Bridging Solutions – Facilitating Change

Posted by Glenhawk on 3rd May 2023 -

Written by Guy Harrington, CEO and Founder, Glenhawk, and originally published in Business Moneyfacts ‘Industry Insiders’ May 2023 issue.

While many thought the worst was behind us at the end of 2022, with January GDP data confirming that the UK had avoided a recession, the first quarter proved that assumption to be wrong.

Silicon Valley Bank’s collapse was quickly dismissed because of the property sector’s negligible exposure to its loan book. The larger concern was whether it would be a one-off, isolated incident. Credit Suisse soon followed and the ripple effects will be felt for a while as lenders tighten their belts even further to protect margins.

And with rates rising to 4.25 percent, where the sector is desperately hoping they peak, the lending market is definitely feeling the heat. Blick Rothenberg data shows that the first two months of this year saw the lowest number of property transactions since April 2020, when the country was in lockdown. Suddenly, the gradual 10% drop in national house prices that many predicted doesn’t seem unrealistic.

Of course, location, availability and asset type need to be factored in. For instance, we are clearly seeing a reverse of the “race for space” trend and a return to city centres. Average asking prices in London have risen by two percent since the start of the year, from £667,587 to £680,806, according to Rightmove. That is a significantly faster rise than the 0.8 percent national average.

Given that first-time buyers mortgage payments have risen to 39% of take-home pay, the highest since 2008, we can expect most transactions this year to be “need-based”. This is opposed to buyers moving up the ladder for a garden or more space, aided by cheap credit.

While demand might not fall off a cliff, more landlords will experience exit stress as financing costs for refurbishment and development projects rise, coupled with fewer buyers on the market. In the current lending environment, they will also have fewer exit options available as lenders become increasingly risk averse.

In such a scenario, the market needs more products to help landlords, perhaps to assist with HMO or multi-let unit conversion to drive yields, or to boost ESG credentials. Given more people are likely to continue renting, there is scope for bridge to let products as well, which shouldn’t be disparaged as renters will be helped if more refurbished units are brought to a chronically undersupplied market.

I will admit that it was a surprise when March turned out to be our best month yet, in terms of loan completions by number and value, and with a record number of applications for regulated and unregulated bridging solutions. At the end of the day, we are a nation obsessed with home ownership and, with the right financial tools, there are opportunistic deals available.