Specialist mortgage lender sees green shoots appearing

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Managing director Lucy Barrett told MortgageStrategy that confidence is retuning to the lending market and especially for specialist lending products such as bridging loans.

Barrett says that the market has been highly unpredictable over the last couple of years, yet now, with most restrictions being lifted, and the experience of 12 months of lending in the specialist commercial finance market, confidence and predictability is beginning to return for 2022.

Overall lending levels are still down compared to pre-pandemic levels, but the way the housing market bounced back driven predominantly by stamp duty relief, specialist finance provided by Barrett’s company, she says, came into its own, seeing in particular in “bridging” lending “a huge resurgence, helping buyers who needed money quickly.”

Surging demand

The fallout from the past 24 months, Barrett says, is likely to bring demand for more complex financing cases, which is where the specialist market excels. And the surging demand in the residential sector is now impacting on the commercial property market as well.

According to Vantage, in 2021 their bridging business was up 38% year on year. “I don’t think this demand will diminish soon,” she says. The housing shortage, exacerbated to some extent by the stamp duty holiday, has resulted in the current housing crunch, with demand outweighing supply and residential property price wars.

Such a situation has led to an increased demand for bridging loans. They’re one way to beat the homebuyer chains and delays in the market. Barrett sees bridging, and in particular regulated bridging, being in continued demand.

In 2021 it seems, regulated bridging loans accounted for an average of over 40% of all contributor transactions, while using the facility as a way to fund “a chain break’ was the second most popular use of bridging finance. It represented 18% of all lending, a figure that was up from 17% over the previous year.

With potential buyers currently significantly outnumbering sellers, therein lies the clear reason why residential bridging has come to the fore. To avoid missing their dream purchase, some buyers are willing to take that extra bit of risk and they are using bridging loans to purchase their next property before their own home is sold.

With house prices in some sought after locations rising at rates not seen for many years, it’s no wonder that some private buyers are willing to look to less conventional methods to secure their next home – the average advertised price of a home has risen by £40,000 since the pandemic started. This compares to just £9,000 in each of the previous two years.

A shortage of land

The UK market is not only suffering a housing shortage, there’s a land shortage as well. The inflated cost of building land has slowed the pace of new developments, limiting supply that would otherwise stabilise prices.

A Federation of Master Builders survey reveals that 63% of small builders are struggling to find viable building plots, and with planning system delays and materials shortages their ability to build the number of homes they would like is severely limited.

Home working along with remote working has increased the demand for homes with more space, but at the same time they have reduced the demand for office space. This has led to more re-purposing of commercial units, helped by changes in permitted development rights, the converting of offices and commercial premises into residential properties has seen a boom.

Many commercial buildings are currently for sale at reasonable prices says Barrett, and “although I think the property market will begin to settle this year in the wake of the impact of the stamp duty holiday, I also believe the specialist finance market will return to pre-pandemic levels of lending.”

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