Time for bridging brokers to be proactive
As we approach the end of the year, we can start looking forward to some well-earned time off, knowing that we’re ending 2023 with a more positive outlook than we had 12 months ago.
There are definitely some grounds for possible optimism (or at least not pessimism). Nationwide Building Society recently reported a slight increase in property market activity, as well as a 0.9% rise in UK house prices, reversing the downward trend of the summer. Meanwhile, the Bank of England’s Monetary Policy Committee (MPC) has held the Base Rate for two months – a welcome relief from the constant rate hikes we’ve witnessed over the past two years.
In addition, Rightmove says that key indicators show the year has been better than many predicted following the turbulent end to 2022. While November agreed sales figures are 10% below 2019’s more normal market level, this is an improvement from 15% below in October. Rightmove also says the “pandemic-driven stock shortage” is over, with available properties for sale now just 1% behind 2019. With sellers being more realistic with pricing, market activity is on the increase.
From a lending perspective, the signs are that term lenders are hungry to make up for subdued lending in 2023, with increased appetite for lending next year. This bodes well with brokers and their property investor clients.
It’s also important to note that the bridging loan sector is in good health: loan books reached a new record high in third quarter of 2023, according to the latest data from the Association of Short Term Lenders (ASTL), with applications and completions also showing strong growth during the period.
Bridging applications rose to £9.7 billion during Q3, an increase of 5.6% compared to the previous quarter. Completions were £1.4 billion, an increase of 5.8% on the previous quarter.
The year ahead
Property investors who are looking to expand their portfolios have a window of opportunity and bridging finance can help them to move quickly. For them to take advantage of such opportunities, it’s vital that brokers act proactively in order to help put their clients in the strongest position. This means understand the types of finance - such as auction and refurbishment finance - and properties - HMOs - that are popular in today’s market and look set to continue to be so in 2024.
Because market conditions have been far from ideal for the past 18-24 months, a number of property investors, especially ‘amateur’ and/or highly leveraged landlords, have been exiting the market and selling up. The property auction is a very common method for divestment and so can also appeal to those looking to expand their portfolios, as often purchases can be made under market value.
Bridging is a very popular financing option for auctions, allowing not only for fast property acquisition but also for the funding of any necessary renovations. It can also fund the purchase of properties judged as unmortgageable or uninhabitable.
Brokers should therefore be in regular contact with their investor clients in case they are looking at property auction opportunities, as well as liaising with their lender BDM clients in order to ensure that they will be able to successfully place the case and get it completed within the tight timeframes – typically 28 days from the hammer falling – that auction houses dictate.
Similarly, demand for refurbishment finance has been strong over the past year and looks set to continue well into 2024. Some investors have decided that they either can’t or won’t make improvements to their properties and will sell up instead. For example, the proposed changes to Energy Performance Certificate (EPC) regulations, (scrapped for now but still likely to come into force at some point in the coming years) represented the final straw for a number of landlords, allowing those in a better financial position to snap their properties up.
At London Credit, we’re seeing equal demand for light and heavy refurbishment loans. The former is for changes and improvements that don’t require planning permission, as opposed to the latter which may entail demolition, conversion, extending properties and the creation of extra rooms.
This ties in with the increase in demand for funding for HMOs – either for purchase or for the purposes of creating an HMO. This is because in a buy-to-let market where vanilla investment properties have seen margins continually eroded, the HMO sector is where there is still a decent margin to be had. For financing an HMO conversion, bridging loans can be the ideal solution, covering the purchase and conversion costs, before switching to a specialist buy-to-let term loan.
There are opportunities out there to be seized by clients, but brokers need to ensure they’re not operating from a standing start. They should be in constant dialogue with BDMs, ascertain what each lender’s appetite for new business is, what their service levels are and whether they have any new processes or requirements in play since the last time the broker dealt with them. This way, when their client comes to them with an urgent need for finance, they have enough current market intelligence to know who to approach first.
After all, a client is more likely to come back to the broker who got their deal over the line – and repeat business is essential in less-than-ideal market conditions.
Antrea Demetriou, Underwriter at London Credit.