In the early months of 2021, there have been a number of interesting trends within the bridging sector. The first is the rise in demand for larger bridging loans – that is to say, multi-million-pound loans; the second is the increased appetite for development exit products.
To understand both trends, we must first set them against the broader context of the UK’s property market, which has enjoyed a remarkable surge in growth since the initial lockdown between March and July 2020.
The stamp duty holiday, introduced on 8 July last year, has of course played a pivotal role in driving this growth across the market. Indeed, house prices have been on a sharp upward trajectory since the policy was established; according to recent ONS data, the average UK house price rose by 8.6% in the year to February 2021 – the fastest rate of growth in almost seven years.
Yet with buyer demand as strong as it has been in many years, the lending market is having to adapt. For high street banks, the challenges have been well-documented: mortgage lenders have been struggling to process high volumes of applications they are receiving from prospective homebuyers.
In the bridging sector, however, the picture is perhaps a little more complex. Short-term lenders must not only meet the increased levels of demand that many have experienced, but also cater to the ever-changing needs of clients.
Increased demand for larger loans
As noted, one of the key trends we have seen in the early part of 2021 has been a rise in demand for larger bridging loans.
The aforementioned rise in property prices will, naturally, mean that average loan values also increase. But it is not the prices themselves that are driving the trend for larger loans, but rather the sense of optimism from property investors.
With the stamp duty holiday in place and the property market in such buoyant form, investors are clearly looking to capitalise. We have seen a number of clients buying multiple properties, or taking on more ambitious projects.
For instance, Market Financial Solutions (MFS) has noted an increased interest in the semi-commercial sector over recent months, which again tallies with more clients looking for larger loans as they consider ways of diversifying their property portfolios.
We all know that office buildings and local high streets have been hit hard by the pandemic. Businesses have closed, tenants have left, and many premises are empty. And so, with opportunities aplenty, some investors are clearly moving into this space, potentially with a view to refurbishing and changing the usage of a venue, whether that’s from retail to hospitality, or converting an office block into flats. Indeed, as lockdown rules are lifted and society sparks back into life, we could see more investors looking to the commercial and semi-commercial sectors.
The combination of a booming residential market and a commercial market reignited by the relaxation of social distancing measures is clearly inspiring property investors to take bolder action. As such, multi-million-pound loans are becoming increasingly common in the bridging market.
Development exit products
Further to the increased demand for larger loans, there has also been a significant rise in the number of enquires MFS has received for development exit loans. This is likely to be the result of delays that developers have faced in both completing and selling properties.
Periods of nationwide lockdown, as well as ever-present social distancing rules, have impeded on the construction and development sectors over the past 14 months. Projects have stalled for long periods of time, while supply chains have also been disrupted, meaning developers cannot get access to the materials required to complete on new-builds, refurbishments, renovations, and so forth.
As well as the delays within project timelines, there are also delays for those developers that are looking to sell completed projects. According to recent analysis, the total time it currently takes to sell a property – from initial listing to completion – sits at an average of 295 days (ten months).
The stamp duty holiday is exacerbating the problem; as stated above, there has been a spike in demand from prospective property buyers, which has resulted in many lenders and legal firms struggling to process deals.
For developers, these delays in both completing and selling properties can also be a serious cause for concern. They typically rely on development finance to fund a project – a loan to cover the costs of building or renovating a property. This loan will then be repaid upon the sale of the completed property, but when the eventual sale stalls, deadlines for repayment can be missed.
As such, development exit products have become particularly popular of late. These bridging loans enable a developer to repay their original development finance – a loan that could have a high interest rate or might be approaching the end of its term but requires significant fees to extend it – while they complete on a project or await the sale of their property.
Adapting to unique circumstances
Those are two of the interesting changes that MFS has witnessed over the past six months. No doubt other lenders have also seen demand for different types of products rise and fall sharply in the midst of the pandemic – indeed, the underlying point is that given the unique situation the entire property market find itself in at present, the lending market is having to adapt in turn.
Adaptability is an important quality for any finance provider, ensuring their clients have access to the products, services and supports required at any particular moment in time. At MFS, having been active in the bridging sector for over 15 years, we are able to use our experience and expertise to constantly evolve our offering, delivering the bridging loans that the market needs.
Looking to the months ahead, it will be fascinating to see how the tapering down of the stamp duty holiday affects the market. That said, with such high demand currently noted from homebuyers, and with the market such a hive of activity, there is every reason to believe that 2021 could be a positive year for the property sector.
About the Author
Paresh Raja is the founder and CEO of Market Financial Solutions (MFS) a London-based bridging loan provider. Prior to establishing MFS in 2006, Paresh worked as a senior professional consultant in one of the top five management consultancy firms, and also set up an independent investment group.