Looking to the future

Mortgage Introducer

December 27, 2018

Darrell Walker, head of sales at InterBay Commercial

2018 was certainly a year of uncertainty in the UK so it comes as no surprise to see a knock-on effect on the property market that’s experiencing sluggish house purchase activity and slowing house price growth.

Property investors could therefore be forgiven for operating with understandable caution given the current political and economic climate.

So putting Brexit aside for one moment, property investors face an anxious January waiting for this year’s heavier tax bill to land on the doormat as Osborne’s tax changes really begin to bite.

Many professional landlords have already taken steps to limit their tax exposure by moving their portfolios into a limited company structure; however, it is still a huge burden on landlords looking to expand their portfolios.

These tax changes heighten the importance of yield of for professional landlords with many of them already looking further afield to access higher yields and some diversifying into HMOs, commercial and semi-commercial property.

These are also potential pockets of the property sector still growing substantially and may even benefit from a slowdown in other areas. For example, the bridging market has expanded over recent years with new lenders entering and new products being introduced to the market.

This substantial growth in the bridging market is reflected in the Association of Short Term Lenders (ASTL)’s quarterly results, showing that the number of loans written by its members had grown 21.2% in the 12-month period to 30 September 2018.

Brokers have also identified it as an area of growth. In the latter part of 2018, our research found that 70% of brokers believed that demand for bridging had risen. By comparison, only 8% thought it had fallen.

Many put this rise in demand for bridging down to property sales taking longer to complete leading to more developers requiring exit finance, more buy-to-let investors undertaking refurbishment and increased demand for purchasing properties at auction.

Like investors, brokers are increasingly turning to bridging, advising on cases and looking to diversify their revenue streams. Indeed, 65% of brokers stated that as bridging cases involve higher fees they present an opportunity to generate extra income.

When looking ahead in 2019, 12 times as many brokers expect demand for bridging to grow rather than shrink (62% vs 5%), making it a key growth area this year.

Brokers who predicted increased demand put some of the reasons down to rising house prices, slower sales of property developments, increased investors at property auctions and growing demand from buy-to-let investors.

With the demand for bridging increasing within a sluggish property market, we will continue to see more lenders stepping into the bridging market, increasing competition and improving rates. However, with lots of lenders offering similar products, brokers will really need to be aware of all the alternative financing options in the market.

For some brokers it can seem like a daunting and complicated market but through developing good relationships with specialist business development managers (BDMs), flexible solutions can be found.

BDMs are best placed to inform on product availability and appropriate criteria as well as offering flexible tailored advice.

As the bridging market continues to expand in an uncertain wider property market, BDMs will be able to familiarise brokers with all the products currently on offer and help navigate the more complex cases, ultimately providing the best solution for the client.

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