With inflation remaining in double figures and interest and mortgage rates rising rapidly, Q4 2022 saw many lenders pausing or withdrawing their products in the wake of the mini-budget. As a result, purchasing plans were put on hold by homeowners and investors, ultimately impacting house prices which suffered declines.
However, in spite of the economic challenges that continue to confront the industry, signs are emerging that the property market is beginning to stabilise as prices return to growth and activity levels suggest that the market could be on an upward trend.
As such, with more buyers and borrowers resuming their plans, the specialist finance sector is likely to enjoy a significant rise in demand in the months and years ahead - particularly as the specialist mortgage market alone looks set to reach a value of £16 billion by 2030.
Indeed, as the needs of borrowers evolve and the demand for more flexible financial products grows, homeowners and investors are increasingly looking to alternative sources of finance for their property investments.
In Q1 2023, for example, recent data shows that bridging loan transactions hit record-breaking levels, surging 68% on Q4 last year. Clearly, the demand is there for more flexible financial products than many high street lenders can provide, so the specialist lending market could be on an uptick.
Borrowers need more flexibility and adaptability
It’s no secret, however, that the current economic environment is a difficult one for borrowers to operate in.
For instance, inflation fell last month but still remains in double figures, so the value of borrowers’ money continues to be eroded in the current climate. Similarly, even though the Bank of England has recently indicated that interest rates are nearing their peak, the speed at which the cost of borrowing has increased since December 2021 will be continuing to drag on borrower’s finances, which could put off some investors from carrying out their investment plans.
Unfortunately, with these economic headwinds continuing to hold back those investors and homeowners who want to take advantage of the opportunities that the UK property market continues to provide, borrowers are unlikely to find the flexibility and optionality they need to invest with confidence on the high street.
Indeed, due to the recent turmoil in the mortgage market, many high street banks have tightened their lending criteria, forcing them to take even stricter tick-box methodologies to assess loan applications. As a result, many homeowners and investors who have complex financial situations will find it more difficult in the current climate to access financial products from mainstream lenders.
As such, the specialist lending sector can play an important role in filling the gap left by the ‘one-size-fits-all’ approach of high street banks.
Lenders who can provide certainty and flexibility will see an uptick in demand
Of course, lenders have had to increase their rates in line with the Bank of England’s base rate, but even as they do so there is a great deal that they can do to support borrowers.
Providing certainty in an uncertain economic climate is a good place to start. For instance, those borrowers with cash flow issues or concerns about keeping up with their repayments would benefit from lenders who can provide fixed-rate repayment terms that are spread over a longer time period.
Related to this is the importance of high-quality customer service. For obvious reasons, borrowers will have a multitude of questions when asking lenders about their products, particularly in the current climate, so lenders who can transparently communicate how their products might be affected by the economic situation will be of value to their clients.
Specialist lenders with a personalised and holistic approach to lending have the ability to consider an individual’s overall financial situation and affordability. As such, borrowers with more complex financial situations will be able to access finance, which will allow a wider range of homeowners and investors to invest in the UK property market and should support the demand for specialist finance products in the years to come.
The ability to treat each client as an individual case is particularly useful for lenders in the prime central London market, which has a higher proportion of foreign investors who might struggle to find the loans they need on the high street. And, with London’s super-prime postcodes returning to pre-Brexit levels of activity last year, demand is likely to continue to grow from this sub-section of the market.
Similarly, high-net-worth individuals support much of the demand in the PCL market, and they often possess valuable assets, such as real estate, fine art, or luxury vehicles, that can be used as collateral for loans. Moving beyond a tick-box approach when it comes to assessing applications, specialist lenders are better equipped to assess the individual circumstances of each borrower and provide tailored lending solutions based on their profile, allowing borrowers to unlock the potential of their assets while maintaining flexibility and liquidity.
Final thoughts
To briefly conclude, as the property market’s activity levels rebound and prices start to grow again, more homeowners and investors will be keen to get active in the market and will be looking for the flexibility that only specialist lenders can provide. While the specialist lending sector very much looks like a market that is on the rise, we cannot become complacent and must continue to explore new ways in which we can support our clients.
Alpa Bhakta is the CEO of Butterfield Mortgages, a London-based prime property mortgage provider with a focus on the needs of UK and international HNWIs.
Butterfield Mortgages Limited is authorised and regulated by the Financial Conduct Authority (Financial Services Register Number: 119274).
