Homebuyers may encounter more broken property chains in this disrupted market, which bridging may help to solve
The post-Brexit financial and political earthquake is still sending tremors through Westminster and the City, even as Theresa May settles into Number 10.
Yet this is different from the Lehman fallout, with markets rallying and even sterling showing some resilience as stability returns.
Although concerns persist about an immediate housing market slowdown and organisations such as the CML are more cautious, in specialist property lending there is a sense that business continues.
At West One, we are applying the same underwriting standards as before 24 June, including LTV tests and rigorous assessment of exit strategies necessary for prudent bridging lending. And we are still seeing a healthy flow of good-quality deals as a result: monthly lending is around £40m and within the past week we completed a £6.7m deal, secured on three properties.
Our view, then, is that business is being done and the bridging market continues to move forward. That is not to say there has been no turbulence; some brokers have had deals cancelled. But others have seen new deals generated as a result of disruption of conventional property finance.
The fundamentals of the property market provide solid grounds for optimism: there are still too few homes to meet demand and low (and possibly lower) interest rates make borrowing cheap. On top of that, the weak pound is making the UK more attractive to foreign investors.
For bridging finance specifically, there are fundamental needs to consider. There are borrowers in circumstances that still need fast or flexible finance. Small property developers can make a profit converting uninhabitable properties to be sale ready but a high-street mortgage is not appropriate.
Homebuyers may encounter more broken property chains in this disrupted market, which bridging can help solve.
For example, on 13 July we were at our partner Barnet Ross’s property auction. With a lively auction room, 87 per cent of lots were sold. Properties of all kinds were selling at or even well above estimates: £321,000 vs £150,000 reserve for an Essex residential property, or £2.32m vs £1.25m reserve on a Luton commercial deal.
With fast bridging finance a powerful tool for auction buying – given typical 28-day completions – there are clearly opportunities for bridging lenders. This direct connection to the real market, in addition to our internal deal data, gives us confidence in the future.
Nevertheless, deal flow alone is not enough; it needs to be good quality. With price softness anticipated in central London commercial property and the wider residential market, managing LTVs is key to prudent lending.
Looking to the longer term, and considering the sustainability of business in the bridging sector as a whole, taking a little heat out of the property market may do some good; when the market is hot, some lenders get tempted to cash in and take undue risks.
Some businesses will stop lending as they feel the impact of the whirlwind of activity over the past year – or because their funding models are insufficiently robust. Brokers and mortgage introducers should consider this carefully when placing business.
Room to thrive
However seismic the decision to leave the EU has been, it is becoming clear to us that this is a very different post-shock world from that of 2008.
The bridging sector has been far more resilient and active than it was then, and the fundamentals support continued opportunities.
Well-capitalised and disciplined lenders are comfortably placed to thrive during this post-Brexit uncertainty.
Danny Waters is chief executive of West One Loans and Enra Group