Let’s start this BridgingWatch with something that will affect us all. No, I’m not talking about our impending (and doubtless ignominious) exit from the World Cup. I’m talking about the timing and pace of interest rate rises, which is getting ever more column inches these days.
The last time I looked, the markets were pricing in a rate rise for March or April next year. The latest prediction now, however, (by none other than outgoing deputy governor Charlie Bean) is that the Bank rate could move up as early as February 2015 – when the Bank of England can use its quarterly inflation report to explain the reasons for its first hike.
Either way, with the economic recovery continuing, it now seems that rate rises — if only small and gradual — will be coming a lot earlier than we thought they would a year ago. So how will this affect the property market and, for the purposes of this column, the bridging market?
Benefits for bridging
I suspect rates rising, even negligibly, will have an immediate impact on the property market. They will almost certainly haul back the rate of price growth, dampen the demand for property among owner-occupiers and impact affordability and criteria, making mortgages harder to secure.
But for the majority of professional landlords and portfolio investors, I’m not sure rate rises will make a material difference, in the early days of the up-cycle anyway. If anything, rate rises, lower prices and more stringent lending criteria will play straight into the hands of many property professionals.
Tougher criteria and more stringent affordability testing will boost demand for rental property while lower house prices will improve yields and arguably make property investors even more active. Both these developments will benefit the bridging sector, which is the tool of choice for acquisitive property professionals. All in all, I think the demographic of the typical short-term borrower will prevent a material decline in activity levels.
Refurbs rev up
In other news, I see Precise Mortgages has updated its bridge-to let product. It now allows clients with a refurbishment bridging loan to transfer to any Precise buy-to-let loan at any time after completion.
Prior to the change, borrowers would have had to wait four months before they could switch across from the bridge. As I see it, anything that gives increased flexibility and choice to the borrower has to be a good thing.
Precise’s revamp of its bridge- to-let product looks to have been well timed, too. According to the latest West One Broker Sentiment Survey, short-term secured loans for property refurbishment, development and conversion totalled £1.29bn over the 12 months to April, or just over 2,800 separate projects.
Loans for all forms of property improvement, claims the survey, now represent 61 per cent of total industry gross bridging lending. This compares with 47 per cent in September 2013 and 40 per cent one year ago.
Meanwhile, a net 57 per cent of brokers expect growth in lending for property refurbishment and conversion, up significantly from the latest reported increase.
Outside the M25
To wrap up, I read an article somewhere the other day where Martyn Smith, the founder of bridging lender Bath & West, was arguing that mainstream bridging lenders have focused almost exclusively on London and neglected other areas of the UK — and that the likes of Bath, Bristol and the South-west of England generally have huge potential for developers.
I agree with him that, to date, both developers and short-term lenders have gravitated towards the comfort zone that is the M25.
At the same time, there has been a gradual shift away from the M25 over the past 12 months or so. The major lenders are looking further afield on a more consistent basis, mainly because the competition in the capital is so rife.
In late May, for example, Masthaven Bridging Finance underlined its commitment to the broader UK market by stating that it aimed to provide additional support to brokers throughout the UK and not just focus on those regions currently grabbing all the headlines.
I think we will be seeing more of these statements in the months ahead.
Now what I don’t understand is why Smith would wave his arms in the air and shout “Over here!” when he and his firm could be getting on and making hay while the sun shines in the “untapped opportunity” that is the West Country? Keep quiet and get on with it.