Specialist lending review
By the time you read this article, we will be close to drawing the curtain on H1 2024 and looking forward to H2.
Generally speaking, H1 has lived up to a rising number of cautiously optimistic approaches which emerged towards the back end of 2024, even exceeded them at times. This is largely due to slowly improving lending conditions, greater economic stability, falling inflationary pressure and progressively rising consumer confidence. Or, at the very least, a more realistic ad pragmatic appreciation of the current interest rate environment. Especially amongst those property professionals who are well positioned to take advantage of property-related opportunities as they arise.
Inevitably, this is a period in which the specialist mortgage market has been heavily leaned on to provide an array of solutions to meet an array of complex borrowing requirements. One of which, bridging finance, continues to see some sustained uplift throughout the intermediary market.
A growing reliance on bridging finance
This was evident in the latest Castle Trust Bank Pulse survey which showed that more than two thirds (68%) of brokers expect to arrange more bridging loans in 2024 than 2023. The research found that a quarter (25%) of brokers expect a ‘good increase’ in bridging business during 2024, with 43% saying they think it will be ‘slightly higher’.
One in five (21%) of brokers expect demand to remain the same, whilst only 11% are concerned that bridging business levels may fall.
This positive outlook reflects continued growth in demand for bridging finance. According to the research, 42% of brokers said they arranged more bridging loans in 2023 than during the previous year, contrasting the 38% of brokers that said they arranged fewer bridging loans for first-time investors in the past 12 months – indicating that experienced property investors are driving the growing demand for bridging loans.
These figures help demonstrate the growing reliance on bridging finance, a trend we expect to continue in H2 2024 as mainstream lending boundaries continue to constrict the scope and scale of a host property-related transactions. Particularly when speed is of the essence for clients looking to secure a purchase or when raising funds to maximise portfolio opportunities in what remains a fast-moving market for well-priced properties.
Sustained second charge uplift
Another growth area was the second charge mortgage market which, according to recent figures from the Finance & Leasing Association (FLA), returned a strong performance in the first quarter of 2024 with new business growth reported in each month of the quarter.
In Q1 2024 overall, new business increased 14% by value and 8% by volume compared with Q1 2023. The distribution of new business by purpose of loan in Q1 2024 showed that the proportion of new agreements which were either solely or in part for the consolidation of existing loans held relatively steady at 82% compared with the same quarter in 2023.
Again, it’s great to see sustained uplift in this important area of the specialist lending arena and this is largely due to a more flexible approach to affordability and less rigid income multiples. An approach which may allow clients access to more equity or allow them to raise capital and keep their current mortgage at a lower rate, a factor which is increasingly important given the discussion around the base rate staying higher for longer.
Mitigating rising BTL costs
Focusing on an ever-evolving buy-to-let sector, the latest Q1 2024 Landlord Trends report – carried out by Pegasus Insight on behalf of Foundation Home Loans – revealed that buy-to-let landlords have made a raft of financial changes over the last 18 months in order to mitigate the rising costs of running a rental property.
When asked to identify the various changes made multiple responses were allowed, with 30% saying they had renegotiated their mortgage with their existing lender, 29% had increased rents, 25% had cancelled plans to purchase additional property, 22% had remortgaged to another lender, 15% said they had paid part of their monthly mortgage payment out of non-rental income like savings, and 15% said they had sold a property to reduce their mortgage outgoings.
This data clearly highlights the need for further support and advice for even the most experienced landlords in such a challenging and increasingly complex lending landscape. For proactive advisers, there is no time like the present to reach out to those clients to demonstrate their value as some landlords may have had problems keeping up payments and maintaining a strong credit profile over the past 12 to 18 months. And, as a specialist packager, we are always here to offer that additional layer of expertise to help you to help them.
Donna Francis, Managing Director at Envelop
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