The short-term market is diversified and broad enough to ensure there are always options for well-packaged deals
Several months on from the EU referendum and, despite our new prime minister’s assurances that “Brexit means Brexit”, no one knows what Brexit actually means. While it is far too soon to judge whether the uncertainty is affecting lender appetite or property values, it is hanging in the air and is a factor no one can ignore.
Add to this the slew of changes to the buy-to-let landscape and any comment on the so-called state of the market will not be definitive. That said, I have a few observations.
Next year landlords will see the tax relief they can claim on their mortgage interest payments start to taper from a maximum of 45 per cent to 20 per cent by 2020. Many lenders have already raised their rental income ratios from 125 per cent to 145 per cent to accommodate this.
While there are still plenty of options for landlords at 125 per cent, I fully expect these to reduce over the coming six months – especially because the Bank of England’s Prudential Regulation Authority is due to publish its new rules for buy-to-let later this year. If these are on the lines that the PRA has suggested, affordability for landlords is going to get tighter still.
All of this has implications for bridging and short-term finance. In general, developers using a bridge to fund short-term refurbishment projects exit into a buy-to-let. Bridging lenders are already considering this when agreeing short-term finance because the availability and make-up of buy-to-let products in six to nine months’ time will affect the likelihood of that exit.
I do not believe these shifting dynamics automatically mean that bridging availability will reduce, but there will be changes. Some lenders may look to rebalance the types of deal they approve as they adjust, and understanding how their appetites fluctuate will be key for advisers who need to get deals done quickly.
More mature market
I am reluctant to discuss negative rumours for fear of talking down the market. That said, there are some potentially damaging stories that should be addressed head on.
It is no secret that a number of specialist lenders are turning away more deals than they used to and there is talk that funding lines have been pulled by some larger banks. Whether or not the rumours are based on fact, we should remember how far this market has come in the past decade. Yes, some specialist lenders are backed by bank funding lines, but many specialists have far more diversified funding sources. Both Precise Mortgages and Shawbrook have access to retail deposits to fund new lending – a source of finance that has opened up specialist lending and made short-term loans much cheaper for developers.
Additionally, the market has lenders backed by both private and institutional investors such as LandBay, LendInvest or West One. We should not forget that there is a wide selection of options for clients looking for short-term finance and that the market has matured significantly in recent years. Lenders have learned from mistakes in the past and no longer rely on just one source of funding.
Providers’ appetite to lend may ebb and flow but for advisers the important thing is being able to find an appropriate solution for clients. Thankfully, the short-term market is substantially diversified and broad enough to ensure there are always options for well-packaged deals that make commercial sense for both borrower and lender.
Lucy Hodge is a director of Vantage Finance