Bridging can optimize landlords' market opportunities.
I recently listened to the UK Property Market Stats Show podcast and I’m very glad that I did. If you just rely on the national press for property-related intel then you’ll probably think the market is going to hell in a handcart, but this podcast uses up-to-date market data to give you a picture of what’s happening right now – and it’s not a bad one.
Unlike the Land Registry, Halifax and Nationwide indexes, which are generally three to eight months out of date, the podcast concentrates on ‘real time’ property market statistics. The one I listened to was based on activity in the last week of May and outlined how resilient the property market is proving to be. Residential property sales had their best week since the summer of 2022 and listings had their best performing week since April 2021.
In terms of real numbers, gross property sales for the week were 26,861, up 1.97% week on week, with the 2023 running weekly average at 22,125. Property listing totalled 37,885, up 1.49% on the previous week and compared favourably to the running weekly average for the year of 32,326.
To me, the data demonstrate that we should not fear any form of market depression. What we’re seeing is that while some people are undoubtedly struggling with the cost of living and rising borrowing costs, others are taking advantage of opportunities as they arise.
The rental market is a good case in point. The fundamentals are strong: according to HomeLet, the average rent in May was up 1.2% on March, with rents in every region in the UK up year-on-year. Excluding London, the average UK rent price is 9.5% higher than it was 12 months ago.
That said, there is a section of the landlord community that is struggling. With changes to tax relief and Capital Gains Tax adversely affecting landlords in recent years, many have found the repeated rises in borrowing costs over the past year to be too much to bear and as a consequence are exiting the marketplace.
For less leveraged landlords, this is a good time to consider expanding their portfolios; however, while buy-to-let product numbers have recovered in recent months, rates have experienced a significant increase over the past year. As a result, landlords are hesitant to relinquish their preferential rates by remortgaging in order to free up capital. Additionally, stricter stress tests have made it challenging for investors to borrow what they need using buy-to-let mortgages.
This is why bridging finance offers a viable solution for landlords in such circumstances. Bridging loans are not subject to the same stress testing regime as buy-to-let mortgages, with lenders instead focussed on how the investor plans to refinance and terminate the short-term financing arrangement.
Meanwhile, with increasing focus on the impended 2025 introduction of new Energy Performance Certificate (EPC) requirements for rental properties, we’re seeing a growing number of enquiries from landlords to use bridging to fund energy efficiency related refurbishment projects. Again, this deadline is another reason why some landlords are looking to exit the market, but for others, these costs are not an issue, especially as improved properties can in all likelihood command higher rents, and so properties currently with EPC ratings below the 2025 requirement are being purchased and refurbed using bridging finance.
Other popular investor strategies at present include converting a property into separate units or creating Houses in Multiple Occupation (HMO), as they can increase the total rental value of a property. Yields are also strong with Multi-unit Freehold Blocks (MUFBs) and holiday lets at the present time, and we’re seeing increased investor demand in these areas.
Using bridging finance, investors can make these property purchases and/or refurbishments (whether light or heavy), with the intention of refinancing when interest rates stabilise in the future. Of course, to demonstrate they have a realistic understanding of the current market, it is crucial for applicants to outline multiple exit strategies within their applications.
Some landlords are indeed leaving the market, but I don’t believe there’s a fundamental shift on the cards for the private rented sector. We may well ultimately have fewer landlords in total, but I don’t expect this will mean fewer rental properties. Many landlords who aren’t exiting the market see opportunities for portfolio growth and bridging can a key part to play in making this happen.
Antrea Demetriou is Underwriter at London Credit