SPECIAL FEATURE: Bridging in the next six months
Election factor: It’s over now, but the effects of that eventful night on 7 May are still being felt in the property market. We saw the housing market slow prior to the election as the property world waited with bated breath to see what would happen with tax and regulation depending on the outcome. It looks as if though, things are now bouncing back for bridging. However, the property auction market seems to have a little way to go to recover back to last year’s levels. According to EI Group, lots offered and sold fell by 20% in May compared to the same month in 2014, whilst total raised fell 10% to £422.8m. Lots sold was still a healthy 76.5% though, indicating there is still demand in the auction rooms and for bridging finance for landlords to acquire properties quickly.
Budget on 8 July: With buy to let mortgages accounting for 15% of all mortgage lending, George Osborne has looked closely at this market and introduced some measures that landlords will have raised their eyebrows at. Firstly, interest rate tax relief will be cut to basic rate tax in the next few years. He also slipped in an increase to Insurance Premium Tax from 6% to 9.5%, which will affect landlord property insurance premiums. But for those renting rooms then tax relief increases to £7,500.
However, there was no mention of Permitted Development Rights, new housebuilding or incentives to build new affordable houses. That was quite a surprise. There is a property planning announcement on Friday, so maybe some of these will be covered then.
There was good news about inheritance tax thresholds which will increase to £500,000 per person, so a married couple will be able to pass on assets worth £1m, including their family home. Many have been concerned that the IHT rules haven’t kept pace with the property market, but these changes bring them back in line. Hopefully this will mean more liquidity in the property market and the specialist lending sector will have new opportunities as a result.
UK Housebuilding: Certainly there is greater confidence in the construction industry since the election, but there is still a massive demand for a limited supply. There will be policies for greater use of public land and brown field sites for building, and many private land owners will see their asset value rise for potential house building programmes. Private developers will also benefit, providing they can get their hands on suitable land. This is where bridging finance can also help in the purchase and the development of the land.
Bridging on the up: Short term lending is increasing, despite pre-election jitters various statistics reported show an increase upwards of 30% on last year. This shows that specialist lenders are delivering the finance landlords and developers need when traditional routes aren’t quick enough or don’t have the criteria to lend on refurbishment projects or land without planning. It’s also interesting to note that average loan balances have started to creep up, a sign that prices are increasing maybe, but also lenders are willing to lend more with the confidence clients will repay. The appeal of bridging loans is broadening, for example to service businesses in need of better cash flow and to settle unexpected bills or to finance buyouts. There seems no end to the versatility of bridging finance and this will continue to develop in the next six months.
Buy-to-let baby boomers: With savings rates staying low for the foreseeable future, and with the new pension laws coming in to force in April, many pensioners will calculate that higher yields are achievable on rental property.
According to Bank of England figures, there was increase in buy-to-let lending over the last year, from £6.8bn in the first quarter of 2014 to £7.6bn in the first quarter of 2015.
With some 60,000 pensioners utilising the new pension freedoms, some of this money will be accessed for buy-to-let. After all, with a housing shortage and not enough new properties being built, converting property to buy to lets and HMOs will continue to thrive, and the ‘grey market’ is very well placed to capitalise on this . This is all good news for specialist bridging lenders who take a commercial view on age at the end of the loan term and have the criteria to fund elderly clients, after all the loan is only for a limited period so risk is minimised too.
Taking all of the above in to consideration, there are enough positives in the economy to expect that for the remainder of the year, bridging finance will continue to thrive. Specialist lenders, such as Roma Finance, are ready and waiting to capitalise on this and introduce products and services to help brokers and clients in more new ways.