In these uncertain times, clients taking on bridging finance may not realise how important it is to choose their lender carefully. Brokers can guide them in the right direction because we know how vital it is to look behind the headline rate at who is offering it.
Lenders that have managed to carry on throughout the pandemic reduced their loan-to-values by 5 or even 10 per cent in early March and have kept them there. They have battened down the hatches with more modest LTVs (to be fair, they weren’t over-stretching themselves by offering the highest LTVs in the first instance) but this has enabled them to continue without disruption. Lurching from high LTVs one week to zero the next because they can’t cope is not for them.
Some are trying to get back to 75 per cent LTV but clients should be wary. There’s little point opting for a lender offering an extra 5 per cent of the purchase price on the LTV if it will not be around in a month because it put itself under such pressure that it had to pull all its funding. It doesn’t matter how cheap its rates are; if the lender has had to shut to new business, those deals are unobtainable.
Growth in creativity
Trickier market conditions mean sensible lenders are becoming more creative rather than more adventurous. Those that didn’t really advertise their refurbishment facilities pre-Covid, for example, are realising that proposed changes to permitted development activity may offer opportunities.
Auctions are popular as investors stuck at home for several months have had plenty of time to go online and see what is available. They may also have been inspired by one too many episodes of Homes under the Hammer. There are plenty of properties for sale, some of which, unfortunately, have been repossessed. There are also properties that may not be available under more normal market conditions because buyers at higher LTVs can’t get the mortgages they need to purchase.
We are doing more transactions for homeowners buying at auction than for investors, as would usually be the case. This may be because homemovers see auctions as an easier solution than the traditional route of buying via an estate agent with a standard mortgage from a high-street lender. Having been cooped up for so long, homemovers want more space, inside and out. However, when they go to their lender for a mortgage, they find some high-street names have three or four months of delays. These buyers are turning to auction for a faster solution, and with it bridging finance.
Bridging rates are not as competitive as at the start of 2020. Rates have zero correlation to the Bank of England base rate, unlike standard residential deals. With a sharp decline in higher-LTV mortgages on the high street, people have turned to bridging; once these deals return, there’ll be a glut, pushing bridging prices down.
Lenders remain stretched, with staff overworked and under-holidayed. The run-up to the end of the year doesn’t look as if it will be any easier and service levels could worsen. While bridging is operating faster than the high street, there are delays you wouldn’t normally expect. A lot of people are having to work from home, but few operate at 100 per cent efficiency outside the office, so many will work longer for less productivity.
Yet there are reasons for optimism. There are plenty of good lenders and arguably some great opportunities for those prepared to invest now. The recession won’t last forever and investors coming into the market will be starting at a lower entry point, compared with those who overstretched themselves in the good times and may well fall over in leaner times.
Amadeus Wilson is director of short-term finance at SPF Private Clients
