Journal 

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