The property market looks set for another eventful year in 2014 as the economy continues to recover, regulatory factors such as the Bank of England’s intervention on the Funding for Lending scheme come into play, and the debate over when interest rates might rise continues.
In the residential sector, market growth is widely expected to continue. The Council of Mortgage Lending forecasts that the number of transactions will increase significantly, though it also predicts a calm-down in the market rather than a bubble. The Royal Institution of Chartered Surveyors, meanwhile, is expecting an 8% average increase in house prices.
A lack of stock and Help to Buy could certainly see prices rise at the lower end of the market, namely the £150,000 to £350,000 bracket.
In the commercial property sector, meanwhile, the consensus forecast is for an average total return of 9.3 per cent, with positive contributions coming from both higher rental incomes and capital growth.
There will no doubt be parts of the residential and commercial sectors where returns vary significantly from these forecasts.
On residential, London may once again outperform. On commercial, central London offices are expected to exceed the average forecast, while secondary retail and shopping centres are expected to lag behind.
In the lending market, meanwhile, Dragonfly expects one important theme of 2013 to continue to be prominent: a much greater role for non-bank lenders in providing finance. That’s likely to be the case in both the residential and the commercial sectors, despite the easing of economic pressures as the recovery continues.
Many residential property buyers and investors are likely to continue to find it difficult to source the finance they need on the terms they want.
While some lenders may relax their stance a little on borrowing criteria, LTV ratios and other requirements, there is unlikely to be a return to the easy credit climate of the pre-financial crisis days in the foreseeable future. Lending will continue to take longer to arrange and will be unavailable to some.
For this reason, non-bank lenders will need to be prepared to step into the breach once again in 2014, helping borrowers and investors to complete transactions that might otherwise fail.
In the commercial sector, meanwhile, we expect to see traditional lending banks remain much less enthusiastic about supporting investments in secondary property and the regions. As a result, non-bank lenders will again be required to fill the gap.
There will also be more development finance in 2014, as investors look for projects that exploit the opportunities offered by the recovering economy, and again, this is likely to come from the non-bank sector.
Overall, borrowers looking for finance for commercial property can expect to see a greater choice of lender, a wider range of products and, potentially, higher LTV ratios becoming available. However, commercial interest rates are unlikely to fall in the short term.
In both the residential and the commercial sector, the demand for short-term finance will increase, as borrowers look for alternatives to traditional lenders, whose ability to offer finance will remain constrained. Bridging loans and term finance will play an important part in oiling the wheels of the property sector’s ongoing recovery.