As competition in the sector continues to grow, lenders should seize opportunities while resisting overconfidence
Prime Minister Theresa May has officially served the Brexit divorce papers and we are in the ‘Phoney War’ stage. Despite posturing to the contrary, there is goodwill on both sides and, by and large, economic news has been positive.
The calling of a UK general election indicates that May wants us to demonstrate more tangibly our confidence in her and her party, believing it will strengthen her hand in Europe when the negotiations get under way.
One may expect lenders to be nervous but the opposite seems to be true. In the latest sentiment survey of Association of Short Term Lenders members, positivity continues to climb. The proportion of lenders that expect the bridging market volume of business to either remain the same or increase has grown from a low of 48 per cent in June 2016 to 100 per cent in March this year.
But is this confidence misplaced, especially since Nationwide data showed that house prices declined by a monthly 0.3 per cent in March, compared to a rise of 0.6 per cent in February? This was the first month-on-month dip since June 2015, when prices fell by 0.1 per cent.
The news follows a report earlier this year from Halifax, which found that the average price of a home fell by 0.9 per cent between December and January, although it seems to have recovered slightly since then to become almost identical to last year’s figure, up by 0.1 per cent.
It is really too soon to tell. Statistics can be misleading and, as the Halifax figures prove, what rises one month can drop the next. This is especially true because the biggest weakness seems to be in high-priced property, which can drag down the national average.
There are other issues as well. According to a recent article in The Sunday Times, property sales are taking longer to complete in certain areas. For example, more than 25 per cent of properties in Bradford, Liverpool and Wolverhampton have been on the market for longer than six months, which has led to an increase in chain blocking.
I cannot put it better than it was expressed in the article: “You’re relying not only on your buyer but possibly on your buyer’s buyer’s buyer’s buyer. It takes only one case of the jitters to break the chain and put everyone’s lives on hold.”
This is a classic opportunity for bridging lenders. Chain unblocking is their meat and drink, which is perhaps why they are currently feeling so positive. A bridging loan gives a seller breathing space to sell their property and get the whole chain moving. For someone desperate to move and not miss out on obtaining their dream home, this is the solution.
That said, it requires knowledgeable brokers and skilled underwriters to ensure the loan is both appropriate and advantageous. It also requires solicitors who understand bridging and the urgency associated with many applications.
The bridging market is becoming increasingly competitive and 56 per cent of respondents to the ASTL survey expect this to continue as more new lenders enter the bridging loan space. This affords customers both more choice and a lower cost, although it is up to intermediaries to select the right lender.
On balance, I remain positive. But overconfidence is to be avoided at a time when uncertainty is the only thing that is certain.
Bridging performance in the last quarter of 2016 was excellent. Let’s see what the rest of 2017 and beyond will bring.
Benson Hersch is chief executive of the ASTL