Donna Wells, Director at F4B
Back in the Summer months I remember writing an article for Mortgage Introducer around how a combination of the stamp duty holiday, the deadline and shifting economic circumstances will generate a heavier reliance on specialist lending and short-term finance. Within this piece I wrote – The 31st of March 2021 may seem like a long time away, but we all know how quickly this deadline will come around and how intense this period will prove to be when thousands of pounds of your client’s money is potentially at stake. Despite all good intentions – as is usually the case when a firm deadline is in place – there’s little doubt that many residential and investment purchases will go right down to the wire. Meaning that swift access to the right kind of short-term solutions will prove vital in facilitating a range of property transactions in a timely cost-effective manner whilst providing a robust exit strategy.
Granted this wasn’t ever going to put the legacy of Nostradamus at risk but here we are nine months later and it’s evident that a growing number of intermediaries and borrowers are more reliant than ever on a plethora of alternative lending solutions. And this trend is not going away anytime soon.
Specialist lending trends
Focusing briefly on more recent trends. Knowledge Bank recently reported rising interest from new buy-to-let investors. It’s analysis of brokers’ searches in February found that intermediaries are working with potential new landlords, and the furlough scheme is still of huge interest in the residential market. The second charge market once again saw an interest in managing debt. Two of the terms in the top five related to debt management. Potentially clients were also looking to secure loans against their properties to benefit from lower interest rates. ‘Maximum LTV’ was the top searched term for the tenth month in a row.
In the bridging sector, ‘Second charge loan’ was in the top five for the first time since October 2020. This may be a result of clients turning to second charge bridging loans to inject capital into businesses or in making refurbishments to prevent disturbing their existing mortgages.
These trends help highlight a mounting awareness around how various forms of specialist finance have been utilised to fund an array of projects for property investors in recent times. These range from light to heavy refurbishments and adapting commercial space which has been hit particularly hard by the pandemic. The key to these types of solutions remains a robust exit strategy and, as a packager, we are forming stronger alliances with our introducers – alongside their clients if necessary – and lenders to ensure responsible lending practices are maintained and plans are in place for sale or refinancing purposes.
It’s clear that there is an increased level of intermediary confidence around a range of alternative financing solutions and the last six months in particular has been pivotal in advancing the perception of specialist lending and the role of packagers within this. Although questions do remain when it comes to completion times in certain areas.
According to the recent Bridging Trends report, completion times averaged 50 days in 2020, up from 47 days in 2019 and 45 days in 2018. Despite all types of businesses facing some challenging operational conditions and service levels being hit, this rise represents a worrying trend. Especially when you consider how speed is often a key differentiator when making these types of transactions happen. Which leads to the question – why?
Has the expanding profile of short-term finance resulted in a greater number of speculative enquiries from the wider intermediary community?
Are delays in the legal, valuation or administrative process causing additional time related issues?
Are some lenders not coping?
Are the applications being submitted not packaged correctly?
I suggest some elements of all the above may be contributing to this. However, it’s vital to point out that such transactions can still be completed in a speedy manner. In Q1 2021 we have an average submission to completion time of 15 days with one particular lending partner and many others operate within a similar timeframe. This applies to short and longer-term cases and highlights the kind of positive outcomes which remain available for all those involved in the property process.
This lending/packager collaboration is vital for introducers and intermediary partners who have a rising number of clients falling into the specialist lending bracket. And the fact that more and more mainstream lenders are unable to meet a range of borrowing scenarios means that such collaborations will only intensify in the coming weeks and months.